Gold Trades in Tight Range as Financial Crisis Claims First Government Scalp; "Could Flourish" in 2009 on Negative Real Rates
Gold Prices held in a tight $5 range early in London on Tuesday, recording an AM Fix of $844 an ounce as European stock markets bounced from yesterday's sharp losses and crude oil ticked back below $39 per barrel.
Chinese equities sank 4.5% despite a cut to interest rates by the People's Bank of China.
The US Dollar was little changed on the currency markets, with most of London's forex traders starting their Christmas holidays early.
Across the Channel in Belgium, however, the financial crisis starting in Aug. '07 gathered speed, claiming its first government scalp after King Albert II accepted the resignation of the coalition cabinet.
Officials acting for prime minister Yves Letermet stand accused of interfering in the legal process to allow the break-up of ailing financial services giant Fortis Bank.
"Financial market systemic risk, as proxied by five-year investment grade credit spreads, has remained steady," notes Manqoba Madinane for Standard Bank in Johannesburg. "We believe this should keep the US Dollar in charge of precious metal investment sentiment."
Weighing the outlook for Gold as 2009 Begins, "Continued currency volatility could further compromise precious metals as most investors may opt to watch developments from the sidelines," he concludes.
Yet latest data from the US derivatives market, however, showed a strong return to leveraged positions in Gold Investment.
In the week-to-last Tuesday, hedge funds and other "large speculators" took their largest bullish position (when compared with the number of bearish bets) since early August. On the other side of the trade, so-called commercial traders – meaning refineries, mints, wholesalers and bullion banks – took their smallest bull position in 19 weeks, as they sold the "long" contracts bought by speculative players.
Overall, this returned the balance of bull/bear positions to something like the situation prevailing over the last four years, with well over 85% of speculative position betting on a rise in gold, up from the three-and-a-half-year low of 67% hit in November.
But the switch came with much-reduced "open interest", however. Last week saw the outstanding number of open contracts in Gold Futures and options rise more than 9%, but it remained one-third below the record set in Jan. 2008.
"If gold can close the year above its January 2008 open, it will be one of the few positive asset stories of the year," notes new analysis from Mitsui, the precious metals dealer in London, "from a wealth preservation perspective at least.
Looking ahead to Gold in 2009, "With the Bernanke printing press set to move into overdrive next year, along with the not so pretty reality of negative real interest rates, it is difficult to put together a positive thesis for the US Dollar," Mitsui says.
"In such a climate, gold could flourish."
May 7th, 2009 will mark the tenth anniversary of Gordon Brown's decision to sell half the UK's national gold reserves at rock-bottom prices, as The Daily Telegraph reports.
Since then, the Gold Price in Sterling has more than tripled, recording its third AM Gold Fix above £570 an ounce on Tuesday morning.
For Eurozone investors wanting to Buy Gold today, the price held above €603 per ounce, more than 146% higher from 10 years ago, when the single currency was first launched.
