Gold News

Spot gold prices rise ahead of US open as oil gains on Iran tensions

Physical gold bullion prices rose throughout the first-half of London trade on Monday, putting the AM Fix at $659.65 per ounce – its highest weekly open since Feb. 28th.

Versus the US Dollar, spot gold broke back above $660 per ounce. British investors wanting to buy gold saw it trade £2 higher from Friday's close to £337.

The gold price for French and German buyers ticked higher to €498.

"Gold may trend a little higher with stronger oil prices," reckons a Bank of China trader in Shanghai. (Just how important is China to global investment demand today? Click here for the latest news...)

Crude oil began the week near a three-month high of $62.85 per barrel after the UN Security Council voted unanimously on Saturday to impose sanctions on Iran.

Tehran now has another 60 days to suspend its nuclear development program. The UN also froze the assets of 15 Iranian corporations – including Sepah Bank, formerly licensed by the Financial Services Authority in London – along with senior scientists and military leaders.

Iran's seizure of 15 Royal Navy marines in the northern Gulf, meantime, only adds to this "very serious situation" according to Tony Blair, the British prime minister.

For gold, "in the near term, we'll probably see the gold market being influenced by developments in the oil market and also by developments in the Middle East," says David Moore, commodity strategist at Commonwealth Bank in Sydney.

"I think gold may benefit from the increase in oil prices but if it starts to move very much higher, then it is possible that we'll see some additional selling pressure to emerge as well."

Gold did indeed hit selling pressure overnight in Tokyo. Gold futures for delivery in Feb. '08 dropped 1% from Friday's three-week high to the equivalent of $664 per ounce at the Tocom.

And while the newswires all cite geo-political tensions as a potential driver of rising gold prices today, the fact is that gold rarely proves to be the "safe haven" many investors expect (click here to find out why...)

"People want to lock in profits as long as oil prices are on the rise," says Hitoshi Inagawa, a manager at Yutaka Shoji Co.

Open interest in Tokyo's gold futures market has dropped 17% since last month, when liquidity hit a half-year high. The end of Japan's financial year on Saturday is also deterring new investment, says Inagawa.

Meanwhile in New York, open interest in "paper gold" traded at the Comex has also been cut – down 8.7% in the week ending last Tuesday.

And relative to their bullish positions, America's big commercial traders reduced their net short positions by 1% as the price of gold rose.

That's usually seen "as a positive sign short term" according to Resource Investor.

Back in the physical gold market, the Economic Times of India reports slow "offtake" as March and the financial year near their end.

Harmesh Arora, vice-president of the Bombay Bullion Association, says that "the average daily offtake is usually between 500kg and 600kg. Currently, it is about 30-40% lower, at about 300 kg per day."

During peak season, says Arora, "physical buying could be as high as a tonne a day."

Current demand for physical gold should be low, however, according to Prithviraj Kothari of Riddhi Siddhi Bullion.

"Prices have appreciated by close to $10 in the international market, but because the Rupee has appreciated the price is not as high in rupee terms. The demand for gold is anyway low in this period because it is the end of the financial year."

India remains the world's hungriest gold market. It accounted for one ounce in every five sold anywhere in the world last year.

For a detailed report on the outlook for Indian demand in 2007, click here now 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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