By Jon Nadler
Yesterday’s Fed rate cut-induced euphoria gave
way to sober and more defensive plays among
investors. By this afternoon, oil prices slipped
to under $41 as OPEC failed to convince traders
that its output cut would be effective in
generating higher prices in the face of
fast-slumping global demand. Stock markets
turned negative as financials and utilities
dragged and as investors once again showed a
preference for Treasurys, gold, and little else
as they seek to preserve capital.
The Fed cut rates to a ‘range of from zero to a
quarter’ and promised to deploy everything in
the way of deflation-fighting weapons available
to it, should the conditions show further
deterioration. Levels of confidence in the
global economy fell this month as the US-led
recession spread to the rest of the world and
made for an ugly year-end picture for many a
hitherto immune country.
The US dollar continued its sharp correction,
slipping to just under 79 on the trade-weighted
index and gave indications of a growing
de-couple from oil (if not yet from stocks). The
greenback fell by the most against the euro
since that currency was born in 1999. Against
the yen, the American currency traded at near
Gold prices naturally made significant gains in
the wake of the aforementioned conditions, with
spot bullion trading as high as $882.50 an ounce
early in the session. Light profit-taking was
then seen developing in the afternoon, with
prices easing back to $868.60 per ounce at last
check. Caution remains visible and
neutral-to-defensive plays are advised by
deflation-watchers. Mr. Dennis Gartman comes to
mind. Inflation-scouts are at the top of their
form in the meantime. Rooting hard.
Silver was up by 17 cents, quoted at $11.38,
while platinum added $3 to $866 and palladium
fell $2 to $176 per ounce. Carmaker Land-Rover
Jaguar was seen fighting for its survival and
sought talks with would be surrogate parents.
The Madoff scandal continues to rock New York
and parts of the rest of the financial world as
more victims come forward end confess exposure.
HSBC was the latest such entity to tally a
potential $1 billion exposure to the alleged
Ponzi scheme. The coma in which US regulatory
agencies have been in, while such wild goings-on
were unfolding is simply unbelievable. Looks
like Mr. Cain made at least one spot-on
statement in his fall campaign. Cox has got to
Analysts now estimate that perhaps as many as a
third of the more than 10,000 hedge funds still
roaming the planet will go the way of the
velociraptor and become a memory. That die-off
could entail an amount of assets to be
liquidated that is still in the estimation stage
– but it surely will not be small change. Thus,
the uncertainty will persist and could fuel
further gains in gold, according to a Mineweb/Thomson
Reuters story currently featured on our
“Sealed off by grey concrete walls and barbed
wire, the workmen in protective glasses and
steel-toed boots at this smelter cannot work
fast enough to meet demand from the nervous rich
This refinery near Lake Lugano in the Alps is
running day and night as people worried about
recession rush to switch their assets into
something that may hold its value.
"I have been in the gold business for 30 years
and I have never experienced anything like
this," said Bernhard Schnellmann, director for
precious metal services at the refiner
Argor-Heraeus, one of the world's three largest.
"Production has dramatically increased since the
middle of the year. We cannot cope with demand,"
said Schnellman, wearing a gold watch on his
Spot gold hit a record $1,030.80 an ounce on
March 17. It fell below $700 in late October,
partly because investors sold their holdings to
cover losses in equity and bond markets hit by
the credit crisis, and is now around $830 an
The trigger for the price to rise again could
come from a much weaker dollar, making gold
cheaper for holders of other currencies, and a
renewed aversion to paper assets as governments
and central banks pump large amounts of cash
into the economy, stoking inflation.
Smoke billows as the molten gold, like glowing
butter, is poured. To cool it, the worker drops
it into water. It hisses as it hits. Once
hardened in moulds, the gold bars are embossed
with the refinery's seal. Workers wearing white
gloves stack them into boxes like domino pieces.
Though Switzerland is not a gold miner, it is
home to some of the world's largest refineries,
which process an estimated 40 percent of all
newly mined gold.
Argor-Heraeus is part-owned by the Austrian Mint
and a subsidiary of Germany's Commerzbank.
Commercial and central banks are its chief
customers and it says it processes some 350-400
tonnes of gold and 350 tonnes of silver per
Customers buying gold bars, which can weigh more
than 10 kg each, have to wait roughly a month,
taking into account the year-end holiday season.
For those buying coins or ingots, which can fit
into the palm of a hand, the delay is six to
eight weeks. A year ago, these small products
could be had within a couple of days.
Worries about the banking system globally have
boosted worldwide demand for physical gold, the
Gold Council said.
"Many (people) are afraid of leaving their money
in banks," said Sandra Conway, managing director
at ATS Bullion in London, which sells bullion
and gold coins to institutions and the retail
"It's difficult to quantify, but I would say our
turnover over the last three months has
certainly doubled compared to the previous three
months," she said.
Other Swiss gold refiners also say business is
"Since the summer we have experienced a sharp
rise in demand for certain gold products. The
one-kilo bar has become very popular," said
Fiorenzo Arbini, in charge of health and safety
at Pamp, another large Swiss refiner.
"People used to buy certificates, now they want
Schnellmann said the Argor-Heraeus smelter is
operating at full capacity, three eight-hour
shifts a day. Conquering the backlog by hiring
is difficult, because each candidate has to
undergo a security check.
Gold refiners were established in Switzerland to
supply the watch industry and, later, jewellery-makers
in Italy. Switzerland's largest banks stepped in
to replace a void in gold trading while the
London gold market was shut after World War Two
and again during a brief closure in 1968.
The former Soviet Union, another top gold
producer, chose Zurich banks to handle most of
its gold sales in the 1970s and 1980s.
"Gold has an image of being the asset of last
resort. This could be viewed as old-fashioned
but this is how enough people with enough money
to matter think," said Stephen Briggs, a metals
strategist at RBS Global Banking & Markets.
India, China and the Middle East remain the
biggest gold importers, particularly for
jewellery. But demand for physical gold has
exploded also in Europe, the Gold Council said.
In Switzerland, home to the world's largest
private banking industry, demand for gold bars
and coins shot up six-fold to 21 tonnes in the
third quarter of 2008, more than in any other
Retail investment in gold rose 121 percent in
the third quarter of 2008, an important
contributor to the overall increase in global
demand, the Gold Council said.
In that period purchases of gold bars by retail
investors, who often buy through commercial
banks, rose nearly 60 percent, notably in
Switzerland, Germany, and the United States.
There was a surge of interest among professional
investors shortly after the collapse of Lehman
Brothers in September.
Private bank Julius Baer in October launched a
fund to invest exclusively in gold bars stored
in highly secured vaults in Switzerland.”