The spot gold market held flat throughout Asian and early London trade on Tuesday, moving just $1 off Monday’s US close at $658 per ounce.
‘Gold prices look firm, with support from the Euro and oil prices,’ reckons Hiroyuki Kikukawa at Nihon Unicom Corp. in Tokyo.
But crude oil prices in fact pulled back as gold held steady on Tuesday, slipping 0.4% as the impact of the quarterly rollover in the US oil futures market wore off. Over in the currency markets, the Euro also slipped lower after breaking above $1.3600 for the first time since early May.
Ahead of Thursday’s interest-rate decision from the Bank of England, the Pound Sterling rose to a fresh 26-year peak of $2.0170. That move capped the Sterling price of gold at £326 per ounce by lunchtime in London.
French and German investors wanting to buy gold today found the Euro price of gold rising to €483.50 – a repeat of Monday’s high.
Spot gold trading is likely to remain quiet today, as New York closes at lunchtime ahead of Wednesday’s July 4th holiday. Volatility could continue to rise in the currency markets tomorrow, however, as both the UK and Eurozone report their latest Purchasing Managers indices.
Thursday then brings interest-rate decisions for both the Euro and Sterling, followed by last week’s initial jobless claims in the US.
Whatever the latest numbers reveal, however, the US Federal Reserve ‘will panic’ and cut rates later this year, says Dr. Marc Faber – the leading ‘doom and gloom’ analyst now running his $300 million fund from northern Thailand – as the US economy fails to recover in the second half of 2007.
Late on Monday, the 10-year US Treasury yield slipped below 5% for the first time in a month. The Fed has now held the short-term cost of Dollars at 5.25% for 12 months; the spot price of gold has traded sideways during that time. Lower Fed interest rates tend to boost the price of gold, as investors and savers move to protect themselves against the risk of losing purchasing power to rising inflation.
‘The problems in the subprime market and the CDO market will [also] become more apparent,’ Faber added in his interview with Bloomberg.
‘On the downside for gold, resistance at the $653 area looks firm,’ says today’s technical note from Standard Bank, ‘but any rationale for further market liquidation should be stopped with strong support in the low $640s from physical bids.’
Overnight activity in the domestic Indian gold market ‘remained lacklustre’ reports the Economic Times today. ‘In fact, gold prices drifted lower for want of buying enquiry,’ it says, thanks to the higher price of gold on the international spot gold market.
In Tokyo, gold futures for delivery in April ’08 rose 1% as the Nikkei stock index held flat. Viewed on a longer-term basis, gold last month ‘reversed but did little more,’ writes Christopher Langguth for Mitsui’s technical note.
‘The up trendline is at $646. Spot gold would have to fall below $560.50 to turn the monthly trend down.’
The 200-day moving average, a key level watched by technical gold analysts, now sits at $643.30 per ounce.
In the gold mining sector, meantime, South Africa’s top three gold companies today offered their staff a pay increase of 6%. The Solidarity trade union, however, said it was disappointed the offer didn’t even match the latest consumer price inflation figure of 6.4% recorded in May.
The union has previously demanded a 20% rise. The National Union of Mineworkers, which represents 72% of South Africa’s mine employees according to MiningMX.com, has asked for a 15% rise staggered over two years.
Gold production over the past 12 months has slipped by 4% while cash costs per ounce have risen by more than one quarter in terms of the South African Rand, reports MiningMX.com. ‘The structural impact of pending wage increases will undoubtedly, in our view, compound the issue of costs,’ one local gold analyst told the newswire today. Labor costs make up around half of a mine’s total working expenses.
Across the border in Zimbabwe, meantime, the Chamber of Mines today said that ‘most gold producers are operating below 20% capacity with some having suspended operations completely.’ Gold output from the region – formerly Africa’s fifth largest gold-producing nation – has fallen by more than 40% in the last five years.
Globally, gold mining output slipped 1% last year from 2005 according to the Fortis Yellow Book compiled by Virtual Metals. Total world supplies – including central bank sales and scrap recycling – is forecast to drop by 2.1% in 2007.
Adrian Ash is editor of Gold News and head of research at www.BullionVault.com, the fastest growing gold bullion service online