Gold News

Gold Hits Volatility on US Jobs Data; Miners Hit Trouble Closing Hedge Book Positions

Gold Prices
dumped $13 from an early spike in US trade on Friday, bouncing off $792
per ounce as financial markets hit strong volatility on the
much-awaited US jobs report for November.

Pointing to growth of 94,000 in non-farm payrolls last month – and
beating analyst forecasts by one-third – the numbers still showed a
marked slowdown from Oct.'s release.

Even at the bottom of Friday's slump, the Gold Market remained on course for its first weekly gain in three.

"Volatility, volatility, volatility," writes Wolfgang Wrzesniok-Rossbach in the latest Precious Metals Weekly from Heraeus.

"For next week we expect Gold Market
volatility to remain high [and] despite a possible interest-rate
reduction in the USA next week, we can not rule out the metal testing
again this week's lows.

"However good support seems to be building-up in the range between $
770 and $777 an ounce. and while a larger drop down to $740 an ounce
can not be discounted completely, even in such a case, the long-term
upward trend in Gold Prices remains intact."

Asian stocks failed to capitalise on Thursday's 174-point gain in the Dow overnight – led by President Bush outlining the 'Hope Now' plan for subprime mortgages – with the Hang Seng in Hong Kong slumping 2.4%.

Crude oil was little changed above $90 per barrel after leaping 3% on
Thursday's news that US stockpiles suffered the biggest drawdown in
three years last week.

The Euro continued to rise steadily on the currency markets, meantime,
recovering an overnight dip from two-day highs around $1.4650 after
German industrial output for Oct. beat expectations with a 0.3% drop
vs. 0.5% forecast.

"Gold has had a correlation of 0.75 against the Euro-Dollar exchange
rate in the past three months," reports Bloomberg today, "up from 0.53
in the prior three months. A reading of 1 would mean the two moved
lockstep."

German government bond prices fell on the industrial output data,
slipping for the third day running after Jean-Claude Trichet, head of
the European Central Bank, said Thursday that inflation remains "the
sole needle in our compass."

Yesterday's ECB meeting, which ended with a vote to keep Eurozone rates
on hold at 4.0%, even saw some members of the governing council propose
a rise to 4.25%. The Bank of England, in contrast, cut UK interest
rates for the first time in two years, but the Pound recovered an
initial sell-off to trade back above $2.0330 by midday in London today.

That pegged the Gold Price in British Pounds more than £10 above last week's close, trading at £390.50 per ounce. For French, German and Italian investors wanting to Buy Gold Today, the price stood 1.7% above last Friday's finish at €540 per ounce.

"The ECB at this stage doesn't seem worried about the credit crunch as
much as it is about inflation," as Alessandro Tentori at BNP Paribas in
London told Bloomberg this morning.

"The bond market is taking stock of the significant revision to inflation expectations next year."

European shares rose strongly, meantime, gaining more than 1% in London
and Paris as banking stocks rallied on the US subprime bail-out plan.
President Bush said Thursday that Hope Now
will help up to 1.2 million homeowners, but Mark Zandi – chief
economist for Moody's at Economy.com – puts the true figure nearer
250,000.

"[US] home sales are expected to hit bottom in early 2008," Zandi says
in a new forecast today, "declining by over 40% from their peak.
Effective house-price declines peak to trough will total well over 15%."

Over in the gold-mining sector today, a rock-fall 3,000 meters below
ground killed a worker at the Kloof mine in South Africa. Owned and
operated by Gold Fields – South Africa's largest gold miner – Kloof has
now witnessed seven deaths since Sept., the company said.

South African mining unions led a strike by 250,000 workers on Tuesday
to protest at what they called "mining genocide". The world's major
gold mining operators are finding little solace in the rising Gold Price right now, too.

After selling 3,000 tonnes of gold on the futures market by the end of 1999, gold mining companies now face a Gold Price
too high to close out their remaining 1,000-tonne hedge books says
William Tankard, a senior analyst at GFMS, the widely-respected London
consultancy.

"You have had announcements by Barrick [the world's No.1 gold miner]
that they are reasonably comfortable with their hedge position,"
Tankard tells MiningMX.com. "So they have outlined that an elimination
of further hedges is unlikely in the near term."

But even if the Gold Market's
25% surge in 2007 prevents new upward pressure coming from gold miners
wanting to buy back their short positions, demand from consumers looks
set to rise this month.

"December should see a resurgence in physical demand for seasonal
reasons," says today's monthly report from Standard Bank, "notably the
onset of the wedding season in India and continued retailer stocking –
albeit somewhat modest – ahead of Christmas.

"For the time being, however, buyers are reluctant to enter the market and until they return then Gold Prices will remain under a degree of pressure. The Dollar will be key."

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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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