Gold News

Gold firm as inflation hits South African miners

Gold rose into the start of London trading today, after going nowhere in Asia.

Closing New York at $625 per ounce, gold had dipped to $623.80 before regaining one Dollar as Europe opened.

"The market is in a bit of a quandary at the moment as to where gold should go," said Darren Heathcote, head of trading at Investec Bank in Australia. In a quandary himself as to where gold is heading, Heathcote forecasts a range today between $620 and $628 per ounce.

"On the one hand, oil prices have come off considerably which would signal a sell-off in gold," he told Bloomberg earlier. "However, recent days have shown that investors are gaining some confidence again in gold and maybe some asset reallocations are going on and some switching into gold."

Gold's resilience in the face of plunging base metal prices and the collapse in oil – down to barely $50 per barrel in New York on Monday – might indeed suggest a shift in the market.

Either that, or gold's about to play catch-up and sink!

But strong buying is likely from Japanese investors between now and Friday if the Bank of Japan fails to raise interest rates tomorrow. The Yen just sank to a 13-month low against the Dollar, after press reports that the central bank may stick at 0.25%.

Overnight lending rates on Tuesday had climbed to their highest level since Sept. 1998, a staggering 0.343%. Thirty-five of 52 analysts surveyed by Bloomberg expected a hike. Now the Yen has fallen back, pushed Tokyo's benchmark gold contract – currently Dec. '07 – to its highest price in 6 months.

"I would think there is certainly a significant Japanese element that will look to diversify into something like gold as an anti-inflationary hedge," reckons Heathcote.

Anti-inflationary buying has done nothing for the Sterling price of gold so far today, however. After yesterday's news that the cost of living in Britain is rising at its fastest rate in 15 years, the Pound strengthened on the currency markets, nearing a 30-month high versus the Euro.

That knocked the gold price lower against Sterling. Against the Yen, on the other hand, gold looks solid around 6-month highs.

A Reuters poll of 42 analysts from around the world now forecasts a median price for gold of $651.25 in 2007, up 6.4% in 2006. "Technically, there is not much downside from current levels," according to a bullion trader in Mumbai, India. "We may see gold trade between $623-630 today."

Inflation within the gold mining industry could push prices higher this year, too.

Frans Baleni, general-secretary of the National Union of Workers in South Africa, said yesterday that he's asking the gold mining companies – principally AngloGold Ashanti, Gold Fields and Harmony Gold – to raise their minimum wage. He also wants above-inflation pay increases for drill workers.

"We will not be guided by inflation," Baleni told Bloomberg. "We look at reality. Even drillers, who are crucial to all mining activity, are still paid so poorly so if we look at inflation, we'll not be addressing that problem."

A look at reality today says there's a growing risk of serious price inflation right across the developed world. But it shouldn't come as a surprise. The amount of money created over the last 5 years beggars belief – and how it's been created might shock you, too.

Click here for the big picture...

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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