Friday, August 19, 2011

Global Stock Market "Bloodbath" sees Gold Soar

London Gold Market Report
from Ben Traynor
Friday 19 August, 09:00 EDT


Global Stock Market "Bloodbath" sees Gold Soar

THE DOLLAR gold price hit yet another new all-time record late on Friday morning in London, hitting $1876 per ounce – as stock markets around the world continued to plunge.

The gold price then fell 1.6% in less than two hours as US markets opened for business.

Short-dated US Treasury bond prices rose – while those of longer-dated bonds fell – further implying a worldwide flight to safety and liquidity.

Commodities bounced after falling in early trading. European crude oil futures rose while US crude oil futures fell.

Silver prices meantime rose to $42.51 per ounce – 8.8% above where they started the week.

"While gold's latest steep ascent is provoking some talk of a bubble, the reasons for buying gold rather than equities or other commodities are unchanged," said a note from Mitsui Global Precious Metals.

"Risk aversion is likely to persist for as long as world leaders are perceived to be short of ideas for stimulating recovery."

"As long as uncertainty on financial markets remains high," adds a note from Commerzbank, "and the situation does not calm, gold should retain its status as a store of value and the price should continue to climb."

Since the start of August – when the world was gripped by Washington's debt ceiling debate – the US Dollar gold price has shot up 16.2%

US stocks by contrast are down sharply this month, with the S&P down 11.7%.

The Dow Jones Industrial Average meantime has shed 9.5%, falling back below 11,000. Together with the rising gold price, recent selloffs have pushed the Dow to gold price ratio down to its lowest level since 1989.

Bucking the trend for equities on Thursday were gold mining stocks. The Amex Gold Bugs index (ticker symbol: HUI) – which includes the largest producers – closed up 4.5% for the month so far, while the Philadelphia Gold and Silver Index (ticker: XAU) has held steady, showing a 0.3% gain.

The Federal Reserve Bank of Philadelphia's general economic index – a measure of regional manufacturing growth constructed from survey data – has dropped to minus 30.7 this month – its lowest level since March 2009.

"The survey's indicators suggest a decline in demand for manufactured goods, and shipments and employment were also in decline," said a statement from the Philadelphia Fed.

"It seems the sentiment of a double dip recession grows stronger," notes Swiss gold bullion refiner MKS.

 "In past decades...the US has always been in recession when the Philadelphia Fed was -30 or below."

Both indexes, however, remain below their all-time highs, set in April. HUI is 6.3% off its April peak, while XAU is down 4.2%.

Stock markets worldwide continued to tumble on Friday morning. Asian markets sold off hard, with South Korea's Kospi index especially badly hit – closing down 6.2% – despite a temporary suspension of automated program trading.

Major Asian stock markets are all down substantially since the beginning of August:

·         China's Shanghai Composite index has lost 6.2%
·         In Japan, the Nikkei has lost 11.3%
·         Hong Kong's Hang Seng is down 13.5%
·         South Korea's Kospi is down 18.2% since the start of the month

The selloffs continued after European markets opened. By Friday lunchtime losses for August so far were as follows:

·         Loses on the FTSE 100 meantime were 14.1%
·         In Paris, the CAC was down 18.1%
·         Germany's DAX was down 24.5%

"It's a bloodbath out there," the Financial Times quotes one London trader. 

"We haven't seen anything like this since the dark days of the financial crisis."

"The heavy selling is on the back of fears over the state of global economic growth and the ability of European banks to withstand another freezing-over of credit markets," says Ben Potter, strategist at IG Markets.

The Sterling gold price hit a new intraday high of £1138 per ounce – 15.7% up for the month – before falling back.

The Euro gold price also set a new intraday record – €1312 per ounce – before it too fell back.
For August to date, the gold price in Euros is up 16.6%.

Ben Traynor


Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK's longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

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.