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London
Gold Market Report
THE PRICE
OF GOLD held in a tight range just below $1,000
an ounce in Asian and early London trade on Tuesday, while global equities,
bonds and raw materials also held flat.
Only
the British Pound moved sharply on the forex market, falling to a 5-session
low vs. the Dollar on stronger-than-expected UK inflation data.
New data showed producer input prices in the United States rising almost
twice as fast as analysts predicted in August, up 1.7% from July.
"Given the inflated [speculative] positions for the precious
metals," says one London dealer in a note, "it is difficult to see
where the next impetus will come from."
"Investors are very long," agrees MKS Finance in Switzerland,
"and Gold will have to further consolidate before attempting another
assault higher."
But "The short-term Gold technical picture remains bullish while the
$990 level holds," says Scotia Mocatta, the bullion bank.
"We will need multiple down days to shake the bullish sentiment."
Speaking at the annual Gold Forum in Denver, Colorado yesterday, head of the
CPM commodities research group Jeffrey Christian noted that "We are now
into the ninth year of the current bull market in gold. We have had more
investors buying more gold for a longer period of time than ever before.
"They probably will continue to buy even if the economy
stabilizes."
Current prices need investors to buy 60-70% of world mine production
according to Paul Walker of London-based GFMS, thanks to the global drop in
jewelry and industrial demand.
"Is that sustainable indefinitely?" Walker asked. "I don't
know."
GFMS's latest updates to its Gold Survey 2009 – launched here in London on Monday – predict a 19%
drop in world jewelry demand this year. Overall Gold Investment demand is set
to show growth of 478%.
"I think the downside in Gold is limited to 5-10%," said GFMS
chairman Philip Klapwijk in Q&A following his presentation. "Whereas
we could see other commodities dropping perhaps 30% on a setback."
Noting the huge Jump in Gold Derivatives Bets, "Speculators are
rebuilding their positions" after the dramatic halving of open interest
in 2008. "That's not to say we can't see a correction from current
'frothy' levels...but [that would] set us up for renewed gains to new record
prices."
Looking at scrap-metal supply – spurred by record-high prices across
India and south-east Asia, as well as new gold buying operations such as
Cash4Gold in the West – the "supply shock" of early 2009 has
not yet returned despite higher Dollar Gold Prices, Klapwijk reported, while
central banks are now "net purchasers" after acting as "heavy,
price-insensitive sellers" every year since 1989.
Jeffrey Christian of CPM Group told the Denver Gold Forum on Monday that
central-bank demand will now equal 185-310 tonnes of gold per year –
and "that is an extremely conservative projection."
But "We must be aware that the bull market will not last forever,"
Klapwijk said in concluding Monday's GFMS presentation here in London,
highlighting "two warning shots" in the consultancy's long-term
global analysis.
First, annual net demand – meaning all gold-product fabrication minus
old-scrap supply – has been lagging annual mining output since 2001,
creating a surplus this year of some 1,500 tonnes.
Second, and after annual jewelry fabrication first turned lower in 1997, the
volume of physical Gold Investment is now close to overtaking it.
For the time being, however, GFMS believes sheer "weight of money"
makes a strong case for Gold Investment, firstly because global allocations
as a proportion of portfolios remain low; real interest rates after
accounting for inflation are low to negative, making the on-going costs of
gold storage less onerous; and fears over inflation and the fate of the US
Dollar "will only grow" over the coming six months or more.
"Anybody that's long a lot of US Dollars – China being one, maybe
the Middle East – they're going to go: 'This thing is going downhill
fast'," forecast Gold Mining entrepreneur Rob McEwen, former chief of
GoldCorp and current CEO of both US Gold and Minera Andes Inc., at the Denver
Gold Forum yesterday.
"[They're going to think] 'We have to get out of it and we're going to
buy assets'."
Ending his presentation with a lottery to win a mock $1 trillion bill,
reports Dorothy Kirsch at MineWeb today, McEwen named a Gold Price of $5,000
an ounce by 2015.
Adrian
Ash
Head of Research
Bullionvault.com
Also
by Adrian Ash
City correspondent
for The Daily Reckoning in London, Adrian Ash is head of research at BullionVault.com –
giving you direct access to investment gold, vaulted in Zurich, on $3 spreads
and 0.8% dealing fees.
Please Note: This
article is to inform your thinking, not lead it. Only you can decide the best
place for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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