Gold News

Gold futures hit $694 in Tokyo

Gold rose steadily against the US Dollar in Asia today, regaining $668.50 after losing nearly $7 to $661.50 per ounce late in New York on Tuesday.

Against the Euro and Sterling, however, gold's Tuesday spike and Wednesday recovery were muted. The action so far has been Dollar-led, with the greenback slipping on the international currency exchanges.

By 08:00 GMT, the Dollar had lost half-a-cent to the Pound from the start of Tuesday's European session. It stood more than a cent lower at $1.3070 against the Euro.

"[Dollar] resistance for gold is probably up around the $680-odd mark," reckons Tobin Gorey, commodities analyst of Commonwealth Bank of Australia in Sydney.

"It still channels up [however]...sort of modestly grinding higher."

Currency traders are awaiting comments from Fed chairman Ben Bernanke today and tomorrow, when he speaks before a US Senate committee to outline how he sees the US economy right now.

A heap of economic data is also due between now and the weekend, both in the US and Europe.

"The funds are still on the buying side," says Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. "We can say the next target is $675 or $676."

But with the gold price at a 7-month high – or more – against all major currencies, physical buying in Asia was scarce yet again today, despite the Chinese New Year beginning on Sunday.

"Investment-grade gold bullions marking the 'Year of the Pig' are getting an overwhelming response from investors in China," according to a report from Channel News Asia in Shanghai.

"More than three tons of gold bars were sold out [last] week.

"Falling only once every 60 years, the Year of the Pig is one of the most auspicious periods of the Chinese zodiac, bringing the promise of wealth and fortune."

Fresh jewelry and bar fabrication, however, have yet to impact the spot market in Asia, leaving Japanese investors to drive the action so far on Wednesday.

Benchmark gold futures at the Tocom, currently the Dec. contract, rose to the equivalent of $694 per ounce today.

"Spot gold prices are now targeting $700 an ounce and for Tocom gold, it can go up to ¥2,700 [per gram] in the short term," said one senior Tokyo analyst earlier.

That would be equivalent to $715 per ounce.

What drove Tuesday's spike above $668 in New York? "The larger than expected US trade deficit & the stronger than expected German GDP number [on Tues] put pressure on the USD & supported the precious & base metal complexes," says Brandon Lloyd for Mitsui in Sydney.

"There should be follow through buying...though this will potentially be countered by further profit taking from funds. The sentiment continues to ratchet higher & gold still looks like it will test $675 this week."

The dealers' notes today also cite ongoing tensions in the Middle East. Severe economic penalties are due if Tehran doesn't halt work on Iran's program by Feb. 21.

But if a "war premium" is building into the gold price, the metal took no account today of a 6-nation agreement with North Korea that should see its nuclear reactor shut down in exchange for aid.

Pyongyang has agreed to close its main nuclear reactor inside 2 months. In return, it will receive 50,000 metric tons of fuel or cash of equal value.

On the production front, meantime, AngloGold Ashanti yesterday reported worse-than-expected gold output for 2006. It also announced a huge increase in its capital expenditure budget for 2007, driven by the need to increase mining depth.

The group posted a headline loss of R838 million for last year – equal to $116m – compared with a loss of R716 million in 2005 ($110m).

Gold production fell by 600,000 ounces to 5.6 million. AngloGold now plans to produce 5.8 million ounces of gold in '07, spending a record $1.07 billion in the process – up more than 30% from last year.

Key to AngloGold's capex in '07 will be deepening the Mponeng mine in South Africa from 3.4km to 3.6km below the surface.

The project should extract a further 2.5 million ounces of gold, and will extend the mine's life to 2024. But don't expect the spot price of gold to show even a dent.

Production from the project isn't planned to begin until 2013.

For more on the near-term outlook for gold – including a clear breakdown of the problems facing the world's gold miners right now – click here and read on...

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum 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 he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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