The last quarter of 2008 was the most significant time for the precious metal industry as the fundamentals for gold’s price exponential rise in 2009 were falling into place. As the U.S. Treasury started to bear down on mortgage lenders who were actually on a uncontrolled downward spiral due to non performing loans (Fannie Mae and Freddie Mac) a $200 billion dollar injection into the mortgage industry was being formulated almost every market took a plunge, including the precious metal industry as the credit markets begin their systemic ‘lockdown’.
Although gold was bearish, investors were unable to drum up capital to buy as they were intensely caught up in shoring losses in other markets. Despite the US government working out a bailout gold fell to as low as $681 in October of 2008 before settling back at $729.10 towards the end of the moth. Towards November and December gold rebounded and settled at $884.30 which was an 80 dollar an ounce increase if compared to prices of December 2007which made the precious metal industry one of the very few industries to finish the year with a significant gain.
Despite the federal reserve taking evasive action during the monetary policy meeting in December which included among others reducing the Federal Funds target and launching quantitative easing by buying $600 billion in agency mortgage backed securities as well as agency debt the pressure was overwhelming as total purchases of securities exceeded $1 trillion. The stage for the meltdown was set and Europe’s economy started fracturing and as 2009 swung into view, bankruptcy seemed to be the only solution for most of these financial companies.
As capital markets dried up and banks refused to even lend to each other in order to maintain a positive balance sheet outlook the precious metal industry swung into action.