More records for gold as investors get worried about the health of credit markets, banks and the US dollar.
The failure of Bear Stearns, its rescue (with shareholders losing 97% of the value of the company) and the US Federal Reserve’s move to set up a credit line for the US financial markets, on top of its other liquidity-loosening moves this month, sent the spot price charging above $US1030 an ounce yesterday and overnight.
The US dollar fell to close at 1.58 to the euro, sending the metal up from its close of a smidge under $US1,000 an ounce in New York on Friday.
But on top of that were investor fears about the stability of the financial system and a belief that they needed a bolt hole. Some continue to choose US Government treasuries, others gold.
Gold gold climbed as high as $US1,033.90. It finished around $US1006 an ounce in New York for the April contract on Comex.
Late last week the StreetTracks Gold Trust, the biggest exchange-traded fund (ETF) backed by bullion (it began trading in November 2004), reached a record 655 metric tons on March 10.
New York dealers say that would make it the eighth largest holder of gold in the world, ranking behind Japan.
According to the World Gold Council in London the US Federal Reserve is the biggest holder with 8,133 tonnes.
Gold stocks here continue to be buoyed by the rising price, although the stronger Australian dollar manages to clip some of the gains from the falling greenback and rising price.
Newcrest rose 2.6% to $38.70, Newmont was up 2.5% to $5.78 and Lihir Gold jumped 3% or 16c to $4.37.
World gold supply demand is not ‘traditional’ at the moment, if you like.
Demand from ETF’s like the StreetTracks fund is a major new source of demand and mopping up metal while the traditional jewellery businesses in Asia and the Middle East cut consumption.
Supply is also falling because of lower production in Australia and the US and falling output in South Africa because of difficult mining conditions, safety concerns and a shortage of electricity. That will limit the country’s ability to boost gold output for the next five years.
World gold-mine production eased 1.4% last year to 2,444 tonnes, the lowest level in 11 years.
So at a time of rising demand because of worries about financial stability and especially demand from the ETFs, the fall in output has underwritten the current tight supply/demand picture.
But we shouldn’t forget that the ETFs are buyers and sellers and when the price turns, sales will start happening.
Gold investors shouldn’t lose sight of the damage the current record prices are doing to demand from jewellers.
According to figures from the WGC, jewellery demand dropped 17% in the fourth quarter of 2007 after a 15% rise in prices in the September quarter.
About 70% of gold demand normally comes from jewellers. That fell to 68%.
Now imports by India, the world’s biggest gold buyer, plunged 81% to just 10.2 tonnes in February from February, 2007, according to figures from the Bombay Bullion Association.
The World Gold Council says China has now overtaken the US as the second largest volume retail market for gold jewellery after India, with demand for jewellery reaching 302 tonnes in 2007.
"In Turkey and the UAE 2007 brought record overall demand for gold in tonnage terms while strong growth continued in Russia with jewellery demand rising 11% to set a further annual record.
"However, high and volatile gold prices had a major impact on the fourth quarter with identifiable demand falling by 17% in tonnage terms from year-earlier levels.
"This trend was most keenly felt in India, the world’s largest and also most price sensitive gold market, where Q4 demand fell 64% on year earlier levels following 40% growth in the first three quarters.
"The US was also negatively impacted with a combination of a weak economy, poor retail environment and record prices denting jewellery demand which for 2007 as a whole stood 14% down on 2006 figures," The WGC said.
This shouldn’t be forgotten in the publicity about successive new record for the metal (which needs to double to maintain its price in real terms from the last peak in 1979: so much for a hedge in the long term).
But prices have risen strongly in the past seven years. Gold is up 19% so far this year (to last Friday).
