Gold News

Gold pulls back from 2-week high as Tokyo plans for gold ETF in 2008; gold-mining costs soar

Spot Gold Prices moved steadily higher against the US Dollar early on Tuesday, recording an AM Fix of $667 per ounce, before pulling back by nearly 1% as trading volumes picked up after Monday's bank holiday in London, the world's major center for gold bullion dealing.

The US stock market opened nearly 0.8% lower, as European bourses stood 1% down for the day. The Nikkei stock index in Tokyo had earlier closed 0.1% lower. The Shenzen index in mainland China hit a new lifetime high, more
than 160% above its opening level of Jan. 2007.

"Given the size of [gold's] move on Friday, you wouldn't be surprised to see prices backpedaling a bit," said Rowan Menzies of Commodity Warrants Australia to Bloomberg earlier. "[But] I don't think the fundamentals altered terribly much."

Watching the long-term uptrend in Dollar Gold Prices that began in July 2005, "Spot Gold remained above the up trendline" last week, notes Christopher Langguth of the Technichris Corporation. "If it trades above $676.20 the weekly trend will again be up, [but] this is still a sideways market.

"As long as gold stays above the up trendline there is no reason to be short."

Japanese gold futures contracts traded in Tokyo for delivery in June '08 dropped 0.7% against the Yen, ending the day equal to $677.19 per ounce. The British Pound spiked above $2.01, reversing an earlier gain in the Sterling price of gold above £333 per ounce. The Euro Price of Gold also pulled back after failing to breach €490 per ounce as the single currency reclaimed $1.3670, very near a two-week high.

Oil prices rose and US bond prices meanwhile pulled back. Ten-year Treasuries now offer their lowest yield in five months, fully 67 basis-points below the official Fed funds rates, very nearly the widest gap since March according to Bloomberg data. Short-dated US government bonds fell ahead of Wednesday's $18 billion auction of two-year notes, followed by Thursday's auction of $13 billion in five-year Treasuries. Three-month US bonds fell for a sixth day, the longest stretch since January 2006.

Looking ahead in the gold market, the Tokyo Stock Exchange announced that it is planning to introduce an exchange-traded gold fund early in 2008. A new legal framework will be required, as Japan's investment trust rules don't currently allow for ETFs backed by physical gold bullion. (Japanese investors looking to Buy Physical Gold Bullion Outright instead already have the option of enjoying tight spreads and low dealing-costs at BullionVault however. Click here to learn more...)

At a gold conference in Mumbai, meantime, "we think the price of gold will be $700-$730 an ounce by the year-end," said Tom Pawlicki of Man Financial at the weekend.

"I believe gold prices have a very real chance of touching $700 before the end of the year," added Paul Walker, chief executive officer of the London-based GFMS consultancy.

"My view is that the groundwork is in place for a sustained rally. The outlook for traditional investments in bonds and equities is questionable. Equity prices could fall further. Part of the money will diversify from equities and fixed income into gold."

Rajan Venkatesh, director of India bullion trading at Bank of Nova Scotia, is also bullish. "By December-end, gold prices should be $675 to $680 an ounce," he told Reuters from the Mumbai conference.

But while leading analysts forecast higher gold prices ahead, the world's major gold-mining companies are struggling to keep a lid on their operational costs says a report from MiningMX.com.

South Africa remains the world's largest gold mining nation. But costs at three of its major gold firms – Harmony, Gold Fields and Anglogold Ashanti – are now around $450 per ounce and above. "That’s very high," says Henk Groenewald, a portfolio manager and commodities analyst at Coronation Fund Managers.

In the United States, the cost of mining one ounce of gold has risen by 44% since 2004, driven higher by rising energy prices.

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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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