Gold hits $1,000 as recession fears grow

US retail sales and jobless data shock markets; Falling dollar pushes gold and oil to record highs

The dollar and stock markets on both sides of the Atlantic had a torrid time yesterday, as yet more data suggested that the US economy is close to, or actually in, recession.

Gold broke through the $1,000 an ounce mark for the first time, while oil crested a record $111 a barrel as the weak dollar combined with more fundamental factors to push commodity prices higher.

Reversing two days of gains after the co-ordinated action by global central banks to ease the credit crisis, the UK's blue-chip FTSE 100 index lost 1.5 per cent, or 84 points, to close at 5,692.4. In New York, the Standard & Poor's 500 index dropped 1.7 per cent within minutes of the opening bell, and the Dow Jones industrial average was down by more than 200 points.

Trading was dominated by renewed fears about the perils of a collapse in the value of the dollar and the ever-dimmer prospects for growth in the world's largest economy.

Gold is seen as a safe hedge against rising global inflation and weaker equities, and trading in it has greatly expanded since the advent of exchange traded funds (ETFs). It is favoured in Asia, especially India, and the Middle East. The World Gold Council reports that the value of ETFs traded in London rose by 552 per cent and a further 105 per cent respectively in the third and fourth quarters of last year, a measure of the funds flowing into the yellow metal. For the past few months, investors have been favouring gold and other commodities over equities and the dollar as economic fears intensify.

Against other currencies, the dollar fell to an eight-year low against the yen, down to ¥100 to the dollar again, and the euro registered yet another record high. The pound, which has been depreciating steadily since last autumn, was up against the dollar at $2.0332.

The shock to the markets came with the release of the official US retail sales figures for February. Last month, sales shrank by 0.6 per cent on their January levels, well below the modest 0.2 per cent increase anticipated by traders. Previous data was also adjusted downwards, with car sales slumping 2.2 per cent on the month. Sales of gasoline and home-related spending were also notably lower.

Meanwhile, the US Labour Department said that jobless figures climbed to a two-and-a-half-year high, at 2.8 million in the last week of February, the highest since September 2005. Import prices jumped 13.6 per cent on the year, a combination of high oil, commodity and food prices and the lower external value of the dollar, which will also diminish the spending power of US households.

"No wonder the consumer stopped spending," said Chris Rupkey, senior financial eco-nomist at Bank of Tokyo-Mitsubishi. "Confidence is at recession-type lows."

And, in further confirmation that there is no end in sight for the US housing slump, home foreclosure filings jumped 60 per cent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners were unable to sell or refinance as prices went into freefall. More than 223,000 properties were in some stage of default, or one in every 557 US households, according to RealtyTrac, which gathers default data. The highest rates are in Nevada, California and Florida.

"This is continuing to worsen," Susan Wachter, professor of real estate at the University of Pennsylvania's Wharton School in Philadelphia, said in an interview. "It tells us that we are not at a bottom."

Property prices fell by 8.9 per cent in the fourth quarter of 2007, according to the S&P/Case-Shiller home price index. The uncomfortable fact is that the US sub-prime crisis has spread to the prime market.

Rick Sharga, executive vice-president of RealtyTrac, said that foreclosure filings are likely to be "explosive" in May and June, raising the possibility that America will see 1 million bank repossessions in 2008. "We're in a vicious cycle," Mr Sharga said. "Even people who want to buy a home now are having trouble getting a mortgage."

Given that the US economy grew by a mere 0.6 per cent in the last quarter of 2007, and that even that barely positive reading was down to the relative health of US exports, aided by the weak dollar, most economists believe that, in terms of domestic demand, the US is already in recession, as acknowledged recently by that doyen of American investing, Warren Buffett. Barney Frank, the House Financial Services Committee chairman, and Christopher Dodd, the Senate Banking Committee chairman, also said yesterday that the US is in a recession, and unveiled plans to increase government efforts to prevent foreclosures amid the worst housing slump in a quarter of a century. Economists are predicting the weakest pace of consumer spending since 1991 in 2008.

Wall Street was only steadied by widespread speculation that the Fed will cut interest rates again on Tuesday, possibly by 0.75 percentage points to 2.25 per cent – on top of the 1.25 percenatge points of cuts already made since January. More cheer came from an announcement by Standard & Poor's that the worst is over: "The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation writedowns of sub-prime asset-backed securities."

S&P says that global writedowns linked to the US sub-prime crisis could reach $285bn (£140bn), $20bn more than expect-ed earlier this year. But there is scope for worse losses: encouraged by low interest rates and rising housing prices, and with a degree of mis-selling, banks and other financial institutions granted about $1.2 trillion of sub-prime, or risky, loans in the United States between 2005 and 2007.

In New York, the Dow Jones closed up 35.5 points, or 0.3 per cent, at 12,145.7, while the S&P rose 0.5 per cent to 1,315.5.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Recruitment Genius: Claims Administrator

£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

Day In a Page

The saffron censorship that governs India: Why national pride and religious sentiment trump freedom of expression

The saffron censorship that governs India

Zareer Masani reveals why national pride and religious sentiment trump freedom of expression
Prince Charles' 'black spider' letters to be published 'within weeks'

Prince Charles' 'black spider' letters to be published 'within weeks'

Supreme Court rules Dominic Grieve's ministerial veto was invalid
Distressed Zayn Malik fans are cutting themselves - how did fandom get so dark?

How did fandom get so dark?

Grief over Zayn Malik's exit from One Direction seemed amusing until stories of mass 'cutting' emerged. Experts tell Gillian Orr the distress is real, and the girls need support
The galaxy collisions that shed light on unseen parallel Universe

The cosmic collisions that have shed light on unseen parallel Universe

Dark matter study gives scientists insight into mystery of space
The Swedes are adding a gender-neutral pronoun to their dictionary

Swedes introduce gender-neutral pronoun

Why, asks Simon Usborne, must English still struggle awkwardly with the likes of 's/he' and 'they'?
Disney's mega money-making formula: 'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan

Disney's mega money-making formula

'Human' remakes of cartoon classics are part of a lucrative, long-term creative plan
Lobster has gone mainstream with supermarket bargains for £10 or less - but is it any good?

Lobster has gone mainstream

Anthea Gerrie, raised on meaty specimens from the waters around Maine, reveals how to cook up an affordable feast
Easter 2015: 14 best decorations

14 best Easter decorations

Get into the Easter spirit with our pick of accessories, ornaments and tableware
Paul Scholes column: Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season

Paul Scholes column

Gareth Bale would be a perfect fit at Manchester United and could turn them into serious title contenders next season
Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss