Gold seen as a safe haven in present "confidence crisis"

Safe-haven gold rally continues after rate cuts

NEW YORK/LONDON, Oct 8, 2008 - Gold rose to a nine-day high on Wednesday 8 October 2008, extending a safe-haven rally after coordinated interest rate cuts by major central banks failed to restore confidence to battered financial markets.

U.S. gold futures rose 2.8 percent, and silver jumped 3.4 percent as investors continued to flee the stock market and park their money in hard assets. Global central bank rate cuts fail to calm markets, leading to investor rush to safer assets that boosts gold's appeal.

Global central banks ease rates by 50bps. Gold rallies more than 2 percent and settles above the $900 region.

"Gold truly is the commodity, and silver by its parasitic role, they are truly the flight-to-safety vehicles. With the dollar losing some ground, that lent a little bit of support as well," said Bill O'Neill, a partner at LOGIC Advisors.

The Dow Jones industrial stock average ended down 189 points. It had spent some of the day in positive territory after a series of scary slides reflecting pessimism about whether global credit system bailouts will prevent economic disaster.

Central banks around the world cut interest rates in unison in a joint response to the world's worst financial crisis in nearly 80 years.

December gold reached $924.90, its highest since Sept. 29 2008. It settled $24.50 higher at $906.50 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold rallied to $920 an ounce, its highest since Sept. 29 2008 and was last quoted at $913.80 an ounce, up 3.1 percent from $886.60 at Tuesday's New York close.

"Gold will still continue to gain safe-haven interest," said Simon Weeks, director of precious metals at Bank of Nova Scotia.

"I do not think the cuts will solve the situation. It will help smooth the situation, but I don't think there are any miracle cures at the moment," he said.

The metal touched multiyear highs in several other currencies. In South African rand, it touched its highest price recorded on Reuters data, which goes back to 1990. In Australian dollars, it was at the highest since 1985.

Spot gold has risen 25 percent since mid-September as a deepening financial crisis, spreading to banks in Europe from the United States, prompted investors to sell investments in equities markets and seek refuge in safer assets.

But it remained well below its lifetime high of $1,030.80 an ounce struck in March 2008.

Physical demand for gold also has shot up, analysts say, as consumers invested in gold coins amid news of banks being taken over by governments or sold to rivals.

The U.S. Mint said on Tuesday 7 October 2008 that because of the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is "unprecedented."

Unprecedented demand for precious metals and volatile markets forced the U.S. Mint to cease production for the half-ounce and quarter-ounce popular American Eagle gold coins for the rest of this year 2008 and to supply other bullion coins on an allocation basis.

"Due to the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is unprecedented and the demand for platinum is unusually high," the U.S. Mint said Monday in a memorandum to its authorized coin dealers.

"The U.S. Mint has worked diligently to attempt to meet demand, however, blank supplies are very limited and it is necessary for the U.S. Mint to focus remaining bullion production primarily on American Eagle Gold one-ounce and Silver one-ounce coins," the Mint said.

The Mint said it would continue to supply one-ounce American Eagle gold coins and one-ounce American Eagle silver coins on an allocation basis to coin dealers.

For half-ounce and quarter-ounce American Eagles, the Mint said that inventory was depleted last week and no more coins would be produced for the rest of 2008.

In addition, the Mint said it would produce 1-10th ounce Eagles based on current coin blank supplies, but would cease production for the rest of this year once the remaining inventory was depleted.

Produced from gold mined in the United States , the 22-karat American Eagles have been novel items among collectors and investors since their introduction in 1986. Each coin has a face value of $50 but it is sold by authorized dealers at a premium to the price of gold.

AMERICAN BUFFALO , AMERICAN EAGLE PLATINUM
The Mint said it would continue to supply 24-karat American Buffalo one-ounce gold coins based on current blank supplies, but would halt production once the remaining inventory was out.

The Mint had suspended sales of the Buffalos in late September 2008 due to strong demand and inventory depletion.

Similarly, the Mint said that all denominations for American Eagle platinum bullion coins were depleted last week, and it would halt production for the rest of the year 2008 once the remaining inventory was depleted.

Coin dealers from the United States to Canada have recently reported a surge in buying of bullion coins.

Meanwhile, holdings in the world's largest gold-backed ETF, the SPDR Gold Trust, rose to 745.22 tonnes as of Oct. 8 from 744.54 per tonne as of Oct. 7 2008.

December silver jumped 43.0 cents to $11.81 an ounce. Spot silver went out at $11.74 an ounce, versus the close at $11.51 an ounce on Tuesday.

Spot palladium closed unchanged.

Platinum fell, ending the day near $990.50 an ounce, down from $1,004.00 amid heavy selling on fears of falling demand for autocatalysts. It tumbled to $920 an ounce on Monday 6 October 2008, its lowest level since November 2005, on the back of poor car sales, especially in the United States.

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