Gold News

Gold falls in Europe ahead of US re-opening

Gold recovered the $672 mark in thin Asian trade today, but gave it all back and dropped to $666 as Europe headed into the afternoon.

"The markets have been very subdued and that's left gold with little price movement," said one trader to Reuters.

South Korea and Malaysia re-opened today after the Lunar New Year festivities. The US markets will re-open after the Presidents Holiday.

But the strong physical markets of Hong Kong and Singapore remain closed until tomorrow (Weds). Taiwan and China's domestic markets will be closed all week.

"There's just very little to trade on at the moment," said a Tokyo broker. This week should bring a clearer picture for Japanese investors, however.

The Bank of Japan today began its 2-day meeting to decide Yen interest rates.

Unlike last month, when the currency markets were caught out by a shock vote to "stick" at 0.25%, analysts are split over what governor Toshihiko Fukui and his team will announce on Thursday.

Twenty-seven out of 52 economists polled by Bloomberg predict no change. Credit Suisse reckons there's a 62% chance of a rate hike to 0.5%.

This uncertainty hit the Yen hard overnight on the foreign exchanges, falling against 15 of the 16 most-actively traded currencies.

"Even if the BOJ does [raise]," says Seiichiro Muta, director of foreign exchange at UBS in Tokyo, "there will be no additional rate hike for a long time. The Yen will remain weak."

Priced in Yen, gold recovered in Asia today to trade near 22-year highs around ¥80,560 per ounce. But the metal has since declined against all major currencies.

Gold dropped from yesterday's £345 peak versus Sterling to just below £341 at lunchtime in London opening. Against the Euro, gold has moved from €511 to below €507 per ounce.

Looking at the gold-price chart, however – and spotting a longer-term bullish pattern – "the rally should continue and the immediate objective is last year’s high, $728.00," advise analysts at Mitsui in Sydney.

"The size of the pattern gives a target of $760.00. As always the difficulty will be holding on to a position."

"Gold has been climbing quietly and I am bullish of the gold market," agrees Dennis Gartman of the eponymous Gartman Letter.

"It is not a matter of inflation, it is not a matter of imbalances of trade, it is simply a matter of shifting reserves amongst central banks."

Outside the official sector, however, gold demand continues to grow in the physical markets of the Middle East and India.

April contracts traded in Mumbai reached the equivalent of $678 an ounce today, while news from Dubai says that retail gold sales in the United Arab Emirates grew 53% at the end of last year.

And on the supply side, meantime, the major gold mining companies continue to hunt gold-in-the-ground on the stock market, rather than through fresh exploration.

A British newspaper reported at the weekend that Russia’s Polyus wants to buy Anglo American’s 41% stake in AngloGold Ashanti.

AngloGold Ashanti itself says that finding new reserves has become an urgent priority. Total exploration spending in 2007 will be 58% higher than in 2006. It eats through its reverses at a rate of more than six million ounces a year. It grew its reserve base by 6% last year, according to

"Gold mining companies are looking for long-life reserves because there’s a belief that long-life reserves are running out and people want to bulk up,” says Stephen Arthur, head of mining research at Absa Bank in South Africa.

“If you talk about gold assets in particular, I would say they are overpaying...It’s alright if you merge the companies paper for paper, but when you pay cash for something trading at a 1.6 times net asset value you are destroying money.”

“If you look at the Gold Fields and Western Areas deal, you saw how the share price took a knock after that. The market says it’s alright to swap paper, but as soon as you start paying cash, it’s not a good deal.”

For more on gold's demand and supply outlook in 2007, click here and read more now...

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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