US financial woes revive gold miners, explorers

WITH comparisons to the Great Depression coming from many quarters, the collapse of Wall Street investment bank Lehman Brothers and the US Federal Reserve’s 80% takeover of insurance giant American International Group for $US85 billion this morning has triggered massive volatility and seen gold soar.

As of yesterday afternoon the US S&P 500 index was down 7.6% for the week which had it on track for the largest one-week percentage decline in more than six years.

However the key index has rebounded this morning as it trades 4.33% up on the back of the Federal Reserve injecting billions of temporary reserves into the banking system.

Reported by Reuters, the Federal Reserve overnight added $US50 billion through a repurchase agreement for which unnamed banks submitted a total of $77.65 billion in bids.

With similar action taken during the day, a total of $US105 billion of temporary reserves have been added to the system.

All this action from the central bank of the world's largest economy follows the bail-out of US mortgage giants Freddie Mac and Fannie Mae last week.

This deal leaves the Federal Reserve exposed to some $US5.4 trillion in outstanding mortgage debt which the lenders owned or guaranteed.

The combination of these unprecedented moves from the central bank should cause more inflation around the world and are likely to debase the US currency.

More bank collapses are likely this year. In America alone, the Federal Deposit Insurance Corporation has a list of well over 100 troubled banks.

There is mounting media speculation that the next big American bank to fall into bankruptcy will be Washington Mutual.

In the meantime struggling investment bank Merrill Lynch has been offered a $US50 billion takeover from the Bank of America, and has also been linked to a possible merger with embattled retail bank Watchovia Corporation.

A takeover of Merrill Lynch could have possible ramifications for its backing of InterOil and Liquid Niugini Gas and this will be watched by in the coming weeks.

With gold as a traditional hedge in bear market conditions and counter to expected falls in the US dollar caused by excessive money supply, Comex gold futures are trading at $897 an ounce, up a massive 20.32% from $US745.5/oz last week.

The surge in gold has driven the biggest gains in our watchlists this week with Lihir Gold jumping a whopping 51.69% from last week as it last trades at $A2.70 on the Australian Securities Exchange.

Explorer Goldminex Resources has also seen a surge for the week of 11.84% as it climbs to $A1.70.

On the Toronto Stock Exchange Buffalo Gold gained 33.33% while New Guinea Gold surged more than 18%.

Nautilus Minerals, which recently discovered two additional seafloor massive sulphide systems near its established underwater Solwara gold and polymetallic deposit, has gained nearly 12% for the week.

Meanwhile, all companies not associated with gold or copper have suffered on the back of the massive volatility resulting from the Lehman bank collapse that hit the headlines at the start of the week.

The ASX and other international markets are expected to make turnaround recoveries on the back of today's surge in the American markets, after copping beatings during the week, but how long this will be sustained is uncertain.

From yesterday afternoon, the ASX 200 index had fallen more than 11% over a three-week period and was down 28% for the year.

One stock market not affected by all the volatility has been the Port Moresby Stock Exchange.

Shares in the POMSoX have been flat, a result of technical problems in the exchange that have hindered its operation all week.

The last trading data presented in the tables has been unchanged for several days, and the only notable change from last week has been a drop in the value of New Britain Palm Oil shares, which could have been caused by its recent takeover of Ramu Sugar, also known as Ramu Agri-Industries.

For commodities, oil has fallen below $US100 a barrel with Singapore Tapis crude closing last night at $US99.30 per barrel compared to $US104.23 last week.

The drop in the oil price can be linked to expectations of lower demand in the wake of America's growing financial crisis, as the nation is the leading consumer of energy in the world.

Base metals are mixed with London Metal Exchange copper closing at $US6932 per tonne yesterday, up slightly from $US6900 last week.

LME nickel closed at $US16850/t yesterday compared to $US18430/t, a fall of 8.57%.

For overseas investors seeking to buy stocks on the POMSoX, contact Kina Securities Limited shares advisor Michael David in Port Moresby on (675) 308 3825


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