Gold News

Gold unchanged for the week - long-term fundamentals grow stronger again

Gold dropped in Asia and Europe today, closing the week in London unchanged from last Friday for Sterling and Dollar investors but falling versus the Yen and Euro.

By lunchtime in New York, gold traded at $668 per ounce. Already closed for the week in Japan, gold due for delivery in Dec. dropped 1% versus the Yen today. But measured in Dollars, Tokyo's benchmark gold futures contract held near to their 22-year highs above $695 per ounce.

"Profit-taking is outpacing fresh buying," said one gold analyst in Tokyo to Reuters earlier.

"Activity is a bit slow as I think investors want to see what happens with the Yen."

Speculative investors in New York may also choose to book profits ahead of the 3-day weekend. The Oct. '07 gold contract traded at the Nymex in New York had risen 3.5% since the start of Feb., hitting $691.90 on Thursday night.

Over in Tokyo, fresh buying dried up today according to Kazuhiko Saito, chief analyst at Interes Capital Management in Tokyo. Interviewed by Bloomberg, he says that Japanese investors are cautious about taking out new positions in gold.

"[There's] speculation the fastest economic growth in almost three years will prompt the Bank of Japan to raise interest rates next week," reports the newswire, "making the Yen stronger against the Dollar."

Given that private investors in Japan this month built up their largest "short" position in Yen for two decades, profit-taking in gold was only to be expected.

Short-term setbacks aside, however, gold's multi-year uptrend remains solid. And the fundamentals supporting this bull market continue to strengthen.

Gold demand from retail investors worldwide rose 6.9% last year in tonnage terms from 2005, reported the World Gold Council yesterday.

Global supply, meantime, fell 13%. (Click here to learn more about the internal dynamics of the gold market in 2007...)

Yes, the record highs of May 2006 put off many jewelry buyers – traditionally the ballast for world gold sales. In tonnage terms, they bought 16% less gold in 2006 than they did in 2005.

But despite daily prices averaging 37% more in Dollar terms last year than they did in 2005, total gold demand rose by more than a fifth in cash terms.

It hit its third successive annual record of $65.3 billion.

"I believe this is very much the beginning," said John Burton, head of the World Gold Council in an online conference for the Financial Times yesterday.

"One could be forgiven, on the basis of media reports, for thinking that commodities in general have already captured a large share of institutional investment. But in reality the number of institutions that have a strategic allocation to commodities and the amount of funds invested is still small.

"We know of only 22 pension funds, endowments or foundations that currently have a strategic allocation to gold. The value of those allocations is around $28 billion, which is still a drop in the ocean in terms of total global pension fund assets."

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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.

Please Note: All articles published here are 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. Please review our Terms & Conditions for accessing Gold News.

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