Gold Hits 5-Week High, Financial Crisis Fuels Demand
November 24th, 2008WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
The resistance at $850 could be a serious bitch for longs. Sorry to rain on the parade, but $850 is probably going to be tough.
Via: Bloomberg:
Gold jumped to a five-week high on Monday as investors piled in seeking safety from financial uncertainty after the United States unveiled a $300 billion rescue package for banking giant Citigroup.
Autocatalyst precious metals platinum and palladium, tracking gold, rose 5 percent and industrial metal silver gained about 4.5 percent.
Spot gold rose nearly three percent to $822.15 an ounce, its highest since October 16 and was up at $818.95/819.95 at 1230 GMT from $799.45 an ounce on Friday when the precious metal posted its biggest daily percentage gain in two months.
The U.S. government has agreed to inject $20 billion of new capital into Citigroup, one of the world’s biggest banks, to avoid a collapse that would have wreaked further damage to the world’s financial system.
“The Citigroup news can be read in two ways. One is relief because the bank was teetering on the brink, and that will be reflected in higher equity valuations,” said Robin Bhar, analyst at Calyon.
“The other is that $20 billion is a lot larger than expected, which is quite negative. The question is if Citigroup needs all this money, how much do the others need. The bottom line is good news for gold.”
Analysts say action taken by governments to pump money into the banking system has helped, but that investors are not sure it is enough. Until they are sure about financial stability investors will choose gold as a store of value.
“Investors have been in pure panic, they think the world is ending,” said Nicholas Brooks, head of strategy at ETF Securities. “When people get into that sort of mentality, one of the first places they go to is gold.”
SENSE OF FOREBODING
Gold hit a record high of $1,030.80 an ounce in March and has since fallen on falling oil prices and a stronger dollar.
A higher U.S. currency makes metals priced in dollars more expensive for holders of other currencies, while gold is used as a hedge against inflation, often triggered by rising oil prices.
But oil has fallen to around $50 a barrel from a record above $147 in July.
Other commodity prices too have tumbled and the fear fast taking hold across the globe is of deflation.
To combat this central banks have slashed interest rates and many are expecting to see them fall further, possibly to zero, in the United States and many other parts of the world.
“There is a sense of Armageddon, a sense of foreboding, deflation is being talked about,” Bhar said. “As interest rates fall, gold becomes more attractive.”
