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Gold Miners "Rushing to Hedge" as Gold Price Rallies

Commodities / Gold and Silver 2013 Jul 19, 2013 - 09:03 PM GMT

By: Adrian_Ash


GOLD crept higher in quiet summer trade in London on Friday, adding 0.4% for the week as world stock markets also rose but commodity prices fell back.

Silver held 2.5% below last Friday's finish in Dollars.

Government bond prices were unchanged.

"Gold going down is not necessarily a bad thing," said US Fed chairman Ben Bernanke to lawmakers in semi-annual testimony on Thursday.

"It suggests people have somewhat more confidence, and... feel less need for whatever protection gold affords."

But "gold investors started to get nervous" in late 2012, says a note from Canada's TD Securities "about an eventual deceleration in the Fed's extremely accommodative monetary policy.

"Positive returns elsewhere [then] prompted investors to get out of gold."

Looking ahead, however – and with Bernanke repeating this week that tapering QE is "not a preset course" – "Economic data is unlikely to be stellar," says the TD note, "and the Fed will remain coy."

Touching $1295 per ounce in Asian trade Friday, gold prices for Euro investors were flat from last week.

The price in Sterling stood 0.5% lower at £846 per ounce for the first weekly drop in three.

"Gold miners across the world are cutting output and costs as gold prices slump," says the latest Commodities Weekly from French investment bank and bullion dealers Natixis.

"This is affecting new projects as well as existing mines."

After reducing their 'hedge book' as a group from nearly 3,000 tonnes to almost zero last decade as gold prices rose five-fold, "Mining companies are [now] queuing up at bullion banks to discuss short-term hedging arrangements," says one London bank's trading desk in a note.

"Some forward sellers already sleeping well at nights...others are rushing to lock-in 'good' prices."

Gold lenders are currently enjoying the strongest sustained returns in almost a decade according to data from market makers and other bullion banks, with gold lease rates up and swap offer rates negative.

"Some emerging-market central banks are taking advantage," adds the London bullion bank's note, "getting some yield on their gold reserves" by offering metal for loan.

The Philippinnes, Russia and Turkey between them have accounted for half the total addition to national gold bullion reserves in the last 5 years. 

Now the world's No.2 consumer, "China is importing large quantities of gold to meet [private] domestic demand," says Friday's note from Commerzbank in Germany.

"China thus remains a crucial support for the gold price."

China's gold demand is "slowing" however, says today's note from Standard Bank, which points to the Shanghai gold premium falling from $37 per ounce above London's benchmark two weeks ago to $22 today.

"Real economic indicators remain uninspiring" for industrial commodities, Standard Bank adds.

"Freight volumes in China continue to show significant drops...consistent with [weaker] manufacturing data for raw materials, exports orders and to some extent new orders."

Chow Tai Fook Jewellery, the world's biggest jewelry chain, is meantime one of several stores being investigated in China for price collusion, government newspaper the People's Daily reports.

Down 25% for 2013 so far, shares in Chow Tai Fook rallied sharply last week after it reported a jump in second-quarter sales.

"We don't understand why we got involved in the story," a spokeswoman told Reuters overnight.

By Adrian Ash

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(c) BullionVault 2013

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.

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