Gold News

Gold Volatile Near Record Highs as Stock Markets Sink Once Again; South African Production "Closed for 6 Weeks"

Gold Prices moved sharply in a $10 range early Monday, hitting $921.50 overnight in Asia – more than 1% above Friday's close – before slipping back to record an AM Fix in London of $916.50 per ounce.

Gold mining production in South Africa, the world's No.2 producer, remained closed by power shortages, while global stock markets continued to plunge, meantime, losing more than 3.4% in Asia and starting the week in Europe more than 1.8% down.

India investors are now the butt of jokes about bankruptcy, reports DNAIndia, with the Sensex losing almost 11% of its value since New Year's Eve.

"Gold is boosted by the expectation that the Fed will have to pick and choose between fighting inflation or fighting recession," said Wallace Ng, head of precious metals trading at Fortis Bank in Hong Kong, earlier today.

"Now it seems they have given up on inflation."

The Federal Reserve last week announced the sharpest cut to US interest rates since 1982, and it is certain to cut the price of Dollars further when it meets this Wednesday according to betting at the Chicago Board of Trade (CBOT).

Twenty-two out of 29 gold traders and analysts surveyed by Bloomberg News advise Buying Gold – already 9.5% higher against both the Dollar and Euro so far this month.

But in the physical Gold Bullion market, demand has virtually vanished according to reports from Asia.

"Most jewelers don't think the Gold Price is real," one bullion dealer in Singapore told Reuters today. "They are facing a dilemma.

"They can hedge [by selling gold futures], but they have to pay margin calls if the price goes up. If the price goes down, they also suffer. They are not happy. This is what I gather from the wholesaler side.

"Gold jewelers are even wondering whether they should liquidate their assets and keep cash instead."

Noting a sharp decline in last month's gold refinery turnover worldwide, the latest Refining Monitor from Mitsui says that physical buyers only began to step back in last week when the price fell nearly $50 from its previous high of $914 per ounce.

Now with a new all-time record set above $923 per ounce, "the short term outlook for the yellow metal looks uncertain," the Monitor notes. "While physical buying would increase at $850 levels, the volatility in the Gold Market cannot be ignored and this should act as the determining factor for the overall depth of physical interest."

Back in the equity markets, Australian investors were spared further losses by a public holiday on Monday, but today's sell-off in Asian-Pacific stocks took the region's total losses for 2008 to date above 12%.

The Gold Price in Aussie Dollars meantime rose to a fresh record high of A$1,050 per ounce, even as the AUD recovered from last week's seven-month lows vs. the Japanese Yen.

For British investors wanting to Buy Gold today, the price touched Friday's new all-time high above £465.50 per ounce as the Pound crept above $1.9800. European investors saw the Gold Price in Euros touch €627.30 as Societe Generale, the second-largest bank in France, dropped 7.4% of its value on fresh revelations about the "rogue trader" losses of $7.1 billion announced last week.

The Euro put on half-a-cent to $1.4720.

US crude oil prices fell to $90 per barrel despite analysts agreeing that the Opec oil cartel will not raise its output quotas at Friday's extra-ordinary meeting in Vienna.

Corn, soybeans and wheat prices all slipped back after a three-session surge, and copper prices also fell in Shanghai – the first drop in four sessions – despite news that domestic Chinese stockpiles of the metal have shrunk to a 32-month low.

The longer-term trend for raw materials prices still points higher, however, even as global interest rates are led lower by the US Federal Reserve. Since this time last year, the UBS Bloomberg Index of 26 major commodities has now risen by 31%.

Today platinum futures traded in Tokyo rose to a new record high as South African production remained closed by electrical shortages. The head of Anglo American, Cynthia Carroll, today flew to Johannesburg to discuss getting its production of 2.6 million ounces-per-year restarted.

Eskom, the state-owned power utility, offered to guarantee supplies to gold mining firms this weekend if they agree to reduce their consumption by 10% or more.

"I think the shortage has been happening all the time and Eskom was probably not as honest as it should have been about the situation," said Graham Briggs, CEO of South Africa's Harmony Mining on Friday.

"We've got all the costs right now, and we're not producing any gold, so we lose a serious amount of money, in the order of probably 60 million Rand a day [$8.6m].

"It is extremely serious."

An Eskom spokesman said on Sunday that it may be six weeks before South African gold-mining production comes back online.

"We are talking 200 million Rand in revenue [per day] and about R60m in profit," reckons Nick Goodwin, a local analyst.

"What's the use of having such high Gold Prices if you have no product to sell?"

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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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