Gold
Gold was down $1.80 to $801.10 per ounce in New York yesterday and silver was up 4 cents to $14.07 per ounce. Gold traded sideways in Asia and Europe and the London AM Fix was at $799.50 (down from $801.50).

At the London AM Fix gold was trading at a new all time record in British pounds at £401.62 GBP (up from yesterday's London AM Fix at £399.35). Gold went up to €557.30 EUR (up from yesterday's London AM Fix at €556.83 ). Gold has again increased in sterling and in euros. Gold thus surpassed it's all time record high in british pounds at £400.47 and will likely do so in euros and dollars early in the New Year.

Gold in dollars remains confused and in a tight trading range with mixed signals coming from the bounce in the dollar and the still elevated oil price. Gold is up some 25% year to date and with inflation on the rise and with the printing presses in full effect gold will likely again outperform other asset classes in 2008.

Today’s economic releases are on the second order in importance, but one should watch initial jobless claims and the Philly Fed Index for signs of weakness in the US economy. Weekly unemployment figures and revised third-quarter GDP are out at 1330 GMT, while November leading indicators are out at 1500 GMT. Bear Stearns fourth-quarter results could also be in focus since it is one of the first banks to take a major hit due to its involvement in the US subprime mortgage market.

Financial conditions are worsening by the day despite the best efforts of the central banks. News that Standard & Poor's had offered a grim assessment of bond insurers and had cut ACA Financial Guaranty Corp. to junk status is a further very serious development in the unfolding saga. S&P warned that the AAA rating of larger bond insurers that underpins so many fixed-income investments could come under pressure. Shares of bond insurers AMBAC Financial Group Inc and MBIA Inc tumbled after Standard & Poor's downgraded the outlook for both, indicating that their triple-A credit ratings are at risk.

Should a large bond insurer experience significant financial difficulties there will be financial systemic reverberations.

 

The New York Times reports that Morgan Stanley reported the first quarterly loss in its 72-year history Wednesday, heightening fears that the financial toll would keep mounting from the fast-spreading crisis in the subprime mortgage market. The company took a $9.4 billion charge on subprime-linked investments for the fourth quarter, bringing its cumulative charges for subprime mortgages to $10.8 billion. In a stark reflection of its diminished status it also said it would sell a $5 billion stake to a Chinese investment fund to shore up its capital.

Wall Street banks so far have reported more than $40 billion of losses as a result of the crisis in the mortgage market. Worst-case estimates put the eventual bill at $200 billion or more. The tally is likely to rise again Thursday when Bear Stearns is expected to report a quarterly loss. The developments on Wednesday were a stunning turn of events for Morgan Stanley, an offshoot of the Morgan banking dynasty that has counseled corporate America since the Depression.says that how reliant Morgan Stanley and Wall Street are on foreign funds and gives additional credence to the joke now circulating on trading floors: “Shanghai, Dubai, Mumbai or goodbye.”

This shows how western financial institutions and the western financial system is increasing reliant on their Middle Eastern and Asian creditors and shows how the balance of economic power and wealth is shifting eastwards. The unipolar world that emerged after the Cold War is being replaced by a multi polar world where Asian countries are no longer prepared to play second fiddle to the US and other western countries.

Le Metropole Cafe's William Murphy noted the news that "the Swiss National Bank sold 11.3 tonnes of gold in November follows their only having sold 12.3 tonnes in October, and means the formerly very regular c.1.5 tonnes a business day pace has decisively slowed. One wonders why. The October reduction was hypothesized to have been accommodating the 43 tonne sale by the ECB itself, an idea presumably undermined by the November report. If the SNB abides by its’ public statements, they only have 112 tonnes left of the 250 tonnes they have said they will sell by September 2009: 5.1 tonnes a month."

Given the clear and present systemic risks facing the global economy it seems increasingly likely the western central banks who have been selling their gold (unlike the Federal Reserve) will slow down their gold sales in the coming months and may join their South American, South African, Russian, Chinese and other Asian central banks counterparts in becoming net buyers.

Silver
Silver is trading at $13.99/14.01 at 1200 GMT after yesterday's rally.

PGMs
Platinum was trading at $1511/1517 as per above (1200 GMT).
Spot palladium was trading at $354/358 an ounce (1200 GMT).

Oil
Oil remains at elevated levels above $90 per barrel and NYMEX light sweet crude oil was trading at over $91.70 a barrel creating gold buying interest from investors looking to hedge against surging inflation.