FOCUS – Similarities with tough 90s growing in gold market – Metals Focus

London 27/11/2013 – Similarities with the 1990s are becoming more and more marked in the gold market, Metals Focus told FastMarkets.

The metal’s failure to hold above $1,300 has “reinforced the negative investor sentiment surrounding gold [and] the similarities with the late 1990s are increasingly evident,” the research firm said.

That decade was one of the toughest on record for the gold market. After peaking at $502.97 per ounce in December 1987, the metal started a long, slow and rarely interrupted decline, losing half its value to $251.70 in August 1999.

“Investors are minded to focus on negative stories and essentially dismiss those which might be price supportive,” Metals Focus said. “The hallmarks of the 1990s are growing. At that time, in spite of relatively strong jewellery demand, investors focussed on the perceived threat of significant central bank sales.”

But Metals Focus does not believe that a decade of falling prices is imminent, director Nikos Kavalis said.

“We see the mood, rather than the effect or the drivers, replicated,” he said. “We are not saying that we are going to see sideways trading for the next decade. We are cautious over the next two years, expecting some modest price declines, but beyond that the picture improves.”

Metals Focus forecasts gold averaging $1,150 in 2015 before rising to $1,450 in 2018. Spot gold was last at $1,251.75 per ounce, up $8.45 on the previous day’s close.

Kavalis identified two factors that will come to the rescue of the market: production cuts and an improvement in genuine fundamental support, particularly from the jewellery and bar and coin investment market

“This is unchartered territory for the gold market – we have had a decade of surpluses and rising prices so it is pretty hard to conceive what will happen if the market has to deal with deficits,” he added.

(Editing by Mark Shaw)

OPINION – The sooner the US tapers QE, the better for gold prices

Opinion pieces are the views of the author: they do not represent the views of FastMarkets

London 28/11/2013 – Tapering – for gold, it’s the buzzword.

It feels as if every single move in the gold price in recent months has been linked this single factor. If the price goes up, tapering fears are waning; if it goes down, the market must think tapering is imminent.

Let’s get this out of the way: the US Federal Reserve will start to unwind its $85-billion-per-month quantitative easing (QE) programme at some point in the near future, if not in December then definitely in the first half of next year, unless there is an economic disaster in the meantime.

But is this necessarily a bad thing for gold? I’d argue not.

Ever since gold failed to break through $1,800 for the third successive time in October 2012, the market has progressively priced in the end of QE and a return to normality, with the bulk of that adjustment coming in three unprecedentedly bad months for gold.

In April-June this year, the price dropped to a low of $1,180 per ounce from a high of $1,617, taking it deep into bear market territory.

This is not to say that there will not be a kneejerk reaction when the Fed releases its inevitable announcement.

But once US unemployment returns to 6.5 percent, the punchbowl is removed and the market has shaken itself back into place, then we can start looking at other – arguably much more important – factors driving the gold price.

First and foremost among these is still dollar risk. The US will still have an extraordinary amount of debt on its balance sheet. According to this (admittedly controversial) website, it last stood a fraction below $17.2 trillion.

Now, before I ruin my American friends’ turkey dinners, I’m not singling them out unfairly. From Beijing to Brussels via Athens and Argentina, everyone is at it.

The last time I checked, one of the easiest ways to get rid of local-currency-denominated sovereign debt is to inflate it away. And crypto-currencies notwithstanding, gold is still the leading hedge against inflation. Just ask your local central bank.

But sovereign debt and inflation risks are far from the only games in town; physical demand is also strong.

Sure, India has worked hard to curb its current account deficit at the expense of gold but any trader on a street corner in Mumbai will tell you that brides still want to be adorned with glittering gold.

And while third-quarter imports were much weaker than expected, this followed a large spike in demand in the second quarter when prices were lower. Among others, the World Gold Council has speculated that this was pre-emptive buying on the aforementioned price drops.

And let’s not forget China, where price declines trigger bargain-hunting en masse. China’s per capita gold ownership is still far below western levels – some analysts have pegged it at about $30, with that of the US above $1,100.

But this ignores the supply side. And there is no getting away from the fact that the world produces more of the metal than it consumes – for now, at least.

At current prices, many producers are feeling the pinch and will seek to mothball some of their less profitable operations.

And at the point where supply constricts to meet demand and QE is a fading memory, we will again see the fundamentals in full flow.

(Editing by Mark Shaw)

FOCUS – Q3 gold demand at 4-yr low; ETFs outflows, India to blame – WGC

London 14/11/2013 – Third-quarter gold demand fell to a four-year low while investors fled exchange-traded funds, figures released by the World Gold Council (WGC) showed.

In the July-September period, global gold demand was just 868.5 tonnes, the figures showed, a drop of 232.9 tonnes or 21 percent from the same quarter of last year and below the second-quarter total, making it the first quarter-on-quarter decline since the third quarter of 2007.

“The demand response to the sharp move lower in the gold price during the second quarter was so strong that it resulted in a degree of ‘cannibalisation’ of third quarter demand as gold purchases were brought forward to the second quarter,” the WGC said.

The Indian government’s moves to curb local demand in a bid to lower its current account deficit hurt purchases, it also said.

“Outflows from ETF positions, although much slower in pace than the previous quarter, were the main reason for the weaker quarterly total,” the WGC added.

But consumer level demand remains resilient, with eastern markets the driving force of growth in demand for gold jewellery, bars and coins.

“Two key themes have emerged in 2013: the rising level of consumer demand off-setting outflows from ETFs and the geographical flow of gold from western to eastern markets,” the WGC said.

This reflects the cyclical nature of the ETF market, with strong inflows while prices rise followed by outflows in periods of price weakness.

Despite slowing somewhat, central bank purchases “were again a solid pillar of demand”, the council said.

Supply, meanwhile, was down just three percent at 1,145 tonnes, with a reduction in recycling offsetting a “modest” increase in mine production.

(Editing by Mark Shaw)

MINING NEWS – Randgold Q3 profit up 80 pct on higher grades, early Kibali start

London 07/11/2013 – Randgold Resources’ third-quarter profit jumped 80 percent on the previous quarter despite a three-percent drop in the gold price, it said.

Profit for the three-month period was at $97.5 million, up from $54.1 million previously, while production climbed 19 percent to 233,677 ounces, the producer said in its third-quarter results statement on Thursday

It attributed the increase to record production from Loulo-Gounkoto in Mali on higher grades and improved recoveries. The grade of ore processed at Loulo-Gounkoto increased to 5.1 grams per tonne from 4.0 grams.

This quarter also saw the early commissioning of the Kibali project in the Democratic Republic of Congo. Kibali poured its first gold in September, ahead of the original year-end target, and started commercial production in October.

Randgold expects more than 30,000 ounces of output from Kibali in the fourth quarter, which is on course for full output of 550,000 ounces in 2014.

Randgold will remain profitable even if the gold price drops to $1,000 per ounce, CEO Mark Bristow said. Spot gold was last at $1,308/09.20 per ounce, down $8.55 on yesterday’s close.

Bristow blamed the gold industry’s current tough times on a lack of focus on exploration.

“The industry finds itself in this difficult position today because it did not explore in the 1990s,” Bristow said. “That is why we will continue to look for high quality resources to exploit far into the future.”

(Additional reporting by Eddie van der Walt, editing by Mark Shaw)

FOCUS – Gold price remains fragile, ETF outflows continue – BarCap

London 01/11/2013 – Holdings in gold-backed exchange-traded products (ETPs) have resumed their downward trend despite last week’s largest daily increase in holdings since January, Barclays Capital said.

Net redemptions of 47 tonnes since then – exceeding the outflows of the previous two months – have pushed total metal held in trust to its lowest since May 2010, it said in a report on Friday.

In the wake of the US Federal Open Market Committee’s meeting this week – at which it delivered a policy statement that closely mirrored previous communications and maintained the pace of its bond-buying programme, currently worth $85 billion per month – gold has come under pressure while the dollar strengthened to two-week highs against the euro.

Gold prices were last at $1,313.35/1,314.20 per ounce, having drifted as low as $1,306.15 earlier.

“The floor for gold prices remains fragile, particularly in light of the weaker-than-normal seasonal buying in India,” the report said.

Although the festival season – an auspicious time for Indians to buy gold – is under way, there are reports out of the country of sluggish demand for the yellow metal, with diamond, silver and lighter gold jewellery proving more popular.

“Local dealers have cited tighter regulation as the driving force behind subdued demand and the shortage of metal pushing local premiums higher,” the bank said.

(Editing by Mark Shaw)

FOCUS – Chinese gold demand slows slightly, buyers well stocked – Macquarie

London 29/10/2013 – Chinese gold demand slowed in September, possibly because buyers were well stocked after buying in sizeable volumes in the preceding months and because of the Golden Week holiday last month, which reduced the number of trading days, Macquarie Research said in a report.

Chinese imports of gold from Hong Kong weakened slightly in September but remained strong at more than 100 tonnes, it said. Although net imports into China last month at 112 tonnes were down from 125 tonnes in August, that total is still nearly 60 tonnes higher than the September 2012 figure, a rise of around 114 percent.

Still, data from the Shanghai Gold Exchange (SGE) suggests Chinese demand has slowed into the end of October. Turnover on SGE, which tallies closely with its physical deliveries of gold, picked up late last month in line with falling gold prices but has fallen this month.

SGE turnover last week averaged 5.5 tonnes per day, its weakest since early April, which Macquarie attributed partially to the modest recovery in the gold price in recent weeks. Spot gold was last at $1,345.40/1,346.20 per ounce, down $7.45 on the Monday’s close but is still more than $90 higher than the mid-month low of $1,251.50 on October 15.

Macquarie sees a “non-price related weakening of Chinese appetite for gold”, believing that the fall in imports last month may be the result of buyers being well stocked – imports averaged 119 tonnes per month between February and August – and because there were fewer trading days in September – at 16 compared with August’s 22 – due to a national holiday.

The slowing of turnover on the SGE at the end of October suggests that “demand is weakening, but slowly”, Macquarie added.

Still, demand could improve into the end of the year, which could have a “positive impact” on prices, it said.

(Editing by Mark Shaw)

MINING NEWS – Nyrstar cuts silver 2013 output target 13 pct to 4.7-4.9 mln/oz

London 24/10/2013 – Belgian metals producer Nyrstar said on Thursday that it was lowering its full-year silver production target by some 12.7 percent to 4.7-4.9 million ounces from a previous 5.25-5.75 million ounces.

In its interim statement the company said there was a seven percent fall in third quarter output to 1.17 million ounces from the second quarter’s 1.27 million. So far this year, it has produced 3.54 million ounces, against 4.14 million in Jan/Sept’12.

“After assessing all options in the context of challenged financial performance and a lower precious metal price environment, management took the decision to put the Coricancha mine on care and maintenance.”

“For this reason and given the level of silver production achieved for the first nine months of 2013 at the other mines, Nyrstar believes it is unlikely that full year 2013 silver guidance will be achieved,” it added.

Its gold output fell to 51,100 ounces from 66,200 tonnes.

(Editing by Kathleen Retourne)

FOCUS – Gold prices generates $210 bln for global GDP – WGC

London 08/10/2013 – The gold industry generated more than $210 billion for the global economy in 2012, a study by the World Gold Council (WGC) and Price Waterhouse Coopers (PwC) published on Tuesday showed.

This makes the industry’s contribution to the world economy roughly equal to the GDP of the Republic of Ireland, the Czech Republic or Beijing.

Speaking at the launch of the report in London, Terry Heymann, director of gold development at the WGC, said there is often a lack of understanding in the importance of gold in the economies where they are mined, with the impact amplified in developing countries.

“Gold is not always as well understood as it should be,” he said. “It can be a transformational driving developing countries forward.”

According to the report, the 15 largest gold-producing countries – which produce around 75 percent of the global total – enjoy significant benefits from the extraction of their ore, with an estimated 527,900 people directly employed by the industry.

For some of these countries, gold is a significant source of exports, accounting for 36 percent of all Tanzania’s exports and more than a quarter of that of Ghana and Papua New Guinea.

In many of these countries, it also makes up a significant part of wealth creation, accounting for 15 percent of the GDP in Papua New Guinea, eight percent in Ghana and six percent in Tanzania.

On the consumption side, where the 13 largest gold consumers account for about 75 percent of fabrication, activities relating directly to the gold industry generated up to $110 billion.

Value added in producing countries was placed at $78.4 billion and that from gold recycling at about $25 billion.

(Editing by Mark Shaw)

FOCUS – Physical gold shortage has eased – SocGen

London 24/09/2013 – The shortage of physical gold available for immediate delivery in Asian markets has eased, Société Générale said.

This shortage, brought about by an explosion in demand following the heavy price falls the metal sustained earlier this year, has now dissipated, the bank said in a research piece published on Tuesday.

“The bottleneck at the refineries that developed in the second quarter of 2013 meant that lead times extended out to a number of weeks, as opposed to days in the more normal scheme of things, with premia in India eventually exceeding $40 and premia on the Shanghai Gold Exchange reaching four percent in early July compared with an average of 0.8 percent in the first quarter of this year,” it said.

And while it may appear that outflows from exchange-traded funds (ETFs) have exceeded the increase in “retail grass roots demand” for gold jewellery and investment bards, the initial delays meant that the outflow was not sufficient to meet the increased offtake, SocGen added.

“This contributed, in large part, to the fact that gold prices moved into backwardation,” it said.

In the ETFs followed by FastMarkets, holdings have fallen nearly 700 tonnes to 1,948.79 tonnes on Monday from last year’s record peak of 2,647.28 tonnes.

SocGen described the 23-percent gain in jewellery fabrication so far this year compared with 2013 as “a strong improvement… given the economic environment”.

Spot gold prices were last quoted at $1,309.60/1,310.70, down $11 on yesterday’s close.

(Editing by Mark Shaw)

FOCUS – Goldman Sachs neutral on gold price in short term, bearish for next year

London 17/09/2013 – Goldman Sachs has a neutral short-term price outlook for gold prices but the investment bank warns of fresh lows next year.

“Gold prices remain in [a] wide trading range on transient catalysts… such as Syria and the identity of the next Fed chair – with potential for further price volatility ahead driven by the September FOMC and the US debt ceiling debate,” it said in a research note on Tuesday.

Because of these factors and recent US economic data that has disappointed slightly, it is neutral relative to gold for the rest of the year, having a price forecast for the second half of 2013 of $1,300 per ounce.

“We continue to expect that gold prices will resume their decline heading into 2014 when we expect economic data to solidly confirm a reacceleration in US growth and warrant a less accommodative monetary policy stance,” it added.

Its forecast for the end of 2014 remains unchanged at $1,050 per ounce, implying a 20-percent downside risk for prices.

Spot metal prices were last at $1,319/1,319.80 per ounce, up $5.25 on the Monday’s close, having dipped below $1,200 in July before rallying to a peak around $1,420 in August.

Should the US Federal Reserve taper at a greater rate than expected – it is currently seen cutting $10-15 billion from its bond-buying programme of $85 billion per month – gold could decline rapidly given the rebound in speculative positioning since June, Goldman Sachs said.

Beyond this week’s FOMC meeting, it forecasts accelerating US growth late this year followed by a less accommodative monetary policy stance in 2014, exacerbating the bearish outlook for gold.

“With this economic outlook unchanged since we last updated our forecast in June, our gold price forecast is unchanged, leaving us structurally bearish on gold prices into 2014,” it said.

(Editing by Mark Shaw)