Gold News

Gold recovers $2 from US sell-off

Gold rose steadily in Asian and early European trade today. Physical demand ahead of China's New Year celebrations has buoyed prices. So has talk of falling mine supply.

Since January last year, reports Jonathan Barratt of the Commodity Broking Service in Sydney, mine production in South Africa has slipped 9%, US production is 5% lower, Australian output has fallen by 10%, Canadian output is 16% down and Indonesian gold mining production has sunk by 34%.

"Demand can stay where it [is]," says Barratt, "but if you've got a smaller supply that provides us with a very good support. We are going to see more reports coming out concerning the supply of gold."

Gold regained $629.50 per ounce as London neared lunchtime Friday, up $2 from last night's US close.  

"We did have that nexus with oil to a certain extent and we've also had data from US pointing to slowing economy and inflation under control," Barratt adds. "So why is gold holding at these levels?"

Crude oil prices dropped below $50 again this morning. Copper prices have also dropped further, widening gold's outperformance of the broader commodities sector still further.

"We should be seeing prices getting in the $670s in the first half, although it is less certain we will see the recent high of $725 surpassed," said chief executive of the widely respected GFMS gold consultancy, Paul Walker, at yesterday's release of its updated Gold Survey 2006 in Toronto.

"We're fully expecting investor buying to come back in force, mainly in response to actual and potential dollar weakness," he went on. "A slowdown in the US economy and disappointing returns in conventional assets, such as equities, should also lift gold."

Walker also noted that gold's resilience above $600 per ounce – despite a rise in the Dollar and falling oil – could be attributed to physical buying. The price is also being supported by lower central bank sales and falling scrap gold supply from jewellery owners selling for cash.

Most notably, Indian scrap gold sales fell as central bank sales halved in 2006, according to GFMS. It now expects European central banks to miss their 500-tonne per year quota again in 2007.

Fresh sabre-rattling by the regime in Tehran over world condemnation of Iran's nuclear installations also looks to be supporting the gold price today. The "safe haven" metal is widely assumed to attract investment when political risks increase.

But it's the financial risks posed by over-exuberant bond, equity and hedge fund managers that look to be attracting more and more private investors today.

For the full story on just how absurd the bubble in "financial innovation" has become, click here and read on...

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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