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THE SPOT PRICE OF
PHYSICAL GOLD bounced $13 per ounce from a new 7-session low early
Tuesday, while world stock markets found their floor almost 15% below the
start of last month.
Recording an AM Gold Fix here in London of $772.50, the Gold Price stood 5%
below last week's peaks vs. the Dollar and Euro as well as Sterling.
The Nikkei stock index in Tokyo meantime closed 6.3% lower after Wall
Street's S&P dropped 9% on Monday. European stocks then reversed an early
2% loss to trade higher by lunchtime.
The Japanese Yen
reversed one-third of its destructive surge so far this week on the forex
markets.
"[Gold last week made] a nice bounce off resistance at the old, and very
significant, $835 level," notes Phil Smith today for Reuters
India Technicals.
"This was the peak hit in 1980 on a combination of high inflation linked
to oil prices, the Soviet invasion of Afghanistan, and the impact of the
Iranian revolution."
Today crude oil briefly dipped below a three-year low at $48 per barrel,
while anti-government protesters in Thailand agreed to end their sit-in at Bangkok
airport.
Pakistan was asked by the Indian government to extradite 20 terror suspects
possibly connected with last week's attacks in Mumbai, which left 188 dead.
The Indian Rupee bounced 1.2% against the US Dollar on the currency markets,
but remained more than one-fifth lower from the start of 2008.
Spot Gold prices quoted by Axis Bank in Mumbai dipped to INR 12,443 per 10
grams, while the Bombay Bullion Association reported a sharp drop in Indian
gold imports during November, down 26% from the same month in 2007 at 40
tonnes.
"There were no imports or trading in the last four days of the month
because of the terrorist attacks," said BBA president Suresh Hundia to
Reuters.
Here in London, both the Euro and Sterling turned higher vs. the Dollar after
hitting their worst levels since Nov. 23rd at $1.2560 and $1.4780
respectively.
That capped the Gold Price in Sterling at £524 an ounce. French, German
and Italian investors looking to Buy Gold today saw it rally to €614.
"Ongoing volatility could put precious metals under more strain
today," says Manqoba Madinane at Standard Bank in Johannesburg, blaming
the sell-off so far on "fund liquidation amid increased investor
uncertainty."
The flight-to-cash continued in government bond markets, meantime, driving
the yield on 5-year UK gilts down through 3.0% for the first time ever,
almost halving from June.
Ten-year US Treasury yields made a fresh all-time low at 2.70%. Inflation in
US consumer prices was last pegged at 3.70% per year.
"The most precious asset going forwards will still be Gold," says
Marc Faber, Thai-based Swiss fund manager – and publisher of the Gloom,
Boom & Doom Report – speaking to Bloomberg.
"I only buy physical gold, because I don't trust derivative products, I
don't trust ETFs, and I advise every American to hold his gold outside the United
States.
"At some point, between January and March next year, you have to get out
[of equities and exchange-traded commodity trusts]. The global economy is
imploding – I repeat, imploding – and there's not going to be a
recovery despite all the government intervention.
"In their insanity, central banks have become money printers. So you
have to become your own central bank. You cannot trust central banks any
more."
Today the Reserve Bank of Australia (RBA) slashed its key lending rate by a
full 1% to 4.25%, saying that "global inflation will moderate
significantly in 2009."
But the move risks a drop in the Aussie Dollar back to 2003 levels at US$0.60
according to analysis from Calyon Bank.
The Gold Price in Australian Dollars has gained 25% so far this year.
To the north-north-west in Tokyo today, an emergency meeting at the Bank of
Japan left Yen interest rates on hold at 0.30%, but governor Masaaki
Shirakawa promised a further ¥3 trillion ($32bn) of lending to private
banks.
The Japanese central bank will also take lower grades of corporate debt as
collateral against its loans – accepting BBB as well as A-rated or
better – as well as offering "an unlimited amount" of
short-term banks loans to maintain cash liquidity over the New Year's
holidays.
The
cost of insuring Japanese corporate debt against default rose further
overnight. The i-Traxx index of insuring high-yield European bonds touched a
new record high at 9.34% per year.
"In the worst case, the [European] recession will last as long as four
years," says Tom Kirchmaier, a visiting fellow at the London School of
Economics. "Then it would take the markets and the real economy a while
to fully recover.
"It could take governments up to 10 years to sell their bank
shares."
Sweden's Riksbank will meet two weeks early and set December's interest rate
this Thursday – coinciding with widely expected interest-rate cuts from
the Bank of England in London and the European Central Bank in Frankfurt.
And meantime in the United States, Fed chairman Ben Bernanke – saying
that the failure of Lehman Brothers was "unavoidable...given the legal
constraints [and] regulatory framework" in place when it failed in Sept.
– spoke on Monday of "purchasing longer-term Treasury or agency
securities on the open market in substantial quantities."
This approach – variously known as 'quantatitive easing', 'monetization'
or just plain 'inflation' depending on your central-bank paygrade –
"might influence the yields on these securities, thus helping to spur
aggregate demand," said Bernanke.
Adrian Ash
Head of Research
Bullionvault.com
City correspondent for The Daily
Reckoning in London, Adrian Ash is head of research at http://www.bullionvault.com/#24hgold – giving you
direct access to investment gold, vaulted in Zurich, on $3 spreads and 0.8%
dealing fees.
Current gold price, no delay
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inform your thinking, not lead it. Only you can decide the best place for
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Information or data included here may have already been overtaken by events
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