Gold News

Gold touches new 27-year high as "Friday Drivers" get busy again

Spot Gold Prices touched a new 27-year high above $740 per ounce early in London on Friday, as the US Dollar hit a new record low against the Euro and Brent crude oil in London ticked back from yesterday's fresh all-time high.

In the agricultural sector, global wheat prices are now approaching their biggest two-month gain since 1973, according to Bloomberg data, following a disastrous growing season in Australia, Canada and Ukraine.

The Gold Market, now rising towards its sixth weekly gain on the run, today recorded its highest London Fix since 21st Jan. 1980 – the day of gold's all-time record top.

Today's action also repeats the pattern seen on five of the last six Fridays, with prices driven higher as the last New York opening of the week draws near.

"Short term we could see more consolidation," says Serge Laureau for Saxo Bank, "but gold does not show any sign of a deeper correction. USD weakness is at full throttle."

"Gold's outlook is very positive," agrees Michael Kempinski at Commerzbank. "Technically also it looks good, but the market is very volatile.

"I would buy the dip here. The short-term target is $750."

Eurozone and British Gold Prices also rose today, moving back towards the 16-month highs hit at the end of last week. By lunchtime in London today, the Gold Price in Sterling was trading above £363.50 after spiking above £365. For French and German gold buyers, the Gold Price in Euros traded just shy of €521 per ounce.

But while Western investors continue to drive the spot Gold Market higher – and matched by the jump in net-long positions held by speculative traders in Comex gold futures – gold's current surge may be denting demand amongst Asian investors.

Truong Cong Nhon, deputy-head of the Saigon Jewelry Company (SJC), said today that his sales currently outweigh buy-backs from Vietnamese investors by just 3-to-1. Sales are down by 40% from last month.

In New Delhi, the Economic Times notes that Shraddh continues – "an inauspicious fortnight" amid India's traditionally strong wedding and festival season "during which Hindus do not indulge in gold buying."

But that said, Indian dealers reported aggressive buying by jewelry manufacturers this morning. In the domestic market, gold prices added 0.8% today, and the MCX futures exchange announced that it saw average daily turnover rise more than 10% in Aug. from the year-ending in March, led by strong action in precious and base metals contracts.

On the supply side, Citigroup analysts at this year's Denver Gold Forum said today that Latin American "remains a hotbed of gold investment despite the leftward lurch in resource policy. Even expropriation-prone Venezuela and Bolivia harbor isolated [exploration] success stories."

In Peru overnight, activists damaged a water pipeline feeding the world's largest gold mine, Yanacocha. The owner, Newmont Mining, this week said that its total cash costs per ounce are set to rise above previous guidance of $400 per ounce, due in part to higher royalty fees paid on the rising Gold Price. Barrick Mining, the world's largest gold producer, also warned that third-quarter costs will rise.

(For more on the problems facing world gold mining supply, click here and read on...)

Looking to new mining supply, Citigroup notes that while Russia holds many of the world's largest undeveloped gold reserves, "foreign companies [may] not be competitive in the face of increasing government pressures, well-connected local sources of capital, and dismal examples [of failed foreign licensing] from the energy sector."

"China seems on track to overtake South Africa as the largest-gold producing nation, perhaps as soon as next year," the report adds. But "how much of this is new production versus newly reported production is open to debate."

Meantime in the official sector, the Swedish Riksbank said today that it will sell "up to" ten tonnes of gold by the end of Sept. '08, putting the cash raised into foreign currencies and bonds.

"The sale is in compliance with the Central Bank Gold Agreement," the Bank added. "The agreement, which runs for five years, enables the Riksbank to sell up to 60 tons of gold during this period."

According to MineWeb, the Riksbank has sold a total of 35 tonnes of gold during the current CBGA, signed by European central banks in 2004. Sweden's central bank currently holds around 150 tonnes altogether.

Data from the World Gold Council compiled at the end of last week showed the CBGA signatories some 60 tonnes short of their 12-month sales quota of 500 tonnes for the year ending Weds 26 Sept. The Bank of Spain accounted for one-third of total sales in an aggressive program undertaken between Jan. and June.

But "the gold market has been able to absorb these sales," as analysts at Barclays in London noted earlier this week.

"Even if the full quota is met in the fourth CBGA year, other determinants – such as Dollar weakness and Fed rate easing – have proved to be more important for the Gold Price and are likely to buoy it to fresh highs."

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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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