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London Gold Market Report

Fri, Sep 26 2008, 13:03 GMT
by Adrian Ash

BullionVault.com

THE PRICE OF PHYSICAL GOLD reversed an early 1.1% dip on Friday, touching $890 per ounce as world stock markets fell almost one-tenth from the start of Sept. and investment funds fled back into government bonds after the US banking bail-out plan hit the buffers in Washington.

The US Dollar ticked lower on the currency markets. Crude oil slipped 2% to $105 per barrel.

"I don't believe we have an agreement," said Republican senator Richard Shelby overnight.

"We're not going to give up," countered Democrat senator Barney Frank, chair of the Financial Services Committee.

"[But] if the House Republicans continue to reject the president's approach, there's no bill."

Last night a bi-partisan meeting at the White House "devolved into a contentious shouting match," according to one report, after Republican presidential candidate John McCain apparently backed a government-funded insurance scheme for securitized mortgage debt.

"Gold investors had a change of sentiment on [Thursday] as stability appeared to be returning," notes Mitsui, the precious metals dealer in London, "with investors in the SPDR Gold ETF selling around 50,000 troy ounces."

High-net worth investors continue to quit paper for physical Gold Bullion, however, joining the flow of private investment cash out of Gold Futures, options, and leveraged credit accounts.

"Now that credit growth is slowing down, the Federal Reserve Board and the Treasury are trying to reignite it," says Dr.Marc Faber, the Swiss fund manager now based in Thailand.

"But if the Treasury wants to be stupid and buy assets at 50% more than they are worth, every hedge fund will be arbitraging, buying the garbage and dumping it on them."

"Everyone should own Gold," he advises. "Own it in physical form, not as derivatives with banks, because the banks may not be around tomorrow."

Thursday saw America's sixth largest bank, Washington Mutual, seized by the US government because, "with insufficient liquidity to meet its obligations, WaMu was in an unsafe and unsound condition to transact business," according to the Office of Thrift Supervision (OTS).

Over the last two weeks, cash-savers withdrew a total of $16.7 billion from the bank.

J.P.Morgan – which bought the first US casualty of the global banking panic, Bear Stearns, for 10¢ on the dollar in March – last night bought WaMu's remaining deposit business, now holding $188 billion, for $1.9bn.

Yesterday the US Mint 'temporarily' suspended sales of one-ounce American Buffalo Gold Coins, confirming that "demand has exceeded supply."

Investors seeking a safe haven in Gold Coins can expect to pay more than 5% above world prices at even the largest North American dealers.

Kitco.com of Toronto has been forced to stop selling "until further notice" one- and 10-ounce Gold Bars, and a range of unavailable silver products.

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Trying to fight record-high interbank lending rates – so high they've forced "credit to go into lockdown," as the New York Times puts it – the Federal Reserve today pumped an extra $13bn into its "currency swap line" with foreign central banks, enabling them to lend a total of $290bn of US Dollar securities to their local money markets.

China's major banks are now capping their currency trades with US and European banks, reports Bloomberg, "on concern tighter global credit markets will cause more failures."

The US Dollar ticked lower on Friday, meantime, dropping to a one-week low of ¥105.05 and letting the Euro bounce to $1.4650.

The Gold Price in Euros rose to €607 per ounce, up 2% from Thursday's four-session low.

In Moscow this morning, the stock of Russia's largest banks dropped more than 5% after the Moody's credit-ratings agency slashed its outlook on the former communist state's financial sector to "negative".

"Russia was considered a safe haven but now people are realizing it's no safe haven whatsoever," says Eugene Belin, a senior manager at Citigroup.

In the five weeks to last Friday, according to data from BNP Paribas, some $56.7 billion of foreign capital has fled Russian assets.

Published on  Fri, Sep 26 2008, 13:04 GMT