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Gold Soars on Concerns Over Asset Backed Derivatives and ETF's

Commodities / Gold & Silver 2009 Jan 20, 2009 - 12:22 PM GMT

By: Mark_OByrne

Commodities Best Financial Markets Analysis ArticleIt is a historic day for the world with the inauguration of the 44th President of the United States of America. Gold has rallied by more than 2% despite continuing dollar strength and oil having collapsed 7% to just over $34 per barrel (Light Sweet Crude Oil Future - Combined - FEB09 : -7.6%) . While the dollar is up on hopes that President Obama can turn around the ailing US and indeed the global economy, stock markets internationally are under pressure again today with increasing concerns regarding the international banking and financial system.


Obama’s has been left an unholy mess by his predecessors in both the Clinton White House and more especially by the irresponsible foreign policy, fiscal and economic policies of the Bush administration. We wrote about these challenges upon his election
( http://blog.goldassets.co.uk/2008/.. ) and unfortunately the situation has worsened considerably even since then.

The great hope is that Obama’s stimulus packages will lessen the effect of the deflationary slump. But unfortunately, the job creating elements of the stimulus packages will take months to come to fruition and the crisis is far more immediate than that.

As we have continually warned the multi billion pound, euro and dollar bailouts (CNBC compiled statistics saying government bailouts have risen to $8.5 trillion and rising in the US alone ) are proving ineffective and large parts of the western banking system look like they may be nationalized. This will transfer the much of the risk from the banks and the banking system onto sovereign governments, the bond market and tax payers. It is an extremely high risk strategy with the potential to back fire in the form of severe stagflation in the coming months and ultimately the need for higher interest rates.

Monetary debasement has never been a sustainable way of creating real and lasting economic growth.

Concerns regarding Asset Backed Derivatives and ETF's
There are increasing concerns regarding a collapse of the derivatives market and about asset backed derivates and some exchange traded funds (ETF’s). Clive Hyman of Hyman Capital Services told CNBC said that there is no liquidity in some of the commodity traded items and some of the commodity backed derivates “may well have reached the end of the line”.

He said that gold was doing well and would likely continue to do so and that private investors were trying to access the market but difficult to do as type of sums that investors are trying to shift are very large. Hyman said that he had never come across this in his 47 years in the business. The gold market remains tiny vis-à-vis the stock, bond, currency and derivative markets. This is a reminder that physical gold should be owned and not derivatives such as ETF’s which are subject to considerable counter party risk ( and with annual charges are also less cost effective than safer ways of owning gold) .

By Mark O'Byrne, Executive Director

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold and Silver Investments Limited
No. 1 Cornhill
London,
EC3V 3ND
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
Email info@www.goldassets.co.uk
Web www.goldassets.co.uk

Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

Mark O'Byrne Archive

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