Gold News

Gold Market "Quiet" as Seasonal Bull Run Approaches; ETFs Shrink, But Hedge-Fund Giant Extends Gold Investment

The Gold Price held firm above $956 per ounce Friday lunchtime in London, little changed for the week as European stock markets crept up to fresh
10-month highs and crude oil moved back above $71 a barrel.

Silver broke new two-month highs at $15.00 an ounce. Government bond
prices held firm after yesterday's strong auction of 30-year
US Treasury debt.

"We're approaching a seasonally bullish time for Gold," notes Colin Abrams at South African news-site MiningMX.com.

"Historically – over decades – there's been a strong tendency for the
Gold Price to rally in the six-month period between September and
February."

Research from BullionVault published by the Financial Times late last
month shows that a summer dip in the Gold Price – followed by strong
gains to finish the year higher than it began – has been the most
common seasonal pattern since 1969.

Repeated 20 times across the last four decades, this pattern gave UK
investors buying the summer low an average 13.7% gain by the following
Feb.

"The Gold market is quiet," said Walter de Wet at South Africa's Standard Bank early Friday.

"We will look at [today's] US industrial production growth figures to
see whether demand from the industrial sector is improving. Note that
after the 15 months of de-stocking by US businesses in 2001, there was
a period of massive commodity demand.

"Should growth figures show a marked improvement, inflationary expectations may also climb faster."

Today in Tokyo – where Japanese Gold Futures ended the week almost 2%
lower as the Yen rose on the currency market – minutes from the Bank of Japan's latest showed policy-makers
debated further credit and cash injections to try and depress the currency to revive the
economy.

"Another extension [of monetary stimulus] might become necessary," Board members said.

Last week the Bank of England surprised UK analysts by raising its
Quantitative Easing program from £125 billion to £175bn of
newly-created Pounds Sterling.

In Washington this week, the Federal Reserve extended until October its $300bn
program of Treasury-bond purchases.

"The most important demand driver from the Gold Investment side, the
Gold ETFs, is non-existent," noted Eugen Weinberg at Commerzbank this
morning. "The ETF has been experiencing outflows recently."

New York's SPDR Gold Trust, the world's largest Gold ETF, has now reported
lower gold holdings for eight weeks running, down more than 6% from
June's record high of 1,134 tonnes.

The fund's largest shareholder, however – John Paulson's $35 billion
hedge fund – continued to hold the $2.9bn position it took between
Jan. and April during the second quarter of 2009, official filings show.

Paulson, who also acquired a 2% stake in Bank of America between April
and July, saw the value of his fund's gold and Gold Mining investments
rise by more than two-fifths last quarter, says Barron's magazine,
rising further to $5.5bn by Thursday's close.

"The topside [in Gold] seems to be constrained at $960 on a closing
basis," says a short-term technical note from Scotia Mocatta.
"Downtrend resistance currently comes in $969.75, with a break of that
leading to a $980 target."

Meantime on the supply side, gold output in South Africa – formerly the
world's No.1 producer nation – fell more than 12% in June from a year
earlier, contrasting with a 6.4% drop in non-gold mineral output.

US Gold Mining giant Newmont Mining today said its US$2.9bn Boddington
mine in Western Australia is now in production, processing 100,000
tonnes of ore during the first two weeks of August and on target to
"become a cornerstone asset in our portfolio," according to president
and CEO Richard O'Brien.

Globally, however, new gold discoveries continue to lag production, shrinking the below-ground assets of the mining industry.

Between 1992 and 2005, according to research from Metals Economics Group, world
output totaled 1.1 billion ounces. New discoveries of large
reserves – judged at 2 million ounces or more – were barely half that
size.

The last major find was in 2007 and there were none in 2008. A decade
earlier, says MEG, the gold-mining industry made 15 large-scale discoveries per
year.

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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.

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