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THE PRICE OF GOLD ticked lower in Asia
on Wednesday, holding below $950 an ounce in early London trade as world
stock markets added to Wall Street's strong overnight close.
"Gold [on Tuesday] had all the makings of a beautiful technical
reversal," writes Russell Browne at London market-maker Scotia Mocatta,
"but the late bounce keeps the risk to the topside."
Pointing to support at $950 and then $934, he pegs resistance at $961 and then
$966.
"I would be surprised if we don't reach a new high by the end of the
year," said Chuck Jeannes, CEO of GoldCorp – the world's No.2 Gold
Mining stock by value – at a conference yesterday.
"Markets move based on fear and expectation of what's going to happen,
not when it actually does. [So] whether inflation appears in a year or six
months or two years, we're focusing long term, and I do think it's going to
dominate the trade in gold for a long time to come."
Consumer prices fell in Germany this month acording to regional surveys, but
the European Union's €200bn fiscal stimulus is "starting to
work" according to Commission president Jose Manuel Barroso.
"If we want to avoid a repeat of international imbalances," said
European Central Bank policy-maker Lorenzo Bini Smaghi in a
speech in Rome this morning, "it is necessary that countries with a
systemic impact, such as China, adapt their monetary policy and allow their
exchange rate to fluctuate to reflect competitiveness."
The US Dollar today held steady against most major world currencies, trading
better than ¥95.25 and $1.3930 to the Euro.
But the British Pound jumped to fresh 7-month highs to the Dollar and 15-week
highs vs. the Euro on news of a small rise in new UK mortgage approvals.
That pushed the Gold Price in Sterling down to its lowest level in 2009,
dropping 1.3% to £591 an ounce.
"Importantly, in the medium term we don't expect a sharp rebound in
overall economic activity," warned Marius Kloppers, head of global
minerals and energy giant BHP Billiton yesterday.
"In fact, we probably believe that economic recovery will be both slow
and protracted."
Guessing that recent base-metal hoarding by China was due to Beijing's $587 billion fiscal stimulus – rather than improved economic demand –
"There may have been some over-buying in anticipation of the stimulus
package, which may have led to some stock-build ahead of real demand,"
Kloppers told a mining conference.
For the Opec oil cartel, in contrast, "There is no need to cut
production," claimed Saudi oil minister Ali al-Naimi in Vienna today, forecasting a return to $75 per barrel by the end of this year.
"The reason we don't want
to [cut output] now is that supply and demand is so out of balance. Making
another cut now would not help stabilize the market."
The Dubai stock market rose to a 5-month high this morning as US crude oil futures broke back above $60 per barrel.
The Baltic Dry Freight Index – a measure of bulk shipping costs and
thus world trade – "has continued to rally over recent
weeks," notes Leon Westgate at Standard Bank today, "reaching the
highest level since early October and nearly 4.5 times above the lows of
early December.
"The index still has a very long way to go in order to reach the peak
seen this time last year. However, the continued recovery [is] a positive
sign in terms of continuing Chinese demand for bulk commodities and by
inference, industrial metals generally."
Last year's two-thirds collapse in base metals prices meant that mining-stock
corporate activity "slowed markedly" between Jan. and March
according to Price Waterhouse Coopers' latest report on global M&A.
Only 18 deals were completed or pending, with a potential value of $12bn.
The first quarter of 2008 saw 142 deals worth $78.6bn – itself a 75%
drop from 2007.
"The decline in deal activity for the metals does not come as a
surprise," says Jim Forbes, leader of PwC's mining team.
"With strategic buyers' general aversion to risk, as well as tight
credit and weak commodity prices, we are likely to continue seeing
acquisitions of minority stakes as the preferred deal type throughout
2009."
New data yesterday showed South Africa – formerly the world's No.1 Gold
Mining nation – slipping into recession for the first time since 1992
at the start of this year, with GDP falling 6.4%.
Already halving from the peak of 10 years ago, South Africa's gold output
fell 10% from the fourth quarter of 2008.
Gold Mining output from world No.5 Russia, in contrast, rose 39% during the
first four months of this year, according to the domestic mining lobby.
Shandong Province in China – the most productive region of the world's
No.1 gold producer – is now planning to raise its output 12% by 2011,
reports the People's Daily Online today.
"Traditionally, central banks held their reserves in gold rather than
other countries' government bonds," writes Martin Hutchinson at Prudent Bear. For the major central bank pools of
money – such as Japan, China, Taiwan and the Middle East – we are
likely to go back to that."
Last month the Chinese central bank reported 75% growth in its Gold Bullion
reserves from 2004, pushing it into fifth place in the league table up at
1,045 tonnes.
"They will diversify a bit from gold," reckons Hutchinson,
"possibly to silver [and] also to non-traditional commodity stores of
value such as grain, copper, other metals and especially oil. [But] this
change in central bank investment policy will...cause an enormous bull market
in gold, whose annual production is worth only about $100 billion at current
prices, a pittance in relation to the weight of money heading its way.
"A Gold Price of $5,000 per ounce is well within reach."
Adrian Ash
Head of Research
Bullionvault.com
All
articles by Adrian Ash
City correspondent for The Daily
Reckoning in London, Adrian Ash is head of research at www.BullionVault.com – giving you
direct access to investment gold, vaulted in Zurich, on $3 spreads and 0.8%
dealing fees.
Current gold price, no delay
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