Gold prices slipped today, but were seen supported by a weak dollar and high oil prices ahead of a crucial decision on interest rates from the US Federal Reserve. In early trade spot gold was down at $784,15/784,75 a troy ounce from $788,90/789,70 late in New York yesterday when it rallied to $794,40 an ounce, its highest since January 1980. Traders said profit-taking was part of the reason for gold’s losses, but they think the mood is bullish because of the dollar’s recent tumble to record lows against the euro and a basket of currencies. A lower US currency makes dollar-denominated commodities cheaper for investors in other currencies, while gold is seen as a hedge against inflation, often triggered by rising oil prices.
Gold could fetch over 1,000 usd per ounce by 2010, said Credit Suisse, which upped its price forecasts, citing a cocktail of supportive factors for bullion looking ahead. The company now sees gold averaging 770 usd in the final quarter of this year, 694 usd in the whole of 2007, 838 usd in 2008, 950 usd in 2009 and 1,050 usd in 2010. Those are up from price estimates made last year of 680 usd, 665 usd, 700 usd, 741 usd and 800 usd per ounce, respectively. "In the current environment, upward pressure on the price of gold is likely being driven by the economic environment surrounding the US economy, in particular the strength of the US dollar, the oil and commodity prices and a change in the dynamics surrounding gold supply and demand," said precious metals analyst at Credit Suisse, David Davis, who added he expects the same factors to continue supporting gold in the longer term.
As of last Friday, gold closed at $783.50 and silver at $14.17. Gold is now more than 9% above its last major high of $717.10 of the 11th May 2006 but silver was still 4% below its closing high of $14.78 of the same day in 2006. That is a 13% differential so what gives with the theory about silver outperforming gold? The chart below shows why this is to be expected and why you should regard it as a last opportunity to get on the silver train before is bullets out of the station. In fact, if silver makes no new high, there can be no gold bull market! We have had two highs in the silver bull market so far - expect one more.
Many economists believe the Federal Reserve will cut its policy interest-rate target by a quarter-percentage point to 4.5% on Wednesday to contain the risks that financial market turmoil could continue, possibly leading to a recession. "The risk of a financial-market disruption spilling over into real economic activity is too serious for the Fed to ignore," said Kevin Logan, U.S. economist at Dresdner Kleinwort, in a note to clients. "Not easing at this juncture runs the risk of a financial market catastrophe and a possible recession." Simply put, economists said the debt crisis is not over, and the danger exists that banks won't be able to make loans and mortgages, even to buyers with good credit history and high income.
UBS, the world's biggest money manager, has given warning that the impact of the credit crunch could linger into the new year. While confirming that its investment banking division is unlikely to break even for the rest of the year, Marcel Rohner, the Swiss bank’s new chief executive, said that even in the first quarter 2008, the bank's performance "will depend on where we end with the US housing market". As it reported heavy third-quarter losses, UBS repeated warnings of further writedowns. Mr Rohner refused to provide detailed forecasts, however. He said: "The range of possible outcomes is widening". UBS should return to profitability at group level during the final quarter, he said.
Businessmen or manufacturers can either be genuine free enterprisers or statists; they can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism.Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout. Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt.
The head of the Wall Street investment bank Merrill Lynch was last night negotiating a severance package tipped to be as high as $159m (£77m) after a risky strategy of betting billions on American mortgage-backed securities came disastrously unstuck. Stan O'Neal, chief executive of Merrill, has told friends that he intends to resign after losing the confidence of his boardroom colleagues following the biggest loss in the bank's 93-year history. Nicknamed the "thundering herd" for its bull logo, Merrill has estimated its liabilities at $7.9bn from the summer's global financial volatility and analysts believe the figure could increase to $12bn.
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