Precious metals have always been intriguing to investors because they tend to hold their value. In times of geopolitical crisis or currency devaluation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, historically, precious metals have been considered a “safe haven” in times of economic and financial instability.

That brings us to why gold is on a tear today. It declined in 2008 and early 2009 as panicked investors rushed into cash in an attempt to weather the financial crisis. But sometime in the middle on 2009, when investors began to move their money from the sidelines, gold started to rally. It returned 32.59% through the third quarter of 2009, vs. 19.26% for stocks.

The question is, where can we expect gold to go from here? In order to predict whether gold prices will skyrocket or come crashing down, it’s important to understand the principal factors that affect the price of any commodity: supply and demand.

The supply side of the equation is not particularly relevant in regard to gold because gold supplies remain fairly constant. That’s because production has not significantly increased due to a lack of new mining sites. Should supplies increase, however, investors may want to be cautious.

The demand side of the equation, then, is the one gold investors must look at. And as we noted above, demand for gold tends to increase when investors have a lack of confidence in the U.S. economy and financial markets.

That’s certainly the case today. In fact, we see two factors, that could lead gold to outperform in the near future: inflation and currency devaluation. In response to the financial crisis of 2008 and 2009, the Federal Reserve injected massive amounts of liquidity into the money markets. Ultimately, that increase in the money supply could devalue the U.S. dollar and lead to inflation. In fact, the U.S. dollar is already shockingly low. On October 14, 2009, it fell to a 14-month low against the euro, hitting $1.4947, the weakest since August 2008, according to Bloomberg. And while inflation is not yet a problem, economists are on the lookout for it.

These conditions led Standard & Poor’s (S&P) to raise its gold price assumption for 2010 from $750 per ounce to $800 per ounce. “Investors seeking a hedge against inflation risks and uncertainty in the financial markets continue to support gold prices,” the S&P analysts write. “The metal’s properties as a safe haven, and to a lesser extent the demand for jewelry, also support its longer-term price prospects.”

S&P’s estimate, however, may be on the low side. As of November 2009, gold was trading at more than $1,000 per ounce. And since gold exceeded $1,000 per ounce level, the price has been extremely resilient, with no meaningful pullback seen. There have been periods of profit-taking, but increased demand quickly appears on any weakness in price.

In sum, then, good old-fashioned gold fever is back—and investors who are looking for a promising trend may want to consider investing in it and other precious metals.

But don’t consider gold an investment only for troubled times. One of the greatest advantages of precious metals exists regardless of economic and market conditions. Precious metals tend to perform differently from other assets. As a result, investing in precious metals may be a good diversification strategy for a portfolio comprised mainly of stocks, bonds and real estate—in all environments.

This article was written by OilPrice.com – who offer free information and analysis on Energy and Commodities. The site has sections devoted to Fossil Fuels, Alternative Energy, Metals, Oil prices and Geopolitics. To find out more visit their website at: http://www.oilprice.com

U.S. employers cut far more jobs than expected last month and the unemployment rate hit 9.5 percent, the highest in nearly 26 years.

While analysts caution that jobs data is a lagging indicator and unemployment can still rise when the economy is turning around, it was enough to prompt investors to reduce their risk assets especially before a long weekend in the United States.

Furthermore, signs of a recovery in the euro zone’s dominant service sector took a backwards step in June with the final services purchasing manager index coming in at 44.7 in June, down from May’s seven-month high of 44.8.

This marks the thirteenth consecutive month the index has been below the 50.0 mark that divides growth from contraction.

“Payrolls were a wake up call,” said Jacques Henry, analyst at Louis Capital Markets, in Paris.

“The data showed that the economic recovery remains fragile and more downbeat data is to be expected, particularly on the jobs front. Stocks are ripe for a consolidation period.” MSCI world equity index fell 0.2 percent on the day, having hit the 1-1/2 week low earlier.

The pullback comes after the MSCI world equity index rose more than 21 percent in the second quarter, its biggest ever quarterly gain in its 21-year history.

“The equity rally hasn’t ended, but it is moving into a new phase. We’re moving from a period of very cheap equities and extreme risk aversion into one where equities are more fairly valued,” Bill O’Neill, portfolio strategist at Merrill Lynch Global Wealth Management, said in a note to clients.

“Future advances will be driven by earnings upgrades, rather than the recovery of investor demand that we have seen over the past few months.”

The FTSEurofirst 300 index was down 0.4 percent, led by mining shares. while emerging stocks were steady on the day.

U.S. markets are closed for a holiday on Friday.

U.S. crude oil fell 0.3 percent to $66.53 a barrel.

After the employment report, U.S. short-term interest rate futures jumped, trimming chances of rate hikes from the Federal Reserve this year.

“The BLS (Bureau of Labour Statistics) sprayed weed killer on our green shoots,” RBS said in a note to clients.

“Weaker-than-expected payrolls were a dose of grim reality for financial markets and expectations of US rate hikes and general optimism in markets can correct further.”

The September bund futures fell 11 ticks.

The dollar rose a quarter percent against a basket of major currencies while the euro rose 0.4 percent to $1.3997 .

LONDON, July 3 (Reuters)

Euro zone economic sentiment improved more than expected in June, data showed on Monday, as the European Commission predicted the worst could be over for the 16-country currency area.

“The ECB will find themselves affirmed that the economy is bottoming out and that the worst is over,” said Joerg Angele, analyst at Bayerische Landesbank.

“It’s bad, but it’s not getting worse.”

The FTSEurofirst 300 index rose 1 percent, led by energy companies and financials.

The MSCI world equity index edged up 0.12 percent towards 12-day highs hit on Friday. However, the index is down over 4 percent from the year’s highs set earlier this month.

U.S. stock index futures indicated a slightly higher open on Wall Street.

World stocks have shuffled sideways in the past few weeks as investors have questioned how quickly the global economy will return to growth, giving a boost to battered government bonds and pushing yields lower.

U.S. employment data are due on Thursday ahead of a U.S. holiday on Friday, and the European Central Bank and Sweden’s Riksbank issue policy statements this week.

“With the payrolls coming up, and the ECB and Riksbank, I don’t think there’s a great appetite to take on big risk this week,” said Maurice Pomery, managing director of Strategic Alpha.

Many investors are also sticking to the sidelines as the second quarter winds down and ahead of U.S. and European summer holidays.

CHINA WATCH

The dollar index, a gauge of its performance against six major currencies, dipped 0.05 percent to 79.833, but held off a two-week low struck on Friday.

The euro inched up 0.07 percent to $1.4059 , recouping losses earlier in the session, and the dollar was up 0.16 percent against the yen at 95.35 .

The dollar fell last week after China, which holds nearly $2 trillion of reserves believed to be concentrated in dollars, repeated its calls for an end to the dominance of a single currency in global finance.

China and Brazil said on the sidelines of a weekend meeting of central bankers in Basel they were discussing a currency arrangement to allow exports and importers to settle deals in local currencies, thereby avoiding the dollar.

Pressure from emerging market countries to seek an alternative to the dollar as reserve currency has contributed to weakness in the U.S. currency in recent weeks.

Crude oil rose 0.74 percent to $69.89 a barrel on supply concerns after Nigeria’s main militant group said it attacked a Royal Dutch Shell oil platform.

Euro zone government bond futures rose 20 ticks , helped by strong gains in UK gilts on month-end buying and weak UK data.

LONDON, June 29 (Reuters)

Concerns that Washington might nationalize big U.S. banks — which would wipe out shareholders and add to the fiscal burden — had weighed on stocks and other risky assets.

However, Bernanke said on Tuesday the significant value built up in the country’s banks would be lost if they were government-owned and though there could be a time when it became necessary to close banks down, now is not the time.

U.S. stocks rose more than three percent on Tuesday.

“It’s all about the equity rally we had last night and the U.S. shying away from nationalizing the banks,” said David Keeble, rate strategist at Calyon. MSCI world equity index rose 1 percent while the FTSEurofirst 300 index gained 1.5 percent.

Emerging stocks rose 1 percent. Oil rose 0.2 percent to $40.03 a barrel .

WANING STATUS

The yen fell as low as 97.33 per dollar , levels last seen in November. The Japanese currency also hit its weakest levels in almost seven weeks of 125.17 per euro .

A rapidly deteriorating domestic economy and political uncertainty has been hitting the low-yielding yen’s safe haven appeal, wiping out the inverse correlation between equities and the Japanese currency.

Wednesday’s data showed exports plunged a record 45.7 percent in January from a year earlier, with record slides in shipments to the United States, Europe and the rest of Asia pointing to a deepening recession across much of the world.

“The fundamental case for a weaker yen has become more pressing with Japan reporting its fourth monthly trade deficit in a row, suggesting that the current account surplus will melt down further, reducing commercial yen buying needs,” BNP Paribas said in a note to clients.

LONDON, Feb 25 (Reuters)

World stocks fell on Monday as optimism after Britain’s multi-billion rescue plan gave way to concerns about the banking sector after Royal Bank of Scotland reported the biggest ever loss in UK corporate history.

The euro tumbled after Standard & Poor’s cut Spain’s credit rating, following its downgrade of Greece last week. Oil fell 6 percent below $35 a barrel, hit by worries about weakening energy demand in a slowing economy.

Britain will allow banks to insure against steep losses and guarantee their debt to stop the credit crunch pushing the economy into a deep slump. The plan raises the government’s stake in RBS, which said it lost over 20 billion pounds last year, sending shares down nearly 70 percent.

“Whilst today’s measures will be widely welcomed, significant risks remain,” said Keith Bowman, equity analyst at Hargreaves Lansdown.

“All in all, should these measures fail, a further ratcheting-up of bank sector nationalization in order to force lending would appear to be the next step, a conclusion seen beyond all possibility just 12 months ago.”

The FTSEurofirst 300 index of leading European shares fell 2 percent, reversing gains of more than 1 percent earlier. The MSCI world equity index fell 0.8 percent, after making its biggest weekly loss since late November last week.

Emerging stocks fell 0.6 percent. UK banking woes knocked sterling to a two-week low of $1.4452 .

EURO AND DOWNGRADES

S&P cut Spain’s long-term sovereign credit ratings to AA+ from AAA, after it downgraded Greece last week and gave recent warnings on Ireland and Portugal. Worries about European government debt burdens have been growing as countries fund packages to boost local economies.

“It’s a theme in general … and it will continue to run for a while. Looking at the fiscal balances in Europe, that’s where the economic crisis is hurting at the moment – Ireland and Southern Europe,” said Niels From, chief analyst at Nordea in Copenhagen.

The euro fell 1.4 percent to $1.3139 . The dollar fell 0.7 percent to 90.31 yen while it rose 0.7 percent against a basket of major currencies.

The yield premium investors sought for holding the 10-year Spanish benchmark bond compared with the more liquid German government bond held at 114 basis points, having hit a record 122 bps earlier.

U.S. crude oil fell 6.2 percent to $34.25 a barrel, pressured by concerns about weakening oil demand, as well as signs of a resolution of a gas row between Russia and Ukraine and a ceasefire between Israel and Hamas in Gaza.

The March bund future fell 52 ticks.

LONDON, Jan 19 (Reuters)

A tentative rebound in global stocks spluttered on Wednesday while euro zone government bond yields hit a three-year low as gloomy economic news highlighted the case for more aggressive interest rate cuts in Europe this week.

The euro stayed on the backfoot and oil held near a 3-1/2 year low a day before the European Central Bank, Bank of England and Sweden’s Riksbank are all widely expected to cut borrowing costs.

Supporting those expectations, economic reports on Wednesday showed the euro zone’s services economy fell deeper into recession in November than initially thought and inflationary pressures eased.

“This is a horrible survey across the board, showing that the euro zone service sector is being hit ever harder by the financial crisis, muted consumer spending and markedly weaker activity in key export markets,” said Howard Archer, economist at IHS Global Insight.

Australia’s economy grew at its slowest pace in eight years in the third quarter as gathering recession abroad and evaporating equity wealth at home curbed spending by consumers and businesses.

Central banks worldwide are cutting rates to fight recession. They are also considering more measures to stabilise financial markets and restore battered consumer and investor confidence, including help for struggling U.S. auto makers.

The FTSEurofirst 300 index of top European shares fell 1.5 percent in early trade with Britain’s FTSE 100 index down 0.9 percent and Germany’s DAX  shedding 1.7 percent.

MSCI world equity index eased 0.4 percent.

“The markets are still looking very tender,” said Justin Urquhart Stewart, investment director at Seven Investment Management.

“Markets are not focusing on any of the good news and the good news is rates are being cut, commodity pries are coming down, stimulus packages are being put together and banks are being supported. But the market’s feeling very depressed.”

Japan’s Nikkei managed to eke out a 1.8 percent gain following a rebound on Wall Street on Tuesday, but MSCI’s measure of other Asian stock markets put on just 0.2 percent.

EURO PRESSURED AS ECB CUT EYED

Also under pressure, the euro fell 0.7 percent against the dollar on the day to $1.2626 and was also weaker against the yen , while the dollar climbed 0.6 percent against a basket of major currencies.

But demand for less risky assets continued to mount, helping to push government bond yields lower.

The 10-year euro zone government bond yield plumbed a low of 3.004 percent — a level last seen in Sept. 2005, while the benchmark 10-year yield for U.S. Treasuries was at 2.727 percent, not far off a five-decade low of around 2.651 percent set on Monday.

“Economic indicators are plunging like there is no tomorrow and central banks are gearing up for significant easing,” said Elwin de Groot, a strategist at Rabobank, noting 100 basis point rate cuts from Australia and Thailand this week.

The ECB meets on Thursday and most economists expect an interest rate cut of 50 basis points, while the Bank of England is forecast to cut rates by an aggressive 100 basis points.

Sweden’s central bank is likely to slash rates by a record 100 basis points, or possibly more, on Thursday when it announces the result of its meeting, which it brought forward by almost two weeks.

Meanwhile, U.S. crude edged up 41 cents to $47.37 but was within striking distance of Tuesday’s trough of $46.82 — a low last seen in May 2005.

Gold slipped to $774.80 an ounce, down $6.70 from New York’s notional close on the back of a broadly firmer dollar.

By Ian Chua
LONDON, Dec 3 (Reuters)

World stocks rebounded from a  5-1/2 year low on Friday and oil rose above $50 as expectations  of further interest rate cuts helped to cushion deepening gloom  about the broader economy.

Wall Street was set for a firmer start, one day after the  benchmark S&P 500 index fell to its lowest level since  1997 as troubles at Citigroup (C) and U.S. automakers  triggered fears about the wider economy.

However, hopes that the world’s central banks would cut  interest rates further — with talk that China might lower   borrowing costs later on Friday — helped world stocks off an  earlier 5-1/2 year low.

“The darkest hour is just before dawn,” said Justin Urquhart  Stewart, director at Seven Investment Management.

“The actions being taken are the key difference between the  1930s and now.”  MSCI world equity index was up 0.9 percent  after hitting its lowest level since April 2003.

The FTSEurofirst 300 index also rose 0.2 percent.  Emerging stocks gained 2.5 percent. U.S. stock futures  were up almost 3 percent.

U.S. crude oil gained 1.7 percent to $50.23 a barrel,  having hit a 3-1/2 year low below $49 earlier.

The December bund future fell 30 ticks, reversing  earlier gains. The two-year U.S. Treasury yield touched a fresh record low of 0.9586 percent before rising.

In Asia, the 10-year Treasury note dropped a full point in  price to yield 3.112 percent, after hitting 2.990  percent on Thursday — its lowest level since the 1950s. The  10-year yield was trading at above 4 percent only in June.

“The main risk is the recession and that we are probably  ahead of the worst year over the last century in terms of  economic growth and that this will take its toll on many  industries,” said Kornelius Purps, fixed income strategist at  UniCredit.

“We are probably only at the beginning of this poor  performance in terms of economic growth and other factors will  follow. This is quite worrisome and will keep a bid in the bond  market.”

The yen fell 1 percent to 94.62 per dollar after  hitting a three-week high beyond 94 earlier. The dollar fell 0.5 percent against a basket of major currencies.

LICENSE TO CUT?

Talk of Chinese interest rate cuts complemented a rumour  that authorities might soon announce the creation of a 300  billion yuan fund to support the stock market.

Euro zone interest rates are also expected to fall next  month, and possibly earlier. A purchasing managers index survey  showed on Friday that output of euro zone services and  manufacturing business sank much further and faster than  expected in November to record lows.

JP Morgan (JPM) also said that bigger-than-expected declines in  Canadian inflation also allow the central bank to cut interest  rates more aggressively in December by as much as half a  percentage point.

The Bank of Japan, however, kept its key policy rate  unchanged at 0.30 percent on Friday. Governor Masaaki Shirakawa  said more rate cuts could disrupt markets as they might cause  various problems in ensuring smooth fund supply in money  markets.