Gold starred last week, topping the $US1,000 an ounce mark in New York for the first time in almost a year as investors fretted about bank stability, recession and falling share prices.
After looking likely to surge for the past five weeks, the metal finally broke free and went for a big run over the week’s trading.
Comex April gold futures jumped $US25.70, or 2.6%, to $US1,002.20 an ounce after touching $US1,007.70, the highest since March 18.
Gold is continuing its 2008 rally and is up 13% this year.
Gold last topped $US1,000 in March as Bear Stearns failed and was rescued.
It reached a record $US1,033.90 on March 17 before retreating to as low as $US681 by October as the world financial system trembled in the wake of the Lehman Brothers failure.
Analysts say the rally may continue as investors lose confidence in financial assets.
That might be, but it is also significant that the metal is running up at a time when financial stability is still on the minds of many investors, after not proving to be a haven of safety last October-December.
Cash was the only haven that investors sought from September through into early January as markets of all types remained locked up.
Now the credit markets are unfreezing and it seems as though investors are finding it easier to finance their positions in gold, or are more confident about moving out of cash into the metal.
That, if you think about it, is a small positive for the markets. not much, but enough to be significant at the moment
US shares though have fallen by around 11% this year and US bonds have returned barely a quarter of a per cent.
Other commodities are weak to very weak. Oil is up, down and sideways, and copper is all over the shop.
The Reuters-Jefferies/CRB commodities index hit a 6½-year low on Friday and is negative for the year.
Gold has gained even as the US dollar has strengthened.
The American currency is up 6.3% this year against major currencies including the euro and yen.
Gold and the US dollar usually move in opposite directions, but they have bought US dollar securities, mostly bonds, for safety.
The yen though has firmed against the dollar and is now crippling Japan.
The euro fell to a three month low on Friday against the US dollar and will trade there for as long the fears about the economies in eastern and Central Europe remain.
Investors have been purchasing gold because they worry about the way governments have pledged trillions to ease the global recession and revive credit markets.
On the one hand there are fears these packages won’t hold off an even steeper slump, on the other hand, some investors worry about inflation (which would be much further down the track).
There are many buying gold that have no idea of the depth or the severity of the recession, or the dangers from inflation.
Later this year many investors will be crying out for inflation as deflation gives some major economies a passing whack, and again strangles Japan.
Benchmark interest rates in Japan and the US are near zero while the Bank of England has slashed its main lending rate to 1%, the lowest ever. The ECB is at 2%, Australia a high 3.25%.
Assets in some of the industry’s largest exchange-traded funds are at all-time highs.
Holdings in ETF Securities’ gold exchange-traded commodities rose to a record 7 million ounces as of February 13. The SPDR Gold Trust, the biggest ETF backed by the metal, hit 1,029 tonnes on Thursday.
The World Gold Council said that investment demand for bullion, including coins and bars, almost tripled to 399 tonnes in the fourth quarter of 2008, as total demand climbed 26% to 1,036.5 tonnes in the period.
In fact, it’s a wonder no one has screamed ‘bubble’ to describe gold as they did when bond prices rose sharply in the wake of the Lehman failure and the rush for cash and safe havens.
And yet, that’s what is shaping up.
Silver is actually doing better because of its relative cheapness. March futures climbed 4%, to $US14.49 an ounce in New York on Friday. The metal has surged 28% so far this year after it dropped 24% in 2008.
A year ago oil was surging, along with gold and a host of other commodities.
Many commentators said these were ‘bubbles’, others denied that speculators were a big influence in commodities.
A year on and gold is the only commodity investors are playing in.
All the others, from metals to grains to oil, have been whacked flat by the recession and the impact of the credit crunch and lock up.
Gold is running because it’s back to its traditional safe haven role. Other commodities are now just a collection of industrial/consumer based products.
Oil rose, then fell back below $US39 a barrel on Friday; retreating from its largest gain in seven weeks the day before.
Oil shed as much as 6.5% on Friday as stockmarkets fell sharply on those fears about US banks.
Crude jumped 14% on Thursday after a report showed an unexpected decrease in American inventories last week. The March crude oil contract expired at the close of floor trading on Friday which aided the volatile trading over the two days.
March oil fell 54c, or 1.4%, to settle at $US38.94 a barrel on the Nymex. The futures rose 3.8% over the week thanks to Thursday’s surge. It was the first up week in four.
Prices are still off 13% so far this year. Yesterday, oil gained 14% to $39.48 a barrel.
In London Brent April crude eased 10c to $US41.89 a barrel.
US oil stocks are up 21% since September. Inventories at Cushing, Oklahoma, the delivery point for New York futures, have almost doubled since Nov
