$1000 gold and $20 silver in sights again as investors flee financial stocks
The collapse of world stock markets is again pushing gold’s safe haven status to the forefront within the investment community.
Posted: Wednesday , 16 Jul 2008
While it may have taken a worrying new potential Middle East conflagration to kick start the gold price upwards last week, the baton has now been taken up by renewed considerations of the US (and now global) mortgage and financial crisis to bring the yellow metal back in sight of the $1,000 mark again. At one stage yesterday gold was trading at over $980 an ounce and silver, being dragged along by its ‘senior partner', was back over $19 an ounce. Both have since fallen back on profit taking and a slight strengthening of the dollar back from a new low.
This time the move was almost certainly stimulated by the possible collapse of the two biggest mortgage lenders - known as Fannie May (The Federal National Mortgage Association) and Freddie Mac (Federal Home Mortgage Corporation) and the actual collapse of California's Indymac Bank (now taken over by regulators and said to be safe) with scenes akin to those of the UK's Northern Rock collapse and bailout with depositors queuing to get their money out.
This has raised questions about the whole banking/savings and loan sector in the US and stock markets there, and across the world, have dived as a consequence. Rising inflation is also beginning to make a serious impact on market sentiment and it would appear that recession is well and truly with us in spirit, even if the technical definition means we are not quite there yet.
An interesting sufferer from the fallout was the oil price, which recorded its biggest ever one-day fall in dollar terms, before bouncing back a little. People are beginning to look at fundamentals at long last and with no real oil shortage, indications of falling demand worldwide because of the high prices and key producer Saudi Arabia committed to increasing output, the oil price sooner or later has to be vulnerable to a sharp fallback.
Initially there were also indications that gold might be decoupling from oil with the price rising, as noted above, to well past the $980 mark at one stage, but the rising dollar, profit taking, and perhaps the oil price level eventually saw it fall back again into the $970s.
For the gold investor it is again a case of two steps forward, one step backwards, but there remains the view that the price is at a firmer base now and with Swiss banker, UBS, normally a very conservative organisation, predicting an average gold price of $1,000 an ounce next month there is a continuing big change in investment sentiment which should continue to be positive for the gold price. Safe Haven status is taking over.