Gold News

Gold Hits 4th Euro Record in 4 Days, Global Investment Demand "Resilient" as Miner Hedging Drops 90% from 2001 Peak

Gold Prices rose as London trading headed towards the weekend on Friday, adding 2.0% from last week's finish against the Dollar and gaining 6.7% vs. the Euro.

The single currency earlier sank to a new 10-month low against the greenback after the Federal Reserve surprised analysts with a quarter-point rise in its "discount" bank-lending rate to 0.75%.

Asian stock markets sank on the news, despite hasty clarification from the Fed that the change "[does] not signal any change in the outlook for the economy or for monetary policy."

Crude oil crept above $79 per barrel, while US debt prices rose but European and UK government bonds fell.

Touching €826 an ounce both in overnight trade and again at Friday's New York opening, the Gold Price in Euros hit a new record high 4 days running this week.

The Gold Price in UK Pounds came within 1.7% of its own all-time high, trading above £720 an ounce today.

"It's impossible to guess the price right now," said one senior London dealer to BullionVault by phone this morning.

"Algorithmic trading is driving the market, so the Dollar-price is likely to track Euro-Dollar [exchange rates] short term."

"Gold Prices have outperformed other commodities during the recent correction," notes the latest weekly analysis from bullion-dealer Natixis in London.

"Where is this strength coming from?" asks the French bank. "We suspect that Chinese buying may no longer be restricted to domestically produced metal."

But "US government bond yields continue to rise," notes Walter de Wet at Standard Bank this morning, "which could put some strain on gold, especially following the IMF gold sales announcement two days ago."

Coming as Eurozone finance ministers prepare to meet for the third time in two weeks to discuss the Greek debt crisis – and after the Russian government effectively told Greece to sidestep Europe and go straight to the IMF for aid – the International Monetary Fund's statement "spooked" the gold market according to some analysts.

However, Dollar Gold Prices were unchanged by Friday's New York opening from before Wednesday's announcement.

Gold priced in Euros stood sharply higher, as it did in Sterling, Swiss Francs, Aussie Dollars and Japanese Yen, despite news that the IMF will sell the remaining 193 tonnes of its much-publicized 400-tonne sales "on the open market".

India's purchase of the first 200 tonnes in Oct. sparked a daily run of all-time record highs against all major currencies, culminating at US$1226 an ounce in early Dec.

This month's low at $1045 took Gold Prices right back to where they began that run. They have since risen 7.0% for Dollar investors and 7.4% for Euro buyers.

"The outlook for gold remains positive precisely because of the unique diversity of the gold market," says Aram Shishmanian, CEO of marketing-group the World Gold Council, in response to the IMF announcement.

Gold Investment demand is "resilient" he says, and "Supply trends are equally as important.

"Net purchasing by central banks in recent quarters, constrained mine supply and a more stable level of recycling activity, all help to ensure that gold continues to retain the qualities which make it an important preserver of wealth and a key component of an effectively diversified portfolio."

Latest data from the VM Group consultancy here in London, however, shows "dehedging" by Gold Mining firms – either buying back or delivering gold they'd already sold forward to lock in prices – reached a near-two year peak in the last 3 months of 2009.

Overall, the quarterly decline in the Gold Mining sector's outstanding "short" position in gold derivatives was equivalent to 126 tonnes of metal.

At that pace, VM's figures for the Fortis Nederland Bank-sponsored quarterly report show, the entire hedgebook – now 90% below its peak of autumn 2001 – could be unwound by end-June, removing both a drag on Gold Mining profits as well as a key source of demand during the 10-year bull market to date.

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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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