London Gold Market Report – Forex Hound

THE SPOT PRICE OF GOLD rose 0.7% at the start of London trade on Friday to start February with a new all-time high above $934 per ounce as South African gold production failed to come back online as expected.

London Gold Market Report
from Adrian Ash
07:25 EST, Fri 1 Feb.
Gold Closes New Record Month as World Stock Markets Tumble; Hits New Record High on Fresh Energy Crisis in South Africa
THE SPOT PRICE OF GOLD rose 0.7% at the start of London trade on Friday to start February with a new all-time high above $934 per ounce as South African gold production failed to come back online as expected.

Standing more than 9.2% above last month’s open, "spot gold gives no sign of fatigue," says Christopher Langguth in his daily Technichris note. "There is no reason to sell. The logical next test is $1000.

"If it were to fall there should be support at $842. If it fell below $830 there would probably be long liquidation."

Gold for immediate delivery averaged $889.59 per ounce last month, its highest-ever monthly price. The Gold Price has recorded new average highs in five of the last six months.

Meantime in South Africa late Thursday, the state-owned utility Eskom told gold miners working in the world’s second-largest producer nation that energy supplies will not rise to 90% this weekend as agreed. Running instead at 80% of average use, the electricity shortage threatens mine-safety and shaft maintenance.

Nick Holland of GoldFields, South Africa’s second-biggest gold miner, now believes the energy crisis could cut the nation’s 2008 gold output by up to one fifth. South African gold production could slip to a century-low beneath 200 tonnes "in a couple of years", he told Mining Weekly overnight.

Local press reports say GoldFields may soon be forced to shed 10,000 jobs if the energy crisis continues. Harmony Mining – the world’s fifth-largest producer – may shed up to 3,000 staff.

Collieries in Southern Africa are racing to supply Eskom with coal, but "the extra reserves will not bridge the gap between Eskom’s capacity and demand from power consumers," says But back in the spot Gold Market, meantime, "it is a Friday and there is a lot of US economic data out today, so expect another rollercoaster ride!" warns Mitsui, the metals dealer, in London.

The Wall Street open will bring Non-Farm Payrolls for Jan., plus hourly earnings. US construction spending and consumer confidence numbers follow at 15:00 GMT.

Already this morning, stronger-than-expected German manufacturing data helped the Euro continue its 10-day climb vs. the Dollar, capping the Gold Price in Euros below €628 per ounce.

But British investors wanting to Buy Gold today saw the metal touch a new record high of £469.20 per ounce after the UK’s leading private-sector survey of manufacturing activity – the PMI report – came in more than 3% below forecast for January, slipping to its worst showing since Aug. 2005.

Ahead of next week’s interest-rate decision from the Bank of England – and coupled with news that commercial property in the UK returned its worst-ever performance at the end of 2007, falling 7.6% in three months – currency traders pushed the Pound half-a-cent lower on the foreign exchanges to $1.9890.

Asian stock markets were mixed, with Hong Kong bouncing 3% – and mainland Chinese stocks listed in the province surging 6.4% – after closing out the worst January since 1997 with a 13% loss.

Australian equities delivered their worst one-month losses in 20 years. The broad S&P on Wall Street came within a few points of its worst one-month loss since the Great Depression.
Tokyo stocks continued to slip Friday morning after dropping 11% in Jan., but the FTSE in London began Feb. with a 1.2% jump, led by a 14% gain in mining giant – and mega-merger target – Rio Tinto.
The UK’s top 100 stocks suffered their worst-ever monthly loss in January.
"If the markets decide to return to fundamentals for a change, which is not something they’ve been doing recently, they’ll be doing okay," reckons Edmund Shing, a strategist with BNP Paribas in Paris.

The true fundamentals of the stock market remain at issue, however, and not least in the financial sector.

Activist hedge-fund manager Bill Ackman yesterday launched an open-source analysis of the world’s largest "monoline" bond insurers, claiming that MBIA and Ambac both face $11.6 billion in losses on their mortgage-bond exposures – enough to destroy them and threaten confidence in the $2.4 trillion worth of bonds they help underwrite.

"[But] Mr.Ackman is a slick salesman who doesn’t know much about insurance," counters Martin Whitman, whose Third Avenue Management fund owns 10% of MBIA’s stock.

MBIA itself said on Thursday that it has enough cash to honor its bond-insurance pledges. Standard & Poor’s, the credit ratings agency, has apparently confirmed the company’s triple-A status.

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2008
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