Gold at record high again as investors shun riskier assets
US 10-year Treasury yields fall below 2pc for first time in 60 years after another brutal week for global stock markets
Published 20/08/2011 | 05:00
INVESTORS across the globe shunned riskier assets again yesterday, driving "safe havens" such as gold and the Swiss franc to record highs.
At the end of another brutal week in the markets, US 10-year Treasury yields fell below 2pc for the first time in 60 years, as investor demand for the safest assets grew stronger.
The yen reached a record Y75.93 against the dollar, while Swiss two-year bonds had a negative yield -- that meant it was costing investors to own them but they were being bought anyway for their perceived safety.
The Swiss franc gained for a third day versus the euro and advanced against the dollar.
Gold rose 1.5pc, setting a record high for a second straight day and heading for the biggest gain in a single week for two and a half years. Gold hit $1877 (€1,303) per ounce yesterday, up close to $200 over the past week.
Meanwhile, stock markets continued to plummet.
Though a late recovery in the US helped stock markets to pare some of their earlier losses, indexes across Europe still closed down for a third straight day in a row, with banks among the hardest stocks hit.
Lloyds Banking fell 4.8pc and Deutsche Bank dropped 2.7pc. In a sign of just how far banking stocks have fallen in recent weeks, the combined value market capitalisation of all European banks is now less than US tech giant Apple.
In one rare sign of leadership, Japan's finance minister Yoshihiko Noda said in Tokyo that the G7 group of the world's leading economies must act to contain the crisis.
The G-7 needs "very close co-operation in coming weeks", he said yesterday in Tokyo, but stopped short of outlining any proposals to restore confidence.
Three days of falling prices brought European shares to a two-year low -- battered by fears for global growth, sovereign debt worries and concern that banks could be cut off from funding if the situation deteriorates further.
Germany's DAX share index closed down 2.19pc last night and the EuroSTOXX index lost 2.15pc.
In London, the FTSE 100 closed down just over 1pc.
At the root of the market sell-off is fear that the world is rapidly heading into a second recession in four years, with no sign of anything to turn that situation around.
One of the most influential voices in US markets, Bill Gross of PIMCO, said that a fall in US Treasury yields to 60-year lows reflected a high probability of recession in the United States. PIMCO manages the world's largest bond fund.
JP Morgan and Citi became the latest banks to lower forecasts for US growth, adding to the gloom.
Gross domestic product will grow 1pc in the fourth quarter rather than the 2.5pc previously forecast and 0.5pc in the first quarter of 2012 instead of 1.5pc, JP Morgan said.
Citigroup cut its 2011 growth forecast to 1.6pc from 1.7pc and lowered its projection for next year to 2.1pc from 2.7pc.
"Business confidence is tailing off and global growth slowing, and Europe's debt situation appears to be getting worse and worse without any co-ordinated policy response," said Matt Riordan, who helps manage almost $6.6bn in Sydney at Paradice Investment Management.
Sliding share prices were not enough to tempt bargain-hunters, Markus Huber, head of sales at ETX Capital said, because "many who have jumped into the market on previous occasions when there was a major sell-off have been severely burned". (Additional reporting Bloomberg)