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Gold soars as fears mount over US mortgages
By Allan Seccombe
Posted: Tue, 15 Jul 2008

MOUNTING worries about the global credit crisis are driving the gold price to within easy striking distance of $1,000/oz, with fears over a possible attack on Iran bolstering bullish sentiment around the metal.

Gold is at its highest level in three months, trading at $983.60.

News on Monday of AngloGold Ashanti shutting 4.4 million ounces out of its 11 million ounce hedge book was not much of a factor in the rapid rise of the gold price this week, said Matthew Turner, a senior commodities analyst at Virtual Metals.

gold has a very close correlation with the credit crisis

Bullish sentiment around gold has been fuelled by a 46 tonnes purchase of gold to meet an order for exchange-traded funds in the United States late last week, Turner said.

“It’s the return of the credit crunch. We’ve seen one large mortgage lender in the States close and there are a lot of concerns about this Freddie Mac and Fannie Mae bailout,” he said.

“The gold price has a very close correlation with the credit crisis,” he said. “I would say that is the main reason.”

When the credit crisis peaked in March this year gold bolted above $1,000/ oz before concerns abated slightly, cooling the gold price, Turner said. Gold hit a record $1,033.90/oz on March 17.

On Friday, the US had its third-biggest bank failure when IndyMac Bancorp collapsed.

The news was quickly followed by a the Treasury’s decision to bail out housing market financing companies Freddie Mac and Fannie Mae, which buy mortgages and sell them to investors.

The two companies, which supply funding to almost all US mortgage lenders, are billions of dollars in the red as homeowners fall behind in their repayments leading to widespread defaults on loans.

The widely followed and respected investor Jim Rogers told Bloomberg the decision was an “unmitigated disaster”.

“I don't know where these guys get the audacity to take our money, taxpayer money, and buy stock in Fannie Mae,” Rogers said in an interview with the newswire. “So we're going to bail out everybody else in the world. And it ruins the Federal Reserve's balance sheet and it makes the dollar more vulnerable and it increases inflation.”

George Soros, another respected commentator on markets, told Reuters: “This is a very serious financial crisis and it is the most serious financial crisis of our lifetime.”

The gold price could well spike through $1,000 if Israel attacks Iran, which is alleged to be building nuclear weapons under the guise of a nuclear energy programme. Iran has test fired missiles, sending a clear message it will retaliate if attacked.

The jitters about conflict in the oil rich region have fed into sentiment driving gold prices higher, said Marc Elliot, an analyst at Fairfax in London.

“I’m not overly confident that gold will get above $1,000 in the next month unless we suddenly get a war breaking out in the Middle East,” he said.


Gold soars as fears mount over US mortgages

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