Gold News

Gold Bounces After "Fast & Furious" Gains; Indian Buying Resumes as ETF Demand Flags

Gold Prices continued to slide early Wednesday, recording their lowest London Gold Fix in seven sessions at $956.25 an ounce.

Crude oil held above $40 per barrel and government bonds were flat – yielding 2.82% on the 10-year US Treasury – after President Barack Obama assured TV viewers and Congress alike that although his massive stimulus spending means "We will rebuild, we will recover...the weight of this crisis will not determine the destiny of this nation."

World stock markets rose meantime, capping 11 sessions of losses.

Also reversing gold's action vs. the Dollar, the European single currency hit a two-day high of $1.2900 before slipping one cent.

The British Pound slid, however, on a sharper-than-expected contraction in the UK economy.

"Gold Prices had risen too fast and too furiously," said Bernard Sin, head of currency and metals trading at Swiss refinery group MKS Finance, to Bloomberg this morning.

"We have to wait to find out whether gold will form a reversal pattern there," says Phil Smith in his technical analysis for Reuters India.

"The [New York-listed] SPDR Gold ETF has not shown any increase [in its bullion holdings] for the last three consecutive days," notes Mitsui here in London, pegging support at $950 and then $940 and $930.

"If ETF inflows remain zero for another few days," reckons John Reade, senior metals analyst at UBS, "it could signal a much deeper correction in gold."

In contrast, physical Gold Buying amongst Indian consumers has picked up according to news-wire reports this morning.

"We are witnessing some buying since yesterday," said one Mumbai dealer to Reuters. "We are getting calls for the first time after gold dipped below $1,000 an ounce.

Over on the supply side of the market, meantime, mining sector finances are now in a "desperate" state, says the latest Mining Eye from Ernst & Young's Global Mining & Metals Center.

Thanks to the collapse of speculative finance and credit flows in 2008, London's junior-stock AIM market saw only 114 new admissions, the Mining Eye notes, down from 284 in 2007 and a peak of 519 in 2005.

"The sclerosis in the financial sector is having a hard-hitting effect on exploration and development companies that do not have cash flow from sales," says Rhona O'Connell, summarizing the Ernst & Young report for Mineweb.

"More unsolicited, potentially opportunistic takeover bids can be expected from private equity, venture capital firm and cashed-up competitors. [Only] one sub-sector stands out as reasonably well insulated from all this – the Gold Mining sector."

Gold output worldwide looks set to continue its 5-year decline, however, compounding 2008's loss of 2.3% according to the latest forecast from London consultancy Virtual Metals.

David Davis, gold analyst at Credit Suisse Standard Securities in Johannesburg, pegs the decline in world Gold Mining at between 2% and 3% for this year "because of diminishing global reserves."

The late 1990s' bear market in Gold Prices blocked new exploration spending and worsened the "missing generation" of mine engineers and geologists in the major developed economies.

Formerly world No.1 all through the 20th century, South Africa's gold production sank into third place in 2008, down 13.6% to the lowest level since 1922.

"That was also the largest single drop in gold production since the strike-induced 13.8% decline" of the same year, according to the local Chamber of Mines.

Looking at the renewed operations due to come online in 2010-2012, "All increased production will do is just about keep us on an even keel with China and America," Davis tells Mining Weekly, "but we won't be in first position again."

On the economic front, South Africa's GDP shrank 1.8% on an annualized basis at the end of 2008, new data showed Tuesday.

This morning the Tokyo data agency said Japanese exports collapsed by almost one-half in Jan., while the country's famously-strong trade balance sank to its largest deficit in more than two decades.

Great Britain's GDP shrank faster than previously reported in 2008, the UK data agency said today, forcing the Pound to its lowest level so far this week beneath $1.4370.

That pushed the price of bullion for UK investors now Ready to Buy 
back up to £670 an ounce – more than 4.2% below last Friday's record
high but 2% above this morning's two-week low.

Amongst the 16 members of the Eurozone currency union, meantime, "The costs of an exit would be enormously high for the affected countries," says European Central Bank council member Axel Weber in an interview published today by Germany's Die Welt.

Outside the currency zone, however, Weber warns against writing a "blank check" for ex-Soviet Bloc states now inside the European political union.

"If amid an escalation of the situation, targeted aid for individual member states looked unavoidable in light of an extraordinary emergency, then this would have to be tied to strict demands and conditions," he adds.

Today the central bank of Poland cut its main interest rate to 4.0%, sparking a fresh drop in the Zloty's exchange-rate value.

The credit-rating of neighboring Ukraine now stands level with Pakistan on Standard & Poor's assessment at CCC+, fully seven ticks below "investment grade".

Adrian Ash

Adrian Ash, BullionVault Gold News

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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