Gold News

Gold Jumps on US Jobless Surge; Gold Mining Supplies Fail to Rise in the Face of Higher Demand, Higher Prices

Gold leapt at the Wall Street opening on Friday, undoing half of the week's Dollar-price losses on news that US unemployment jumped to 6.1% in August – a five-year high.

Foreign currencies also jumped, taking the Euro one-cent above this morning's 11-month low of $1.4200.

The Gold Price in Euros, however, moved faster still to stand 0.7% above last Friday's close.

For British investors seeking shelter from the 12% collapse in Sterling suffered since the start of August, the Gold Price touched £460 an ounce, more than 3.3% above Tuesday's low.

Over in India, meantime, gold demand continued "rising significantly" on Friday as the peak festival season got under way according to Rahul Gupta, head of P.P.Jewelers in Delhi, speaking to Reuters.

"The buying period usually starts in August and September," says Ashok Minawala – the chair of All India Gems & Jewelry Trade Federation in Mumbai – "with the [peak demand] festival of Diwali in October.

"But this has been unprecedented," he told the Financial Times overnight, "tremendous."

Thursday marked the start of the 12-day festival of Ganesh – the "Lord of Obstacles" who both places and removes them according to Hindu theology.

Early October will see the 5-day festival of Durga Puja, yet another auspicious time for Gold Buying to follow the monsoon and harvests of early autumn.

Since the start of last month, Indian gold demand has shot to a 20-year record according to the world's largest bullion dealer, UBS of Switzerland. Today the Economic Times of India reported average sales volumes in the city of Chennai reaching some 10 kilos per day.

"Even in tier-II cities," the newspaper went on, "sales have vaulted by 30-40%."

Longer-term, however, credit analysts at S&P forecast on Wednesday a rolling decline in Gold and base metal prices, because "high prices ultimately provide the incentive to increase output through new investment or by reopening previously unprofitable mines.

"Even small amounts of oversupply can drive prices down to the industry's marginal cost of production," says the S&P analysis, reported by Dorothy Kosich at MineWeb.

Slashing their nickel forecast for 2011 by one-quarter from today – and knocking aluminum prices 28% lower "long term" – the S&P analysts peg Gold at $750 an ounce between now and 2010, followed by a further drop to $650 in 2011 and then $500 from there.

What the S&P analysts miss, however, is the plain fact that world Gold Mining supplies have so far failed to rise in response to the near-trebling in prices since 2001.

Global gold mining output peaked in 2003, falling almost 5% to full-year 2007.

Former world No.1 South Africa saw gold production between April and June fall by 10.4% year-on-year, the Chamber of Mines said Thursday.

The industry also reported two further deaths at South African gold mines on Friday, taking the total to five this week alone.

South Africa's mining industry is also failing to meet its Black Economic Empowerment (BEE) targets, says a new report from the KPMG consultancy, threatening to hike mining costs further still as energy supplies remain weak and ore grades decline.

Worldwide, resource exploration companies are "really suffering" due to a lack of financing, said Tim Markwell – an investment manager at the African Lion Funds – to the Africa Down Under conference in Perth, Australia yesterday.

London's AIM exchange (alternative investment market) is experiencing a particular "liquidity issue" he told Creamer's MiningWeekly, capping new exploration and – therefore – long-term production.

Cash-costs per ounce across the world are now rising for the sixth year running. The very largest Gold Miner, Barrick Mining, last week raised its 2008 guidance more than 7% to a possible $445 per ounce.

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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