Gold News

Gold Unmoved by Euro Rate Cut; South African Mining Output Plunges Again

Spot Gold prices were left little changed in London on Thursday by a widely-forecast cut to Euro interest rates, trading at $809 an ounce – down more than 5% for the week so far – as global stock markets plunged yet again.

The European Central Bank (ECB) lopped 0.5% off its key interest rate, taking it back to the all-time record low of 2.0% set during the last global "Deflation Scare" of 2001-2004.

Over on the forex market the Euro dipped towards a 5-week low at $1.3100, but the fresh dose of cheap money failed to stem a 0.8% drop in the Paris CAC40 index.

Only the European bond market seemed surprised by the ECB's move, with 6-month bund yields falling almost 0.8% to just 1.29% as the price of fixed-income government debt was bid higher.

"The precious metals are being pushed steadily lower by the weak oil price and softer Euro," reckons today's note from Mitsui in London – heart of the world's Wholesale Gold Market.

But Gold ETF investors – trading paper shares in trust-fund structures that then hold gold inside major bank vaulting facilities – have "taken this dip in price as an opportunity to add to their positions," the gold dealer adds.

New York's SPDR exchange-traded gold fund, the world's very largest, said yesterday it's holding some 790 tonnes of gold – a new record.

"We expect gold to push higher on the back of tighter supply and continued safe-haven buying by investors," says Helen Henton, head of commodity research at Standard Chartered bank in London.

"In the second half of 2009, this should combine with a weaker US Dollar to help push Gold Prices above $1,000 an ounce."

The world's No.2 gold producing nation, South Africa, today reported a 12.6% drop in Gold Mining output for the 3 months to end-Nov. That compares with a 0.5% drop in non-gold mineral production.

Formerly world No.1 until China overtook it last year by default, South Africa's annual gold output has more than halved in the last 10 years.

Now Standard Chartered's analysis forecasts an average price of $971 an ounce for Gold in 2009, up by more than one-tenth from both its previous forecast and the average 2008 price.

Short-term, "Momentum indicators on the daily charts are nearing oversold levels and this hints that we might see a temporary respite in the form of short covering," reckons Pradeep Unni, an analyst at Richcomm Global Services in India, speaking to Reuters.

"Physical buying has recovered a bit," adds Dick Poon, manager in Hong Kong for German-refining group Heraus Ltd, "but there's still some pressure related to currencies right now.

"The US Dollar is quite strong. That's why the funds still continue to sell."

Rising against pretty much everything else today, however, the US Dollar was outpaced by long-time zero-yielder the Japanese Yen, slipping to within ¥2 of Dec.'s 13-year low vs. the Yen on the currency market.

Crude oil held steady near $37 per barrel. Platinum prices fell hard on news that European car sales fell almost 8% in 2008, their sharpest fall since 1993.

Around 70% of physical platinum demand is for making auto-catalysts. December saw a worse than one-in-six drop in Eurozone car sales year-on-year.

Meantime on the political front, 170 arrests were made during a protest in Sofia – capital of Bulgaria – on Wednesday night.

The Latvian capital Riga was hit by anti-government riots on Tuesday night.

Bulgaria joined the European Union on New Year's Day 2007. Latvia joined three years earlier, and has since enjoyed double-digit growth in its GDP. But analysts now forecast a 5% contraction in Latvia's economy during 2009, however.

The central bank has already spent one-fifth of its currency reserves trying to defend its Euro-hopeful currency, the Lat.

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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