Gold Holds in $5 Range as Yen Rises Again; Link with Oil Prices Weakening; Gold Mining Output Falling "Much Faster" than Expected

By: Adrian_Ash

SPOT GOLD PRICES held steady in a $5 range early Friday, rising above $790 per ounce by the Morning Fix in London but standing more than 5% below their level of this time last week.

"After yesterday's sell-off, the Gold Market will be watching closely for the next move," said Standard Bank's gold note from Johannesburg earlier.

"There are likely to be stop-losses in place, and investors are nervous...but there are also investors and funds who might see the latest correction as a buying opportunity."

On a technical basis, "the three-month trendline provided very nice support," says Phil Smith for Reuters India, pointing to Thursday's low at $782 per ounce, "and it should continue to do so."

On the currency markets today the US Dollar continued its slide against the Japanese Yen that began on Nov. 1st. It was trading just above ¥110.00 as the New York open drew near, the 18-month low it first hit last week.

The Euro meantime whipped around $1.4600, while the Canadian Dollar added to its losses for the week. The Loonie has now dropped more than 7% versus the USD since hitting all-time record highs on Nov. 7th – the culmination of a four-year surge. That kept the Gold Price for Canadian investors above C$775 per ounce, a six-month high.

The British Pound also slipped in early trade, failing to consolidate an overnight rally and dropping back to $2.0430. Sterling has now lost 3.4% against the US Dollar from its quarter-century highs of Friday last week.

For British investors wanting to Buy Gold Today , the metal rose 1% from Thursday's two-week low to trade at £388 per ounce by mid-morning in London .

The Gold Price in Sterling hit an all-time record high of £403 per ounce on Weds 7th Nov. On its trade-weighted index, the British Pound has dropped 2.5% of its value against the world's major currencies since then.

It's lost 5.6% of its value so far in 2007.

Copper futures also fell overnight, nearing their third weekly drop on the run as mines in Chile – the world's largest producer – re-opened after an earthquake. Soft commodities rose in Asian trade, with soybean prices hitting a new 19-year high. Crude oil was little changed after yesterday's $2 sell-off below $94 per barrel of US sweet and light.

"The rebound in US crude stockpiles [reported Thurs], due in part to a one-off backlog of imports, was less bearish than it appeared," believes Antoine Halff, head of energy analysis at Fimat in Houston, a division of Société Générale.

The rise in US oil inventories reported for last week "was focused on the relatively insulated West Coast," Halff adds. But the National Weather Service now predicts above-average temperatures across the United States for winter 2007/08. Private forecasts put snowfall at just 60% of average.

"Last year the oil price was the key to the Gold Market ," says John Hill, metals and mining analyst with Citigroup in San Francisco . "This year gold and broader equities have been closely linked. [Now] the negative correlation with the Dollar is being reasserted while a temporarily strong relationship with the overall market is weakening."

Looking further ahead, "we are maintaining our bullish outlook for gold into 2008," says Michael Lewis, head of commodity research at Deutsche Bank in London .

"We believe the next two months will present another opportunity to accumulate long exposure given the tendency for the US Dollar to strengthen in the first four weeks of a New Year."

Extended Gold Price depreciation would be welcomed by Indian jewelry buyers, meantime. "Markets in Gujarat have just opened today after a five-day gap," says Anuraag Mewada, head of Zaveri and Co. in Ahmedabad, "and still there are no buyers ahead of the wedding season."

The Indian wedding season – beginning now the festival of Diwali has ended – will run until February. But "the recent spike in Gold Prices has kept wholesalers and retailers away," Mewada told the AFX newswire earlier.

Indian jewelry and investment demand accounted for some 22% of physical gold-sales last year. Between July and Sept., reports the Hindu Business Line today, jewelry demand totaled 134.8 tonnes – a rise of 5% from last year. Net retail investment at 50.3 tonnes showed an increase of 4 per cent year-on-year.

On the supply side of the Gold Market , however, mining companies continue to face rising costs and struggling output. Greg Wilkins, CEO of Barrick – the world's largest gold-mining company – told a conference in London on Thursday that "global mine supply is going to fall at a much faster rate than people generally believe."

Now Graham Briggs, the new head of Harmony Mining – the world's fifth-largest producer – has told Mining Weekly that he might suspend continuous operations at those sites failing to hit production targets.

Harmony just ran due diligence on six major operations to establish whether "conops" had met the target of increasing production by 26% or more without damaging safety.

"Probably the poorest performing conops production unit is Masimong," says Briggs, "where conops was introduced with no benefit at all. What we are doing is trying to fix it up before we see if we actually have to pull the plug."

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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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