Gold Slips 0.5% as Hurricane Misses Oil Market, Profits Warning Hits London Banks
Gold Prices slipped 0.5% to dip below $882 per ounce early Monday as Asian stock markets moved higher, but oil prices – and the Dollar – held flat.
European stock markets then opened the week sharply lower, dragged down by a profits warning and 23% cash raising by Bradford & Bingley, the UK's biggest mortgage lender.
"I don't see anything new in the Gold Market so far," said Akira Doi at Daiichi Commodities in Tokyo to Reuters earlier.
"We are nearing the summer, and India's peak demand season is at an end. I think prices will trade around $880-$930 for the time being barring any major news."
Bloomberg's latest weekly survey of Gold professionals found one-in-two forecasting a further fall by Friday.
Last week Gold Prices dropped more than 4% as oil prices sank 3.7%.
The futures market moved to forecasting a 0.25% increase in US interest rates by the end of 2008 – and 10-year US Treasury yields rose above 4.0% – while central bankers in Europe repeated their commitment to "high" interest rates to fight a inflation.
But the cost of Euros now sits just 0.4% above the current rate of inflation. Federal Reserve rates are less than the half the current pace of Consumer Price inflation in the United States.
"The week ahead is a busy one in terms of data releases," notes Walter de Wet at Standard Bank in Johannesburg, "most notably Eurozone Producer Price inflation and GDP figures on Tuesday, the ECB interest rate decision on Thursday, and the US non-farm payroll data on Friday.
"These data releases could see careful and volatile trading. Gold saw good buying support in Europe on Friday after inflation fears drove the price higher."
Meantime in the oil market, Hurricane Arthur – the first tropical storm of 2008's hurricane season – bypassed Mexico's huge Cantarell oil field overnight, where Pemex pumps 1.07 million barrels per day.
"The storm went by without any major incident or disruption," notes Tetsu Emori, a fund manager at Astmax in Tokyo, "so that's cleared the market of upside risks.
"The other bearish factor is the investigation [into speculation] by the United States, which could reduce liquidity because there's concern among investors."
Following last month's Senate Committee blaming speculation in food and energy markets for the recent record high prices, hedge funds and other large speculators cut their long positions in crude oil by 12% last week according to the latest Commitment of Traders data.
Open interest in Gold Market futures and options shrank by 5% overall in the week to May 27th.
Private investors increased their bets on lower prices by one-third. Professional funds and traders, in contrast, grew their bullish bets by 2%.
In Tokyo today, Japanese Gold Prices rose back above ¥3,000 per gram at the Tocom futures exchange. The Nikkei stock index also rose 0.7%, hitting a five-month high as export and banking stocks rose on higher earnings.
"There's no question that anxiety about the credit crunch is easing," reckons one Tokyo strategist.
"People are growing a bit more willing to take risks, and we're also seeing some cash coming in from the Japanese government bond market."
Here in London this morning, however, Bradford & Bingley – the UK's eighth largest bank – issued a profits warning and said US private equity firm Texas Pacific Group is buying almost a quarter of its shares.
A planned £300 million ($589m) rights issue is also being scaled back – and repriced – after B&B's stock closed last week just 6p above the proposed offer price.
Today's news sent London's financial sector sharply lower, with Bradford & Bingley opening the week more than 25% lower.
Over in the gold-mining sector, meantime, analysis from Surbiton Associates says Australian gold production dropped 12% in the first three months of 2008 to its lowest level in 19 years.
"[The drops are] nowhere near as bad as they seem," says Surbiton director, Dr. Sandra Close, pointing to temporary mine closures and heavy rains.
But "the primary cause of the sharp drop in output was the lower average grade of ore treated. I suspect some operators are taking every advantage of the high Gold Price to reduce their head grade.
"This allows them to recover more gold over the life of the mine while still maintaining their profitability."
In South Africa – where annual output has halved over the last 10 years – production was halted at the Blyvooruitzicht mine belonging to DRDGold by an unofficial strike last week.
The national power utility Eskom, which closed all mining production in January by suspending energy supplies, admitted this weekend the "huge challenge" ahead in securing enough coal at "affordable prices" to fire its power stations.
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