“Risk reduction” is the catch phrase of the month.
Once again the sub-prime lending market and credit worries are leading the markets.
What we are seeing beginning to happen is a reduction in risk, coupled with a draw back in expenditure in an effort to secure existing lending and risk ventures.
What is the impact of this? A tightening of funding, a move from riskier investments and further investment in safe-haven products.
Short term: We’ve seen a lot of selling of gold in the past 24 hours as a move to get cash to help shore up unsecured investment. What we are waiting to see if this will then increase the buying as the price decreases (One of the many interesting things about gold – as the price decreases the demand then increases by bargain hunters buying, thus pushing the price back up).
Medium term: the move to safe haven investments will also mean a move to commodities like gold and silver, historically seen as the safe haven of investment practices, and we would expect to see a move up in the prices of precious metals.
The other major news in the gold world is the selling off of large volumes by the European Central Banks.
Central banks may be selling gold reserves to push down the price and calm investors, said James Turk, founder of GoldMoney.com, which manages $191 million of investments in gold and silver. "A rising gold price warns of troubles ahead," Turk said. "That's why central banks are capping the price of gold."
The Bank of Spain sold 25 metric tons of gold in July. It has sold a total of 149 tons in the third year of the Central Bank Gold Agreement, London-based research firm GFMS Ltd estimates. Spain sold 30 tonnes in the first year and 62.5 tonnes in the second year. Under the accord, banks in Europe can sell as much as 500 metric tonnes a year. The ECB said on Aug. 7 that one member bank sold gold worth 29 million euros the previous week after member banks sold 483 million euros worth in the preceding two weeks. The banks had reported selling 294 tons as of June 12, according to the producer-funded World Gold Council. The banks sold 497 tons in the first year and 396 tons in the second year of the five-year accord. The terms of the accord mean that the yearly gold sales will finish in September. Once the sales stop Switzerland has announced they would like to sell 250 tonnes yet, but they have declared that they will organise their sell off over a period of time to reduce the effect on the market.
The phrase “May you live in interesting times” (which is not a Chinese proverb by the way) is certainly apt at the moment.
NZD$: the New Zealand dollar is starting to slide against the US dollar as US treasury bonds pick up in the current climate, and with the oil price decreasing on Thursday night we’ve seen a lot of the earlier weeks gains and stability removed. The question is: How long will this last? It is not expected the Kiwi dollar will remain high, but it is worth noting that since we’ve dropped from the 81c high the price of gold locally has increased to over NZD$900 again.
Important gold news: Seeing that gold is an inert substance, its one of the few metals you can safely eat: Tasting evening presents 24-carat gold food
Or wear? (GBP140, 000 for a dress? Belongs with the handbag from the other week!! )
