London Gold Market Report
from Adrian Ash
BullionVault
Frid 28 June, 09:10 EST
GOLD and SILVER both bounced in London trade Friday, only to slip back again after recording new 34-month lows overnight.
Asian stock markets closed higher but European equities slipped.
The major currencies held steady, and government bonds were flat overall, as were commodities.
“[Mining] is not sustainable…where the gold price is at the moment,” said Nick Holland, CEO of Gold Fields – the 8th largest gold miner in 2012 – yesterday.
“We’re going to need at least $1500 an ounce to sustain this industry in any reasonable form.”
Updating its “buy gold at $1360” recommendation of two weeks ago, “We expect gold prices around present levels to be the cyclical lows for gold,” New York consultancy CPM Group said Thursday.
“[But] we are expecting another leg down on a short-term basis, most likely in the period from now through August.”
“Massive technical damage has been inflicted” on the gold price charts, reckons Ronni Stöferle, now producing his In Gold We Trust report for asset managers Incrementum in Leichtenstein rather than Erste Bank in Austria.
“We are convinced that repairing the technical picture will take some time,” says Stöferle, moving his gold price target for 1 year’s time to $1480 per ounce – some 23% above Friday’s price.
Gold dealers in Dubai are meantime struggling to meet demand, according to local press reports. But Chinese and Indian households – the world’s two heaviest consumer markets – are delaying gold purchases, says the Wall Street Journal.
“There’s no sense of a bottom for gold,” the WSJ quotes analyst Yvonne Wang at Beijing Antaike. “People don’t know when the price will stop falling.”
Last month’s surging physical demand from China and India “more than offset continued sales by ETF funds in the Western economies,” says trade association the London Bullion Market Assocation.
For May, its market-making members report a 17% jump in the volume of gold dealt through London, the world’s primary hub, to hit the greatest level in 12 years.
By value, the daily average of gold bullion changing hands rose more than 11% – despite a 4% drop in the average gold price – reaching its highest level since the market peaked in August 2011.
On the supply side, “There’s going to be significant rationalizing in the gold industry,” Gold Fields’ Holland told Bloomberg on Thursday.
“You can’t keep mines producing if they’re losing money.”
Market-development organization the World Gold Council yesterday issued new guidance on “all in” and “all-in sustaining” gold mining production costs.
To help analysts and investors better judge the value of gold miner shares, the guidance is “intended to provide further transparency into the costs associated with producing gold,” says the Council, which is owned and funded by the world’s largest gold producer companies.
“Sustaining costs” relate directly to current production, whilst “all-in” also includes new exploration, permitting and capital expenditure.
The new methodology would put average gold mining costs around $1400 per ounce, the BBC reports. Gold miner shares have now fallen 40% this year, according to Bloomberg data, with major producers now slashing costs and writing down the value of mine projects acquired at sharply higher gold prices.
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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.
(c) BullionVault 2013
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