Gold News

Gold Trades in $5 Range After 5% Plunge; Link with Crude Oil Weakening as Mining Supply Struggles

Gold Prices moved sideways in a $5 range early Friday, rising above $790 per ounce by 10:00 in London to recover one-quarter of Thursday's near-5% plunge.

"After yesterday's sell-off, the Gold Market will be watching closely for the next move," says today's note from Standard Bank in Johannesburg.

"There are likely to be stop-losses in place, and investors are nervous...but there are also investors and funds who might see the latest correction as a buying opportunity."

On a technical analysis, "the three-month trendline provided very nice support," notes Phil Smith for Reuters India, pointing to Thursday's low at $782 per ounce, "and it should continue to do so."

"[But] we've had an interesting cross on the MACD," he adds, and Smith's moving-average indicator of Gold Prices "is bearish.

"Looking at that we should expect a break of the trendline and a move lower."

On the currency markets early today the US Dollar continued the slide it began on Nov. 1st vs. the Japanese Yen, trading just above ¥110.00, the 18-month low it first hit last week.

The Euro whipped around $1.4600, meantime, while the Canadian Dollar added to its losses for the week. The Loonie has now dropped more than 7% versus the USD since hitting all-time record highs on Nov. 7th – the culmination of a four-year surge – keeping the Gold Price for Canadian investors above C$775 per ounce, a six-month high.

The British Pound also slipped in early trade, failing to consolidate an overnight rally and dropping back to $2.0430. Sterling has now lost 3.4% against the US Dollar from its quarter-century highs of Friday last week.

For British investors wanting to Buy Gold Today, the metal rose 1% from Thursday's two-week low to trade at £388 per ounce by mid-morning in London. Gold Priced in Euros held near its new lows for the month around €540.

Copper futures fell overnight, nearing their third weekly drop on the run as mines in Chile – the world's largest producer – re-opened after an earthquake. Soft commodities rose in Asian trade, with soybean prices hitting a new 19-year high. Crude oil was little changed after yesterday's $2 sell-off below $94 per barrel of US sweet and light.

"The rebound in US crude stockpiles [reported Thurs], due in part to a one-off backlog of imports, was less bearish than it appeared," reckons Antoine Halff, head of energy analysis at Fimat in Houston, a division of SocGen.

The growth in US oil inventories seen last week "was focused on the relatively insulated West Coast," notes Halff. But the National Weather Service predicts above-average temperatures across the United States for winter 2007/08. Private forecasts put snowfall at just 60% of average.

"Last year the oil price was the key to the Gold Market," says John Hill, metals and mining analyst with Citigroup in San Francisco. "This year gold and broader equities have been closely linked. [Now] the negative correlation with the Dollar is being reasserted while a temporarily strong relationship with the overall market is weakening."

Looking further ahead, "we are maintaining our bullish outlook for gold into 2008," says Michael Lewis, head of commodity research at Deutsche Bank in London.

"We believe the next two months will present another opportunity to accumulate long exposure given the tendency for the US Dollar to strengthen in the first four weeks of a New Year."

Extended Gold Price depreciation would be welcomed by Indian jewelry buyers, meantime. "Markets in Gujarat have just opened today after a five-day gap," says Anuraag Mewada, head of Zaveri and Co. in Ahmedabad, "and still there are no buyers ahead of the wedding season."

The Indian wedding season – beginning now the festival of Diwali has ended – will run until February. But "the recent spike in Gold Prices has kept wholesalers and retailers away," Mewada told the AFX newswire earlier.

Indian jewelry and investment demand accounted for some 22% of physical gold-sales last year. Between July and Sept., reports the Hindu Business Line today, jewelry demand totaled 134.8 tonnes – a rise of 5% from last year. Net retail investment at 50.3 tonnes showed an increase of 4 per cent year-on-year.

On the supply side of the Gold Market, however, mining companies continue to face rising costs and struggling output. Greg Wilkins, CEO of Barrick – the world's largest gold-mining company – told a conference in London on Thursday that "global mine supply is going to fall at a much faster rate than people generally believe."

Now Graham Briggs, the new head of Harmony Mining – the world's fifth-largest producer – has told Mining Weekly that he might suspend continuous operations at those sites failing to hit production targets.

Harmony just ran due diligence on six major operations to establish whether "conops" had met the target of increasing production by 26% or more without damaging safety.

"Probably the poorest performing conops production unit is Masimong," says Briggs, "where conops was introduced with no benefit at all. What we are doing is trying to fix it up before we see if we actually have to pull the plug."

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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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