Gold News

Gold dips, but just one big buyer could "start the race higher"

Spot Gold Prices slipped to a two-day low as New York opened on Thursday, dropping nearly $8 per ounce to bounce off $704.50.

"We've seen quite an astonishing move up," said Frederic Panizzutti of the Swiss refinery MKS Finance to Bloomberg earlier. He believes it's led to "several waves" of selling as investors take quick gains.

But the Gold Market could rally sharply once more, he added, perhaps hitting $720 in short order.

"It just needs one buyer to come in and start the race higher."

Longer-term, "I don’t think it’ll be a problem sustaining these elevated levels," said Philip Klapwijk, executive chairman of the highly respected GFMS consultancy, at a seminar today in London.

"[Gold] may not be completely out of the woods as regards speculator sell-offs to raise cash or reduce leverage in our new world of sub-prime jitters.

"But the norm of safe-haven buying should dominate investor activity from now on."

Earlier today in India – the world's hungriest market for private gold purchases – new Gold Buying slowed despite the fast-approaching festival season, as buyers were put off the recent increases in gold bullion prices.

"There is a little bit of buying from those [jewelers] in dire need," said one wholesaler to the newswires. "But it should pick up for the festivals."

The festival of Ganesh Chaturthi takes place this coming Saturday, when many Hindus – particularly in southern India – will buy gold ornaments and jewelry. Reuters says that local bank dealers are waiting for a dip below $700 per ounce.

"All eyes will be on the meeting of the US Federal Reserve on September 18," one Mumbai gold dealer told the Economic Times overnight. "It will decide how the Dollar will move."

"While inflation remains a concern for the US," adds Debjyoti Chatterjee, a commodity analyst at MAPE Admisi, "a potential interest-rate cut and the worsening credit markets have been pressuring the Dollar.

"That, therefore, is supportive of safe-haven buying into gold."

Crude oil prices remained near yesterday's record highs above $80 per barrel early on Thursday, as Tropical Storm Humberto was upgraded to a hurricane by meteorologists just before it slammed in the Texan/Louisiana coast with windspeeds of 85mph.

In the broader currency markets, the Euro also dipped slightly from the new all-time high it hit against the US Dollar on Wednesday, slipping 31 pips to $1.3884 by lunchtime in Frankfurt.

The British Pound held steady at $2.0250 after dropping one cent yesterday on weak UK housing data, holding the Sterling Price of Gold above £348 per ounce.

The Reserve Bank of New Zealand, meantime, kept its interest rates on hold at 8.25% this morning, pushing the country's "carry trade" currency up to a two-week high against the low-yielding Japan Yen of ¥82 per NZ Dollar.

Data out just before the opening bell in New York today showed fewer new US jobless claims than forecast, helping the S&P equity index to rise 0.8% by mid-morning.

"With the Dollar as weak as it is and with so many unknowns out there at the moment, the dips [in gold] are there to be bought," says Simon Weeks, head of precious metals at Bank of Nova Scotia.

"Square or long is pretty much the place to be, but certainly not short. We're waiting for US retail sales data tomorrow, and then you have the [Fed meeting] next week. So, given half a chance, the market could tread water until we see the outcome of those."

The GFMS consultancy's latest research, released today, forecasts an average Gold Price of $690 per ounce for the second-half of this year, with a continued lack of gold-sales by mining companies creating scope for volatile action.

"We’re not seeing any real interest yet in strategic hedging from the gold mining companies," said Philip Klapwijk at today's launch. "But with the hedge book [of outstanding producer sales] a whole lot smaller than it was, you can’t expect too much more of the heavy buy-backs we’ve seen in recent years."

Newcrest Mining said on Wednesday that it will raise $1.7 billion in a share offering, and use the money to close out its forward sales contracts via a buy back of gold.

GFMS forecasts that total world gold-mining production will slip in the second half of this year. Gold sales by central banks, it says, rose by a modest 4% between Jan. and July compared with the same period last year. Sales of so-called "scrap" gold – mostly recycled jewelry – fell by more than one quarter, despite Spot Gold Prices trading at their highest six-monthly average in history.

Gold-jewelry owners worldwide, in other words, want to hold onto the metal as its price continues to rise.

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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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