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Events Shaping the Gold Price and Gold Mining

Commodities / Gold & Silver 2009 Nov 06, 2009 - 05:26 AM GMT

By: Miles_Banner

Commodities

Best Financial Markets Analysis ArticleThere were those last week who mentioned a word of caution. A caution about a gold price bubble!! If gold were a person he’d start to feel dizzy by his extraordinary growth. In fact he’d have felt dizzy since 2001, when this bull market started. But we can’t help but think that many analysts and economists all missed the credit crunch. What’s to stop us all from miss interpreting this bull market in gold? Could this be a bubble?


We all know of the movements of the central banks to firm up their reserves, of China and other emerging markets reluctance to keep piling up reserves of the US dollar, and we’re all familiar with governments across the world pumping cash into the market (which must some day come home to roost). These are all the causes that are pushing the gold price to new highs today. But then why aren’t we saying, ‘to hell with it!’ and placing all our money into gold and gold related shares?

Because we’ve seen the credit crunch happen and despite us seeing the rise of the price of gold we’re all now much more wary investors. As it happens the gold price is climbing still. Over the past week the gold price broke out into new all time highs reaching 1,095.80 dollars per ounce on Wednesday.

Gold has traditionally seen periods of trading sideways intercepted by sharp price rises. We expect the gold price to trade sideways for a while before something decides it’s fate. ‘Events, dear boy, events!’ was Harold Macmillan’s answer to a journalist’s question about what can most easily steer a government off course. And this is the same for the price of gold.

So it is events we turn to today that will show us what the price of gold will be like tomorrow. This week in the US the Federal Reserve assured traders that it was sticking to its near zero rate policy to foster economic growth. Here in the UK T he Bank of England has voted to hold the base rate at 0.5% and pump an additional £25 billion into the economy.

It’s like a nervous parent trying to offer sweets to an unruly child. There must be some repercussions for what we are doing. Second guessing that we still think inflation is a big possibility and the greater that possibility comes, the higher the price of gold will rise.

IMF successfully sells it’s gold to India’s central bank

Earlier in the week we saw the International Monetary Fund announce they’ve been sold 200 tonnes of gold to The Reserve Bank of India at a cost of $6.8 billion.

Whereas in the past sales of gold in such large quantities have cheapened the value of the yellow metal in this case it has had the opposite affect. In part you have to hand it to the IMF for keeping this under cover. Following the announcement Indian gold futures climbed to a record high on Tuesday.

By selling a large quantity such as is in this case, directly to one of the central banks the IMF has steered away from offering it to the market and increasing the general supply.

For years the GATA organization has been trying to convince us of central banks and gold mining majors influencing the price of gold. Now it seems central bank sales have dried up and gold mining companies such as Barrick Gold are clearing their hedges. There is no longer a means to bring a large supply to the market which has in the past lowered the value of gold. The means to suppress the price of gold are slowly being ebbed away.

If you want to retain value opt for gold, if you want to grow your value opt for gold mining stocks. Gold mining stocks can use their leverages to grow with the rise of the gold price. When the price of gold rises, as it did back in the 1970s we see gold mining companies grow through acquisition, organically or by other means. At times like today mining companies prosper.

This week it was announced Russian gold production rose 14.6 percent year-on-year in the first nine months of 2009. On Wednesday Canada’s main stock market said that equity financings by mining companies so far in 2009 have already topped full-year records due to resurgent demand for gold assets. Mining companies on the senior Toronto Stock Exchange had raised C$17 billion through 264 financings as of 30 th September.

It’s obvious that mining companies should want to benefit in these times. Keep a watch on what happens to penny share mining companies / junior mining companies that, if they follow what happened to some in the 70s, could grow rapidly in this situation.

But just as events affect the price of gold they also affect the mining companies…

This week South African miners were hit with an appreciating RAND and potentially crippling price rises in energy. The state-run power utility Eskom Holdings Ltd is attempting to triple tariffs in the next three years.

Wages in AngloGold Ashanti Ltd (NYSE:AU) have risen about 10 percent this year and electricity charges increased by an average 31 percent in South Africa. AngloGold produces about 40 percent of its output in the country.

Harmony Gold Mining (NYSE:HMY) CEO, Graham Briggs, explained the true cost… "It’s a difficult problem because you have to understand it’s not only the direct electricity cost. It’s actually the cost of your consumables, the steel that you use, and it will impact on salaries, wages and all that sort of stuff. So it’s a difficult issue.”

Events around the world are shaping gold’s price and the mining companies that depend on it. That’s why today’s instability in markets means we have to keep up to date and reflect on what’s happening. It’s why you need to keep reading Gold Price Today…

Stay tuned for next week,

Regards,

Digger
Gold Price Today

P.S Digger writes a weekly email analysing the gold price and the gold industry. Visit Digger at Gold Price Today (http://goldpricetoday.co.uk).

© 2009 Copyright Gold Price Today - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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