Gold News

Gold hits highest fix in 6 weeks; Bear Stearns offers "little or nothing" to its hedge fund investors

The Spot Price of Gold rose steadily throughout the Asian session on Wednesday, hitting a new high for the week above $669.90 before slipping to $667.75 per ounce at the AM Fix in London – the highest Fix since June 7th.

Global stock markets fell sharply, meantime, knocking 1.1% off the Nikkei in Tokyo and shaving 0.7% off the FTSE in London.

Wall Street had closed Tuesday at new all-time highs, with the Dow breaking above 14,000 for the first time in its history. But stock futures pointed lower ahead of the Wednesday open after Bear Stearns – the fifth largest securities in the US – said that its two ailing mortgage-bond hedge funds may return "little if any money" to their investors.

The news from Bear Stearns helped send US Treasury bonds lower, pushing the 10-year yield one point higher to 5.03%. Ahead of today's semi-annual testimony from Ben Bernanke, chairman of the Federal Reserve, before Congress – and despite yesterday's report of record US asset purchases by foreign investors – the US Dollar sank to a fresh quarter-century low against the Pound this morning, while the Euro broke new record highs above $1.3830.

That capped the Sterling Price of Gold just above £328 per ounce. For French and German investors wanting to Buy Gold Today, one ounce of gold traded at €484.30 while crude oil prices ticked sideways above $75 per barrel. The Japanese Yen rose against all 16 of the world's most-actively traded currencies, according to Bloomberg data, as carry trade players unwound positions in response to the Bear Stearns news.

"The Gold Market is generally long with a positive outlook," says David Holmes, metals analyst at Dresdner Kleinwort, "but the trouble is that there is no new money flowing into the market to help us make the next leg of the move on the upside.

"It's partly related to the fact that we are entering into the summer period. Gold would find it easier to move higher in the fourth quarter of this year, but in the interim it's going to be relatively range-bound, with good interest to buy gold on dips and profit-taking is going to limit moves on the upside."

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On the supply side, China's National Development and Reform Commission (NDRC) said overnight that gold production rose to 122.2 tonnes between Jan. and June, up more than 15% from the first-half of 2006. Annual production has now risen by one-third from 2001, and the NDRC said Chinese gold output would hit 260 tonnes this year after reporting a find of 162 tonnes in the Yangshan gold mine in Gansu.

That could make China the world's No.2 gold producer ahead of the United States and only just behind South Africa, which has seen its output sink from above 1,000 tonnes per year in 1970 to just 297 tonnes in 2006.

"Over the long term the outlook for gold, supply and demand will feature significantly going forward," says David Davis, gold analyst at Credit Suisse, in an interview with MXMining.com.

Based on the gold mining industry's current 17% inflation rate, Davis forecasts a possible gold price of $1,400 per ounce by 2015 if today's profit margins are maintained.

"Limited mine supply growth and limited if any growth in central bank sales should ensure a long-term average real price of $575/oz for gold," reckons Steve Shepherd at J.P.Morgan. "More near-term we expect gold to average $678/oz this year and $725/oz in 2008, as the combination of the above industry factors and trends in the US Dollar combine to give gold an ongoing lift while its base metal peers enter a decline."

Elsewhere in the gold mining sector, Yamana Gold Inc. reported lower gold production for the second quarter of this year, down 3.5% to 116,000 ounces, while DRDGold South Africa announced yesterday that it had increased the resources it believes can be mined at its East Rand sites near Johannesburg by 150%.

DRDGold's operation at the Tolukuma mine in Papua New Guinea, however, is currently running at 50% power following a failure in the site's hydroelectric generator.

Meantime in the official sector, the European Central Bank said Tuesday that sales by its members totaled just 5.7 tonnes last week. With only 9 weeks remaining for this current year of the Central Bank Gold Agreement, notes Jon Nones for ResourceInvestor.com, "signatories would end nearly 130 tonnes shy of the 500-tonne quota at this rate.

In 2006, central bank gold sales under the CBGA came in 104 tonnes below the agreed ceiling of 500 tonnes. The current Agreement runs until Sept. 2009.

Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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