Historic $100 bounce in the gold price, gold as money
What are we to make of the more than $100 gains in the gold price within the past 24 hours? It is certainly a historic day with the biggest movements in precious metals seen for decades. But as US President Ronald Regan once commented: ‘You ain’t seen nothing yet!’
Gold was clearly heavily oversold in July and August, and the entire precious metals complex was waiting for a signal to bounce back. However, the price movement that might have been expected over the next two months occurred in a single day.
This is indicative of systemic financial weakness, and it is not something that any authority in the world is going to be able to fix anytime soon. Does that make precious metals a one-way bet from here? I think it does, albeit with the rider that volatility will be very strong from hereon: what can move $100 in a day can be a very choppy performer.
But if the only way is up then any momentum trader can deal with this volatility, and possibly trade on the back of it, although using margin in the gold markets wiped many out in July and August and that ought to be a salutary lesson to those who gear up. That was yesterday’s strategy. In today’s credit crisis struck world borrowing is for fools who have not yet lost all their capital.
So what did best last night? My favorite junior was up 43 per cent, and my pure silver plays near 15 per cent and the best of the gold majors up 14 per cent. This comfortably outperformed the metals themselves, and this should be the pattern of the weeks, months and years ahead.
It is not too late – indeed it is still pretty early – to jump on the precious metals bandwagon. This promises to be a rocky ride to much higher valuation levels, and the systemic change towards the gold and silver standards of valuation could be permanent as the financial world finds a new modus operandi.
In the Gulf States the central bankers and finance ministers have been meeting to consider a new single currency this week. How long will it be before somebody raises the idea of a Gold Dinar again, and this time it will not be treated as a lunatic idea? Currencies backed by gold and silver are a way to beat inflation and put some confidence back into the financial system, and that is where we are heading now.
Sept. 18 (Bloomberg) — While TV camera crews staked out American International Group Inc.’s Wall Street headquarters following its takeover by the U.S. government, Jules Karp was quietly trading gold coins in “unbelievable” numbers from his basement dealership across the street.
Karp, 61, has traded physical gold, including one-ounce Canadian Maple Leafs, American Eagles and South African Krugerrands, since 1974. Demand has “hit a crescendo,” he said yesterday while an assistant prepared the special packages used to send gold coins to a growing list of mail-order customers.
Investors are being driven to the relative safety of gold as global equities plummet following the federal takeover of AIG, the largest U.S. insurer by assets, and the bankruptcy of Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Amid the fallout yesterday, Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. securities firms, plunged the most ever in New York trading.
“People are panicking right now,” said Karp, who also sources coins for the clients of Wall Street’s largest banks. “They’re afraid for their money.”
The interest in bullion appears widespread. Gold sales to new clients at Blanchard & Co., the largest U.S. precious-metal retailer, have jumped more than sixfold in the past three days as investors responded to the financial turmoil.
“People are looking for answers,” said David Beahm, a vice president at New Orleans-based Blanchard. “People want to protect their wealth and their assets, and gold is the best way for them to do that.”
Gold Skyrockets
The purchases by retail investors mirrored trading yesterday on the New York Mercantile Exchange’s Comex division, where gold gained the most in almost nine years. Suppliers of coins and bullion have been struggling to keep pace with the surge in demand from investors.
“We’re having a hard time” making enough coins, Michael White, a spokesman for the U.S. Mint in Washington, said yesterday in an interview. “There’s very high demand across the market for gold.”
Gold futures for December delivery gained $70, or 9 percent, to $850.50 an ounce yesterday on the Comex, the biggest percentage gain for a most-active contract since September 1999.
Gold producers’ shares also surged. Barrick Gold Corp., the world’s largest gold producer, jumped 14 percent in Toronto trading, while Newmont Mining Corp., the biggest U.S. producer, climbed 9.4 percent in New York, the most in 10 months.
Hard Assets
Depositors fearing bank collapses are turning cash into hard assets, said Richard Smith, president of Phoenix-based Onlygold.com, an online bullion dealership. Many don’t want their savings in any one bank to exceed the $100,000 threshold guaranteed by the Federal Deposit Insurance Corp., he said.
“I’ve been selling gold for eight years and I’ve never seen anything like what I’ve seen in the last seven business days,” Smith said yesterday in a telephone interview. “It’s just been gangbusters for us.”
Since 2003, the value of gold purchases jumped almost fourfold, representing the strongest source of growth in demand, the World Gold Council said on its Web site. Investment attracted net inflows of about $15 billion last year, the industry body said.
“There is no doubt that identifiable investment demand in gold has increased considerably in recent years,” the World Gold Council said.
Record in March
The precious metal reached a record $1,033.90 an ounce in March after the Federal Reserve slashed interest rates, sending the dollar to an all-time low against the euro. Gold subsequently dropped as the dollar strengthened and commodity indexes liquidated their positions. Newmont Chief Executive Officer Richard T. O’Brien said last month the price will probably top its March record in the next year.
Gold wasn’t the only place investors were putting their money this week. While about $3.6 trillion of market value was erased from global stocks, yields on three-month Treasury bills sank to a 54-year low as investors sought the safety of government debt.
“You don’t want to go to bed on Friday evening and come back on Monday and have your investments worth zero,” Blanchard’s Beahm said. “I’m not sure you can get any more economic turmoil than what you’ve seen in the last 72 hours. It’s perfect for gold investors.”
peterjcooper
September 18, 2008 at 9:01 am
I liked this comment from Jim Sinclair who remains the doyenne of gold investors for many of us….
Dear Alex,
Never gloat. There are people being killed out there today.
Any market that can drop $300 on pure bullshit can easily rise $500 on facts.
Regards,
Jim
peterjcooper
September 18, 2008 at 8:50 am