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Gold: Biggest 1-day gain ever

Sep 17 2008 21:15

New York - Gold prices exploded Wednesday - posting the biggest one-day gain ever in dollar terms - as fears of more credit market turmoil unnerved investors and triggered a flood of safe-haven buying.

Gold for December delivery rose as much as $90.40, or 11.6%, to $870.90 an ounce in after-hours trading on the New York Mercantile Exchange after jumping $70 to settle at $850.50 in the regular session. That was the biggest one-day price jump ever; gold's previous single-day record was a $64 gain on January 29 1980.

The huge rally came after the government moved overnight to rescue troubled insurer American International Group with an $85m bailout loan. The Federal Reserve stepped in after AIG, teetering on collapse from losses tied to the subprime crisis and the credit crisis, failed to find adequate capital in the private sector. The emergency measure came a day after Lehman Brothers Holdings, a 158-year-old investment bank, filed for bankruptcy after failing to find a buyer.

Fearing more tightening of credit markets, investors reacted swiftly and began dumping stocks and socking money into gold, silver and other safe-haven commodities. Gold is especially attractive during times of crisis because the metal is known for holding its value.

Who's next?

Jon Nadler, analyst with Kitco Bullion Dealers Montreal, said buying accelerated as rumours spread across trading floors that another financial firm may be in trouble.

"The psychology right now has everyone asking, 'Who's next?," Nadler said. "If another big bank falls, we could see an implosion and that has people very worried."

A weaker dollar also boosted gold prices. A falling greenback encourages investors to shift funds into hard assets like gold and other commodities that are bought as hedges against inflation and weakness in the US currency.

Prior to the rally, gold had fallen 25 percent since surging to record levels above $1 000 an ounce in March.

"The same market participants who got out of gold are coming back in now. This is the start of an upward move," said Carlos Sanchez, analyst with CPM Group in New York, who predicted prices could climb back to $1 000 by year's end.

Silver prices also jumped. The December contract soared $1.158 to settle at $11.675 an ounce.

- AP

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Nasdaq7
Sep 18 2008 13:59 Report this comment

It will all depend how much gold is still available to sold. But I think people are so afraid right now they will buy, loan, sell anything and everything to keep the dollar afloat.

R Carolus
Sep 18 2008 12:02 Report this comment

Bilal, the Fed had to let Lehman go. It was one of the worst fraudsters, if not the originators, at the very root of the mis-selling of mortgages to the unsuspecting poor (the sub-prime sector) and the liar loans to the wealthy (Alt-A sector). Also, it wasn't big enough to be saved. It was more important to save AIG which otherwise risked bringing down the global insurance industry with it. Finally, unless the Fed lets at least one investment bank go down (through its own nefarious dealings, hey, which is going to cause the entire world a lot of pain and death in both the first and third worlds) then in the future bankers could be reckless and totally irresponsible with their products knowing the Fed would always save them. Then to your prediction of the price of gold returning back to $800. I think that is debatable for the next few years at least. The credit crunch will go until at least 2012, which is the last year for the Alt-A mortgage resets. So from now until 2012 Fannie Mae and Freddie Mac plus all the others holding mortgage-backed securities including the Fed itself will be suffering continuing losses. If there is a meltdown and we go into a Second Great Depression gold will rise. If there isn't a meltdown, the taxpayers, U.S. especially, will have to foot the bill for the next 30 years, which will mean a completely different way of life for all than now. The dollar is finished, as is the pound. Either way, gold will have great value. Some estimate gold might go as high as $2500 - $3000.

Bilal
Sep 18 2008 07:57 Report this comment

Turmoil on the market seems to be causing major convidence loss right now for any investor. I feel the FED should have bailed Lehman out as they have done for AIG. Dont be fooled by investing in gold as this would go down after the dollar starts to strenghten again.


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