Gold News

Gold rises on "safe haven" bid; seasonal surge collides with producer buy-back

Spot Gold Prices dipped overnight from Thursday's 16-month Dollar highs, before rising again in London to break new ground for this bull run above $699 per ounce.

"Gold is now overbought technically," reckons Phil Smith for Reuters India, "breaking through some important technical resistance levels.

"But frankly," he adds, "support and resistance levels do not seem to have counted for much during the recent price action."

The Gold Price in Pounds Sterling broke a new four-month high above £345 per ounce. For Eurozone investors, the price touched €510.

"The market in London is buzzing," says Jessica Cross, head of the Virtual Metals group that produces Mitsui's quarterly Hedge Book analysis.

Speaking on South Africa's Classic Business radio show last night, she noted the rapid growth in exchange-traded gold held in trust – up 27 tonnes this week already – "together with rumors of a big producer buy-back we’re trying to get to the bottom of at the moment."

Also known as "de-hedging", buy-backs by gold mining companies who'd previously sold some of their future production using forwards contracts reached a record peak between April and June this year. The previous peak in gold miner de-hedging came as Spot Gold Prices raced to a 25-year record above $725 per ounce in May 2006.

Now the latest de-hedging rumors, coupled with surging demand from Western investors, look set to keep gold well-supported as the weekly close draws near today – the highest weekly close since that top of May last year.

What's more, "Seasonally, this is when gold comes alive," as David Meger tells the Chicago Tribune.

"From Asian farmers converting their harvest into a gold stash to Italian jewelers returning from vacations," says the paper, "the physical demand for gold, as opposed to gold futures and other gold-linked paper investments, tends to pick up starting in late summer."

Hence "the trend for gold is clearly very strong," adds Tatsuo Kageyama, an analyst at Kanetsu Asset Management in Tokyo, "but I'm worried about the speed. We could see some more profit-taking before testing $700."

"The subprime problems have shaken stock, currency and credit markets...it seems investors are treating gold as a last resort of investment. We are also seeing strong inflows into exchange-traded gold funds."

The gold held in trust by the StreetTracks GLD fund has now grown to a record 542.35 tonnes, a gain of 5% from this time last week.

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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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