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Gold: Going, going… gone September 22, 2008

Posted by mylastresort in analysis.
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The past week was not only exciting for the stock markets it was a new adventure for Gold. Historically, investors flock to Gold in times of financial crisis’ or geopolitical instability since the metal has intrinsic value. Since the beginning of the month Gold has been extremely volatile trading in a wide range from $828 to $888. On September 17th, Gold experienced a massive increase spurred by the following events:

  • US government bailout of AIG 
  • Credit markets began to tighten (sending O/N rates to almost 9%, from around 3%)
  • Washington Mutual put itself up for sale
  • The Dow drops a historic 449 points
During the previous weeks’ events Gold was very tempting to investors since the market was in a rollcoaster state. As Gold increased, news about it reaching new records began to surface as with every impeding hype in the market. On Friday, following the US governments’ $1 trillion rescue plan, Gold eased towards a 3.6% decline to end the week at $864/ounce. The actions set forth by the government nearly erased the losses in the global stock exchanges during the week while Gold remained relatively steady.
Golds volatility reflects the mood felt across the financial markets, and choppiness should continue as investors flock to safe-haven assets
- James Moore, Analyst, Thebulliondesk.com
The future of Gold is largely correlated with the events that will occur in the US markets later in the week. The bailout, or rescue plan, is expected to be highly inflationary for the US economy yet the actual implications of the government’s actions will not be priced in until traders sift through the details of the ‘plan’ released yesterday entitled, “Legistlative Proposal for Treasury Authority – To Purchase Mortgage Related Assets.” Since the bailout was not initially expected to be as big as $1 trillion it would be difficult to fundamentally value Gold for the short term, although technically traders are aiming at $920, above it $960 then reaching the previous July high of $999. If $920 is not tested a decline to around $860 is expected. A further decline of around the $636 zone is also anticipated.

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