Gold News

Gold Prices Hit One-Week High as Euro Slides, Crude & Copper Rise; Is $10,000 an Ounce Out of the Question?

Gold Prices jumped almost 1% at the London opening on Friday, building on solid overnight trade to reach a one-week high of $916 per ounce as Asian stock markets sold off yet again and European equities held flat.

The Nikkei on Tokyo ended the week 3.6% lower, while crude oil rose almost $1 per barrel in London on new supply problems in both Nigeria and the North Sea.

Copper prices headed for their biggest weekly gain since May '07, meanwhile, after Codelco – the world's largest copper mine – said output fell 5.3% last year.

China's second-largest copper producer, the Jiangxi Copper Co., said earlier this week that its smelting output has sunk by 70% thanks to the severe snowstorms still crippling the country.

Yet despite the relentless march of commodity price-inflation, government bond yields continued to push near multi-year lows early Friday, and "headlines out this morning say central banks around the world will have to follow the lead of the US and UK and start to cut rates," as today's Gold Market report from Mitsui, the international metals dealer, notes.

"With the global economic slowdown, one has to wonder where to place investments, and this is where the precious metals benefit. It's for this reason Gold Prices have remained firm despite the declining Euro."

In the three months to mid-Jan., gold priced in US Dollars showed a growing correlation with the EUR/USD exchange rate, gaining to 0.71 from 0.67 between Aug. and Sept.

A perfect correlation of 1.0 would mean they moved in lock-step.

But so far in 2008, the Gold Price in USD has gained 9.1%, while the Euro has dropped nearly three cents against the Dollar, and even as gold shot higher in London this morning, the single currency slid to a 13-session low after Germany reported a sharp slowdown in industrial production.

The world's third largest economy also reported a marked decline in its trade surplus, down from €19.5 billion in Nov. to €10.8bn in Dec. – and the Euro was also whacked by a final verdict against Europe over its banana import tariff from the World Trade Organization.

Across the border in Switzerland, meantime, consumer-price inflation for Jan. was reported at 2.4% annualized – a sudden 14-year high.

The Swiss Franc has now lost 3% of its value against the US Dollar since the start of Feb.

"Much of the motivation [for the flight into Gold Bullion] is wealth preservation in the face of growing financial instability," according to a report from Natixis Commodity Markets in London.

Citing a "perfect storm" for gold – led by falling interest rates around the world – Natixis believes gold could reach $1,000 an ounce in 2008.

Longer-term, $10,000 an ounce may not prove out of the question claims Shayne McGuire – director of global research at Texas State's $115 billion Teacher Retirement System – in a new book published this week by John Wiley & Sons.

On the supply-side, meantime, AngloGold Ashanti – the world's third-largest gold producer – has admitted that its output in 2008 may be 400,000 ounces lower than previously forecast thanks to South Africa's current electricity cuts.

The company's new CEO also wants to close out its "hedge book", built up as the Gold Price fell during the late 1990s but now costing it more than $101 per ounce.

Mark Cutifani, who took over at AngloGold Ashanti in Oct., plans to use 2.4 million ounces of its 2008 output to settle forward gold sales. During the last three months of 2007, its hedge-book meant Anglo earned an average of $687 an ounce against the average spot Gold Price of $788.

Global gold mining production in 2007 fell 1% from a year earlier, according to the GFMS consultancy in London. Newmont Mining – the world's second largest gold miner – said yesterday that its sales fell 9% in 2007. It now expects 2008 sales to match last year's disappointing total, with the total cost of sale rising by up to 10% per ounce.

Newmont's stock, already down 9% from Monday's opening, was little changed on its fourth-quarter results. NEM has risen 11% from the start of January.

The price of what Newmont produces, in contrast, has risen by more than one-third.

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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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