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Investors "Accumulating Gold" as Recession Hits

Commodities / Gold & Silver Nov 07, 2008 - 08:54 AM GMT

By: Adrian_Ash

Commodities SPOT GOLD PRICES held steady again early Friday, recording an AM Gold Fix in London of $745 an ounce and standing 1.5%, 3.6% and 0.7% higher from the end of last week against the Dollar, Sterling and Euros respectively.

"We are now at a lower range," said William Kwan, head of bullion trading at Gold Capital Management in Singapore, to Reuters earlier.


"I believe there's a lot of demand from short-term speculators around the $700 to $720 level. They might be accumulating gold slowly,"

"A lot of people are still buying Gold Coins . Retail investors are very happy to buy at these levels."

New analysis from Standard Bank in Johannesburg today showed that the net long of speculative players in the US Gold Futures market reached a six-year low at the end of Oct.

The outright number of speculative short positions – betting that the Gold Price will fall – reached a nine-year high.

"This suggests that, if a short-covering rally is triggered [by rising prices] in the near future, it could well be a sharp one," says Standard Bank's Precious Metals Monthly .

Over on the equities market today, Japan's Nikkei index bounced hard from an early 8% drop to close the week unchanged. Overall, the FTSE Asia-Pacific index dropped 1.4% for the session.

A bounce in oil prices to $62.50 per barrel from Thursday's 17-month low helped energy stocks rise up to 6% in Europe.

London's FTSE100 index halved an early 2% gain as British government bond prices rose further after yesterday's shock cut to UK interest rates.

The Bank of Korea today cut its key lending rate for the third time in a month, even after the by 25 basis-points to 4.0%,

The number of UK companies becoming insolvent jumped 26% during the July-Oct. period, the Insolvency Service said this morning, reaching a four-year high of 4,001. Almost two-thirds were voluntary.

Across the Irish Sea, the mayor of Dublin will switch on the capital's Christmas Lights this Sunday – three weeks ahead of schedule – in a bid to boost retail sales.

"We're not expecting good US payroll numbers today," said Bernard Sin, head of forex and metals trading at Swiss refinery MKS in Geneva, to Bloomberg earlier.

"Gold is reacting to that."

But while the actual US report for Oct. showed a loss of 240,000 jobs just as Wall Street opened for business – and while the unemployment rate jumped to a 14-year high of 6.5% – both gold and the US Dollar were initially unmoved on the news.

The Euro had earlier risen 2¢ to $1.2850, but it remained inside the down-channel vs. the US Dollar it began in mid-July.

The Japanese Yen meantime pushed higher against all other world currencies, knocking the Dollar back to ¥97.20 and capping the British Pound at ¥154 – almost one-third below Sterling's level of four months ago.

For UK investors looking to Buy Gold today the price briefly touched £475 an ounce in the wholesale spot market.

The Gold Price in Euros held just below €580 per ounce.

"The marriage season has just begun in India," noted Bachhraj Bamalwa at Nemchand Jewelers in Kolkata to the Business Standard today, "and while it is too early to say much, there is tremendous potential for business.

"Customers are still waiting for the right time and for the Gold Price to decline further," he added.

Indian Gold Prices have fallen by almost one-fifth since reaching new all-time peaks in early Oct. But "due to the money crunch," counters a jeweler working across Gujarat, Mumbai and Gurgaon, "customers are not buying any extra items and limiting their purchases."

Gold premiums charges above the international Spot Price held steady in Singapore and Hong Kong on Friday, reports Reuters. "Trade is cooling off a little, but physical demand has been very good in the past two weeks," the newswire quotes one physical dealer.

"Demand is so good in Thailand that we've seen streams of people Buying Gold at jewelry shops. We also heard people crossed over to Thailand from Cambodia, Laos and Vietnam to buy jewelery."

On the supply-side, meantime, the world's No.1 and No.3 Gold Mining companies – Barrick and AngloGold Ashanti – continued to buy back production they had already sold forward during the July to Oct. period, says Virtual Metals' latest Hedging & Financial Gold Report .

( During the bear market in gold ending at the start of this decade, gold miners worldwide sold some 110 million ounces of gold – well over 135% of annual production, as yet unmined – onto the futures market. They've since scrambled to buy it back as the price of gold tripled, helping drive a series of short-term spikes – most notably the 20% jump of April-May 2006. )

"Given that hedge reductions in 2008 have already reached 10.3 million ounces," says today's VM report – produced for Fortis, the Belgian bank – "it is possible our forecast for full-year 2008 dehedging of between 10-12 million ounces could be an underestimate.

"The obvious question remains what [world No.1] Barrick Mining will do, as their forward contracts have no fixed delivery date. But whatever happens it seems assured that 2008 will be the fifth year in six that dehedging has been over 11 million ounces."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

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