London Gold Market Report – Forex Hound

Gold Makes It 20 Gains in 27 Weeks as Falling Rates Destroy the Dollar; Gold Mining Stocks Fail to Keep Pace
 
SPOT GOLD PRICES held inside a $7 range in London early Friday, recording a new all-time high the AM Fix of $945.75 per ounce as Asian and European equities reversed this week’s gains and the US Dollar fell to a 10-session low.
London Gold Market Report
from Adrian Ash
08: 45 EST, Fri 22 Feb.
 
Gold Makes It 20 Gains in 27 Weeks as Falling Rates Destroy the Dollar; Gold Mining Stocks Fail to Keep Pace
 
SPOT GOLD PRICES held inside a $7 range in London early Friday, recording a new all-time high the AM Fix of $945.75 per ounce as Asian and European equities reversed this week’s gains and the US Dollar fell to a 10-session low.

"It’s been six months this week since the Fed started cutting interest rates – and gold has gone nuts," as BullionVault told Bloomberg earlier today.

"Over that time, the Gold Market has risen 20 weeks out of 27 – and the more the Fed promises cheaper money, the more people will choose an alternative to the Dollar."

Crude oil bounced higher today on news that 10,000 Turkish troops moved into northern Iraq overnight to challenge Kurdish PKK rebels.

WTI April futures had lost 4.2% from Wednesday’s record top of $101.32 per barrel, but "demand from India and China is still booming even at these prices," says Rob Laughlin at MF Global in London, "and appears at present to offset any slowdown from the western credit crunch."

In Asia soybean and palm cooking oils reached yet more record highs, while copper added to this year’s 25% gains-to-date on news that global stockpiles of the metal have shrunk to a 16-month low.

Wheat prices also rose against the Dollar, which has now lost 6% of its trade-weighted value on the currency markets since the Fed began slashing its key lending rates six months ago.

The Dollar fell today to a three-week low against the European single currency of $1.4850 per Euro, and that capped the Gold Price in Euros below €639 per ounce.

For British investors wanting to Buy Gold today the metal traded 1.2% below Thursday’s new all-time record of £486 per ounce. Japanese gold futures slipped 0.8% to equal $951.30 for Dec. delivery, while the Nikkei stock index recorded its sixth losing week of 2008 so far, closing Tokyo down 122 points from last Friday at 13,500.

Here in London, Lloyds TSB bucked the trend in financial stocks to gain 4.3% by lunchtime as it raised its 2007 dividend and restated just how boring and uniquely free from subprime junk its balance sheet really is.

Over in Frankfurt the German Dax stood 1.2% lower on news that European manufacturing orders sank 3.6% in December. The Eurostat data agency also said French consumer spending fell in Jan. at its fastest rate since Sept. 2006.

"The next probable stop in gold is around $955," reckons Pradeep Unni, annalyst at Vision Commodities in Dubai, "and that is likely to be witnessed in the coming days.

Short-term, "$970 and $980 also seem possible," he told Reuters today.

"The momentum is showing no signs of cooling and any pullback will ideally trigger fresh buying interest. The risk is quite high at such high levels, but as long as gold trades above the $930 level, a major slide is unlikely."

On the supply side, meantime, Thursday brought a raft of results from the world’s biggest gold mining companies. But as spot Gold Prices raced to new all-time highs, US gold stocks managed a mixed performance at best.

The world’s very largest gold mining company, Barrick Mining, rose 0.4% after beating Wall Street’s earning-per-share forecast by 1¢ at 57 cents. The world No.2, Newmont Mining, lost almost 1% despite beating EPS forecasts by 10¢ at 51 cents per share.

Goldcorp, still enjoying the lowest costs of any million-ounce gold miner, rose 3.2% as it reported earnings of 25¢ per share, ahead of the 18 cents forecast. But for the day as a whole, the HUI gold bugs index of 15 major gold-mining stocks ticked 0.1% lower to finish unchanged from this time last month.

Physical Gold Bullion, in contrast, has gained 6.7%. And looking ahead, the ongoing problems of lower output, soaring costs and shrinking gold reserves could dog the gold mining industry for years to come, warns Tom Winmill, president of Midas Management Corp. and manager of nearly $300 million.

"Newmont Mining will probably see a decline in output from 5.3 to 5.1 million ounces in 2008," he told Bloomberg on Thursday, "and then probably decline again until 2011.

"Newmont has a lot of leverage to the Gold Price [and] we’re confident the new CEO Richard O’Brien will bring new efficiencies to the business. But there’s a lot of investor fatigue. Gold has been in a bull market for six years.

"Where has Newmont been? Nowhere."

 
Adrian Ash
 
 
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
 
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.
 
 
 

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.