Gold: Gold closed lower in US trading on Friday at $1,057/oz. It traded sideways in Asian trading prior to jumping from $1,066/oz to $1,073.50/oz in early trade in Europe. Gold is currently trading at $1,070.20/oz and in euro and GBP terms, gold is trading at €783/oz and £688/oz respectively. Gold’s 2.7% fall (in US dollars) last week led to further technical damage and may embolden some traders to short the market. However, the supply demand fundamentals remain sound and could see gold supported above previous resistance at $1,030/oz. Especially as interest rates remain near zero and macroeconomic and systemic risk remains elevated. Safe haven investment demand may be boosted by sovereign contagion risk.

While European stock markets have eked out gains this morning, concerns of financial contagion due to the risk of a large sovereign default linger. This may lead to continuing risk aversion until these concerns are allayed. While all of the focus has been on European sovereign debt issues, it should be remembered that the US faces similar challenges (both at national and state level as in California) and Treasury Secretary Geithner yesterday sought to dispel concerns regarding the US budget deficits and federal deficit by saying that the US would “never” lose its AAA credit rating (see news below).

An article put out by Reuters Sunday morning noted that holdings of the largest (so-called) bullion-ETFs shrank significantly in January. As with most “analysis” of precious metals by mainstream talking-heads, Reuters totally misunderstood the dynamics at work.

“Analysts fear sustained outflows from gold ETFs if investors' attitude towards bullion sours, which could be a drag on prices,” said Reuters, proving that these anonymous “analysts” know nothing about the precious metals sector.

When a daisy chain of retrocessionaires exists, a single weak link can pose trouble for all. In assessing the soundness of their reinsurance protection, insurers must therefore apply a stress test to all participants in the chain, and must contemplate a catastrophe loss occurring during a very unfavorable economic environment. After all, you only find out who is swimming naked when the tide goes out. At Berkshire, we retain our risks and depend on no one. And whatever the world’s problems, our checks will clear.