Gold Recovers Early Dip; China 's Copper Demand Doubles in 12 Months

By: Adrian_Ash

SPOT GOLD PRICES recovered an overnight dip early Wednesday, regaining the previous night's US close after recording an AM Fix in London of $657.15 per ounce.

"The credit worries are not over and the [gold] market will not really have much clue what the true credit liquidity dynamics are for some time," says metals analyst Michael Jansen at J.P.Morgan.

"Most markets are hostage to ongoing uncertainities about credit liquidity...[but] physically the gold market's in very good shape. We see very strong demand from the jewelry sector in the Middle East ."

Comex gold futures also recovered an early dip by midday in London , with the Dec. '07 contract rising 80 cents to $667 per ounce as European blue-chip equities added 1.3%, led by mining stocks in London . BHP Billiton, reporting record second-half profits, said that demand for industrial metals remains "robust" despite the Chinese central bank raising its key interest rate four times this year so far.

To confirm the point, the Beijing customs office today reported that China 's imports of refined copper and copper alloys more than doubled in the first seven months of 2007 from the same period last year.

Mainland China 's Shanghai Composite index closed today 0.5% higher. Hong Kong stocks rose 2.8% on average. The Nikkei stock index finished flat, while gold futures traded in Tokyo for delivery in June '08 ended the day 0.4% lower – equal $661.48 per ounce.

"Spot gold is sitting right on good support at the 200-day moving average," says Phil Smith for Reuters India Technical today, "and also on very strong support on the trendline on the weekly chart."

These two points "have come together very nicely [at $655]," adds Smith. "Clearly this is technically a significant level for gold."

In the bond market, two-year US Treasuries fell for the first session in eight after Federal Reserve member Jeffrey Lacker said late Tuesday that the Fed is looking to avoid an emergency cut in US interest rates. ( Did you see what happened on Black Monday this week...? )

Lacker's comments came as RealtyTrac Inc. of California said that notices of repossession, default or auction were sent to 179,599 home-owners in the US last month, nearly twice the number sent in July '06. Interest-rate futures this morning still pointed to a reduction in the Fed Funds rate when the central bank's policy committee meets on Sept. 18th.

But the US Dollar held steady early in London , gaining half-a-Yen to ¥115.08 by midday and trading at $1.3488 per Euro in the currency markets. The Sterling price of gold rose back above £330 per ounce for British investors. French and German citizens wanting to buy gold today found it trading above €488.

"For the time being, the perception is that there could be more [gold] selling if further market jitters surface," reckonss Darren Heathcote of Investec Australia in Sydney. "What's moving the market is not gold specific, but more wider market implications."

Internal to the gold market, however, record buying by gold-mining companies has met with strong sales from central banks in Europe . Gold dehedging hit an all-time high between April and June, said the GFMS consultancy on Tuesday, as gold miners bought back 161 tonnes of the gold they had previously sold forward to "hedge" their exposure to falling prices in the late '90s.

The elimination of all outstanding hedge-book positions at Newmont and Lihir accounted for nearly half of the total dehedging. The remaining global hedge-book has now shrunk to 1,064 tonnes according to the GFMS report – but at the same time, gold sales by European central banks have increased rapidly.

After data from the Bank of Spain showed that it has sold 134 tonnes of gold so far this year, the Swiss National Bank said on Tuesday that it sold 34 tonnes of gold in July alone. That leaves 216 tonnes of Switzerland's gold still to sell by Sept. 2009 under the foreign-reserves "rebalancing" program announced by the SNB in June.

European central banks as a whole have now sold 396 tonnes of gold during this year, the third year of the Central Bank Gold Agreement, according to the European Central Bank in Frankfurt . The agreement sets a ceiling of 500 tonnes for the 12 months ending Sept. 26th.

By Adrian Ash
BullionVault.com

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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

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