Gold Dips, Stocks Rally Despite US Recession; Gold Mining Supply "in Crisis" as Government Debt Swells Worldwide
Gold Prices slipped from a seven-session high for Dollar and Yen investors at the New York opening on Thursday, as world stock markets extended a four-day rally despite confirmation that the US economy has joined the UK in sliding towards recession.
After the Federal Reserve slashed US interest rates to 1.0% as expected on Wednesday, Tokyo's Nikkei index today leapt another 10% as the Japanese currency retreated further from its strongest showing this decade.
Stocks traded in Seoul and Hong Kong jumped almost 12% on average, while Wall Street opened up 2.5% despite third-quarter GDP data showing a contraction in output.
"The sentiment for gold is improving day by day," reckons Commerzbank analyst Eugen Weinberg.
On the Fed's rate cut, "it's surprising that the increase in gold wasn't as pronounced as expected," he told Reuters this morning.
The Gold Price in Japanese Yen rose sharply once more today, gaining more than one-fifth from last Friday's 33-month low.
For European investors, however, the Gold Price in both Sterling and Euros drifted back towards this week's opening levels, trading at £463 and €584 respectively.
Today on the forex market both the US Dollar and Japanese Yen bounced from last night's one-week lows, but remained 5% and 11% lower respectively from Monday's multi-year highs against the Euro.
Priced in Dollars, the Reuters-CRB commodity index rose almost 6% early Thursday as crude oil continued to rally, touching $70 per barrel.
Both nickel and copper futures jumped more than 13% at the London Metals Exchange on news that this month's sharply lower prices have forced leading mining groups to delay drilling at several new sites.
Yesterday the world's largest copper-producing nation, Chile, cut its 2008 output forecast for the second time in three months, down 4.5% from this summer's estimate.
Without "extra investment to raise production," world oil production will now decline by 9.1% annually, says a draft of the International Energy Agency's latest report, obtained by the Financial Times.
Just today, Royal Dutch Shell delayed a decision on expanding its Canadian oil-sands project due to sharply rising costs. Its competitor Suncor Energy Inc. says tar-sands production remains economic with oil above $60 a barrel.
Global gold production is also likely to fall, predicts Mark Cutafini – CEO of AngloGold Ashanti, the world's third largest Gold Mining group. Announcing the group's third-quarter losses in Johannesburg, South Africa today, he forecast shrinkage of around 3% per year until 2014.
"We will see another five years of decline in this industry," Cutafini told analysts after reporting a 12% increase in cash-costs per ounce and a 40% increase in pre-tax losses between July and end-Sept..
"That's why I'm optimistic about the Gold Price."
AngloGold's third-quarter losses – worsened by having to deliver gold at an average 26% below the Spot Price thanks to its "Hedge Book" futures contracts – come as the group admits struggling to refinance a $1 billion convertible bond due to a $1bn convertible bond due to "disrupted and volatile global capital market conditions."
The world's very largest Gold Miner Stock, Barrick Gold Corp., today reported a 26% drop in its third-quarter profits.
Both Barrick and AngloGold grew their gold output by 1% during the period. Newmont Mining, the world's second-largest Gold Miner Stock, yesterday reported a slight drop in third-quarter output.
Capital costs at the Boddington joint venture between Newmont and AngloGold in Australia are now set to reach up to $2.8 billion, new figures show – the second increase in forecast costs so far this year and up from an initial estimate of $1.3bn.
"The gold industry from a production perspective is in crisis," added Mark Cutafini at today's AngloGold Ashanti conference.
To reverse South Africa's 30% drop in annual gold output, "we need something in the order of $900 to $1,000 an ounce for there to be ongoing and sustainable investment in gold, to turn that trend around," he went on.
Meantime in the government bond market, yields rose early today, most notably on short-dated European paper and also on five-year US Treasuries – up 7 basis points to 2.79% ahead of Thursday's $24 billion auction of new 5-year notes.
The government of Japan – the world's second largest economy – today announced a new ¥5 trillion stimulus package ($51bn) because "a harsh storm seen only once in 100 years is raging," said the prime minister, Taro Aso.
Germany's federal government also set out €25 billion ($32bn) of stimulus measures, aimed at spurring business growth.
"Economic activity appears to have slowed markedly," said the Federal Reserve when it slashed US interest rates back to a six-decade low of 1.0% on Wednesday, "owing importantly to a decline in consumer expenditures.
"Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for US exports."
"World demand is slowing fast," agreed David Blanchflower – the US member of the Bank of England's monetary policy committee who has voted to cut UK interest rates 14 times in 29 meetings since his appointment in June 2006 – to an audience at the University of Kent last night.
"The price of shipping dry goods such as grain, iron ore and coal...has fallen by 91% since its peak in May. Trade credit is unavailable for financing freight."
Blaming his BoE colleagues for not joining him in voting to cut the returns paid to Sterling this spring, "We need to cut interest rates not to protect the banks, but to protect the public from the banks," Blanchflower claimed.
Today's data releases showed UK house prices falling at a record pace in October, while European consumer confidence sank yet again.
The US economy contracted by 0.3% between July and end-Sept. on an annualized basis, said the Bureau of Economic Analysis.
Price inflation across the US economy jumped to 4.8% year-on-year, rising sharply from the spring and beating analyst forecasts of 4.0%.