THE SPOT PRICE OF PHYSICAL GOLD back half of an early Asian bounce Monday morning, recording its first London Gold Fix of March at $949.50 per ounce.

Almost 6% above its average level of 2009 to date, the Gold Price also rose for UK and European investors, while European shares sank, dumping 3.5% by lunchtime in Frankfurt.

Crude oil lost more than 5% to drop below $42.50 per barrel.

“There’s absolutely no respite for G10 economies in sight,” says Steven Barrow in a note to clients from the currency desk at Standard Bank.

“The only major market that’s probably not confused right now is the stock market. Equity prices are on their knees; the floor should follow soon.”

Today HSBC, the largest bank in Europe by market value, asked shareholders for $17.7 billion in new capital to shore up its balance sheet.

Insurance giant AIG – rescued by $150bn of US government funds the week before Lehman Bros. was allowed to fail – today reported a further $62bn loss for the end of 2008.

The largest quarterly loss in world history, it led the US government to offer AIG a fresh credit line of $30bn over the weekend.

“Although gold is a hard asset and can’t become worthless,” reported the Chicago Tribune on Sunday, “it falls out of favor among investors when they become more optimistic and can earn dividends and interest in a wide range of stocks and bonds.”

Last week world equities closed February lower for the 11th out of 19 months since August 2007, back when the financial crisis began.

Friday also saw the S&P index of America’s top 500 stocks finish February at a 12-year low, completing a “Double-Top Pattern” that technical analysts believe forecasts sharp losses ahead.

“My long term opinion is that the bear market has several years left to run, and stock prices will go a lot lower,” said Bob Prechter, head of Elliott Wave International, to Reuters on Friday.

“Any rally that happens is going to be a bear market rally…We are less than halfway through it price-wise…one reason being that companies continue to lower earnings.”

First calling for the United States to suffer a deflationary depression in 2002 – five years before the housing boom peaked – Prechter now says “Gold and silver should go significantly lower. Too many people now think owning them is a good idea.”

Instead, “Safe cash equivalents are still where you want to be,” he believes, adding that “I am still in favor of US T-bills” even though “Treasury bonds have started a bear market.”

Government bond yields fell worldwide on Monday as investors continued to bid prices higher, pushing the annual return offered by one-year German bunds beneath 1.0% for the first time in history.

Consumer price inflation in the 16-nation Euro currency zone unexpectedly rose to 1.2% in Feb., the official data agency said in this morning’s “flash” estimate. But the European Central Bank (ECB) is still expected to cut Euro interest rates to a fresh record-low of 1.5% when it meets this coming Thursday.

Here in London, the Bank of England is set to cut UK Pound rates to 0.5% after reporting a new record low in mortgage approvals and consumer credit growth.

“Gold had already rallied $10 by the time [Tokyo’s] Tocom opened,” notes Mitsui in its precious-metals note today, but “Resistance is coming from the trend channel” starting from last week’s $1,000 top – a channel that Mitsui now sees capped to $958 at the top.

Over in the silver market, where prices continue to “track gold closely” says Mitsui, “some ETF investors [are] losing confidence.

“Approximately 4 million ounces were removed from the iShares silver ETF numbers on Friday, the first drop we have seen since the 6th January.”

The volume of gold held in trust for US Gold ETF buyers crept 0.3 tonnes meantime higher last week.

But London’s GBS exchange-traded gold fund – whose shares are now backed by 9.807% of an ounce of gold, down from fully one-tenth at the launch in 2003 – saw its holdings shrink by 5%.

Over in the investment-jewelry market of India, “There was no gold import during February,” confirmed Suresh Hundia, director of the Bombay Bullion Association, to the Press Trust of India in New Delhi today.

“Imports are negligible,” his vice president, Harmesh Arora, added to Dow Jones Newswire.

“If at all, it was less than 1 tonne” – down from 23 tonnes in Feb. 2008 – due to “the absence of any demand due to high prices.

“Moreover, there is no fresh buying in the market as people are selling old jewelry to book profit.”

The US Gold Futures market also saw buying pressure ease, with hedge funds and other “large speculators” cutting their bullish contracts to a 13-week low as a proportion of overall gold positions.

The new data – released after Friday’s close – however showed the total volume of outstanding US gold derivatives swelling to an 8-month high, just as the Dollar-price slipped back from $1,000 an ounce.

Adrian Ash
BullionVault

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 – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

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