GOLD PRICES HIT RECORD HIGHS AS CENTRAL BANKS START BUYING PRECIOUS METAL - The cost of borrowing rose again yesterday with the interest rate applied to Irish Government bonds yesterday rising well above 5.9%. Ireland was not the only country to see the effects of renewed worries about sovereign debt and other euro zone countries such as Portugal also saw their cost of borrowing rise. Investors are putting more of their money into commodities - and gold in particular. The cost of gold hit $1,267 an ounce yesterday - an all time high.
Stephen Flood, a director of Goldcore, says that gold is up almost 16% in recent months and the previous metal has seen growth every year for the past ten years on the back of increased economic uncertainty worldwide. He says a raft of different investors are buying gold, ranging from institutional investors and central banks from around the world. He says that central banks are starting to favour gold because they see it as a stable form of currency. In the past they had not been interested in it as it did not pay a yield and so was not as 'interesting' as the like of US bonds. But with the economic climate the way it is, they are starting to change their minds, Mr Flood explains.
Mr Flood says no-one really knows when the gold rally will end, but says that perhaps that query could be rephrased as when will the risks start to abate? He describes the current situation as a 'gigantic poker game' and says that gold is so valuable because there is a fixed amount of the metal. He points out that all of the gold in the world could fit into a 20 metre high cube.
Investors are also becoming more interested in other commodities such as silver, and Mr Flood says that silver always rides on the back of gold's coat-tails. But he points out that it remains more volatile. In future days, Mr Flood says that commodity traders will look at the intervention of the Bank of Japan in an effort to halt the strength of the yen and also at what the US Federal Reserve is planning for the American economy.
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MORNING BRIEFS - Bloxham Stockbrokers have released their quarterly economic forecast this morning and have revised downwards their growth projection for next year. Previously, the stockbrokers had thought GDP would grow here by 3.5% in 2011, but now believe it will be more like 2.5%. Economist Alan McQuaid says that what we are seeing in the global and Irish economy at present is merely a pause and not the beginning of another significant downturn. He also claims that the forthcoming budget will do more harm than good to the economy and that the Government runs the risk of focusing too much on Anglo Irish Bank and not enough on the unemployment crisis.
*** With Junior Certificate results out this morning, the employers group IBEC has called for the exam to be scrapped. IBEC says the exam should be replaced by a system which puts emphasis on a broader range of skills. IBEC says the current system is over-crowded and rigid.
*** The European Commission will publish draft rules that will deal with the trading of complex financial products later today. The EC has the derivatives market in its sights - the type of products that have taken much of the blame for the global economic crisis. The draft proposals - which would have to be endorsed by the European Parliament and the Council of Ministers - will also deal with the issue of short-selling.
*** The Japanese central bank has intervened to prevent the Yen from rising any further after it hit a 15-year high against the US dollar. The country's Finance Minister said Japan had taken action in the currency market as the impact of the yen's rise on the economy could not be ignored. This is the first time in six years that Japan has made such a move, and it comes amid concerns that the profits of the country's largest exporters could be affected.
*** On the currency markets, the euro is currently worth $1.2980 US cents and 83.7 pence sterling.
