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Gold Investment Demand Jumps as Governments Pump Fresh Billions into Bankrupt Banks

Commodities / Gold & Silver 2009 Feb 03, 2009 - 05:59 AM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleTHE PRICE OF GOLD held in a $10 range during Asian and London trade Tuesday morning, bouncing from a 3-session low of $896 an ounce as world stock markets capped their losses for 2009 to date at 10% and more.

Crude oil crept back above $40 per barrel on rumors the Opec oil cartel cut January production to reduce the global supply-glut.


Government bond prices fell everywhere but Europe, where betting on the futures market pointed to a cut in Eurozone interest rates at Thursday's central-bank policy vote.

The European Central Bank (ECB) was the last major policy-maker to start cutting rates, waiting more than 12 months after the US Fed.

"Gold has come along way in quite a short period," notes the latest Gold Investment analysis from Mitsui, the precious-metals dealer, in London.

"The frenetic pace of scrap metal flooding the market in India and across similar physical hubs could place on cap on Gold 's journey to the upside this week."

Reuters today quotes gold dealers in Mumbai, Kolkata and Dubai complaining that "It doesn't even feel like wedding time" – typically a strong period for Buying Gold – and that "A sharp drop in prices would be most favorable to trigger pent-up demand."

Back in Europe, German retail sales actually fell in December said the federal data agency today, losing 0.2% from November despite the Christmas season.

Across the 16-nation Eurozone, factory-gate prices also fell faster than expected, down almost 5% from the highs of last July.

Yet the Euro bounced off an 8-week low to the Dollar at $1.28, while the British Pound recovered an early dip to reach $1.42.

The Gold Price in Sterling rallied from £630 an ounce, but held nearly 5% below its all-time top of Monday last week.

For European investors now Ready to Buy Gold , the price retreated just over 3% from yesterday's new record high of €727.

"The market has got too long on Gold ETFs ," reckons Bernard Sin, head of forex and metals trading at Swiss refinery group MKS Finance, speaking to Bloomberg today from Geneva.

"That's the reason we're seeing profit-taking. The market may be expecting a correction."

Yesterday the SDPR Gold ETF fund in New York added another 10 tonnes of bullion. The gold is held in trust to back the value of shares denominated as one-tenth of an ounce.

By yesterday's New York close, the net-asset value of each share stood at 9.834% of one ounce, shrinking in line with the ETF 's annual storage fee of 0.40%.

"Each generation tends to forget the last disaster and that is why financial crises occur regularly," said Niall Ferguson , Harvard history professor, to South Africa's MoneyWeb yesterday.

"Really big crises, such as the present one, occur every century or so."

Looking ahead for Gold – which Ferguson has repeatedly dismissed as a worthwhile investment – "There simply isn't enough gold for a return to the Gold Standard ," he said, "which is what the gold bugs want.

"But the metal's price is likely to rise when the US Dollar goes into decline."

Today in Tokyo the Bank of Japan offered to purchase $11 billion-worth of Japanese banking shares, but the Nikkei stock index still ended 2.2% for the month of Feb. so far.

In Australia – which recorded its fifth monthly trade surplus in Dec., the longest stretch since the recession of 2001 – the central bank slashed its key interest rate by 100 basis points to 3.25%, the lowest level in almost five decades.

Calling for a cut to credit-card interest rates by private lenders, Prime minister Kevin Rudd – who wrote at the weekend that "The great neo-liberal experiment of the past 30 years has failed" – also unveiled a fresh economic aid package of A$42 bullion (US$26.5bn).

More than doubling the total Australian stimulus announced since Sept., today's announcement also took it to almost 8% of the country's annual economic turnover.

But in line with the "pro-stimulus" bounce already seen in Japanese Yen, US Dollars and British Pounds since the world's central banks began moving towards lower rates in mid-2008, the Australian Dollar rose on the currency markets.

That helped the Gold Price in Aussie Dollars trade at a 4.3% discount to Monday's new record high of A$1,462 per ounce.

Over in Germany, the weekly Spiegel magazine reports that the federal government is planning a "silent takeover" of the nation's big banks by creating a "bad bank" – "that is, a sort of government dumping ground for unmarketable, high-risk securities."

The magazine says the Finance Ministry is set to double its €80 billion ($104bn) emergency aid, before injecting an additional €200bn in capital.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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