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Gold futures glowing as investors hit panic button

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The Australian
Thursday, October 9, 2008

GOLD futures are surging as investors seek shelter from the deepening financial sector turmoil in the aftermath of the overnight co-ordinated global interest rate cuts.

Analysts expect the metal to continue attracting safe-haven buying

Gold futures soared in the wake of the US Federal Reserve cutting the federal funds target rate by 50basispoints to 1.5 per cent, a move echoed by several central banks around the world. But instead of assuaging investors’ concerns, the co-ordinated central bank action highlighted the troubles with the global financial system and created worries about longer-term inflationary expectations, traders said.

Gold was trading on the Comex division of the New York Mercantile Exchange up $US30, or 3.4percent, at $US912 an ounce.


The metal was likely to rise even further as long as the financial problems persisted, said Stephen Platt, an analyst with Archer Financial Services.

  • A d v e r t i s e m e n t

“It is certainly in a panic state, and gold is benefiting from that panic,” he said.

“Once that panic exhausts itself, then we will probably see pressure come to bear on gold.”

For one thing, he said, fabrication demand was likely to weaken.

Analysts often point to higher prices and slower economic growth as factors that can curtail fabrication demand for metals.

Wisdom Financial senior trader Zachary Oxman agreed that gold prices would continue to appreciate as a safe-haven investment amid the rate cuts and with ongoing turmoil in the global markets. “Rate cuts are a boon for gold, so I would still expect to see gold rally,” Mr Oxman said.

Even if the $US700 billion ($1trillion) US financial rescue plan and the global rate cuts had the effect of stabilising the markets, that was unlikely to happen for several months or a year, and gold would be expected to benefit from continued uncertainty, he said.

“You have still got a lot of upside there,” Mr Oxman said.

Normally, the US dollar index would tumble on changing interest rate differentials after a surprise Fed rate cut, thereby supporting gold. But the US currency’s move has been limited since cuts were also announced by the Bank of Canada, Bank of England, European Central Bank, Sweden’s Riksbank and the Swiss National Bank.

“It is a demonstration from Fed officials and governments in Europe as well that we are in economic and financial conditions that are not great and are deteriorating,” said Carlos Sanchez, precious metals analyst with CPM Group.

This had prompted safe haven buying from investors that was likely to continue, he said.


This article was posted: Thursday, October 9, 2008 at 11:22 am

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