Gold prices rallied to a nudge a fresh all-time high of high today of $1,818 just ahead of the release of U.S. Weekly Jobless Claims amidst signs that there was eroding business growth and a possible double dip in the economy. Gold has risen by over $21 today to its highs, which is a gain of 1.2%. At the time of writing the market is digesting worse than expected jobs data which confirm that the economy is struggling.
Gold remains not only a safe haven in an economic crisis, but it also provides one of the clearest and broadest bell-weathers of market sentiment. That being so, the gold market is telling us that we are potentially heading towards a second and perhaps more damaging economic crisis. Gold is giving the clearest signal to policymakers that there needs to be a comprehensive and cogent plans to reduce the debt levels and restore some growth. There is a growing sense that our leaders are failing in this task and there remains a policy vacuum with regards to the economic crisis at the heart of European and US administrations.
Market sentiment is especially fragile at this time and there is particular sensitivity to jobs data. Market forecasters jobless claims and had expect an increase of 5,000 Americans filing claims for jobless benefits to 400,000 but the figure came in at 408,000 which was worse than expectations. The U.S. CPI data will also be scrutinized as it provides quite a broad measure of possible rising inflation.
Meanwhile, there was carnage in the equity markets were they sold off again with the FTSE currently down 2.6% with banks some of the biggest losers – Barclays down 6.35% and Lloyds down 5.86% – amidst fears that China would be raising interest rates which would slow demand from that region. Chinese inflation rose sharply last month, with China CPI figures at 6.5%, which is fueling significant demand for physical gold. China's investment demand for small bars and coins rose 44% y-o-y last quarter by 44% according to the World Gold Council.
A gloomy report from Morgan Stanley has significantly reduced the global growth outlook from 4.2% to 3.9% in 2011 and from 4.5% to 3.8% for 2012 leaving Europe and the USA "dangerously close to a recession."
Ross Norman is the owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.