Gold News

Gold Bullion Prices Near Weekly Gain, But Miners "Queuing Up to Hedge" with Emerging-Market Reserves

GOLD BULLION PRICES crept higher in quiet summer trade in London on Friday, adding 0.4% for the week as world stock markets also rose but commodity prices fell back.
 
Silver held 2.5% below last Friday's finish in Dollars.
 
Government bond prices were unchanged.
 
"Mining companies are [now] queuing up at bullion banks to discuss short-term hedging arrangements," says one London bank's trading desk in a note.
 
"Some forward sellers [are] already sleeping well at nights...others are rushing to lock-in 'good' prices."
 
The industry as a group sold forwards almost 3,000 tonnes of gold bullion at low prices in the 1990s' bear market, and then reduced that 'hedge book' almost to zero as prices rose five-fold over the next decade.
 
" Hedging makes sense if it's cheaper than issuing paper [ie, new stock]," said Randgold Resources CEO Mark Bristow this week.
 
"Gold miners across the world," says the latest Commodities Weekly from French investment bank and bullion dealers Natixis, "are cutting output and costs as gold prices slump.
 
"This is affecting new projects as well as existing mines."
 
Gold lenders are meantime enjoying the strongest sustained returns in almost a decade according to data from market makers and other bullion banks, with gold lease rates up and swap offer rates negative.
 
"Some emerging-market central banks are taking advantage," adds the London bullion bank's note, "getting some yield on their gold reserves" by offering bullion for loan.
 
The Philippines, Russia and Turkey between them have accounted for half the total addition to national gold bullion reserves in the last 5 years. 
 
Russia bought no gold in June however, the central bank said Friday – only the 7th such pause since July 2006.
 
Now the world's No.2 consumer, "China is importing large quantities of gold to meet [private] domestic demand," says Friday's note from Commerzbank in Germany.
 
"China thus remains a crucial support for the gold price."
 
Gold bullion buying is "slowing" however says Standard Bank, pointing to the Shanghai gold premium falling from $37 per ounce above London's benchmark two weeks ago to $22 today.
 
"Real economic indicators remain uninspiring" for industrial commodities, Standard Bank adds.
 
"Freight volumes in China continue to show significant drops...consistent with [weaker] manufacturing data for raw materials, exports orders and to some extent new orders."
 
Chow Tai Fook Jewellery, the world's biggest jewelry chain, is meantime one of several stores being investigated in China for price collusion, government newspaper the People's Daily reports.
 
Down 25% for 2013 so far, shares in Chow Tai Fook rallied sharply last week after it reported a jump in second-quarter sales.
 
"We don't understand why we got involved in the story," a spokeswoman told Reuters overnight.
 
Touching $1295 per ounce in Asian trade Friday, gold bullion prices for Euro investors were flat from last week.
 
Priced in Sterling, gold bullion stood 0.5% lower at £846 per ounce for the first weekly drop in three.
 
"The gold price going down is not necessarily a bad thing," said US Fed chairman Ben Bernanke to lawmakers in semi-annual testimony on Thursday.
 
"It suggests people have somewhat more confidence, and... feel less need for whatever protection gold affords."
 
But " gold investors started to get nervous" in late 2012, says a note from Canada's TD Securities "about an eventual deceleration in the Fed's extremely accommodative monetary policy.
 
"Positive returns elsewhere [then] prompted investors to get out" of gold bullion positions.
 
Looking ahead, however – and with Bernanke repeating this week that tapering QE is "not a preset course" – "Economic data is unlikely to be stellar," says the TD note, "and the Fed will remain coy."

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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