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London Gold Market Report

Thu, Aug 21 2008, 12:35 GMT
by Adrian Ash

BullionVault.com

Gold Turns "Surely Bullish" on Russian Stand Off, Strong Demand & Weak Central-Bank Sales

THE SPOT PRICE of gold bullion rose sharply in Asia and London on Thursday, touching a one-week high of $830 per ounce to recover one third of this month's near-20% drop.

World stock markets fell meantime while crude oil rose above $116 per barrel and the US Dollar slipped again on the forex market after bouncing 7% from the end of July.

"I don't see that it's the end of the bull market in commodities," said Jim Rogers, author of the best-selling Adventure Capitalist – and partner with George Soros in the 1970s' highly successful Quantum commodities fund – to Bloomberg today.

"Until either a lot of supply comes on stream or the economy collapses, the bull market will continue."

Over on the currency markets this morning, the Euro touched its best level in a week above $1.4800 on stronger-than-expected Eurozone business data.

The Pound Sterling also jumped, but it failed to hold all of the 1¢ gain sparked by UK retail sales data beating analyst forecasts.

The British Retail Consortium today urged the London government to "restore economic stability" and help ease the runaway price pressures facing UK shops, last pegged at 10% per year.

British manufacturers, in contrast, now face year-on-year cost inflation of 30% – and the BRC's "six-point plan" does not mention raising UK interest rates to support the Pound's purchasing power, now 12% down on the foreign exchanges from this time last year.

Today the Gold Price in Sterling touched £443.50 per ounce, more than 6% above the eight-month low hit last Friday.

Gold for French, German and Italian investors rose almost 2% to its best level since Aug. 11th at €560 per ounce.

"The US signed a missile shield agreement with Poland yesterday that was met with strong disapproval from Russia," notes today's Gold Market report from Mitsui, the precious metals dealer, here in London.

"Geopolitical tensions in the region are rising rapidly, and with the oil price now responding surely the picture for Gold is bullish.

"Prior to the credit crisis and the recent severe liquidation that we have seen, would this story not have sent gold soaring? Strong physical demand continues to offer support on the downside."

Over on the supply-side of the Gold Market, meantime, central banks are on track to record their lowest gold-sale volumes since agreeing annual limits almost a decade ago.
 
"Taking account of publicly available information on central bank intentions," says Jill Leyland, chief economist for marketing-group the World Gold Council, "it seems possible that net selling in the current Central Bank Gold Agreement year – which ends on Sept 26th – could be the lowest since the first CBGA was signed in 1999."

The current Agreement's 15 signatories have so far sold only 319 tonnes of gold against the annual limit of 500 tonnes.

Last renewed in 2004, the CBGA is due to expire in Sept. next year.

"The global economy is going through a pretty traumatic period," says Standard Chartered analyst Daniel Smith.

"Having Gold to back up your currency seems like a good idea," he said.

Outside Western Europe, the latest figures from Russia's central bank show its gold reserves growing to $13 billion by value last month. They still only account for 2% of Moscow's total foreign exchange reserves, however.

As for new gold-mining supply, "most mining companies are looking to expand production during the current global commodities boom," says Randgold's finance chief Graham Shuttleworth in the African gold miner's latest investor update.

"But all three of the main input factors – people, power and procurement – have come under pressure."

Randgold's mining costs rose 5.5% between April and July alone, "below the average inflationary increases seen in the industry," it reports.

Creamer's Mining Weekly meantime says that gold and silver miners in Mexico – already hampered by the soaring costs and green pressure groups working against new projects the world over – are also facing "extortion" by organized gangs.

"These people wanted extortion money," said Minefinders' CEO Mark Bailey in a conference call Wednesday, referring to protestors blockading the company's site at Dolores in the northern state of Chihuahua.

"It's a new business," Bailey went on, but "we are not in a unique situation."

Last year saw Goldcorp – the fast-growing Canadian Gold Miner – settle an extra $5 million per year in rental and other fees after a similar blockade at its Los Filos in Guerrero.

Published on  Thu, Aug 21 2008, 12:36 GMT