London Gold Market Report
from Adrian Ash
BullionVault
Thursday, 18 July 08:25 EST
WHOLESALE GOLD traded in a tight range around $1280 per ounce Thursday morning after recovering over a third of yesterday’s $30 drop from 4-week highs.
Gold miner equities, in contrast, extended their fall as broader stock markets rose.
By lunchtime in London, African Barrick, spun out of the world’s largest gold producer in 2010, stood 2.2% lower but held above last month’s record low.
Russian miner Petropavlovsk lost a further 5%, taking its 2013 drop to more than 75%.
Like the gold bullion price, silver prices were quiet after Wednesday’s sharp 4.3% swing, in line with other commodities.
US Treasury bonds ticked higher, nudging 10-year yields down to 2.48%.
“The sentiment [in gold stocks] is terrible – worse even than the sentiment towards gold,” says HSBC analyst Patrick Chidley to the Financial Times.
“We have seen a 50% fall in gold mining shares in six months,” the paper also quotes Evy Hambro, co-manager of the $2 billion Blackrock Gold & General Fund.
“Common sense would naturally say we are in very oversold territory.”
Gold-heavy hedge fund manager John Paulson – whose $2 billion position in AngloGold Ashanti alone lost clients $317 million in the second quarter, according to the Wall Street Journal – yesterday defended his continued investment in both gold and gold producers.
“People who bought gold in anticipation of inflation have lost their patience,” Paulson told CNBC’s Delivering Alpha conference.
“[But] the consequence of printing money over time will be inflation, it’s just difficult to predict when.”
That makes gold “an important part of anyone’s portfolio.”
US Fed chairman Ben Bernanke restated his aim of starting to taper quantitative easing in testimony to Congress on Wednesday.
But on short-term rates – now at zero for more than four years – “I don’t think the Fed can get interest rates up very much,” he said, “because the economy is weak, inflation rates are low.
“If we were to tighten policy, the economy would tank.”
Bernanke was due to resume his semi-annual testimony at 10am Thursday in Washington.
“The $30 pullback in gold prices [after Bernanke spoke Weds] was likely more a reflection of disappointment that prices did not manage to break resistance [at] $1300,” says Swiss investment and London bullion bank UBS’s strategist Joni Teves.
“Our economists,” says a note from Commerzbank’s commodity team, “are still confident that the Fed’s bond purchasing programme will be gradually scaled back from December.
“This is likely to be largely priced in and should thus no longer weigh significantly on the gold price.”
But “shifting sentiment regarding the timing of Fed tapering will impact gold and make trading volatile,” warns HSBC analyst James Steel.
“Since investment demand is weak, with ongoing gold ETF liquidation, a strong physical market is crucial if gold prices are not to sink considerably further.”
Further ahead, gold-mine output is set to shrink in the years to come, said Gold Fields’ boss Nick Holland in an interview Wednesday, thanks both to the falling gold price and “a dearth of exploration projects.
“The industry is struggling to replace what it mined,” says Holland, CEO of the world’s 8th largest producer.
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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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