By by Adrian Ash
Mon 14 Mar., 08:10 EST
Gold Up, Commodities Down as Tokyo Shares Plunge on Post-Tsunami Banking & Economic Fears
THE PRICE OF GOLD leapt at the start of Asian trade on Monday, gaining 1% as engineers in Japan fought a third potential meltdown at nuclear reactors hit by last week’s catastrophic tsunami.
With at least 10,000 people thought dead, the Nikkei stock index shed more than 6% and the Bank of Japan offered a one-day record of ¥15 trillion ($184bn) to the Tokyo money market.
Property insurance costs from the disaster could reach $35 billion according to catastrophe specialists AIR Worldwide in Boston, but “There is probably more uninsured damage in the destruction of North East Japan than in any other event in history,” says hedge-fund manager John Hempton at Bronte Capital in Sydney – “and uninsured damage falls sharply on banks.”
“Fear of nuclear catastrophe” drove all precious-metal prices higher in very early trade, says one Hong Kong dealer, but only gold bullion hung onto those gains as “silver and especially platinum-group metals were sold by Japanese investors.”
Most of Japan’s auto-makers remained closed on Monday, as power supplies were diverted and transport links on Honshu – the central Japanese island – were broken.
“Some investors expect some of the Japanese insurance companies to start selling their Dollar assets to raise money,” says Ong Yi Ling at Phillip Futures in Singapore, speaking to Reuters, so “perhaps gold could be boosted as an alternative currency.
“In the short term, I think gold prices will head up due to a flight to safety and investors seeking out a safe haven.”
Crude oil fell to a 2-week low on Monday morning, leading a 1% drop in the broad commodity markets. Rough rice prices rose 2.9%.
In the Middle East, Saudi Arabia sent 1,000 troops across the border into Bahrain, where politicians have called on the King to impose a curfew – and the British Foreign Office has advised UK citizens against travelling – after violent clashes between police and anti-government protesters at the weekend.
Seven demonstrators were reported killed in Yemen. Warplanes attacked rebel-held arms depots and towns in eastern Libya, near the oil port of Brega.
“Civil war in Libya…the resulting rise in price of oil, fear of inflation, possibly higher interest rates in the foreseeable future and the down-grading of Greece and Spain’s creditworthiness each on their own are grave enough reasons to move the price of gold,” says Heraeus refining’s head of sales, Wolfgang Wrzesniok-Rossbach.
But across the precious metals, he adds, “[The] earthquake in Japan might add further pressure [and] investment positions might be sold off to finance reconstruction.
“Global consumption could suffer, reducing industrial off-take and inflation fears.”
Bottom to top, gold prices have gained more than 10% against the Dollar in the last 6 weeks.
Gold has risen 7.0% for Euro investors and climbed 8.3% vs. both the Pound and Japanese Yen.
“We remain bullish gold but see $1400 as a stop-loss level for long positions,” says the latest short-term technical analysis from bullion bank Scotia Mocatta. “Only another down week by next Friday would confirm a turn in the bull trend.”
Eurozone political leaders meeting in Brussels meantime agreed on Sunday to allow the union’s €440 billion bail-out fund to buy government bonds directly, rather than on the open market as the European Central Bank had asked.
Greece won a 1% cut in its bail-out interest rate in return for selling a further €50bn of state assets to help cut its budget deficit.
Dublin’s new prime minister, Enda Kenny, refused to raise Ireland’s 12.5% corporate tax rate – the Eurozone’s lowest – and so continues to pay 6% per year on its rescue loans.
Adrian Ash
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Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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