Gold News

Gold Investment "Caught Between Euro & China", Threatens 17-Month Uptrend, as Miners Struggle to Find New Deposits

Gold gave back an early bounce from yesterday's 6-week low for Dollar investors on Thursday, slipping back to $1090 as Chinese shares closed the day lower, but European and US stocks rose.

Little changed for Sterling buyers, gold was higher against the Euro as European leaders met to discuss the Eurozone debt crisis.

"We don't see decisive actions telling the market we can solve this," said Zhu Min, deputy governor of the People's Bank of China – and a special advisor to the International Monetary Fund from next month – after German chancellor Angela Merkel said the meeting would discuss possible IMF and partner support for Greece, but "no concrete help".

The government of Dubai meantime pumped $9.5 billion into the ailing Dubai World property group – 60% of it using emergency loans made by neighboring Abu Dhabi.

"Gold [was] a battleground between the Euro and Chinese buyers today," said one Hong Kong dealer earlier. "Chinese buying wanted to push it higher, but the Euro pulled lower.

"Silver Prices mostly followed gold in tandem," bouncing from a 3-week low at $16.53 an ounce.

Looking at Wednesday's New York action, several analysts point to the Dollar Gold Price falling through "the neckline of a head and shoulders top" – a chart-formation which "bodes ill for the near future" – around $1090.

"Gold is now looking at a crucial support level at $1080," says one London analyst – "where the trendline dating back to Oct. 2008 began.

"If this support breaks down, we'll be headed for the recent low and 200-day moving average near $1050."

On the forex market meantime, the single European currency – which typically shows a strong, positive correlation with gold's daily moves vs. the Dollar – bounced half-a-cent from Wednesday's new 10-month low beneath $1.33.

European Central Bank president Jean-Claude Trichet today confirmed to the Brussels parliament that emergency rules allowing lower-quality assets to be used as collateral for ECB loans will be extended to Jan. 2011 or beyond.

"[This is] to address any new stress situations...particularly for sovereign issuers in the Eurozone," noted UniCredit Research, "with positive implications for Greek and periphery [member-state] bonds."

German government debt eased back on the news as Greek bond prices rose.
 
The Gold Price in Euros recovered last week's finish above €818 an ounce.

"Symptoms of weaknesses are starting to appear more clearly in Gold Investment demand," says the latest Commodities Weekly from French bank Natixis, noting zero growth in global Gold ETF holdings, plus the sharp fall in Gold Coin sales reported by both the US and Austrian Mints from 2009's record levels.

"Gold Investment accounted for 32% of total demand in 2009 but only 6% in the previous 5 years," says Natixis' note, adding that recent news from China and Peru suggest Gold Mining output will further extend last year's growth in 2010.

"A fall below 10% of global demand is a highly likely scenario [for investment] in 2010."

Longer-term, however, "The world is currently mining gold faster than it is finding it," said Richard Schodde of MinEx Consulting at the PDAC conference in Toronto earlier this month.

"Furthermore, the average size and grade of gold discoveries continues to decline."

"The largest gold producers face a constant battle to replace their annual production," agrees Paul Burton, managing director of GFMS World Gold, writing this week in the London consultancy's latest quarterly letter.

Noting that large copper-gold deposits offer the most viable acquisition targets for major producers, "They need to find big ore bodies – the 'elephants' – in order to maintain their momentum and growth," says Burton. "[But] few have been found in recent years and that is despite record Gold Prices spurring unprecedented investment in exploration.

"The easy [gold] deposits have been found already it seems."

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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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