Daily Market Report (usagold.com 17September2008; 19:13)
WEDNESDAY Market Excerpts Gold has record daily gain, DOW tanks 450 The COMEX December gold futures contract closed up $70.00 Wednesday at $850.50, trading between $777.50 and $872.90 September 17, p.m. excerpts:
(from AP, MarketWatch & Bloomberg) — Gold prices exploded Wednesday — posting the biggest one-day gain ever in dollar terms — as fears of more credit market turmoil unnerved investors and triggered a flood of safe-haven buying. Gold for December delivery
rose as much as $90.40, or 11.6 percent, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session.
That was the biggest one-day price jump ever; gold’s previous single-day record was a $64 gain on Jan. 29, 1980. In percentage terms, it was gold’s largest one-day advance since 1999.
Fearing more tightening of credit markets, investors reacted swiftly and began dumping stocks and socking money into gold, silver and other safe-haven commodities. Gold is especially attractive during times of crisis because the metal is known for holding its value.
Jon Nadler, analyst with Kitco Bullion Dealers Montreal, said buying accelerated as rumors spread across trading floors that another financial firm may be in trouble. “The psychology right now has everyone asking, ‘Who’s next?,” Nadler said. “If another big bank falls, we could see an implosion and that has people very worried.”
Gold rocketed above $1,000 an ounce for the first tme in March, boosted by record oil prices, a weak dollar and worries that the U.S. economy was sliding into a recession. “The same market participants who got out of gold are coming back in now. This is the start of an upward move,” said Carlos Sanchez, analyst with CPM Group in New York, who predicted prices could climb back to $1,000 by year’s end.
“Gold is acting like it is supposed to on a flight-to-safety move,” said Amaury Conti, an equity trader at investment adviser Austin Calvert-Flavin. “We have a global financial crisis and nobody has a clear answer. Therefore stocks, currencies and debt are being questioned and
nobody wants to own a ‘paper’ asset,” he said.
The U.S. Federal Reserve on Tuesday seized control of American International Group with an $85 billion bailout aimed at averting a potentially catastrophic bankruptcy. The move was the government’s latest and most dramatic attempt yet to halt threats to the world’s financial system.
Meanwhile, the financial turmoil accelerated in Russia as trading on the country’s major exchanges was halted for a second day and the finance ministry announced plans to loan the country’s three largest banks up to $44 billion.
Gold bugs were also quick to point out technical and fundamental support for the precious metals. “Physical demand is breaking records, mining supply continues to fall, and the economic environment is, of course, promoting safe-haven demand,” said Brien Lundin, editor of Gold Newsletter. “The shorts are covering, the funds are buying back in, and everyone wants the safety of gold.”
[I]nvestors sought the safety of precious metals on concern that the credit crisis will deepen, leading more financial institutions to fail. “People are worried about money being safe in a bank,” said Ron Goodis, the futures trading director at Equidex Brokerage Inc. “With paper assets in question, gold represents the textbook storehouse of value.”
About $2.8 trillion of market value was erased from global stocks this week as Lehman Brothers Holdings Inc. filed for bankruptcy, Bank of America Corp. purchased Merrill Lynch & Co. for $50 billion, and the U.S. government took control of American International Group Inc. in an $85 billion takeover to prevent the biggest financial collapse ever.
“When you’re
perhaps facing a catastrophe in the U.S. financial market, investors are thinking: `Screw it. I’m jumping back into the old faithful,”‘ said Joel Crane, a metals strategist at Deutsche Bank AG in New York. “Gold’s relative value is cheap compared with the dollar.”
Central banks in the Phillipines and Venezuela said they may buy gold.
“You’re sorting out, by process of elimination, that gold is the asset you’d rather own,” said Greg Orrell, who manages the OCM Mutual Fund at Orrell Capital Management Inc. “It’s the currency you’d prefer.”
U.S. Treasury three-month bill rates dropped to the lowest since at least 1954. Investors pushed the rate as low as 0.0304 percent. “It’s not even worth it to keep money in the bank,” said John Licata, the chief investment strategist at Blue Phoenix Inc. “Gold is going to be the beneficiary of a global move toward a safe haven.”
Reserve Primary Fund,
the oldest U.S. money-market fund, yesterday became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman.
“That’s systemically scary,” said Frank McGhee, the head dealer of Integrated Brokerage Services LLC. “Unless you put gold in your backyard, you have to trust your money to an institution.” Gold’s gains accelerated after prices topped $800, analysts said. “There are going to be more banks that will fail,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. “This is the time when people want to buy gold.”
Now the metal is “once again reasserting itself as the ultimate safe-haven investment,” said Peter Grant, a senior metals analyst at USAGOLD-Centennial Precious Metals.
U.S. stocks were slammed for a third session in four Wednesday on the heels of the government’s rescue of American International Group. “The [Federal Reserve] is supporting the financial institutions of the U.S.A. through Treasury issues now,” said Julian Phillips, an analyst at GoldForecaster.com. “This does not breed confidence either inside or outside the U.S.” But bear in mind that while
the dollar is an “IOU,” gold is “owned by its possessor,” he said.
Investors just don’t feel safe with paper assets right now, said David Beahm, a vice president at precious metals retailer Blanchard & Co. “
They have seen stable and secure institutions go under in the blink of an eye and it has them scared.” The Fed’s bailout of AIG comes a few weeks after the Fed committed $200 billion to Fannie Mae and Freddie Mac, said Beahm.
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