By: Adrian_Ash "It rose $25 in less than 30 minutes. Stop-losses [for bearish Gold Futures traders] were triggered at $860, and gold eventually reached $866.50. "While both governments experiment with Quantitative Easing , bad banks to absorb non-performing loans, and state guarantees to restart bank lending, the only real way out is some combination of widespread corporate default, debt write-downs, and inflation to reduce the burden of debt to more manageable levels. By Adrian Ash 
Gold Safehaven as U.S. and UK Head for Bond Default and Devaluation
Commodities / Gold & Silver 2009Jan 21, 2009 - 09:50 AM
"Gold experienced massive fund buying when New York markets opened" yesterday, notes Walter de Wet, senior commodities analyst for Standard Bank in Johannesburg.
"At these levels, good physical selling set in, but was easily absorbed by the market. In New York, buying slowed down with Mr. Obama's inauguration."
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Today the Gold Price in Sterling leapt once again as the British Pound sank on the foreign exchanges, crushed by a fresh deluge of miserable data.
Growth in average UK earnings (incl. bonuses) slid almost 1% below the rate of inflation in Dec., whilst unemployment rose to 6.1%, a ten-year high.
The rate of new redundancies jumped to its fastest pace on the UK data agency's 12-year records, and government swelled by £44.21 billion – the worst monthly cash requirement ever – thanks to a futile injection of £20bn into Royal Bank of Scotland.
RBS has already lost a further two-thirds of its stock market value this week alone, despite a fresh £5bn injection of tax-payers' cash on Monday.
"[Both] the United States and the United Kingdom stand on the brink of the largest debt crisis in history," writes John Kemp, a columnist at Reuters, today.
"Everything else is window-dressing."
The Pound Sterling today flirted with a 22-year low vs. the US Dollar near $1.37 and sank to new all-time lows vs. the Japanese Yen at €123.
UK investors seeking shelter by Buying Gold saw spot bullion touch £626 an ounce – up nearly 14% in just three trading sessions, and almost four times the price when Gordon Brown, now UK prime minister, launched Britain's Infamous Gold Sales in 1999.
Both US and UK government bond prices rose, however, as money continued to flee stock-market investments for the "safety" of sovereign debt. And meantime in Brussels, head of the European Central Bank (ECB) Jean-Claude Trichet told the European Parliament that "There is presently no threat of deflation."
Cutting Eurozone interest rates by just 0.5% to 2.5% last week – the highest amongst G7 leading economies – "What we are currently witnessing is a process of disinflation, driven in particular by a sharp decline in commodity prices," Trichet claimed.
The ECB yesterday tightened its rules for making "liquidity" loans to European financial institutions, demanding only those securities rated AAA when issued – and maintaining at least single-A status from then on – as collateral.
The Euro rallied after Trichet's EU testimony this morning, but held near 6-week lows vs. the Dollar at $1.2930.
"A globally synchronous and aggressive fiscal and monetary stimulus may be needed to re-inflate the global economy," writes Hussein Allidana, metals analyst in New York for ex-investment bank Morgan Stanley, "and we think this continues to present significant upside to Gold Prices .
"Devalued currencies, growing global incomes and a renewed appreciation for gold should keep prices higher."
Looking ahead for Gold in 2009, "investors [are] continuing to shift funds into allocated accounts from other instruments," notes the latest Gold Investment analysis from marketing-body the World Gold Council (WGC).
Describing the Shift to Physical Gold Ownership seen throughout 2008, investors "shied away from any counterparty risk whatsoever," the WGC adds.
"Many investors [also] started to get nervous about the inflation outlook. Fed policy action – including quantitative easing-type measures – coupled with further sharp interest-rate cuts around the globe, and the possibility of a large (and quick) fiscal stimulus package from the incoming Obama administration, [have] made many investors nervous about future inflation prospects, increasing demand for gold as a store of value."
In the near-four decades since world currencies were fully freed from all gold-backing, the WGC analysis notes, consumer-price inflation in the United States has topped 5% per annum nine times.
US and world stock markets fell in five of those years, rose in four, and recorded an average drop of 0.5% a year. Longer-dated Treasuries rose on average by 1.5% per annum (before inflation), whilst commodities rose 7 years out of the nine, averaging a 9% annual rise.
"But it was Gold that truly shone," the WGC says, "rising in six years, declining in three, and posting an average increase of 31%."
BullionVault.com
Thursday, 22 January 2009
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