Gold Spot gold was trading at $670.30/670.80 an ounce as of 1215 GMT.
Gold has traded sideways after last Fridays rally but 'safe haven' buying is again emerging. While the slight short term correlation seen in gold and the wider equity markets recently had lulled some into thinking gold's safe haven status had been diminished, this concept will likely be seen as erroneous in the coming weeks and months.
The Financial Times reports that central banks are expected to continue intervening in the money markets on Monday in an effort to unblock the financial system after last week’s turmoil.
Conditions in the money markets are likely to remain extremely difficult in the coming days as there will be no let-up in the uncertainty over the scale and location of losses in derivatives markets, initially triggered by high default rates in US sub-prime mortgages. Investors fear that some hedge funds and other institutions will soon have no option but to start a fire sale of their assets to cover losses on their portfolios. Any rapid liquidation of trading positions would exacerbate the volatility in financial markets.
The injection of billions of dollars, euro, yen and other currencies into the world's financial system is inflationary and may lead to a further erosion in confidence in the dollar (as the origin of the crisis) but also of other currencies.
Many gold analysts and precious metal experts were way ahead of the curve in warning many months ago of the likely problems that the loose lending policies in the US housing market and irresponsible packaging of debt into all sorts of weird and wonderful financial instruments would cause systemic risk to the global financial system. It is amazing how many analysts become wise after the fact despite intially being unaware or plain wrong by downplaying the risk they posed to the financial system. Indeed, many loudly proclaimed what wonderful instruments they were and how they helped and benefitted the financial markets.
It gives us no pleasure to say that our warnings were timely and prescient. We are now in the early stages of a global systemic financial crisis which will see the markdown in the value of most asset classes and we have little doubt that gold will once again emerge as an important safe haven asset.
Silver Spot silver is trading down to $12.85/12.87 an ounce (1215 GMT).
PGMs Platinum was trading at $1272/1276 (1215 GMT). Spot palladium was trading at $352/356 an ounce (1215 GMT).
FX and Gold Whilst the actions of Central Banks last week helped calm the market on an intra-day basis, it has done little to ease concerns over sub-prime loans. There seems to be an overall sentiment in the market that the problems may get worse before they get better and as such, volatility is likely to remain the key theme for this week. Risk reduction remains the key driver of currency markets and thus further corrections in high yield currencies are likely with the rebound in the yen in particular expected to continue as traders unwind carry trades.
In the absence of further bad news flow on the credit front, the market may start refocusing on economic fundamentals. The key data release for today will be US retail sales, scheduled for release at 1:30 which, helped by lower oil prices, are expected to show a small increase following a fall in June. The Feds Senior Loan official report due for release later this afternoon, will be closely scrutinised for clues as to the extent to which the sub-prime problems have carried over into tighter lending conditions within the wider market for both mortgage and non-mortgage funds. We also have a raft of UK data due later this week with inflation data out tomorrow, labour data on Wednesday and retail sales on Thursday. Trade data for both the US and Canada will be released tomorrow whilst the US TIC data on Wednesday will also be closely watched.
Oil Crude oil rose from a five-week low supported by strong global demand as cited by the International Energy Agency (IEA). On Friday, the IEA kept its forecast for strong demand unchanged.
Stocks Global equity markets were largely up. Asian markets were all up except for New Zealand. European markets are mostly up this morning with (except for Spain off sharply by 3%) and the FTSE up nearly 2%. As we pointed out last week, markets never move in a straight line up or down and this again looks like a 'dead cat bounce' - if you throw a dead cat from a tall building it will bounce on hitting the ground.
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