Gold News

Gold slips as London and New York close; US Fed to "panic" as gold mining supplies slip

The spot gold market slipped $4 towards the close of London and New York trade Tuesday, dropping as the Euro and Sterling held above key levels versus the Dollar on the currency markets ahead of tomorrow's July 4 holiday in the US.

"Gold prices look firm, with support from the Euro and oil prices," reckons Hiroyuki Kikukawa at Nihon Unicom Corp. in Tokyo.

But crude oil prices in fact pulled back as gold held steady early in Tuesday trade, slipping 0.4% as the impact of the quarterly rollover in the futures market wore off.

Over in the currency markets, the Euro also slipped lower after breaking above $1.3600 for the first time since early May.

Ahead of Thursday's interest-rate decision from the Bank of England, the Pound Sterling rose to a fresh 26-year peak of $2.0170. That move capped the Sterling price of gold at £326 per ounce by lunchtime in London.

French and German investors wanting to buy gold today found the Euro price of gold rising to €483.50 – a repeat of Monday's high.

Thursday brings interest-rate decisions for the Euro and Sterling, followed by last week's initial jobless claims data from the US.

The US Federal Reserve "will panic" and cut rates later this year, says Dr. Marc Faber – the leading "doom and gloom" analyst now running his $300 million fund from northern Thailand – as the US economy fails to recover.

The Fed has now held the short-term cost of Dollars at 5.25% for 12 months; the spot price of gold has traded sideways during that time. Lower Fed interest rates tend to boost the price of gold, as investors and savers protect themselves against the risk of losing purchasing power to rising inflation. Late on Monday, the 10-year US Treasury yield slipped below 5% for the first time in a month.

"The problems in the subprime market and the CDO market will [also] become more apparent," Faber added in his interview with Bloomberg.

"On the downside for gold, resistance at the $653 area looks firm," says today's technical note from Standard Bank, "but any rationale for further market liquidation should be stopped with strong support in the low $640s from physical bids."

Overnight activity in the domestic Indian gold market "remained lacklustre," reports the Economic Times today. "In fact, gold prices drifted lower for want of buying enquiry" thanks to the higher price of gold on the international spot gold market.

In Tokyo, gold futures for delivery in April '08 held flat – along with the Nikkei stock index. Viewed on a longer-term basis, gold last month "reversed but did little more," writes Christopher Langguth for Mitsui's technical note.

"The up trendline is at $646. Spot gold would have to fall below $560.50 to turn the monthly trend down."

The 200-day moving average, a key level watched by technical gold analysts, now sits at $643.30 per ounce.

In the gold mining sector, meantime, South Africa's top three gold companies today offered their staff a pay increase of 6%. The Solidarity trade union, however, said it was disappointed the offer didn't even match the latest consumer price inflation figure of 6.4% recorded in May.

The union has previously demanded a 20% rise. The National Union of Mineworkers, which represents 72% of South Africa's mine employees according to MiningMX.com, has asked for a 15% rise staggered over two years.

Gold production over the past 12 months has decreased 4% while cash costs increased by 28% in rand terms.

"The structural impact of pending wage increases will undoubtedly, in our view, compound the issue of costs," said one local gold analyst to MiningMX.com. Labor costs make up around half of a mine's total working expenses.

Across the border in Zimbabwe, meantime, the Chamber of Mines today said that "most gold producers are operating below 20% capacity with some having suspended operations completely." Gold output from the region – formerly Africa's fifth largest gold-producing nation – has fallen by more than 40% in the last five years.

Total global gold output slipped 1% last year from 2005 according to the Fortis Yellow Book compiled by Virtual Metals. Total world supplies – including central bank sales and scrap recycling – is forecast to drop by 2.1% in 2007.

If you'd like to take a position in physical gold bullion today, be sure to visit BullionVault for the best live prices and lowest dealing fees.

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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