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Welcome to The Week in Gold! (2001 Archive) Through the courtesy of the World Gold Council we are pleased to offer these portions of the Weekly Gold Market Commentary assembled from their worldwide staff's observations of the significant events that shaped each week's gold market. (View Commentary for Current Year)
2001 WEEKLY GOLD MARKET COMMENTARY
On the basis of the London p.m.
fix, gold traded in a range between $255.95/ounce (2 nd April)
and $293.10/ounce (September 28 th ) last year, and averaged $271.05.
The final fix of the year was $276.50 on New Year's Eve. The opening
fix in 2002 was $278.10 and the London opening indication on Monday
January 4 th was $278.20-278.70.
10 December - 14 December, 2001
Trading patterns
The approach of the holiday season is having its impact on a number of markets and gold is no exception, with dealers using the term "end of year book-squaring" ever more frequently. As a consequence, the price moved towards the top of its recent trading range at the end of the week, and briefly pierced resistance at $278, closing in New York on Friday at $278.20-278.70. The report from the CFTC as to the Commitment of Traders, which showed that in the week ended December 11 th the net short position had increased to 21,717 lots (65.7 tonnes) from 10,029 lots (31.2 tonnes) the previous week, goes some way to explaining the size of Friday's move. The gross short position was 148 tonnes at that point, set against longs of 80.3 tonnes, so the net position, of 65.7 tonnes, was the largest since May 8 th when it stood at 80 tonnes. The rally in silver, which is currently experiencing borrowing activity and high lease rates accordingly, was an additional factor in terms if sentiment overspill.
The physical side of the market has remained reasonably robust and when the spot price dipped towards support at $272 in the middle of the week, it was met with healthy buying and the support level held. This figure has been of significance for some weeks now and the market is reporting that there is strong buying at and below these levels. The notable areas of strength are Asia and India, with the approach of the Chinese New Year, the Indian wedding season, and also the end of Ramadan all having their effect. Geo-political concerns are also playing their role, with tensions in India causing some local nervousness and Japanese consumers in particular registering concerns over the state of play in the Middle East.
While the physical market is active, the professional market is less so, due to the time of year and short-term moves are tending to reflect changes in the currency and equity markets. To that end the marginal weakening in the dollar helped to provide support to the dollar price last week, although it is also worth noting that the rise in Yen prices due to the weakness of the local currency is starting to draw individual investors into the market - a reflection of the fact that a price trend (in any market - and in either direction) attracts attention.
Background News
The London Bullion Market Association has reported clearing turnover figures for November; the gold transferred average 18.0M ounces per day (560 tonnes), giving an average daily value of transfer of US$4.9Bn. This turnover is an increase on October, when the average daily transfer was 16.7M ounces, but a 3% decline on November 2000. To put this into context, world physical consumption of gold ran (in the first nine months of this year) at approximately 12 tonnes (360,000 ounces) per day, so these London turnover figures, which the LBMA makes clear do not cover all transactions, ran last month at roughly 47 times physical offtake. The figures exclude allocated and unallocated balance transfers where the sole purpose is for overnight credit, and they also exclude physical movements arranged by Clearing Members in locations other than London.
The latest figures from the Swiss National Bank suggest that in the ten-day period to December 10 th , the Bank sold 6.5 tonnes of gold as part of its on-going disposal; these transactions fall under the auspices of the Washington Agreement.
The deregulation of the Chinese gold market continues to unfold with the People's Bank of China now on record in the press to the effect that the market will be opened in three phases. The first will involve up to two years developing a cash trading market; thereafter the People's Bank will stop purchasing gold in order to pave the way for trial futures trading; and thirdly, restrictions on imports and exports will be lifted and the local producers will be encouraged to compete on an international basis.
Meanwhile The Jakarta Futures Exchange (JFX) reports a good response to its own simulated trading period in the gold market, and has its president Hasan Zein Mahmud said last week that it should be ready to go live before the end of January. A presidential decree of 26 th November has permitted the trading of 22 commodities including coffee, oil, plywood, rubber, cacao, pepper and sugar. Gold is deemed to be the most ready to trade, not least because of its value.
3 December - 7 December, 2001
Trading patterns
Gold trading conditions were quiet over the majority of last week,
with prices holding to a narrow range, dipping mid week towards
the important support at $272, but ultimately closing in New York
on Friday at $274.10-4.60, a slip of just below one dollar on
the week. While physical demand remains relatively sturdy, bolstered
by seasonal considerations, a growing sense of optimism over the
outlook for the US economy in particular has deterred professional
buying interest, and the market encountered a degree of selling
mid-week, coinciding with a surge in the Dow Jones and associated
strength in equity markets elsewhere. Tensions in the Middle East
are proving supportive. Positive sentiment in the equity markets
was reflected in weakness mid-week in the US fixed income markets
and this raised some talk among traders of the concomitant increase
in the contango in the gold market, raising musings about the
possibility of fresh short sales. The geo-political background
does appear to be militating against this, however. Indeed, the
market remains aware of the short positions on COMEX and the term
"end-of-year book-squaring" is already starting to creep
into the vocabulary. Buying conditions are already starting also
to slow in parts of Asia as Ramadan draws to a close, with the
Eid Al Fitr holiday starting on December 16 th , but Indian jewellers
are reporting robust demand and good export orders. The latest
Commitment of Traders report from the CFTC, for the week ended
December 4 th , showed a small reduction in the net short position
to 10,029 contracts (31.2 tonnes) from 12,140 contracts (37.8
tonnes).
Borrowing rates have tightened at the short end, meanwhile, reflecting the approach of the year-end, the speculative swing from long to short positions and the sustained desire on the part of market operators to have ready access to liquidity in a volatile financial and political market scenario.
Official Sector
The latest figures from the Swiss National Bank show a fall in gold and gold lending of SFr129.7M over the ten-day period ended 30 th November, equating to a drop of 8.6 tonnes in gold holdings. This is marginally below the average rate at which the Bank would be expected to sell in order to complete its programme precisely on schedule, but it must be remembered that the sales, while part of an orderly disposal, are not rigorously pinned to selling at the notional average rate.
The Russian Government has announced that its Central Bank gold holdings rose to US$4.011Bn at the end of November from US$3.986Bn at end-October, implying that gold holdings rose to 415.9 tonnes from 413.4t at the end of the previous month. The statement added that the increase in gold holdings since the end of last year is 8.2%, suggesting an increase of 31.5 tonnes over the period.
Mongolia's central bank said on Wednesday it bought 13,452.6 kg of gold in the first 11 months of this year, 11.7 percent up from the same period of last year. This would suggest that it is easily on target for national production of 14 tonnes this year, as the Central Bank buys virtually all local output.
The latest quarterly survey from JP Morgan has traced a further reduction in Australian gold hedge positions during the third quarter of this year. The aggregate book was down to 36.5M ounces or 1,135 tonnes (at A$591/ounce), a reduction of 1.4M ounces (42.5 tonnes) against the quarter ended June 30 th . Hedging now covers 43% of Australian gold reserves, against 46% in the previous quarter.
26 November - 30 November, 2001
Trading patterns
The gold price moved marginally better over the week, gaining
roughly $2 by Friday night, but still contained within a tight
range based on support at $272/ounce. Spot fixed at $275.50 on
Friday afternoon and London has opened at the same level this
morning (Monday 3 rd ). The $275-276 band reportedly encountered
a degree of trade selling last week which prevented preventing
any further advances, and the tone is cautious this morning as
physical demand is relatively quiet and $276 is perceived as providing
stiff resistance in quiet conditions.
The primary influences last week were the UK auction on the Tuesday, and some concern about the impact of the Enron problems on the rest of the financial markets. While Enron's precious metal exposure is believed to have been limited at most, there was evidence of a flight to quality within the financial markets (which benefited also the dollar) which helped the spot price, and it is believed also that a part of the reason for gold lease rates tightening slightly is related to this development being a reflection of a move to increase liquidity.
The launch of the National Gold Exchange in China (albeit on an initial simulated trading basis) was an important development last week; see "Background News".
The price impact of the UK auction was effectively neutral. While the level of cover, at 2.6 times, is prima facie disappointing, being the second lowest since the auction series started, the market had been telegraphing its cautious expectations for some days beforehand and prices were accordingly unfazed by the result. The a.m. fix just prior to the auction was $273.65/ounce. The settlement price at the auction was $273.50/ounce, and the p.m. fix that day was $273.30. It was only thereafter that prices showed an uptick, as concerns about financial risk reared their head with the news of the problems at Enron and Dynegy's withdrawal of its bid. The New York market closed on Friday at $274.15-4.65, and the week ended on a quiet note.
The latest Commitment of Traders figures from the CFTC showed that the net short speculative position increased in the week ended November 27 th , to 12,140 lots (37.8 tonnes), from 9,1734 lots (28.5 tonnes).
Background News
The National
Gold Exchange, China
The national gold exchange in Shanghai was opened with simulated
trading on 28 th November. The exchange will officially open at
the beginning of next year, and forms an integral part of the
deregulation of the gold market within mainland China.
The gold exchange has 108 trading members (from the gold mining, processing, exporting and importing sectors and commercial banks), of which 82 members participated in the initial session. Of the full membership of 108, it is estimated locally that 24 gold producers control 75 per cent of national gold output, and 63 users account for 80 per cent of Chinese gold consumption. We gave the essential contract specifications last week, but repeat them here for completeness' sake; the Exchange will be Internet-based dealing in bars of three sizes: 1 kilo, (32.2 ounces), the typical "large" investment bar for retail in parts of Asia; 3kg (96.6 ounces), which would fall within the tolerance of the 100 ounce contract on COMEX; and 12.5kg, which falls within the tolerance of the 400 ounce good delivery bars for the London Bullion Market. The good delivery requirements are as follows: 1kg: 99.99% pure; 3kg: 99.95% pure.
Ye Yingnan, Director of the currency, gold and silver division of the Central Bank, has said that the bank will partly continue its purchase from gold producers in the short term (it used to have a monopoly on such purchases) to ensure a smooth market reform. It will also continue to allocate the metal to certain gold users in specific categories, such as military and scientific and research institutions. The weekly price quotation, which the Bank has been employing in the latter part of this year, will also be replaced and local prices will effectively be derived from a guide price crystallised on the exchange in line with international price movements. According to Wang Jie, the President of the gold exchange, said a guiding gold price would be formed in the exchange in line with the fluctuations on the world market during the initial stage of the operation.
The bank will also permit individuals to buy gold for saving or investment, another important step in the market deregulation process.
19 November - 23 November, 2001
Trading patterns
A very quiet week, in which the support level of $272 was important
and spot prices rarely moved outside the $272-275 range. The absence
of the United States for Thursday and Friday (Thanksgiving) and
the Japanese market overnight on Friday were primary reasons for
activity begin so sluggish, along with dealers already looking
towards the next Bank of England auction, which is scheduled for
this Tuesday November 28th. The price spent most of the week oscillating
around the $273 level, but has drifted lower on balance. The general
tone, apart from lethargy, has been coloured by economic numbers
which were better-than-expected for the US and discouraging for
Europe and Japan, which have combined to keep the dollar strong
and this has contributed to gold's lacklustre performance. With
respect to speculative activity, the market continued to report
long liquidation, but the CFTC numbers for the week ending Tuesday
November 23 rd are delayed this week as a result of the Thanksgiving
holiday and we will not be able to report them until the Daily
Commentary on Tuesday 27 th . All eyes are now on the UK auction
(Tuesday 27 th ) and conditions are not expected to become enlivened
before then. There will be two more auctions after this one; one
in January and one in March and this will conclude the programme.
Chinese Gold
market developments
The People's Bank of China is reported to have said that it stands
ready to act as market maker for the first three months of business
on the Shanghai Gold Exchange, in order to ensure a smooth build
to full capacity. The Exchange is due to open on a trial basis
on November 28 th , and will swing into full action in January.
The Exchange will be Internet-based dealing in bars of three sizes:
1 kilo, (32.2 ounces), the typical "large" investment
bar for retail in parts of Asia; 3kg (96.6 ounces), which would
fall within the tolerance of the 100 ounce contract on COMEX;
and 12.5kg, which falls within the tolerance of the 400 ounce
good delivery bars for the London Bullion Market. The good delivery
requirements are as follows: 1kg: 99.99% pure; 3kg: 99.95% pure.
The Chinese Government has announced its plan to raise local gold mine production by 5% per annum through to 2005, according to the State Trade Commission. This compares with production of 162 tonnes in 2000. The Government is also looking to rationalise the industry into something like 12 good-sized producers, as opposed to the comparatively discrete nature of the current production.
Demand
Indian gold imports in the first three quarters of this year were
up by 19.34% to 384.1 tonnes, although they declined in the third
quarter of this year by 14.87% to 99.1 tonnes (against 116.4t
in the third quarter of last year). Local traders are reported
as saying that at prevailing prices, physical demand should start
noticeably to improve, especially as the harvest has been a good
one this year; the next marriage season is due to start in roughly
one week's time from now.
12 November - 16 November, 2001
Trading patterns
Gold has maintained a narrow trading range over the past week,
but the overall tendency has been towards the downside. The $280/ounce
level was tested mid-week on a knee-jerk reaction to the announcement
of Newmont's bid for Normandy and the associated anticipation
of the hedge book being unwound, but proved resilient and prices
have drifted lower thereafter. The bid development aside, the
market has been assimilating a raft of economic data, from the
US in particular, that has been interpreted as reducing (but not
obliterating) the likelihood of further cuts in interest rates,
along with broadly stable equity markets and the changing position
in Afghanistan. Trading has been largely characterised by long
liquidation coupled with physical demand at the lower levels.
The onset of Diwali on Wednesday has taken some Indian business
away for the time being, although the commencement of Ramadan,
which was two days later, is expected to offset this to some degree.
The general sentiment in the market at present is that the underlying
fundamentals remain sound, but that there is the chance of some
further stale bull liquidation in the short term. It was noticeable
last week that when rallies ran out of steam it tended to reflect
sales into strength rather than a withering of purchasing interest,
which had been the pattern over previous weeks. The latest commitment
of traders reports from the CFTC showed that the net long position
from 13,530 lots (42.1 tonnes) at the week ended November 6 th
to 5,427 lots (16.9 tonnes) by November 13 th . Lease rates remain
low, although there is some tightness for nearby dates and this
may have helped to underpin the speed of the two short-lived rallies
that the market encountered last week.
Given the recovery in the equity markets since the tragic events of September 11 th along with gold's retracement, it is of interest to look at gold against the Dow Jones both over the period since then and also over a longer-term basis. The Dow has regained its position with respect to gold since September, while the yellow metal is the outperformer over the year-to-date.
Background News
Obviously the news
that has captured the market's attention is the bid by Newmont Mining for Normandy and Newmont's
agreed merger with Franco-Nevada.
Newmont is offering 3.85 shares for every 100 shares in Normandy,
plus an additional 5 cents in cash upon 90% acceptance. On the
basis of the close of business last on Tuesday in North America
(Newmont at US$22.25), this represented a premium of 21% to the
prevailing value of the Anglogold bid, and on that basis the Normandy
board recommended that Normandy shareholders accept the Newmont
offer. In his Chairman's statement to the Normandy AGM earlier
today, Chairman Mr. Robert de Crespigny went onto say that "Based
on this price, we also intend to accept the Newmont offer in respect
of the Normandy shares we hold". AngloGold has said that
it is "considering the Newmont proposal in the light of the
strategic and value-adding merits of its own offer and will respond
appropriately AngloGold will only pursue a course of action that
delivers demonstrable value for shareholders". AngloGold
has subsequently said that it expects to respond "with in
the next ten days" which implied by November 26/27 th .
Newmont has stated that it would unwind the Normandy hedge book. At September 30 th 2001 this included 5.95M ounces of forwards, 3.04M ounces of puts or convertible puts, plus 1.53M ounces of forwards in Normandy's wholly owned subsidiaries.
The Franco-Nevada merger involves 0.8 Newmont shares for each Franco share. Upon merging with Franco-Nevada, the latter would tender its 19.9% holding in Normandy to Newmont.
Canyon Resources has announced third quarter production of 30,906 ounces of gold, compared with 21,851 ounces in the third quarter of 2000. For the first nine months, production was 76,613 ounces, a 21% increase over the 63,915 ounces produced in the first three quarters of last year. Cash operating cots have fallen, reflecting higher grades mined, to US201/ounce for the third quarter.
The Chinese Government has announced that local gold production in the first ten months of the year was 143.48 tonnes, a gain of 5.98t (4.4%) on the equivalent period of 2000. Production last year was 173t, and the target for this year was set at 150t.
5 November - 9 November, 2001
Trading patterns
Gold's trading range was narrow again last week, with a high fix
registered of $280.50 on Wednesday morning, and values easing
thereafter to close the week just above $277/ounce. With equity
markets buoyant, gold was steady, and there was little reaction
in the US to the 50 basis point cut announced by the FOMC, although
it did engender some investment interest in the Far East. Currencies
dominated for the most part, with the strengthening of the dollar
helping to put some pressure on gold towards the week's end. The
CFTC Commitment of Traders Reports for the week ended 6 th November
showed that the net long position held by large-scale speculators
had increased slightly, from a net 12,160 contracts (37.8 tonnes)
to 13,530 contracts (42.1 tonnes), as some buying interest had
crept back into the market over the period in question; this is
thought to have stemmed to some degree from relatively steady
physical demand at the lower levels which was helping to underpin
prices. The physical market is approaching one of its most busy
seasons; not only is Christmas just over the horizon, but more
immediately the Indian Diwali ("Festival of Lights")
commences on Wednesday and Ramadan is imminent. Diwali normally
generates healthy gold demand from India and the market is thus
looking for some improvement in interest from that quarter - although
local reports are suggesting that the demand this year is not
looking to be as vibrant as it has in times past as a result of
higher prices and a weaker local economy. Buying from the agricultural
community commences when the harvest is in, usually January. In
the more immediate term gold continues to trade counter to the
US dollar and the equity markets in steady conditions.
Background News
Latest clearing figures from the London Bullion Market Association
show that gold clearing turnover in October was almost 15% lower
than that of September, at 16.7M ounces as compared with 19.5M
ounces the previous month.
Russia:
At the International Conference Precious Metal sand Gemstones
Market in Moscow last week-end, Viktor Taraknovsky (the chairman
of the Union of Gold Prospectors) said that Russia expects to
produce 70t (2.25M ounces) of placer gold this year and that this
should be sustained through 2002, although he made the point that
this would be contingent on the 5% export tariff remaining in
abeyance due to rising local equipment and energy costs. .At the
same conference, Sergei Kashuba (head of the precious metals department
of the Association of Russian Banks) stated that commercial banks
expect to export roughly 100 tonnes (3.2M ounces) this year and
that advance financing for gold mining next year will be sustained
at this year's level, i.e. at between US$300 and $400M, against
overall financing costs to the industry of roughly US$1.2Bbn.
National Production this year was forecast by Valery Goncharov,
one of the senior offices art Russia's State Vault, to be 154-156t
(five million ounces).
China: deregulation
continues
The new
Chinese gold system for
regulating gold retailers went into effect on November 1 st .
Whereas retailers were previously required to hold a licence,
they are now be required to registrar with the appropriate banks.
They will be expected however, to be corporate entities with qualified
management staff and independent accounting departments and there
are minimum capital requirements. Specialist gold stores are required
to have at least one million Yuan (approxiamtely US$120,000) in
registered capital while department stores that retail gold are
required to have a minimum of five million Yuan.
28 October - 2 November, 2001
Trading patterns
Another week of quiet conditions and narrow ranges, with the price
moving marginally higher over the week. After last Friday's New
York spot close of $277.10-$277.70, New York finished a shade
below $280 last Friday. In other major currencies, the price fell
marginally in sterling, Euro and Swiss Franc terms over the week,
and was slightly higher when expressed in Japanese Yen. The closure
of much of Europe for All Saints' Day on Thursday helped to contribute
to the quieter tone, in which the driving forces were once again
the dollar and the equity markets, with these in turn taking close
notice of the raft of economic numbers issued by the US authorities.
The high for the week was registered on Thursday during COMEX
trading hours, with spot prices moving towards $282/ounce on the
back of weak Purchasing Managers figures and an associated drop
in the dollar, but the rally was relatively low volume. It was
this lethargy which fed through to Friday's activity, which saw
very little response to a weakening dollar after poor employment
numbers. All of this suggests that the market's recent failure
at higher levels has generated a reluctance among professionals
to participate, and anecdotal evidence from the market would tend
to confirm this. The physical market has in general been supportive
on any dips towards the $275 level, and traders are still reluctant
to trade from the short side given the geo-political background.
The latest figures from the CFTC show that the net large-scale speculative long position on COMEX fell in the week ended October 30th from 14,679 contracts (45.7 tonnes) to 12,160 contracts (37.8 tonnes).
Market factors
The US economic numbers were the focus of attention this week.
These could broadly be described as mixed, in that the flash estimate
for third-quarter GDP was higher than initial expectations, as
was the Chicago Purchasing Managers Index, but the overall balance
was poor. These two figures, while better than the market call,
were nevertheless comparatively weak, while latterly the National
Purchasing Managers Index and the Non-Farm Payroll figures were
both below expectations. The flash estimate for third-quarter GDP was a contraction
of 0.4%, whereas the markets
had been looking for 1% down, and the Chicago National Association
of Purchasing Managers index was also ahead of expectations, showing
a decline in October to 46.2 (after 46.6 in September). These
numbers buoyed the equity markets to a degree, as well as the
dollar, pressuring gold towards $278 where physical support was
found, but figures for the rest of the week were below expectations.
On Thursday the National Association of Purchasing Managers figure
was a primary catalyst for gold's move above $280. The October
figure was 39.9, well below the forecast of 44.3, and noticeably
lower than the 47 registered in September. Personal expenditure
in September was down by 1.8%, with incomes unchanged. Friday
saw factory goods orders for September, which confirmed the slowdown
in manufacturing, coming in with a 5.8% fall, below expectations.
Durable goods were down by 8.5% and non-durables fell by 2.6%.
Shipments fell by 4.2% and this undermined sentiment for the outlook
for the fourth quarter. Meanwhile the markets continue to keep
an eye on developments in Argentina,
where the Government has released new measures to restructure
its US$132Bn public debt and to boost consumer spending.
The Securities and Exchange Commission in the US (SEC) has set out a new ruling on the classification of mine reserves, to the effect that mineralisation may not be classified as reserves until after the completion of a feasibility study. This is likely to result in US companies not being able to capitalise the results of exploration and development, as was possible in the past, until completion of full feasibility.
Official Sector
It was reported last week that the Central Bank of Russia's gold and foreign exchange reserves totalled
US$38.5Bn, of which gold amounted to between 10% and 15%. Vladimir
Sokolov, the head of the Central Bank of Russia's currency operations,
said that "the Bank has no intention of changing this ratio
even when some National Banks in other countries have decided
to reduce their gold stockpiles". Meanwhile Gokhran, the
State Committee for Precious Metals and Stones, reports that it
has bought 12 tonnes of gold in the period January October
this year.
Miscellaneous
Scotiabank has reported that the bullion that had been housed
in the vaults of No. 4 World Financial Center has been recovered
and is being relocated.
22 October - 26 October, 2001
Trading patterns
Gold effectively enjoyed a week of consolidation last week as
the stale bull liquidation of the previous week petered out, to
be followed by a period of comparative inactivity, and thereafter
by short covering. While price action from one end of the week
to the other was neutral, with the market opening at around $277
on Monday and closing at the same level in New York on Friday,
there was a subtle difference in attitude as the week wore on,
with early lows of $275 being found resilient under test.
Prices have remained tightly bound, with the fixes last week ranging between $275.35 and $277.55. Activity in the forwards remains sluggish, with lease rates still low as the geo-political background is deterring any short-side trading of any magnitude especially as prevailing contangoes are unattractive. From the speculative standpoint, the latest Commitment of Traders report from the CFTC showed confirmed that the market had been characterised by long liquidation; the net large-scale speculative position on COMEX for the week ended October 23 rd was a net long of 14,679 contracts (45.7 tonnes), down from 24,088 contracts (74.9 tonnes) the previous week.
The physical market remains steady at the lower levels, and is helping to maintain a cushion under prices. While this has been partly responsible for the change of heart from a part of the professional market, the other guiding forces of the currency and equity markets have remained important for intraday moves. The dollar has been pivotal, reflecting its role as the arbiter of international sentiment, especially as last week the feeling that the dollar was reasserting its role as the currency of choice largely drove downward moves in gold.
Market factors
The dollar continued to strengthen in the early part of the week,
but gave back some of its gains against the Euro towards the week's
end, although it remained firmer on balance against the Yen. The
Fed's beige book for October underlined the difficulty of assessing
the resilience with which the economy will absorb the external
shocks induced by the events of September 11 th , but this was
followed the following day by poor economic figures, notably durable
goods for September which were down by a worse-than-expected 8.5%,
and a sharp jump in unemployment. These numbers, combined with
a decision from the European Central Bank not to cut interest
rates this time around, helped to put the dollar under some pressure
towards the end of the week, but sentiment for the most part remained
sturdy, as the markets generally sustain the view that this year's
series of rate cuts from the Fed will combine with the proposed
economic stimulus to pull the American economy into a higher gear
next year. The fixed-income markets, however, remain relatively
buoyant on concerns that the US economy is not likely to pick
up with any conviction.
The surrounding financial markets remain mixed and choppy, therefore, and this is helping to keep gold confined to a narrow range. The physical market is entering one of its seasonally strongest periods of the year and some dealers are reporting a typical seasonal pick up in demand, notably in India as Diwali approaches, along with the wedding season, and are suggesting that this, combined with strong support from the 100-day and 400-day moving averages (currently at $275.73 and $272.27 respectively) will help to contain any downside risk. As we go to press, however, the market is moving towards the October options declaration in New York and the $275 and $280 levels are expected to be key.
Background News
The US Government has eased the regulations pertaining to hard
rock mining. In a move which was telegraphed to the market some
weeks ago, the Bush Administration has removed from the "hard-rock
mining rule" a provision that gave the interior secretary
the power to veto mining projects that could be deemed likely
to cause "sustainable and irreparable harm" to federal
land. Environmental groups are threatening to appeal the decision
in court.
On the demand side, the State Bank of India has relaxed some of the terms of the Metal (Gold) Loan scheme, a programme introduced during 1998 in order to allow domestic jewellers to hedge price risk. The bank will now permit repayment of a metal loan at any time within a stipulated period of six months, subject to a minimum loan period of 15 days. Previously the terms had been a fixed term, minimum period one month and maximum six months. Rates have also been reduced, from 7.5% against cash margin to 5.5%; and from 8.5% against bank guarantees to 6%.
The head of the Russian Government commission for protective measures on foreign trade has confirmed that the Government is to scrap the 5% export tariff on gold. Although a date was not given, a change in tariff generally goes into force one month after the appropriate resolution ahs been signed by the Prime Minister.
Pakistan has resumed imports of gold bars after a four-month suspension. One of the three licensed importers has said that they are effectively testing the waters at present and will raise their import levels if necessary, subject to demand. The initial import rate has been roughly half the norm, which tends to stands at approxiamtely 10,000 tolas per day (37,460 ounces).
15 October - 19 October, 2001
Trading Paterns
Gold took on a mildly negative tone last week, with the market
generally dominated by professional selling on the one side and continued
physical buying on the other.
Demand from India has been building up as we move towards the
festival and wedding seasons, while the Middle East has also been
showing steady interest. While physical demand has also been healthy
in the Far East, there was of late some professional selling appearing
in Hong Kong. The market has obviously continued to keep a close
eye on geo-political developments, and there has accordingly been
a reluctance to sell short (especially given the low prevailing
contangoes), but stale bull liquidation has continued to pervade
the professional market, notably in New York. Some of this may
reflect short-term traders who have entered the market within
the past five weeks, while there may also be a smattering of profit
taking from those who were longer from lower prices in positions
established earlier. The Commitment of Traders Report from the
CFTC showed that the net long position held by large-scale speculators
for the week ended October 16 th had fallen again, to 24,088 contracts
(74.9 tonnes) from 102 tonnes the previous week. Equity and currency
markets have obviously continued to play their part and there
have been times when, especially in the US, gold prices have moved
counter to the equities, but there is a growing feeling in the
market that the US dollar is starting to reassert itself as the
currency of choice and this helped, towards the end of last week,
to keep the gold price capped.
Market factors
Part of the reason for the dollar's improvement has been a sense
that the European economies are being less aggressive with respect
to encouraging economic growth, although Fed Chairman Alan Greenspan's
testimony before the Joint Economic Committee did emphasise the
uncertainty over the level of economic impact of events subsequent
to September 11th. His underlying message, however, was that the
long-term outlook for the US economy is healthy. While stating
that consumer spending and capital investment have been adversely
affected, he qualified this to the effect at the withdrawal "has
been partial and presumably temporary". When combined with
comments from Economic Adviser Lindsay that the US is facing its
first recession in over ten years, and a series of unprepossessing
economic numbers, the equity markets internationally have remained
under something of a cloud over the past week.
September IP figures from the US showed a twelfth consecutive monthly contraction, dropping by 1.0%, more than had been forecast by market observers. Manufacturing activity dropped by 1.1%. Consumer purchases, meanwhile, were flat in the week to October 13th, which is a better performance than the previous week's fall of 0.8%; the index, however, was 3% below that preceding September 11th. Initial jobless claims for last week rose by 6,000 to 490,000, while those claiming unemployment insurance rose to 3.65 million, the highest figure registered since mid-1983. Third-quarter figures from a number of industrial market leaders were mixed, but generally confirmed market expectations in reflecting a slowdown in activity. The Philadelphia Fed, meanwhile, reported that its monthly business conditions index for October dropped sharply to 27.4, by comparison with 7.3 in September, substantially undershooting the market expectation of -15.3.
European figures released last week showed consumer prices for September at 2.5% above September 2000. This is the lowest inflation rate since last January, and down from 2.7% annualised in August. Industrial output rose by 1.1% in August, compared with a market call of +0.7%.
Official Sector
The German
Finance Ministry has announced
another gold coin issue, this time to commemorate the launch of
the Euro. Issue date is May 9th, 2002 ("European Day").
Pricing
will directly relate to the prevailing spot price. The Mint will issue 500,000 coins
of half-an-ounce and bearing a Euro100 denomination, and 100,000
coins containing one ounce and denominated at Euro200. The gold
uptake is thus 350,000 ounces (just under eleven tonnes), marginally less than the amount used in the
gold coin launched earlier this year. Each coin will be 99.99%
fine gold; the Euro100 will have a diameter of 28mm while the
larger coin will measure 32.5mm in diameter.
An official at Russia's State
Precious Metal Repository (Gokhran) is reported by the local press
as saying that Gokhran will only purchase 26 tonnes (836,000 ounces)
of gold from local producers this year, due to lack of funds.
The original plan was to absorb 40 tonne (1.29M ounces).
8 October - 12 October, 2001
Trading patterns
Gold came down in price in all the major currencies last week as the market succumbed to a bout of stale bull liquidation in response to the continued inability to breach the resistance reaching up from the US$293/ounce level. After fixing on Monday morning at $292.85, the price dropped to test support at $280 by the week's end, but has encountered good physical demand in the $280-282 band. This was most noticeable in the Far East towards the end of last week, and Indian fabricators are now also reporting a pick-up in demand, both in a normal price-elastic response, but also ahead of the onset of the Festival and wedding seasons. Dubai interest is also reported to be improving. The professionals, however, were largely on the sell-side and while the physical buying has cushioned the price at the lower levels, the moves from the speculative elements were sufficient to deflate the market to a degree. Increased political tension during the New York trading session on the Friday (12 th ) saw some fresh interest as more reports came through about anthrax fears, which generated a rapid rally to the $285 region, demonstrating that sentiment remains nervous and there would appear to be little if any appetite for trading from the short side. This is backed up by the low prevailing contangoes, which when taken with steady physical support would tend to militate against short-side trading. The market, then, is currently characterised by sustained "retail" interest combined with a cautious professional outlook.
Market factors
The political background obviously continues to be very important, helping to sustain physical demand, but equally generating a spectrum of views across the professional market which is leading, more or less, to stalemate where prices are concerned. Last week's Commitment of Traders Report from the CFTC, for the week ending October 9 th , showed a small reduction in the outstanding net long position among the large-scale speculators, with the net interest falling from 35,255 contracts (109.7 tonnes) the previous week to 23,778 contracts (102 tonnes) on the 9th.
In the economic and financial environments, this week will be an interesting one in that it is the busiest week for corporate result reports in the US. ... Meanwhile last Friday saw the approval by the House Ways and Means Committee of the economic plan designed to inject US$100Bn into the economy, largely through tax cuts and rebates. The bill now needs to pass the House of Representatives. Last Friday also saw a weak US retail sales figure, with September sales falling by 2.4% month-on-month, and market players are also looking towards the next FOMC meeting (November 6), when rates are again expected to be reduced.
Meanwhile the September clearing figures from the London Bullion Market Association show a slight fall in ounces transferred, to 19.4M ounces per day from 19.9M in August. The number of transfer fell on a year-on-year basis by almost 8%, however, while value was down by 5%.
Background News
The Deputy Governor of the Vietnamese Central Bank was reported in the press last week
as saying the bank
will help to satisfy burgeoning local physical demand for gold
by releasing metal from its reserves.
He expressed the view that the recent surge in demand would be
relatively short lived and that the bank would meet domestic demand.
. Saigon Jewellery Company reported that its sales last week were
nine times
the normal volume, at 9,000
taels (338 kg or 10,851ounces), while the bank reportedly sold
30kg of gold via the Vietnamese Gemstone and Gold Corporation
in the same period.
1 October - 5 October, 2001
Trading patterns
Gold has once again held to a tight range, with the physical market providing a floor and as a result enticing the occasional buying interest from commodity funds, but with insufficient impetus to break through the resistance which dealers are citing as the $294-295 (basis spot) region. Whereas the tendency in the previous week was mildly towards the upside, this past week has been neutral in dollar terms. New York saw the now familiar close-of-week buying activity, with spot prices closing on Friday at $290.75-1.75, against an opening in London on Monday of $292.15-293.15. The 50-point basis cut in fed funds was largely shrugged off, having been widely discounted beforehand. The week was dotted with public holidays (Australia, Hong Kong at the start of the week and then a slowing of business ahead of the Japan and US holiday (Monday 8th ), which helped to keep business choppy. Escalation of tension in the political background gave the market a small fillip at the start of this week, with Asia testing $294 and London opening at $293.00-3.75, although the market was once again cautious due to the absence of full global participation.
The professional fraternity continues to trade with great care, noting especially the increase in the net long speculative position that had been reported for the previous week, which gave rise to fears over the potential for stale bull liquidation. This was borne out to some degree as the position reported at the start of the week, referring to Tuesday September 25th , was 36,638 lots (114 tonnes) net long; a week later this had been reduced to a net long of 35,255 lots (109.7t) lots, a drop of 1,383 lots or 4.3 tonnes. Sentiment remains cautiously bullish, reflecting the political background.
Once again the retail sector has been a healthy buyer, with steady demand from most areas of the world. One notable difference continues to be the Indian Sub-Continent, with reports coming through that business in Dubai remains quiet. Indian jewellers, by contrast, have been reporting that their export business (a good part of which is destined normally for North America) has been picking up again and that the slowdown in the aftermath of the tragedy on 11th September was not as fierce as had been feared. In North America, the US Mint said on September 24 th that its local gold sales since September 12th amounted to 45,000 ounces, which exceeds the combined sales of the months of April and July, which had previously been the two best months of the year to date, at 22,500 ounces each. The Mint reports that the US Eagles are the runaway favourites, but that demand has been spread across a number of other products, including the re-absorption of coins that were dishoarded after Y2K went smoothly.
Market factors
The economic and financial background was mixed, although the majority of financial data underlined market concerns over slowing economic activity. The 50 point cut from the FOMC and a 25-basis point cut from the Bank of England were mildly palliative, but uncertainty remains the order of the day. In the US, figures were better than market expectations. The National Association of Purchasing Managers figure for September was stronger than forecast, but still in negative territory at 47.0, while the Non Farm Payroll Figure fell by 199,000 in September and the jobless rate remained unchanged at 4.9 percent. The market call had been for a fall of between 70,000 and 100,000, with unemployment rising to 5.0%; the response was broadly neutral, however, in that the October figure will be a clearer gauge as to the impact of the events on September 11th .
In Germany, September manufacturing orders were better than expected, at +1.4%. Observers pointed out, however, that the longer-term trend remains downwards, with quarter-on-quarter and half-year-on-half-year still in negative territory. Capital goods orders were up by 2.4%, basic goods by 1.1%, but consumer and durable goods numbers were down by 1.5%.
Meanwhile in Japan the Tankan
(quarterly survey of business expectations) was marginally weaker
than expected, reflecting the sharp contraction in economic activity.
The large manufacturers' diffusion index dropped to 33 from
16, with forecasts for the next quarter of 31. Capital
expenditure plans are also very cautious, with all firms expecting
a 5.8% fall in business spending this fiscal year.
24 September - 28 September, 2001
Trading patterns
Gold spent last week consolidating in the $290/ounce region, with a mildly upward bias. The week closed towards the highs, with New York spot closing at $292.45-3.45, a marginal gain over the previous week. The market is consistently reporting physical enquiry on any dips in price and this has helped to encourage some bargain hunting from commodity funds, while general funds are apparently showing some interest, but this has been small-scale. When prices have topped out it tends to have been due a buying activity drying up, rather than any aggressive selling into strength. Selling, when it has appeared, has tended to be currency-related, although the positive tone on Friday saw gold prices improve despite a rise in the dollar.
Speculators have continued to play from the long side. The latest Commitment of Traders reports from the CFTC showed that the net large-scale long-side speculative position on COMEX increased in the week to September 25 th, with 36,638 lots (114 tonnes against 34,745 contracts (108 tonnes) the previous week.
In the physical market, consumer enquiry remains strong with coin and bar purchases still lively in parts of the Far East, Europe and North America, while Indian jewellers are reporting that their export business is picking up again and that the downturn in the immediate aftermath of September 11th was not as fierce as had been feared.
Market factors
Economic numbers were mixed last week, with the early part of the week producing relatively gloomy reports, while Friday's data were brighter. The GDP figure for the second quarter was higher than had been expected, rising by 0.3% year-on-year, against expectations of +0.1%. The National Association of Purchasing Management-Chicago reported that the business barometer for September rose to 46.6 from 43.5 in August (the association said that it had received 25% of its responses in before September 11 th ), while the University of Michigan's final consumer sentiment index fell to 81.8 in September. This was down from 91.5 in August, but ahead of economists' expectations.
The national September consumer confidence figure was well below expectations, however, registering 97.6. This compares with expectations of 105.1, and also includes a downward revision to the August number (to 114). Thursday saw the highest unemployment claims number in the US for over nine years (450,000 in the week to September 22 nd ), while orders for durable goods also fell for the third consecutive month.
While the US Congress is considering the degree of financial stimulus to provide for the economy, Federal Reserve Chairman Alan Greenspan told Senators last week that more time is needed for collation of the appropriate data, but also said that any injection should be significant. He suggested that, subject to the nature of the programmes implemented, 1% of GDP, i.e. approximately US$100 Billion, might be an appropriate benchmark. This, a Fed spokesman later said, would include money already approved, i.e. about US$40 Billion, for counter-terrorism and recovery work.
In the currency markets, the Bank of Japan continues to intervene in favour of the dollar against the Yen, in an effort to stave off deflationary pressures and to help exporters.
Official sector
The Swiss National Bank has confirmed the continuation of its programme to sell 1,300t of its holdings, with a statement that it expects to sell a further 283 tonnes (9.1M ounces) in the twelve months to September 2002. The sales programme, which falls within the auspices of the Washington Agreement on Gold, commenced in May 2000, since when the Bank has sold 320t. This gives an average rate of sale of 20 tonnes per month; the programme for the next twelve months implies an average of 23.5tpm. Note that this is an average figure; the sales are generally reasonably steady, but not confined to an absolute daily or weekly timetable.
The fund-raising campaign in Thailand, in the wake of the 1997 financial crisis, saw its fifth donation of gold and cash given to the National Bank last week. The campaign was launched by the revered abbot of Wat Pa Bantad in Udon Thani, and the total raised to date amounts to 4,562.78kg of gold and US$5.978M. This week's donation was of 1,812.5kg and US$400,000.
17 September - 21 September, 2001
Trading patterns
Gold has essentially been characterised over the past week by growing retail investment demand in many (but not all) parts of the world, while the professional market has danced to a more sedate tune, trying to assess the political, economic and financial prognoses for both the short and the long term and deciding, for the most part, to adopt a policy of caution. This has not been true right across the board, however, with some shorts believed to have covered in and also some technically driven buying developed, which was offset to a degree by trade-oriented selling. A varied market, then, which resulted in the spot price closing on Friday more or less unchanged from its opening on Monday in the $291-292 region. Prices essentially held to a range broadly in the $288-292 band over the period. After an interesting session in the Asian and early London hours on Friday, with stop-loss buying developing in Australia as the Australian dollar gold price exceeded A$600/ounce (see below in Market factors), the week ended with traders in the US taking a bullish stance, underpinned by an improvement in technical considerations as chart formations have improved. The CFTC has resumed its reports and as of the week ended Tuesday 18 th September, the long exposure among the large-scale speculative positions had increased over that of the previous fortnight, to 29,148 lots (90.7 tonnes) as against 20,834 lots (64.8 tonnes) two weeks earlier.
Retail interest has developed in parts of the Far East, Europe and North America, with individuals looking for coins and small bars. The most notable interest in the Far East has come from countries such as Japan, Thailand, and Vietnam, while premia for coins in Europe have risen from the more usual 3% to closer to 5% over bullion content. There has been the odd sign of some holders looking to take advantage of higher prices and let a little back into the market, but generally speaking the interest from the buyers has considerably outweighed that from putative sellers. Interestingly, as well as the more traditional areas of demand, US internet gold traders are reporting a "deluge" of interest from individual investors, once again for small bars and coins. Dow Jones reported that the US Mint has had to ship out old coins to try and satisfy demand. Buyers in India have tended to be more cautious this week on their return from the Pitra Pakshi season, after which local prices were much higher than previously.
In the professional market some borrowing appeared during the week, more or less across the board in terms of time horizon, but the twelve month period was notable for the interest expressed; this has been broadly interpreted as covering activity in the face of market uncertainty. Lease rates remain low by historical standards, with one-month rates indicated at the end of the week at roughly 0.6% and twelve-month rates in the region of 1.7%.
Market factors
While the malaise in the equity markets and uncertainty in markets world-wide have taken up a lot of media attention over the week, and been a cause of much debate over flight to quality and the relative merits of different safe havens, the weakening of commodity-based currencies has been another important feature of the financial markets as concerns have mounted over future economic performance. The notable weakness of the Australian dollar on Friday was a case in point, as it generated some lively activity in gold. Views conflict as to whether the currency activity triggered action in gold or vice versa, but with commodity-based currencies in general under pressure, the Australian dollar has been one of the major victims of weakening sentiment. The news of WMC's agreement to sell part of its gold assets to Gold Fields (the South African company) is not thought to be directly related to the action in the gold market.
The Japanese Central Bank intervened three times last week in favour of the dollar. Specific historic economic news items from the US continued to reflect a slowing economy, with August housing starts down 6.9% year-on-year, lower than analysts' forecasts. More immediately, corporate cuts continue and a special survey of the Blue Chip Economic Indicators Forecast, conducted since 11 th September, opines that the US is currently in a recession. Offsetting this to some degree were comments from Dr. Greenspan that the economy is likely to be damaged in the short term but that the longer-term outlook is brighter. Allied to this, he warned that any policy change designed to aid the economy must be thought through with great care in order to minimise the risks that adhere to increase fiscal spending and implying that there should be no rush into premature legislation. This follows from the fact that US legislators are looking at drawing up an economic package designed to stimulate activity in the US and the Speaker of the House has said that legislation could be drafted by this week.
Silver took the headlines in mid-week, with strong demand coming into the market, more notably from professional traders rather than the grass roots. Market opinion is mixed as to whether this was short covering or fresh longs, but there are rumours circulating that one fund bought 40 million ounces in the past few days. Buy-stops were triggered once the December COMEX contract hit the $4.60 level, which extended the move and prices have been consolidating since in the $4.60 region. Some press reports are attributing the move to reports that the currently inaccessible vault below the World Trade Centre is believed to contain 30 million ounces of silver (as well as almost 400,000 ounces of gold). Over and above this, supply appears to be relatively constrained at present and physical availability is tight.
10 September - 14 September, 2001
Trading patterns
The events of this past week make analyses of market developments pale into insignificance, but it is incumbent upon us to maintain a steady flow of market commentary. We can report that after starting the week in the $273/ounce region, the rally on Tuesday night in response to the tragedies in the United States took spot prices to the $291-$293/ounce range before settling back to test $278/ounce on Thursday and then move higher on Friday. The initial move is reported to have been largely short covering, with the emphasis moving more towards risk-hedging thereafter. London's close on Friday was $285.30-5.70/ounce. Renewed "safe haven" buying in Asia over the week-end, both from professional and "grass roots" sources, saw London opening indications in the $290-292 range on Monday morning. The Far East has been in the vanguard with respect to purchases and the activity over the week-end on TOCOM was heavy volume. Following Tuesday's horrors, business was initially quiet in the professional arena, with market participants waiting for clarification about positions held in New York (there was some trading on Tuesday morning), and bid-offer spreads have been much wider than usual. After widening to as much as $5 on Wednesday, they have subsequently been generally between $1 and $2 as against the more normal 50 cents.
While the professional market has been understandably cautious, the physical market, notably in the Far East, has encountered strong buying, particularly out of Japan, Thailand and Vietnam. Some light selling was seen from Hong Kong and also from trade sources towards the highs, but in general the response in the Far East has been for a surge of physical demand on a risk-hedge basis. The Indian market has been quieter, partly in a price-elastic response, but also due to the Pitri Paksha period, which took up a 15-day period starting on September 1st and which has therefore just finished. The UK Government auction went smoothly, and had a generally calming effect on the market. After a morning fix on Wednesday of $279.50/ounce the allotment price was $280/ounce with a cover ratio of 4.3 and a scaling factor of 61.38%. This suggests that at the worst case, 32.6 tonnes (1.05M ounces) were bid for at [or above] the allotment price with 53.1 tonnes (1.7M ounces) below.
Gold has outperformed the major western currencies over the past week as uncertainty has swirled around the markets.
Market factors
Clearly economic developments this past week have been tinged with concerns over the exacerbation of the slowdown. Numbers that have been released included the Q2 GDOP for the member of the single-currency zone in Europe. Growth was only +0.1% against the previous quarter and +1.7% against Q2 2000. The figures were in line with economists' forecasts, and expectations are for more of the same in this quarter. The positive factor within the European GDP figure was that household consumption was steady, while investment, exports and imports were all down. Japanese figures were again weak, showing that its current account surplus shrank for the eighth month in succession.
Meanwhile fed funds futures soared in Chicago towards the end of the week and are now pricing in a fed funds rate of 2.75% by year-end, and the market is now speculating about the possibility of a rate cut from the Fed before October's FOMC meeting. Yesterday's consumer confidence figures for the University of Michigan exemplified market concerns with a preliminary reading for August of 83.6, down from 91.6 in July and lower than consensus expectations of 90.8.
Background News Demand
The tourist market is helping Turkish gold imports, with the Istanbul
Gold Exchange reporting that August intake was 12,500kg, against
9,500kg in July, but the economic condition of the country means
that this figure is still below the record 25,400kg imported in
August 2000.
Governments
The Canadian Government is considering changes to the corporate tax rules in the natural resources sector in order to help combat the impact of low commodity prices. The Finance Department is on-going discussion with interested parties and a new plan is likely to be revealed before next February's budget. Natural resources companies have been upset by proposals to wipe out the existing resource tax allowance, and an allowance that reduces taxes on accelerated capital costs.
Figures from the Dutch Central Bank suggests that it continues with its sales programme and disposed of 3.3 tonnes (106,000 ounces) in the week ended September 7th .
13 August- 17 August, 2001
Trading Patterns
Gold settled into a new higher range last week after its boost at the end of the preceding week. After closing in New York on Friday 10th at $274.00-274.50/ounce, the New York close on Friday 17th was $279.00-279.50. Having made numerous attempts over the course of the week to breach the resistance at the $278/ounce spot level (equivalent to $280 basis December), prices did finally push through to clear $280 basis spot in the Friday New York session amid fund buying and short covering. The market subsequently eased back slightly as momentum slowed and this week commenced trading in London in the $278-279 region. Buyers in the physical market, who tend normally to stand aside when prices are moving with any speed (in either direction) are now adjusting to the higher price range and have been becoming increasingly comfortable with bargain hunting in the $274-276 range. With respect to the professional trading, it is probably most noteworthy that activity last week included buying in order to trigger short covering, as well as the more familiar sales into strength.
Trading has thus involved both the "grass roots" physical side of the market as well as lively activity from among the "professionals". The funds have typically been identified as the buyers, while there have been consistent reports of dealer selling towards the highs.
Background Market Conditions
Intra-day moves have been governed largely by currency fluctuations, with the Euro once again being the primary currency of note. There were few economic figures released from the Euro-zone during the week, while those figures that emanated from the United States were mixed. The dollar, however, remained under some pressure, with the Euro closing at 91.79 US cents to the dollar after opening the week at 89.40 cents, a gain of 2.7%. Probably the most influential external development in this regard was the IMF's annual assessment of the economy, released mid-week and which warned of a potential dollar decline due to an unsustainably large current account deficit, but although gold rallied to test the $278 resistance support it did not, at that stage, have the impetus to push through.
The Bank of Japan further loosened its monetary policy last week, while the vast majority of market observers are expecting a rate cut from the FOMC this week. Indeed, a Reuters poll of the 25 primary dealers in US government securities are of the belief that not only will there be a cut, but that it will not be the last. Among the US figures released last week were July retail sales, which were flat, July industrial production, also flat (but the first time since September not to show a decline) and a CPI fall of 0.3%, which was larger than the market had expected. Industrial capacity utilisation for July was reported at 77%, regarded generally as low. The housing sector, by contrast, remains relatively buoyant, with July housing starts up by 13.2% on July 2000. The US equities markets have remained under pressure by virtue of more profit warnings from large industrial entities.
The change in sentiment in the market over the first half of the month was illustrated by the CFTC Commitment of Traders Report for the week ending 14th August, when the move into a higher range based on $274 support had already been completed. Large-scale speculative positions showed a swing to a net long position of 32,869 lots or 102.2 tonnes, against a net short position the previous week of 1,690 contracts, equivalent to 5.3 tonnes, a net swing of almost 108 tonnes over the week.
Lease rates have remained slack, with little interest in the forward markets last week.
News
US mining regulations likely to be eased: a spokesman for the US Interior Department's Bureau of Land Management has said that he hopes that some controls on hard rock mining could be repealed "within a month or so". These controls were implemented by the Clinton Administration and allow the government to prevent mining for gold, silver and copper on publicly held land if the operations are deemed likely to result in "substantial and irreparable harm".
The Algerian Government is changing its mining code to allow investment from foreign operators. International tenders are to be issued within the next few weeks for exploration and exploitation licences. The new code will include the right to repatriate profits and investments and sets a maximum exploration time of five years with exploitation permits of up to 30 years.
The "New Africa Mining Fund" has been launched in South Africa as a result of the "Bakubung" initiative between the Industrial Development Corporation and Decorum Capital Partners. The purpose of the fund is assist black empowerment and junior mining companies and it is reportedly aiming to generate compound annual returns of 20% over its life.
Elsewhere, the head of the union
of Russian gold producers reports that Russian mine output in
the first seven months of the year was 61 tonnes (2M ounces) of
gold, an increase of 11% over the corresponding period of the
year 2000, while there was a further 7.7 tonnes (24,800 ounces)
of secondary material (including scrap).
06 August- 10 August, 2001
Trading Patterns
After spending the month of July with spot prices rarely straying beyond the $265/ounce and $270/ounce boundaries, gold moved through important levels on Thursday of last week (August 9th) to clear the resistance that stood in the $270-272 band (all prices basis spot). The spot New York close was $274.00/4.50, against $268.20/8.70 the previous Friday. The move was primarily driven by professional money looking for financial risk hedge vehicles, encouraged by the base building of the previous month, which itself had been underpinned by solid physical demand. Fuelled initially by short covering, long positions were taken subsequently as the risk-hedge mentality was enhanced by an increasingly favourable technical picture. Activity was further fuelled by Friday's option expiry, with the $275 and latterly the $280 strike prices the focus of attention. The high point of the week came towards the close of trading on Friday, with December gold hitting $279.80 in New York (equivalent to approximately $277.50 basis spot) before closing at $276.80. The "trade" was a seller into strength, largely through profit taking.
The combination of a weaker dollar and fractious equity markets, born of economic developments, were the stimulus for gold's gain in US$ terms. To put this into context, it is worth noting that while moving 2% better in dollar terms over the course of the week, prices in the other major European currencies were contained to a narrower range. Expressed in Euros, for example, the week started at EUR303.30/ounce and finished at EUR307.19/ounce, a gain of only 1.2 %.
The weakness of the dollar against other major currencies has stemmed from an increasing acceptance that the slowdown may be deeper and longer-lived than had previously been expected, with concern reinforced by the release of this quarter's "Beige Book" on Wednesday. This is a Fed publication that examines general economic trends, and which pointed out that the difficulties in the manufacturing sector, already well documented, are now spreading into other areas of the economy. Elsewhere in the world the picture is not much better, with German economic output in July down by 0.4% and Japanese machinery orders (a lead indicator for capital spending) down by a seasonally adjusted 6.6%, and equity markets in general are reflecting these factors accordingly.
As a result, therefore, gold benefited towards the end of the week from professional buying, part of it short covering, part of it genuine risk hedging and part of it what might be termed "second guessing" as speculative forces anticipated the activity of others in the market.
Lease Rates
Lease rates remain low. There is minimal borrowing activity in the market at present, while there is plentiful supply, but this does not suggest aggressive lending on the part of the Official Sector. There has, however, been some renewal of longer dated Official Sector lending over the past week, which would, in the absence of longer-term borrowing from the trade, put some downward pressure on rates for 6-months and beyond. In addition, some bullion bankers are believed to have borrowed metal in the spring when the market looked like tightening up again and that some of this is now reportedly becoming available, adding to liquidity at the short-dated end. When combined with short covering activity, these factors would help to put downward pressure on rates.
The CFTC Commitment of Traders report for the week ending 7th August, when prices were still relatively static, revealed some very light short covering. The large speculators on the Comex maintained a small net short position of 1,690 contracts (equivalent to 5.3 tonnes), down from a net short position of 2,708 lots (8.4 tonnes) the previous week.
Background news
Demand
In the background, the debate is building in Korea over the abolition of VAT on gold. The Finance Ministry favours its retention, but the argument is being perpetrated that abolition of the tax would wipe out smuggling. The next parliamentary session at which VAT on gold is scheduled for discussion is this December, but a head of steam is developing, with some members of the ruling party espousing the need to abolish the tax, which currently stands at 10%.
Elsewhere the potential for gold's high-technology applications has attracted the attention of US lawmakers; the draft Energy Bill, due before the House of Representatives in 2002, includes a provision for US$5m funding for research into precious metal catalysts (with the exception of platinum, palladium and iridium) with respect to energy generation. This is an early stage proposal, which needs also to be espoused by the Senate.
Supply
Coeur d'Alene expects to complete the sale of its Chilean gold assets this month, although the CEO of CDE Chilean mining, in passing this comment, declined to name either the interested parties or the value of the assets. Production was halted at the Fachinal mine in the fourth quarter of last year.
In the non-ferrous sector, Falconbridge has announced the closure of the Kidd metallurgical operations as a result of the heatwave, which has forced energy prices too high. There have been no such announcements as yet from the gold mining fraternity.
Press headlines to the effect
that the Venezuelan government has rescinded its Las Cristinas
contract with Placer Dome are mildly misleading. The Venezuelan
mine holding company Corporacion Venezolana de Guayana (CVG) is
the 30% joint venture partner at Las Cristinas. Placer Dome holds
70%, but agreed in mid-July to sell this stake to Vannessa Ventures.
Under the terms of the agreement, Placer is to retain an interest
in the revenues generated by Las Cristinas and under certain circumstances
Placer would have the right to re-acquire the shares (giving Vannessa
an interest in the revenues). The CVG President, Francisco Rangel,
said last week that Placer had failed to comply with the contract
terms in that it did not seek written approval from CVG for the
sale of its 70% stake to Vannessa Ventures and as such CVG plans
to revoke the contract. He did, however, point to the fact that
revocation takes 90 days which gives Placer a breathing space
in which to "correct all the errors it has made", so
the issue is not closed. Placer halted development of Las Cristinas
in 1999 (and wrote off the carrying value in mid-2000); the CVG
is keen to find a partner that will bring the property on stream.
30 July - 03 August, 2001
The performance of gold over the past week has been characterised by solid physical support, initially at the $265/ounce level, but latterly with buying stretching up towards $267/ounce, although any attempts to move towards $270 have run out of steam as the onset of the summer has left the market somewhat lethargic. Apart from the physical demand towards the lows, the primary driving force has been the performance of the US dollar, both against the Euro and against, notably, the Australian dollar. Any weakness in Australian local prices has seen some light buying emanating from that quarter, which has helped to buoy prices over the course of the week.
After opening in London on Monday at the $266/ounce level, prices have traded in a narrow range, with a mildly positive tone. The high fix for the week was $268.30/ounce on Thursday morning, and the Comex spot equivalent close on Friday was $268.20/8.70. Sentiment gradually improved over the course of the week, notably because of renewed concern about the destiny of the US dollar, and aided by the fact that spot prices have crossed above the 100-day and 200-day moving averages. The difference between spot and these averages is currently very small, however (they stand at $267.98 and 267.90 respectively), so this can not yet be termed conclusive.
[ Click here for a chart of gold prices in major producer currencies ]
The development of the labour negotiations in South Africa was an important background factor early in the week; initial fears that the three companies that had not reached a settlement (Gold Fields, Harmony, Durban Roodepoort Deep) would be hit by strike action did generate some short covering and prompted the first test of $268/ounce. The resolution of the negotiations late on Wednesday was obviously a relief to the industry, but did not have any negative impact on prices or borrowing rates, which were by that stage more concerned with currency movements.
The delicacy of the negotiations did also produce some light borrowing activity in the early part of the week, but this abated as the situation was resolved. The forward market was generally quiet with little near term borrowing, although there has been evidence of some interest for six-months and twelve-months metal, reflecting the trade-oriented interest of the borrowers. It does however look as if the longer term borrowing is only emerging when the relevant rates ease. There is still ready availability of metal at the short end, with some fresh lending appearing in recent days, albeit not aggressive.
Economic figures issued from the US over the course of the week were mixed. The National Association of Purchasing Managers' figure for July was weaker than expected (43.6, down from 44.7 in June), and June factory orders were down by twice as much as expected at -2.4%. Set against this, however, was a better than expected figure for consumer spending (up by 0.4% in June against forecasts of 0.3%) and the July Non-Farm payroll figure was also mildly better than expectations, showing a fall of 42,000 with the jobless rate unchanged. As a consequence the dollar came under some pressure for much of the week although the Payroll figure was not released until Friday and thus gave the dollar some mild late buoyancy as expectations receded of a rate cut at the Fed's next meeting.
The CFTC figures for the week ended 24th July showed a sharp reversal of investor sentiment on the COMEX in New York. The large speculators resumed a net short position of 2,708 contracts (8.4 tonnes), compared with a net long position of 13,374 lots (41.6 tones) the preceding week.
In the background the response to the German Government's issue of 12 tonnes of commemorative One Deutschmark gold coins (using metal from the Bundesbank reserves and sold under the auspices of the Washington Agreement) met with strong interest from the German public. It is reported that the full issue sold within the hour and the coins have since been trading at a premium in the secondary market.
Elsewhere, the liberalisation of the Chinese gold market continues, with the State Development Planning Commission including gold jewellery prices among over 100 commodities and services that were subject to price liberalisation as of August 1st. Previously, the People's Bank of China set the standard price for the metal and jewellery retailers were then able to price their goods within a certain limit. Since August 1st, jewellery retailers have had free rein over pricing mechanisms. In the reasonably near term, prices for simpler designs are expected to drop as a result of the deregulation, with a concomitant increase in local demand; it is also expected that local jewellers will become increasingly competitive over design and workmanship quality, thus improving the market overall. Any change may take some little time, however, as some jewellers are awaiting guidance from their local authorities over pricing mechanisms. In addition the Central Bank still operates a retail licensing mechanism and there has, as yet, been no indication as to when this restriction will be relaxed.
A further element of deregulation in the market is under debate in Russia. According to the chairman of the union of gold industrialists, the Russian Government Commission that governs foreign trade and tariff policy has deferred until its end-August session the discussion over whether to lift the 5% export duty currently levied on gold. He also commented that the existence of the duty, which does not apply to gold sold through Customs Union countries, has meant that the Bank of Russia bought no gold from local producers in the first half of this year.
Elsewhere, the Indian press
is reporting that, effective September 15th, all repayments of the Gold Bonds Scheme
1993 will be made through
the Reserve
Bank of India, with the
State Bank of India ceasing repayments on September 14th. This
is the natural conclusion of the SBI programme which had originally been due
to close on September 14th 1999, but which was given a two-year
extension.
23 July - 27 July, 2001
Gold spent the majority of the week broadly, but not exclusively, tracking dollar:euro moves in typically thin summer trading conditions and trading in a $265-270 range with a mildly negative bias. The Monday morning fix was $269.25/ounce, and spot prices tested resistance at $270/ounce on more than one occasion in the early part of the week, but the market encountered selling activity on each occasion that prices ventured up to that level. This failure to clear $270/ounce subsequently gave rise to long liquidation. Selling was especially notable on Thursday 26th, in the wake of the announcement of the US' durable goods orders for June, which were down by 2.2% against May and by 22% year-on-year and resulted in both gold and the dollar coming under pressure, thus rendering the currency link less relevant than previously and engendering disappointed sentiment. As a result, spot prices eased to test support at $265/ounce, but healthy physical demand has emerged on each occasion, notably from South Asia and parts of the commercial jewellery industry and this level held well under test. The options expiry on Friday passed without incident with $265 again providing support despite some market concern that it would give way under selling pressure thereafter. Mr. Alan Greenspan's testimony to the US Senate Banking Committee was mildly supportive in that it put some pressure on the dollar. Weaker than expected second quarter US GDP figures (0.7% against expectations of 0.9%), however, gave the bond markets a boost but had little impact on gold. The news that three of South Africa's gold mines may yet be hit with strike action this week (see below) provided impetus for dealer short-covering towards the end of Friday's trading, with spot closing at $267.60/$267.30/ounce.
[ Click here for a chart of gold lease rates ]
Lease rates continued to ease, albeit marginally, at the short end with one month rates slipping to 0.42% from 0.47% a week previously, although the twelve month rate edged slightly higher to 1.47%. There has been some light borrowing of the twelve month period, but this has been sporadic, in thin volume, and has generally tended only to appear on any easing in the rate. At the short end of the curve there is plenty of liquidity but few borrowers, while there is also metal being lent for the six month and nine month periods. This appears to be par for the course; there is no aggressive lending in evidence but equally any borrowing interest that does arise is being readily accommodated.
CFTC figures for the week ending July 24th show that the net large-scale speculative long position on COMEX had increased marginally to 13,374 contracts (41.6 tonnes) from 10,766 contracts (33.5 tonnes) in the previous week. The liquidation in ensuing days suggests that this position has once again been reduced.
In the background, figures from the ECB and the Dutch Central Bank signified that the Dutch Government's gold sale programme (which falls under the Washington Agreement) is continuing, with a small reduction of 64,000 ounces during the previous week. Elsewhere, the Lebanese Government strongly denied market rumours that it is considering the mobilisation of part of its gold holdings, which have remained unchanged at 9.22 million ounces (287 tonnes) since 1979.
Wage negotiations continue in South Africa; by the end of the week a deal had been struck at Anglogold and at Western Areas' South Deep mine and is now due to be taken to the workforce for approval. Although a strike vote had been passed by a sizeable majority earlier in the week which would have seen a strike commence on Thursday 26th, the mining companies are offering individual revised proposals. The relevant meeting concluded on Friday night and while Anglogold and South Deep reached agreement with the NUM, the position with Durban Roodepoort Deep (DRD), Goldfields and Harmony remained unresolved. The NUM is to serve these three companies with a strike notice for strike action to commence this Wednesday evening August 1st).
Elsewhere in Africa, It has
been reported that the Ghanaian Government
has recommended that the local mining code
should be revised. The code currently calls for a minimum government
holding of 10% in every local mining company; this is expected
to be reduced and a team from the World Bank
is due in the country in August to finalise plans, with the possibility
of implementation of the new laws
by then of this year.
16 July - 20 July, 2001
The gold market was quiet in the early part of the week, with trading cautious ahead of Wednesday's testimony to the US Congress by Federal Reserve Chairman Alan Greenspan. Gold opened a little firmer on Monday with the London afternoon fix at $268.25, and moved briefly up through $269 in New York on short covering. The price dipped to the $267 level on Tuesday, but that proved to be the low for the week as bargain-hunting brought higher prices in anticipation of a weaker dollar. Gold moved up though $270 on Wednesday, as Dr. Greenspan warned that the US economy remains weak and susceptible to more bad news, and said the Fed may need to ease interest rates further. The price closed the week in New York at $269.50/70.00.
Short-term gold lease rates continued to decline during the week, the one-month rate falling to 0.47% from 0.78% a week earlier. One-month gold was as high as 7% during the first quarter of this year. The 12-month lease rate was also lower at 1.43%, down from 1.52%.
Friday's commitment of traders report from the Commodity Futures Trading Commission confirmed that there was some very light investment buying on the part of the large speculators on the Comex in New York around the time of the previous week's UK auction. In the week ended July 17, the net long position of the large speculators edged up to 10,766 contracts (equivalent to 33.5 tonnes) from 10,602 contracts (33 tonnes) a week earlier. Open interest eased a little during the week to 116,292 contracts from 118,688.
On Tuesday, Bundesbank President Ernst Welteke presented German President Johannes Rau with the first of a million gold deutschmark coins, minted to commemorate the end of the currency. The coins will be officially issued on July 6, about five months before euro notes and coins come into circulation to replace the existing currencies in the 12 nations that comprise the eurozone. The Bundesbank donated the 12 tonnes of gold required for the coin from official reserves of some 3,500 tonnes. The disposal falls within the terms of the Washington Agreement on Gold.
Malaysia also launched a gold coin during the week, the Kijang Emas or golden barking deer. Prime Minister Datuk Seri Dr. Mahathir Mohamad said the production of the coins was designed to provide an alternative for the public to invest and save. "With the relatively stable gold price, the investment in Kijang Emas can help investors balance the risks in their other investments such as shares,", he added.
Valery Rudakov, head of Russia's state precious metals repository Gokhran, said this week that he expects the country's gold production to rise by 10% to over 150 tonnes this year. He added that Gokhran plans to buy around 30 tones of this, up from 25 tonnes in 2000. Gokhran has already bought between 7 and 8 tonnes of gold during the first half of this year, and plan to finance additional gold purchases through the auction of rare diamonds. Rudakov said he plans to shift Gokhran's reserves from gemstones into gold because the metal is more liquid.
In other news, a poll of 17
analysts conducted by Reuters forecast an average gold price this
year of $270, with an increase to $285 expected for 2002 as the
world's major economies recover. In South Africa, last-ditch talks
between the Chamber of Mines and the National Union of Mineworkers
aimed at averting a potential strike over wages and conditions
have so far failed to secure a postponement of the strike ballot
called for Monday July 23. If the union's members vote in favour
of industrial action, the country could face the start of the
first significant strike in the gold mining industry since 1987
as early as Thursday.
9 July - 13 July, 2001
Gold opened the week little changed from the previous Friday, with Monday's second London fix at $266.10. Trading remained subdued on Tuesday, but prices firmed after the market placed a moderately positive interpretation on Wednesday's UK auction, with spot gold reaching a high for the day of $269.50/9.80. Prices eased back below $267 on Thursday before firming a little in New York on Friday to close the week at $267.10/7.60.
In Wednesday's auction, the UK sold 20 tonnes of gold at a price of $267.25, comfortably above the London morning fix of $266.55. The sale was 4.1 times oversubscribed, which was seen as reflecting healthy demand. The British government will complete its planned sale of 395 tonnes under the terms of the Washington Agreement on Gold with a further four bi-monthly auctions of 20 tonnes apiece. The next auction will be held on September 12.
Short-term gold lease rates continued to decline during the week, the one-month rate falling below the 1.00% level to 0.78%. One-month gold reached as high as 7% earlier this year. The 12-month lease rate eased a fraction to 1.52%.
Friday's commitment of traders report from the Commodity Futures Trading Commission showed a further sharp decline in investment interest by the large speculators on the Comex in New York. In the week ended July 10, the net long position of the large speculators fell to 10,602 contracts (equivalent to 33 tonnes) from 16,170 contracts (50.3 tonnes) a week earlier. Open interest edged up during the week to 118,688 contracts from 117,731, which may reflect some very light investment buying immediately ahead of Wednesday's UK auction.
The Chinese government has included pure gold jewellery among a range of items on which the State Development Planning Commission has lifted price controls, according to news reports. The move is seen as a further small step on the road toward the liberalisation of the gold market. In response to the anticipated deregulation of the gold market on the mainland, the Hong Kong Chinese Gold and Silver Exchange Society is planning the biggest reforms in its 91-year history. The Exchange will introduce a substantial extension of its trading hours, coupled with an electronic trading system, and plans to launch a new product, a bar of 9999 purity, in the autumn.
Clearing turnover among members of the London Bullion Market Association continues to decline. The LBMA reported that the average daily number of gold ounces transferred in June was 20.5 million [638 tonnes], down from an average of 28.2 million a year ago.
In South Africa, the threat of a strike by gold miners loomed larger as the National Union of Mineworkers started balloting members over potential industrial action following the failure of third party mediation in its dispute with the Chamber of Mines, representing the gold mining companies. If the strike does go ahead, it would be the first since 1987.
In other news, the Zimbabwe
Treasury is appealing for government funds to try to curb illegal
exports of gold mined in the country. The government estimates
illegal exports at around 6 tonnes a year. Finally, it was reported
late on Friday that Placer Dome planned to sell its 70% stake
in the Las Cristinas gold project in Venezuela, where development
work was suspended in 1998 because of low gold prices.
2 July - 6 July, 2001
Gold prices opened the week a little easier, with Monday afternoon's London fix at $268.35. Tuesday saw the price rally to above $269 in good two-way business, but late fund selling in New York brought a close below $268.00. With US markets closed on Wednesday for the Independence Day holiday, gold traded quietly in London, the afternoon fix being at $267.60. Thursday saw gold dip below $265.00 on renewed strength in the dollar, but a recovery on Friday took the spot price to a close in New York of $266.00/6.50
Gold lease rates eased further during the week, the one-month rate declining from 1.29% to 1.05%.
Because of the Independence Day holiday, the Commodity Futures Trading Commission delayed publication of the commitment of traders report until Monday July 9. The latest report showed a sharp fall in investment interest by the large speculators on the Comex in New York. In the week ended July 3, the net long position of the large speculators fell to 16,170 contracts (equivalent to 50.3 tonnes) from 22,073 contracts (68.7 tonnes) a week earlier.
Gold prices are expected to trade narrowly ahead of this week's UK auction on Wednesday, July 11. This will be the second in the current series of six auctions of 20 tonnes apiece which will complete the UK government's planned programme of sales totalling 395 tonnes under the Washington Agreement on Gold.
In other news from the official sector, the Dutch central bank announced on Wednesday that it had made a further sale of 1 tonne of gold from reserves. The Dutch resumed sales the previous week as part of their programme of 300 tonnes of sales during the Washington Agreement.
Canada announced on Thursday that it sold no gold during the month of June, leaving reserves at 1.2 million ounces or 37 tonnes. The Canadian government has a longstanding policy if gradually reducing its gold reserves.
Slovene Prime Minister Janesz Drnovsek confirmed that the gold reserves awarded to the country under a recent agreement on the distribution of the former Yugoslav assets will not be used to meet current expenses.
In Thailand, central bank governor Pridiyathorn Devakul took receipt of more than half a tonne of gold to be added to reserves. The Thai public has so far donated almost 3 tonnes of gold in collections organised by Buddhist monks.
Elsewhere in the news, gold
shipments into India have begun to pick up in anticipation of
strong demand later in the year after the major harvests. Preliminary
assessments of the crucial monsoon rains have been promising.
25 June - 29 June, 2001
Gold prices opened the week a little firmer, with Monday afternoon's London fix at $272.90. The price strengthened during the day, moving up through $274 as a result of the growing conviction in the market that the Fed would maintain its policy of aggressively reducing US interest rates at its Wednesday meeting. The market consensus was that a further cut of 50 basis points would weaken the US dollar, bringing in its wake higher dollar gold prices. Tuesday saw continued good buying from the funds once New York opened, driving the price to the brink of $279 before some late profit taking. Wednesday's announcement that the Fed had decided to reduce short term interest rates by only 0.25% saw the dollar move sharply higher, driving gold back down toward the $270 level. Gold traded as low as $267.70 on Thursday on further disappointed selling, but rallied on Friday as dealers squared their books at the end of the quarter. The spot price touched a high for the day in New York at around $272 before easing to close the week at $270.60/1.10.
Gold lease rates eased further during the week, the one-month rate declining from 1.6% to 1.29%.
The commitment of traders report published on Friday by the Commodity Futures Trading Commission showed a further modest increase in investment interest by the large speculators on the Comex in New York. In the week ended June 26, the net long position of the large speculators rose to 22,073 contracts (equivalent to 68.7 tonnes) from 19,002 contracts (59.1 tonnes) a week earlier. Since then open interest on Comex has declined from 125,033 contracts to 120,524, indicating some closing out of long positions towards the end of the week.
The market showed no significant adverse response to Tuesday's announcement that the Dutch central bank had sold 1 tonne of gold from reserves, the first sale since February 2000. The announcement marked the resumption of sales under the planned programme of 300 tonnes of sales by the Dutch under the Washington Agreement on Gold.
In other news, municipal authorities in Ahmedabad, the city in the western Indian state of Gujarat that was until recently the leading centre for gold imports, have dropped a proposal to introduce a 1% entry tax on gold bullion. Authorities were apparently concerned that the imposition of additional tariff barriers would further cut imports. Ahmedabad's 1.1% sales tax has already contributed to a signifiant loss of market share to the city of Jaipur in the north-western state of Rajasthan.
Finally, Russian President Vladimir
Putin has signed a decree that is expected to mean a significant
streamlining in the export and import procedures for precious
metals. The decree should also bring to an end the system of "grey
exports" of precious metals under which Russian banks have
avoided payment of a 5% export duty by routing shipments through
former CIS countries. At the same time, the state repository Gokhran reconfirmed
the commitment of the Russian government to continue building
the country's gold reserves by undertaking to increase the quantity
it will buy for reserves this year to 40 tonnes from 25 tonnes
during 2000.
18 June - 22 June, 2001
After several weeks of volatility gold prices settled down last week, consolidating steadily as the market sought to build a base above the $270 level. Having suffered a late sell-off in New York on the previous Friday gold started the week slightly firmer, attracting some Asian buying interest on Monday morning. The steadier tone continued in Europe, with gold fixing at $271.50 in the morning and edging above $272 during the New York session. Tuesday saw prices continue to firm initially, ignoring the strong US dollar. Quotations moved up to $$273.95 at the AM fix and looked briefly above $274, but the upturn stalled on the US opening as Comex traders paid closer attention to the dollar as well as the one-month gold lease rate, which although still historically high had eased to 1.6%.
Prices slipped lower on Wednesday as the dollar continued to strengthen. Gold fell below $273 during the morning in London and by the afternoon fixed at $271.50. Some light fund buying emerged later in New York, however, lifting prices towards $272.50. Gold's resilience to downward pressure was by this time improving market sentiment, as were signs of higher inflation in Germany, but trading activity was too thin for gold to sustain any rally and after fixing at $272.65 on Thursday morning the market drifted back to $271.50 as the one-month lease rate eased again to 1.4%. Expectations of another cut in US interest rates encouraged buying in London on Friday morning, carrying gold up to $273.20 at the AM fix. Quotations then eased a little but firmed again ahead of the US opening before running up to $276 after the PM fix. Overhead resistance proved too strong at this point and prices promptly dropped back to $272; physical buying kicked in at the lower levels, however, and the market bounced a little to close the week at $272.30/272.90.
The Commodity Futures Trading Commission's latest commitment of traders report shows that the large speculators' net long position on Comex increased slightly during the week ended June 19, rising from 18,555 contracts (equivalent to 57.7 tonnes) to 19,002 contracts (59.1 tonnes). Since that date open interest on Comex has risen from 118,500 contracts to 122,025 contracts, probably reflecting another small increase in long positions.
On Monday 25 it was announced
that Barrick Gold Corporation and Homestake Mining Company are
planning to merge. Under the merger agreement, Barrick is offering
to exchange 0.53 of a Barrick share for each of Homestake's 263.3
million outstanding shares, which represents a value of US$8.71
for each Homestake share. The Boards of Directors of both companies
have unanimously approved the transaction. The combined company
is expected to have a market capitalisation of US$9 billion and
will be the world's second largest gold producer, with output
of 6 million ounces per year.
11 June - 15 June, 2001
Another volatile week for gold with prices ranging actively between $268 and $277. Having rallied sharply in New York on the previous Friday on mainly technical factors, quotations came under pressure from Japanese selling early on Monday, and with Australian markets closed for a holiday gold slid back unopposed to the $272 level. Some support was initially evident in Europe and gold firmed to $272.75 at the morning fixing in London; selling from funds and commission houses was quick to arise on the New York market, however, pushing prices to a low of $267 before some late short-covering set in. On Tuesday some light selling was evident during early trading in Europe. Support held firm at $267 however, and the emergence of steady buying lifted prices above $268 before the US opening. Lease rates remained firm at 1.85% for the one-month, helping underpin sentiment, and after moving up to $269.90 at the PM fix gold attracted further buying breaking above $270 again against the background of rumoured producer buy-backs and touching $272.
Wednesday saw the market continue to fluctuate nervously, although trading volumes were somewhat lower. Nevertheless it became apparent that gold was beginning to build a base above the $270 level. Fund and investment bank buying lifted gold above $272 in Europe; the buying later faded and after fixing at $271.95 in the afternoon a bout of liquidation pushed quotations back to $270. In the event, fresh buying was triggered at the lower levels - noticeably from the Middle East - and gold quickly bounced back and tested $273. In Europe on Thursday gold held within its range, although the nervousness resulting from increased implied options volatility meant that the market remained cautious. Gold was fixed at $272.20 in the morning and traded close to this level until late in the day, when a sudden fall in the dollar sparked a sharp rally in prices, taking quotations above $275.
On Friday the firm tone continued in Asia with Australian buying encouraged by indications that Russia intended to increase its gold reserves. Gokhran, the Russian state precious metals and gems reserve was reported as saying that it intended to increase its gold purchases from domestic production by 20% in 2001, up from more than 20 tonnes last year. Gold met resistance above $276, however, and slipped to $274.35 by the AM fix. Comex also opened weaker as some profit-taking came to the fore and gold dropped as far as the $270 support level before attracting fresh buying interest. Prices subsequently regained some ground, closing the week in New York at $271.30/271.80.
The latest commitment of traders
report published by the Commodity Futures Trading Commission showed
the net long position of the large speculators on Comex continue
to decline during the week ended June 12, falling from 25,011
contracts (equivalent to 77.8 tonnes) to 18,555 contracts (57.7
tonnes). Open interest stood at 114,065 contracts at this point,
but has since increased again to 118,779 contracts, probably reflecting
the subsequent reinstatement of some long positions.
04 June - 08 June, 2001
The week started very quietly for gold as the market sought to build a base after the acute volatility of the previous two weeks. Much of Europe was closed for a holiday Monday, but quotations held steady in Asia and gold was fixed slightly higher in London at $266.25 in the morning. Support was provided by the one-month gold lease rate which held firm at 1.95%, and despite weakness in silver, gold consolidated around the $266 level throughout the day. For lack of other initiatives gold followed the currencies on Tuesday, edging up to $267 early on Australian dollar strength; renewed weakness in the euro, which fell to six-month lows, saw gold test underlying support at $265 later, however, before steadying in sympathy with silver around $266.
The market continued to trade sideways on Wednesday with activity very dull. Traders were beginning to accept that the recent fund sell-off had run its course, but felt that there was little reason to take gold higher again in the near term. On Thursday prices remained rangebound again with the market hardly moving; gold was fixed at $266.25 in the morning and $266.10 in the afternoon, later closing in New York at $266.30/266.80. Firmness in lease rates, with the one-month rate holding around 2.0%, as well as another upturn in the Australian dollar seemed positive for gold on Friday, which firmed to $267.25 at the morning fix. The market paused at this slightly higher level however, and traded very narrowly once again until late in New York when a sudden burst of fund and trade buying sparked a swift rally, carrying gold up to close the week at $273.00/274.00.
The Commodity Futures Trading Commission's latest commitment of traders report confirmed the sharp sell-off that occurred on Comex during the week ending June 5, with the net long position of the large speculators falling from 43,236 contracts (equivalent to 134.5 tonnes) to 25,011 contracts (77.8 tonnes). Open interest, which at this point had fallen to 109,182 contracts, showed little change over the next few days but then jumped to 114,642 contracts on Friday June 8, undoubtedly reflecting the rebuilding of speculative long positions at the end of the week.
It was reported that the People's
Bank of China has appointed China Foreign Exchange Transaction
Market to set
up China's first gold market
in Shanghai. It is planned that a trial trading system should
be established
by the last quarter of the year. If successful, trading will commence
on January 1, 2002.
28 May - 01 June, 2001
Both the London and New York markets were closed for holidays on Monday, but when gold reopened on Tuesday it quickly became clear that the downward correction in prices after the recent sharp rally was far from over. Gold was fixed lower at $276.65 on Tuesday morning and then edged gradually lower as traders focussed upon the likely near-term action of the funds, which were holding their longest position in five years. The OTC options expiry was largely ignored as most options positions had already been covered during the previous week's price volatility. The weaker tone continued after the New York opening, although much early business was related to switches ahead of first notice day on Comex. As the day progressed the unwinding of fund long positions began to gather pace, however, and gold broke below interim support at $275.
Wednesday saw the downside pressure remain in place with quotations easing down towards $272 in Europe. The selling momentum increased in New York once support at $271 was breached and computer-generated stop-loss liquidation kicked in, accelerating the fall in prices. Gold plunged swiftly to the $266 level by the Comex close. On Thursday a steadier tone began to develop in Europe with gold fixing at $266.10 in the morning. The market watched nervously for signs of further heavy fund liquidation, but in the event quotations stabilised with the $265 level being seen as the main area of underlying support. Gold traded in a narrow range around $266 on Friday morning in Europe with no sign of any further stale bull liquidation. The lack of any significant selling proved mildly positive for prices later in the day, so that quotations firmed slightly to end the week at $266.75/267.25.
The latest commitment of traders report published by the Commodity Futures Trading Commission shows that the net long position of the large traders on Comex continued to grow over the week ended May 29, moving up from 38,936 contracts (equivalent to 121.0 tonnes) to 43,236 contracts (134.5 tonnes). By this point open interest had surged to 133,990 contracts; the heavy fund liquidation seen over the rest of the week saw open interest plunge to 109,858 contracts by May 31, however. Gold lease rates held steady over the week with the closely-watched one-month rate trading around the 2.0% level.
On Monday Saudi
Arabia slashed customs tariffs on imports into the Kingdom from
12% to 5%. This move comes
hard on the heels of a decision earlier in the month to ease trade
regulations by allowing preferential tariffs on imports of goods
from other Gulf Co-operation Council (GCC) states and will help
Saudi Arabia qualify to join the World Trade Organisation. Prior
to this decision 95% of imported gold jewellery entered the Saudi
market through parallel routes due to the high customs duty. It
is thought that the estimated 30 tonnes of jewellery entering
the Kingdom via these routes will now find its way through legal
channels.
14 May - 25 May, 2001
Monday May 14 started with gold drifting gradually and cautiously lower as the market prepared itself for both the 12th Bank of England gold auction and the Federal Open Market Committee (FOMC) meeting, which was expected to provide another cut in US interest rates. Gold was fixed at $267.70 in the morning, but remaining underpinned by firm lease rates crept quietly above $268 again that afternoon. On Tuesday prices remained rangebound immediately ahead of the auction, hovering around the $268 level and fixing at $268.05; the allotment price at the auction was later announced as $268.00, while the 20 tonnes of gold on offer was 3.7 times covered, up from 2.2 times at the previous auction in March. While this was a better result than that for the last auction it was not perceived as being totally positive, so that quotations subsequently slipped back towards $266 as attention became redirected towards the FOMC meeting.
As widely anticipated, the FOMC decided on another 50 basis point cut in the US Federal Funds target rate, bringing it down to 4.00%. Gold subsequently bounced on this news, which some viewed as potentially inflationary, and recovered the $268 level again by the close. Buying interest, which had been deferred at the start of the week, re-emerged during early European trading on Wednesday and carried gold higher to nudge $270. Quotations then edged back to $269 ahead of the US opening, but fund-led short-covering arose on the Comex opening and gold rallied again, running up to $274 before encountering any resistance. On Friday quotations hovered quietly between $272 and $273 during most of the European session. After the London close heavy fund buying arose in New York, however, and gold surged higher; once technical resistance at $274.50 was broken the rally gained momentum as stop-loss and options-related buying was triggered as well as more short-covering. Resistance at $280 was quickly overcome and amid frantic trading conditions gold soared to close the week in New York at $286/286.70.
Monday May 21 saw the surge in prices gain fresh options-related momentum in Asia with quotations racing to a 15-month high of $298 and implied one-month volatilities jumping to 35%. These overbought levels could be held only momentarily, however, and with Australian dollar gold prices touching a 7-year high of A$560 selling quickly arose, so that by the London opening gold had dropped back sharply to $287.50/289.00. The market remained very volatile throughout the day, with gold fixing at $291.25 in the afternoon and recovering to $295 before falling back on profit-taking to $285.15/286.15 in New York. Gold then began to develop a calmer tone with implied volatilities falling to 18.5%, the one-month gold lease rate firm at 2.1% and the euro at a new low for 2001. After a morning fix of $282.75 on Tuesday gold firmed to $284.15 by the PM fix and $284.90/285.60 in New York.
By this stage the strong fund activity that had driven the rally was dissipating and currency factors were coming back into focus, with the strong US dollar once again beginning to weigh upon prices. Gold traded between $282 and $286 on Wednesday and remained comfortably within this range until Thursday afternoon, when reports that Russian President Vladimir Putin would consider sales of gold and diamonds to help flood victims in eastern Siberia sparked a wave of selling from nervous, newly long funds. Gold tumbled in response to $279, and although President Putin distanced himself from these remarks on Friday, saying that he was not considering gold sales but the settlement of debt on a gold loan made by the Russian authorities to the flood-swept Yakutiya region, gold remained under pressure as funds continued to liquidate long positions ahead of the long holiday weekend. Spot gold ended an extremely volatile week at $277.40/278.40.
There was a remarkable turnaround
in speculative positions over the two weeks covered by this commentary.
Commitment of traders reports published by the Commodities Futures
Trading Commission showed the positions of the large speculators
on Comex switching from a net short 25,788 contracts (equivalent
to 80.2 tonnes) on May 8 to a net long 1,531 contracts (4.8 tonnes)
by May 15 and a net long 38,936 contracts (121.0 tonnes) on May
22, a change of more than 200 tonnes. Open interest at this point
had surged to 133,866 contracts (compared with 105,491 contracts on May 8) and subsequently rose above 140,000,
illustrating the scale of the speculative activity seen during
this period. Since then open interest has declined again, however, reflecting the closing out of long
positions by funds unconvinced by gold's strong performance.
7 May - 11 May, 2001
With the London market closed for a public holiday, gold started the week very quietly, with prices lacking direction during the New York session and holding around the $266 level. The release of weak statistics for German manufacturing orders for March tended to keep the euro steady on foreign exchanges as most traders felt this would discourage the European Central Bank from lowering the eurosystem's interest rates. The return of the London market on Tuesday brought little fresh incentive, and after fixing at $265.60 in the morning, quotations gradually slipped as the dollar showed some renewed strength. The firm one-month lease rate provided support at $265, however, and the market held above this key level.
On Wednesday gold remained rangebound in the morning, fixing at $265.20 in London. Market talk that failed Australian producer Centaur Mining & Exploration Ltd might be forced to close out its hedge book brought the market suddenly to life later in the day and gold surged upwards, reaching above $270 before running into overhead resistance. Thursday saw prices relinquish some gains, falling back to $268.45 at the afternoon fix as the euro weakened in response to a surprise 0.25% cut in short-term interest rates by the European Central Bank.
The market then settled again and consolidated quietly and narrowly above $269. The attention of traders began to focus on the forthcoming UK gold auction, due on Tuesday May 15. This auction marks the beginning of the last tranche of disposals by the UK Treasury which will take place through six smaller sales of 20 tonnes apiece. Also on Tuesday and attracting equal attention will be the Federal Open Market Committee meeting, which could lead to another cut in US interest rates. Prices consequently remained little changed Friday until late in the New York session when position squaring caused gold to slip, closing the week at $267.80/268.30.
According to the latest figures published by the Commodity Futures Trading Commission, short-covering remained the main feature on Comex during the week ended May 8. This closing out of short positions was running at much lower levels than during the previous week, however, with the net short position of the large speculators falling by only 8% from 27,970 contracts (equivalent to 87.0 tonnes) to 25,788 contracts (80.2 tonnes). Since this date open interest has continued to gradually decline, moving down from 109,018 contracts to 105,491 contracts, indicating that additional modest short-covering has occurred.
The latest clearing statistics
issued by the London Bullion Market Association show a downturn
in gold market activity during April, with net clearing falling
by 12.5% from a daily average 28.7 million ounces (892.7 tonnes)
in March to a daily average 25.1 million ounces (780.7 tonnes).
This figure was barely changed from the 25.2 million ounces (783.8
tonnes) cleared in April 2000, however.
30 April - 4 May, 2001
The market started the week very quietly, contained narrowly above the $263 level as firm gold lease rates continued to provide support while the strong US dollar tended to check moves to the upside. Gold was fixed at $263.80 in London on Monday morning; the one-month gold lease rate held around the 3.0% level throughout the day but the approach of the May Day holiday, celebrated in most of Europe, gave rise to a reluctance to assume new positions. Activity remained subdued after the US opening, with gold gradually edging up to $264. On Tuesday the euro recovered a little against the dollar; the benefits of this development were offset by a downturn in lease rates however, with the one-month rate falling to 2.12%, so that quotations remained quietly steady.
Some light physical demand combined with a firmer Australian dollar lifted gold to $265.00 at the morning fix on Wednesday. Overhead resistance initially proved too strong at this level, and with the one-month lease rate weakening again to 2.00% the price dropped to $263.95 at the afternoon fix; underlying support proved firm at this level, however, and prices started to edge higher once again. Gold continued to firm during the Asian trading session, which was thinned by holidays in Japan and China, and the price fixed higher at $265.30 on Thursday morning. A slightly tighter one-month lease rate, which moved up to 2.19%, underpinned gold's improvement and light speculative buying in New York pushed quotations swiftly up towards $267 that afternoon.
The rally ran out of steam at the higher levels and by Friday morning prices had slipped back to below $266. A further attempt on the upside emerged later in the day as the one-month lease rate firmed to 2.27%, but the release of US employment statistics showing a surprise fall of 223,000 in non-farm payrolls in April brought an air of uncertainty to the market. Despite the dollar falling on this news, which raised the likelihood of further US interest rate cuts, gold failed to react, holding nervously steady ahead of the long UK holiday weekend and closing the week at $265.90/266.40.
The closing out of speculative
short positions continued during the week ended May 1. According
to statistics released by the Commodity Futures Trading Commission,
the net short position of the large speculators on Comex fell
by 20% over this period from 35,011 contracts (equivalent to 108.9
tonnes) to 27,970 contracts (to 87.0 tonnes). Only three weeks
ago the net short position of the large speculators was 58,133
contracts (180.8 tonnes). Open interest has eased again since
then, but only marginally from 110,868 contracts to 109,741 contracts,
suggesting that the short-covering may have started to slow and
that the remaining shorts may be more firmly committed to their
positions.
23 April - 27 April, 2001
Gold opened the week lower, with the decline in prices prompted by the US dollar's renewed strength against the euro and the Australian dollar. The morning fixing in London on Monday was $262.90, and even though the one-month gold lease rate was firm, trading activity remained thin and gold remained at the lower levels during the New York session. On Tuesday a further tightening in lease rates occurred with the one-month rate firming to 2.6%, so that prices edged above the $263 level and stayed there throughout the day.
Wednesday saw the squeeze on liquidity continuing; the one month lease rate jumped to 3.7% and gold firmed to a morning fixing of $263.95. Market activity was subdued by the absence of Australian producers and dealers due to the Anzac Day holiday, however, and as the day progressed, quotations gradually drifted back towards $262. The market held above the $262 level during European trading hours on Thursday, and then firmed to above $264 in New York as the euro showed signs of strengthening against the dollar. After fixing at $264.45 on Friday morning gold ran up to $266 on the US opening, helped by the one-month lease rate moving up to 3.0% (from 2.49% on Thursday) and continued euro strength. The release of US GDP figures for the first quarter, showing the US economy growing at an annualised rate of 2.0% against expectations of 1.1%, helped the dollar stage a rally later in the day, and gold slipped lower to close the week at $263.80/264.30.
The Commodity Futures Trading Commission's latest commitment of traders report shows that steady short-covering continued to take place on Comex during the week ended April 24, with the net short position of the large speculators falling by 23% from 45,469 contracts (equivalent to 141.7 tonnes) to 35,011 contracts (108.9 tonnes). Open interest has continued to decline since then, falling from 114,900 contracts to 110,868 contracts by May 1, indicating that further short-covering has occurred.
The governor
of the People's Bank of China, Dai Xianglong, has confirmed that
China will launch its first gold exchange in Shanghai in the second
half of 2001. The planned system of gold distribution will be
abolished, with producers being allowed to enter the market directly.
At the same time, the system by which retailers, wholesalers and
processors have to apply for licences for gold transactions will
also be scrapped. He also said that China would gradually relax
restrictions on gold imports along with the country's foreign
exchange reforms, but gave no firm timescale for this.
16 April - 20 April, 2001
With the London market closed on Monday for the Easter holiday, trading activity was very thin, but gold nevertheless continued to build upon the gains seen towards the close of the previous week. Light fund buying and some continued short covering carried quotations above the $260 level during early New York trading, and gold rallied up to $263 before the close. Most of these gains were held overnight and gold was fixed steadily at $262.15 in London on Tuesday morning. Renewed dollar strength and steady stock markets after the release of supportive US industrial production and consumer price statistics sparked some selling later in the day, however, and prices slipped back towards $261.
The market continued to drift lower during the European session on Wednesday, fixing at $258.85 that afternoon. The US Federal Reserve's surprise move to cut the Federal Funds rate by 0.5% between FOMC meetings in an attempt to revive weak economic growth - the fourth cut this year - triggered a bounce in gold prices, however, and quotations climbed back above $261. On Thursday the dollar developed a sharply weaker tone on the back of the cut in interest rates and gold rallied up on short-covering to a fixing of $263.10 that afternoon, continuing up to the $265 level. Gold lease rates, which had been holding above 2.0% throughout the week, slid to 1.65% as liquidity entered the market on Friday; gold responded by easing back from the previous day's high, but nevertheless held mainly steady, recovering from an afternoon fix of $263.85 to close the week in New York at $264.70/265.20.
The latest commitment of traders report published by the Commodity Futures Trading Commission showed significant levels of short-covering taking place on Comex during the week ended April 17, with the net short position of the large speculators falling back from 58,133 contracts (equivalent to 180.8 tonnes) to 45,469 contracts (141.7 tonnes). Since then open interest has fallen again, albeit modestly, from 122,146 contracts to 120,456 contracts, suggesting that some additional short-covering may have taken place.
Gold Fields Mineral Services
published its annual gold survey covering the calendar year 2000
on Thursday. On the supply side the main highlights were:
The main highlights on the demand
side were:
Looking at the outlook for prices,
Gold Fields Mineral Services said "The gold market in 2001 has the potential
to be more exciting following a rather dull 2000 as the threat
to fabrication from a US-led world economic slowdown squares up
against the higher possibility of an investor-led recovery in
the price. Although no 'flight to quality' has yet been discernible,
the prospect that gold could profit from a recession-induced financial
crisis and a decline in the US dollar cannot be discounted."
9 April - 13 April, 2001
After starting the week slightly higher, fixing at $260.90 in London on Monday morning, gold gradually adopted a softer tone once more, with market activity very subdued and prices tending to track movements in the currency markets. Gold lease rates were slightly easier, with the one-month rate at 2.26%, and as the US dollar firmed over the course of the day so gold retreated, falling below $259. Tuesday saw quotations continue to weaken; gold fixed at $257.05 in the morning and eased back towards $256 after the New York opening. Gold lease rates were holding steady, however, and lent a measure of support to prices, which recovered to above $257 later in the day.
On Wednesday trading conditions remained quiet but gold was mostly higher, although the stronger dollar hindered its progress. After a morning fixing of $258.45 quotations dipped following the European Central Bank's decision to leave interest rates unchanged, which was against market expectations; support held at the $257 level, however, and the appearance of short-covering in New York ahead of the long Easter holiday weekend lifted prices late in the day towards $259. One-month gold lease rates of around 2.3% supported the market again on Thursday and although trading remained thin some further short-covering was evident, so that after trading narrowly throughout the day gold ended the holiday-shortened week at $259.90/260.40
The Commodity Futures Trading Commission's latest commitment of traders report confirms that speculative short-selling continued to dominate activity on Comex during the week ended April 10. Over this period the net short position of the large speculators jumped again, up by 13% from 51,354 contracts (equivalent to 159.7 tonnes) to 58,133 contracts (180.8 tonnes), the highest level seen since tighter gold lease rates caused a sharp downturn in short positions last February. Over the past few days open interest has fallen back from 130,116 contracts to 128,229, suggesting that some short-covering has since occurred.
The wider trading range for
gold during March, which was triggered by the sudden upturn in gold lease rates,
in turn led to a sharp recovery in the net volume of gold cleared
through the London Gold Market.
The average daily volume of gold cleared over the month jumped
by 18.5% from February to 28.7 million ounces (892.7 tonnes),
which was the highest level seen since February 2000.
2 April - 6 April, 2001
The week started with gold prices continuing to weaken under pressure from both a strong dollar and new fund selling. Gold was fixed at $257.55 in London on Monday morning but began to slide lower as technically-based selling set in after the New York opening. Quotations dropped to $255.95 by the PM fix and continued down to $255.60 by the New York close. A jump in one-month gold lease rates from 1.6% to 2.3%, indicating a tightening of liquidity, helped the market bounce back on Tuesday, however, and with physical demand in the Middle East and India improving and the dollar easing back from its recent highs against the euro and Australian dollar, gold moved above $257.
The tight market conditions continued on Wednesday and as the one-month gold lease rate ran up to 3.1%, so gold continued its recovery, fixing at $259.20 in the morning. The euro's recovery to above 90 US cents also proved positive, but attempts to break above the $260 level met with stubborn resistance, and with new liquidity beginning to enter the market gold eased back towards $258. The one-month gold lease rate slipped to 2.3% on the next day but gold held steady in quieter market conditions, ignoring the news of Austria's gold sale (see below) as being within the terms of the Washington Agreement. Friday saw some good physical demand from Asia and a slightly weaker dollar, while the one-month gold lease rate firmed to 2.5%; the release of US unemployment date showing the sharpest reduction in payrolls since November 1991 also proved supportive and gold firmed in response, ending the week higher at $259.65/260.15.
The latest statistics published by the Commodity Futures Trading Commission show that heavy speculative short-selling took place towards the end of the week ended April 3, with the net short position of the large speculators on Comex rising by a sharp 54% from 33,304 contracts (equivalent to 103.6 tonnes) to 51,354 contracts (159.7 tonnes). Open interest has risen since then, up almost 4,000 contracts to 122,271 contracts, indicating that some further short selling may have occurred.
The Austrian National Bank announced
that it has sold 30 tonnes of gold under the terms of the Washington
Agreement on Gold. At the time of the Agreement Austria said that
it planned to sell 90 tonnes over the five-year period; sales
so far amount to 60 tonnes, leaving another 30 tonnes to be sold
before the Agreement expires in September 2004. Unlike recent
sales by Switzerland and the UK, Austria's sales were apparently
made on a forward basis with delivery spread over several maturities.
26 March - 30 March, 2001
With currency movements once again beginning to dominate prices gold opened the week on a subdued but steady note, benefiting from a bout of dollar weakness against the euro and Australian dollar. More stable gold lease rates, with the one-month rate consolidating around the still-high 2.0% level, were also serving to calm the market, while the approach of first notice day for the April contract on Comex tended to limit trading ranges. Gold was fixed quietly at $261.30 in London on Monday morning, and with April-June switches the main feature in New York quotations later edged above the $262 level. Prices continued to improve Tuesday morning with gold moving up to a fixing of $262.75. The dollar began to strengthen as the day progressed, however, while lease rates slipped below 2.00% in the one-month and gold consequently eased below $262 once again.
Gold nevertheless held above the $260 level, which enjoyed the protection of dealers ahead of the OTC options expiry on Wednesday. Once the options had expired gold began to trade lower, impacted once again by US dollar strength. On Thursday the euro fell to a 3-1/2 month low against the dollar and stock markets came under renewed pressure; the conclusion of the rollover period for the June contract on Comex as well as book-squaring ahead of the quarter-end led to some speculative selling and quotations broke below the $260 support level. Friday saw the surging dollar hit 2-1/2 year highs against the yen. The release of US economic data confirming a slowing in the US economy had no appreciable impact on the currency but tended to undermine gold which slipped back in quiet trading conditions to close the week at $257.70/258.20.
According to commitment of traders
statistics released by the Commodity Futures Trading Commission
short-covering was the main feature during the week ended March
27, with the net short position of the large speculators on Comex
falling from 37,969 contracts (equivalent to 118.1 tonnes) to
33,304 contracts (103.6 tonnes). Since then open interest has
fallen from 122,944 contracts to 118,108 contracts, suggesting
that further, albeit modest, short-covering may have occurred.
19 March - 23 March, 2001
The week started with firming gold lease rates - the one-month up to 2.88% from 2.17% on the previous Friday - once again lending support to spot prices. Gold was fixed higher at $260.50 in London on Monday morning but trade was light as the market focussed upon the next day's Federal Open Market Committee meeting, which many predicted would lead to an aggressive 0.75% cut in US interest rates in order to stimulate the economy and restore confidence to a shaken stock market. Physical buying in Asia, together with a stronger euro and the one-month gold lease rate up at 3.05% helped quotations rise to $262.60 in Europe on the next day, where prices consolidated as the market awaited the move on US interest rates. In the event rates were lowered by 0.5%, which some took as disappointing, and as stock markets sold off so gold also weakened, falling towards $261 in New York.
On Wednesday stock markets continued to tumble but gold showed little reaction. The one-month gold lease rate eased below 3.00% and gold held steady throughout most of the day, only firming later as some light buying arose near the New York close; the firm dollar capped the late rise, however, and gold was checked at the $263 level. The dollar continued to strengthen on Thursday and gold dipped to $261.15 at the PM fix in London. The market once again proved resilient to downward pressures and scattered buying later lifted quotations up to $262. On Friday the dollar relinquished some of its gains while stock markets recovered from recent lows; gold improved to $262.85 at the afternoon fix but then gradually eased back once more, closing the week in New York at $261.70/262.20.
The weaker tone in prices during the previous week led to the reinstatement of some short positions on Comex by March 20, with the net short position of the large speculators rebounding from 24,244 contracts (equivalent to 75.4 tonnes) to 37,969 contracts (118.1 tonnes). Since then open interest has increased, but only slightly, to 128,242 contracts, suggesting that a further modest rise to the net speculative short position has occurred.
The Swiss National Bank (SNB)
announced in a press release that its programme of gold sales,
which are being conducted within the framework of the Washington
Agreement on Gold, will continue with the disposal of a tranche
of 100 tonnes by the end of September 2001. As before, the sales will be made through
regular transactions, but instead of using the Bank for International
Settlements as an intermediary the SNB will itself be selling
the gold directly into the market.
12 March - 16 March, 2001
Gold opened the week in a highly volatile fashion as prices continued to fluctuate in response to the prevailing high lease rates for the metal, prompted by the acute shortage of nearby gold liquidity. On Monday prices initially dropped lower on signs of some fresh lending entering the market, with gold fixing at $270.50 in the morning. The one-month gold lease rate recovered to above 6.00% later in the day however, maintaining the backwardation in the market, and quotations rose to the $273 level later in New York. Lease rates turned easier on Tuesday, with the one-month rate dropping back to 4.2%; gold slipped to $269.40 at the mroning fix, partly in response to the heavy falls on stock markets around the world, and remained nervous throughout as traders prepared for the eleventh British gold auction, due on the next day.
By Wednesday morning, gold had dropped further in advance of the auction, fixing at $267.45. In the event the auction's outcome was seen as disappointing. The allotment price was lower than the fix at $266.00, while the subscription ratio for the 25 tonnes on offer was 2.2 times, the third lowest of the series to date. Gold reacted poorly to this news, with prices tumbling after the US opening; equity markets seemed more stable, and gold dropped back to the $263 level. On Thursday the decline slowed, but the market remained nervous after the poor auction result and gold fixed at $262.70 in the morning. The one-month lease rate, although still high, had eased to 1.87% and the market was no longer in backwardation. At the same time, the dollar's strength relative to the euro and the Australian dollar was also applying downward pressure to prices, so that support at the $260 level was tested during late trading.
Friday saw lease rates tighten slightly once more, with the one-month rate moving up to 2.17%. Gold initially held above $260, helped by further stock market weakness, but with the dollar later rising to a three-month high against the euro, speculative short-selling arose in New York, causing quotations to fall anew to end the week at $258.60/259.30.
Not unexpectedly, figures published by the Commodity Futures Trading Commission showed that another fall in the net short position of the large speculators took place on Comex during the week ended March 13. Considering the strength in prices up to this point, however, it is surprising that the short covering had not been on a larger scale; over this period the net short position dropped by 42% from 41,982 contracts (equivalent to 130.6 tonnes) to 24,244 contracts (75.4 tonnes). Open interest continued to ease after March 13, but edged higher to 127,901 contracts on March 16, suggesting that some short positions have been reinstated.
Carlos Santini,
director general of the foreign exchange division of Italy's central
bank, suggested to the Financial
Times Gold Conference in Rome that "central banks should study further
the links between the price of gold and financial operations in
gold, so as to assess the possibility of getting a return on a
quota of their gold stocks without causing alterations to the
evolution of the market price."
Mr. Santini also told the conference that Italy was supportive of gold's role
in the international monetary system. "Aware of the role
gold has played and prudent about the future which still contains
so many unknowns, we will continue to recognise gold's role as
a reserve of value and its place in the balance sheets of the
central banks".
5 March - 9 March, 2001
High and volatile gold lease rates continued to dominate trading activity over the week as the absence of ready liquidity in the gold lending market remained the focus of attention. The gold price started the weak uncertainly, drifting slightly lower against the background of easing lease rates and a higher dollar. After fixing at $261.85 on Monday morning, fresh support was uncovered and prices moved above $262, although the threat of a severe snowstorm curtailed trading in New York and there was little follow-through to the move. On Tuesday lease rates began to firm again, with the one-month rate rising by half a percent to 2.28%. The gold price failed to react to this, however, as traders sold gold down to $260.50 in New York in the expectation that the weakness of the Australian dollar might trigger increased producer hedging.
On Wednesday liquidity continued to tighten; the one-month lease rate jumped to 4.28% but gold was initially unable to take full advantage, trading between $260.50 and $263.00 before steadying at the upper end of this range in late trading, even though lease rates eased back to 3.00%. Available liquidity suddenly appeared to dry up the next day, forcing lease rates gradually higher. The one-month rate moved above LIBOR and threw the market into a rare backwardation, where the price for gold for immediate delivery is higher than for delivery in the future. Prices at first seemed reluctant to respond, but short-covering eventually gained the upper hand and quotations surged to $266.50. The short-covering rally gathered pace during Asian trading hours and gold ran up to $268.75 at the morning fixing. The one-month lease rate pushed upward to 7.00%, widening the backwardation and carrying gold above $270 after the New York opening. Further short-covering and widespread buying of call options were seen on Comex and gold maintained its gains in spite of the approach of the UK gold auction on March 14, ending the week strongly at $271.50/272.10.
The latest figures from the Commodity Futures Trading Commission show continued short-covering taking place on Comex during the week ended February 6. Over this period the net short position of the large speculators fell by 17% from 50,795 contracts (equivalent to 158.0 tonnes) to 41,982 contracts (130.6 tonnes). Open interest, which at this point stood at 133,440 contracts, has since fallen to 125,190 contracts, indicating that further short-covering has taken place in the last few days.
With the last in the current series of Bank of England auctions due to take place on March 14, the Bank has announced the programme for its next series of six gold auctions. The auctions will continue to be held on a bi-monthly basis starting in May, 2001. For this series, however, the amount on offer at each auction will be reduced from 25 to 20 tonnes, with 120 tonnes thus to be sold over the 12-month period. The Bank also stated that "these sales bring to an end the programme to restructure the United Kingdom's official reserves." At the completion of the programme, therefore, the UK will have sold a total of 395 tonnes, which is 20 tonnes less than the 415 tonnes that was widely expected. It has been suggested that this leaves room for another as yet unidentified signatory to the Washington Agreement to emerge as a seller, but it should be remembered that the only sales allowed during the course of the Agreement are those already decided upon at the time of signing. It is more likely that another "decided" seller - probably Switzerland, but possibly Austria or the Netherlands - will be allowed to get 20 tonnes closer to completing its planned sales programme within the currency of the Agreement.
The London Bullion Market Association's
latest statistics show that the average daily net volume of gold
cleared through London jumped by 23% to 24.2 million ounces (752.7
tonnes) in February from 19.7 million ounces (612.7 tonnes) in
January. Year-on-year
the statistics continue to run lower, however; in February 2000
the daily clearing volume averaged 30.0 million ounces (933.1
tonnes).
26 February - 2 March, 2001
The week started positively for gold with prices continuing to rise against the background of tightening gold liquidity. The early trading session in Asia on Monday saw gold testing overhead resistance at the $264 level, more than $2 above Friday's New York close; quotations subsequently eased lower as European trading commenced, but firm support was evident at $262 and gold was fixed at $262.80 in London that morning. Heavy borrowing of physical metal was still in evidence with the one-month gold lease rate moving up to 2.25%, so that short-covering soon began to dominate activity. Gold rose to $263.20 at the PM fix and then rallied sharply later in New York, jumping above $266.
The gains were extended on Tuesday as lease rates continued to surge; the one-month rate was particularly volatile, trading between 4% and 5% for most of the day, and prices moved up in tandem on further short-covering with gold fixing at $268.30 that afternoon. Prices remained supported at the higher levels in New York by a 6.0% slump in US durable goods orders in January, which raised the spectre of recession and the likelihood of lower US interest rates. On the next day it became obvious that the higher lease rates had drawn some lenders into the market, easing the pressure on liquidity. Quotations slipped to $266 in Asia and continued down to a morning fixing of $265.00. The implied one-month lease rate dropped to 2.02% but then stabilised at this still relatively high figure; gold prices similarly found support and recouped some of their losses, recovering to $266.70 by the PM fix and edging up to $267 by the New York close.
On Thursday activity fell away as liquidity continued to be added to the market. Gold traded within a narrow range above $266 throughout the day. By Friday the one-month lease rate had eased to 1.8% and weakness in the Asian markets - caused in part by the selling back of high premium kilo bars - resulted in gold opening lower in Europe. Trading activity remained more subdued, however, and after holding around $263 for most of the day gold slipped slightly late in the day to close the week at $262.50/263.00.
The latest statistics published by the Commodity Futures Trading Commission confirm the scale of the short-covering seen on Comex during the early part of the week. For the week ended February 27 (the last figures available) the net short position of the large speculators fell by 24% from 66,731 contracts (equivalent to 207.6 tonnes) to 50,795 contracts (158.0 tonnes). Since then open interest has fallen from 143,173 contracts to 132,434 contracts, indicating that additional short positions have been closed out.
In India, Finance
Minister Yashwant Sinha announced in the annual budget that customs
duty on gold imports would be cut from 400 rupees per 10 grams
to 250 rupees in order to
discourage smuggling into the country.
19 February - 23 February, 2001
With the US markets closed for the President's Day holiday, gold held quietly steady on Monday, building upon the late recovery in prices that had taken place at the end of the previous week. Gold was fixed at $258.95 in the morning and firmed gradually over the course of the European trading day to $259.45. Quotations edged nervously back towards $258 the next morning, however, with traders cautious ahead of the return of New York, where persistent speculative fund sales had been responsible for the recent weakness in prices. As expected, fresh selling arose on the US opening and with silver touching new 3.5 year lows and the dollar turning stronger, gold was pressured lower, falling to $256.25 at the PM fix.
Wednesday saw gold start to recover, helped by a downturn in the dollar and the release of US consumer price statistics showing a surprising gain of 0.6% in January. Quotations moved up to $257.50 at the PM fix, eased back later in New York but recovered again late in the day as US stock markets fell heavily. Prices continued to firm on the next day as some modest short-covering set in. A sharp rise in gold lease rates, with the one-month rate jumping to 1.29%, helped to underpin the recovery in gold prices; the tightness was reportedly due a shortage of gold for lending and gave rise to speculation over the continued ready availability of central bank gold liquidity. Gold lease rates rose again on Friday, the one-month rate reaching 1.83%, and helping gold prices to maintain their upward course. After fixing at $259.95 in London on Friday morning, short-covering took over in New York; quotations broke overhead resistance at the $260 level and moved higher to close the week at $261.30/261.70.
Figures published by the Commodity Futures Trading Commission showed that speculative short selling remained the dominant factor during the week ended February 20, with the net short position of the large speculators on Comex growing from 58,072 contracts (equivalent to 183.4 tonnes) to a large 66,731 contracts (207.6 tonnes). This is the largest short position seen since the signing in September 1999 of the Washington Agreement on Gold, although still some way below the all-time record of 88,363 contracts (274.8 tonnes) seen in April of that year. There is no doubt that this short position must have risen still further over the next two days, because the short-covering seen on Friday still left open interest on Comex slightly higher than on October 20, at 149,131 contracts compared with 148,782 contracts.
Gold lease rates
leapt over the week, the one-month rate jumping from 1.07875%
to 2.25875% by Monday February 26, and the 12-month rate climbing
from 1.18% to 1.67%. The shorter term rates have been showing
strength over the past two weeks, but it is only during this week
that the longer term end of the yield curve has moved sharply
higher as borrowers have been forced to look further out for liquidity.
Nevertheless, the yield curve is now fully inverted and the availability
of gold remains tight; those traders that have liquidity in hand
are tending to hold on to it, while those short of liquidity have
had no alternative but to bid it up. Under these circumstances
the cost of holding short positions is becoming increasingly expensive,
and with gold prices rising in the wake of higher lease rates,
this could trigger some significant short-covering.
12 February - 16 February, 2001
After the previous week's sharp fall in prices gold opened more steadily on Monday, fixing slightly firmer at $260.90 during the morning. The stronger euro and Australian dollar were providing some support, but the market remained extremely nervous with traders still speculating that Indian demand could be impacted by the cost of rebuilding after the disastrous earthquake in Gujarat. By Tuesday morning gold had edged quietly up to $261.50 as the market awaited Federal Reserve Chairman Alan Greenspan's testimony to Congress, with traders looking for hints of further interest rate cuts. In the event Mr Greenspan spoke of difficult times ahead as the US economy slows; this increased the likelihood of further interest rate cuts and raised fears that producers could seek to lock in the contango on forward sales before it narrowed in line with lower interest rates. Prices eased back on this news but nevertheless held above the $260 level.
On Wednesday prices continued to drift around $260. Silver fell to a 3.5 year low but gold initially showed little reaction, consolidating nervously throughout the day despite market rumours of selling by both producers and central banks. On Thursday the negative sentiment eventually took its toll; gold fixed lower at $259.50 in the morning with steady selling from professionals in evidence. On the New York opening the selling gained in volume as the funds entered. Support at the $258 level was broken, triggering stops which pushed prices down to $255.50. Quotations then recovered slightly, but fresh selling on Friday saw prices break down towards $254 before the US opening. The release of US producer price statistics showing an unexpectedly high gain of 1.1% in January then provided support for prices, while the announcement from South African miner Gold Fields Limited that it had closed out the last of its gold hedges also helped to improve sentiment. With the long US President's Day weekend imminent traders started to buy on both short-covering and position-squaring and gold bounced strongly, running up to $259.50 before easing back slightly to end the week at $258.70/258.20.
The Commodity Futures Trading Commission's latest commitment of traders report, which covers the week ended February 13, confirmed the high levels of short selling seen over this period. The net short position of the large speculators on Comex rose from 52,706 contracts (equivalent to 163.9 tonnes) to 58,072 contracts (183.4 tonnes). Since then open interest has risen from 143,725 contracts to 146,174 contracts, reflecting the additional short selling that has occurred during the past few days. Gold lease rates for nearby maturity continued to rise strongly as the demand for short-term liquidity - probably in order to fund short positions - increased once more. As a result the one-month lease rate increased to 1.07875% and the yield curve has become inverted out to six months (the six-month rate stands at 0.9525%); the 12-month rate rose modestly to 1.18%.
Belgium has
announced plans to use the paper profit made on the transfer of
27.1 tonnes of gold to the European Central Bank to set up a state
pension fund. The transfer, which took place in January 1999 as
part of European economic and monetary union, yielded a "profit"
based on the difference between gold's book value and the market
value at which the transfer was completed of 7.1 billion Belgian
francs.
5 February - 9 February, 2001
The gold market opened under pressure in Asia on Monday morning with currency-related selling pushing prices lower in thin trading conditions. Gold was fixed at $266.25 in London that morning; renewed concern that physical demand could weaken in the wake of India's recent major earthquake was tending to undermine confidence, and against the background of a tumbling silver market, gold continued to weaken despite a temporary downturn in the dollar. On Tuesday the dollar rebounded and fund selling was quick to respond, pushing gold down to $264.55 at the AM fix. News from South African producers with regard to hedging then served to send prices still lower, although there is little doubt that the market over-reacted and even misunderstood the messages.
In a speech at the Indaba conference in South Africa, Anglogold said it would hedge 50% of its production over the next five years. This did not mark any change in policy, as Anglogold has always had an active hedge book, but the market was obviously vulnerable at this point and speculative selling was quick to arise. The news that Harmony Gold had bought one million ounces of put options then applied further downward pressure, with some market players misguidedly taking this as the equivalent of forward sales. The options had, in fact, been bought as a price protection guarantee for the banking consortium providing funds for Harmony's acquisition of the Deelkraal and Elandsrand mines; Harmony was still able to take full advantage of any upward move in prices and had not changed its normal non-hedging policy, merely buying the options as part of the financing package. Nevertheless, quotations fell, reaching $262.70 at the PM fix.
Prices then steadied nervously as the market attempted to build a base around the $263 level. Falling silver prices continued in the background, but gold held up until late on Thursday when a sudden fall in the euro sparked fund sales in New York and pushed gold below $261 as sell-stops were triggered. The selling continued in Europe on Friday morning with gold touching a low of $259.25. Prices then recovered to above $260, but gold was pushed lower once again as New York opened. Prices then steadied in quieter trading conditions to end the week at $260.40/264.90.
The latest commitment of traders report published by the Commodity Futures Trading Commission demonstrated another modest fall in the net short position of the large speculators on Comex. During the week ended February 6 this position edged down from 53,815 contracts (equivalent to 167.4 tonnes) to 52,706 contracts (163.9 tonnes). Since then, open interest has increased from 135,682 contracts to 143,785, reflecting the renewed short-selling that has been a feature of the last few days. The availability of gold for lending continued to tighten at the near-term end of the yield curve, with the one-month gold lease rate moving up again from 0.75875% to 0.91875%; conditions eased further out, however, with the 12-month rate slipping from 1.17% to 1.14%.
The latest figures released by the London Bullion Market Association show that, after a burst of activity towards the end of 2000, market turnover fell back once again during January; net clearing amounted to an average 612.7 tonnes per day, 16.5% down on the 734.0 tonnes daily in December, 2000 and 11% down on the 690.5 tonnes daily in seen January 2000.
The Chinese
press has reported that the People's Bank of China will set up
China's first gold exchange in Shanghai during the second half
of the year. Also in China, the official press has announced reductions
in import taxes for precious metals from January, with the tax
on semi-finished gold (non-monetary) - i.e. small bars - being
reduced from 8% to 6%.
29 January - 2 February, 2001
Gold started the week uncertainly, supported by expectations that the large short position in the market could not long be maintained, but checked on the upside by the possibility of reduced physical demand for gold in India in the wake of the devastating earthquake in Gujarat. Gold was fixed at $263.10 in London Monday morning and traded narrowly around this level until Tuesday afternoon, when short-covering began to lift prices higher after the New York opening. The weaker dollar was a factor at this point, and with the Federal Open Market Committee meeting to discuss US interest rates - which the market expected to be cut again - gold edged steadily higher. A decline in the US consumer confidence index from 128.6 in December to 114.4 in January, the lowest level since December 1996, was also supportive for prices, so that gold moved strengthened to $266 by the US close.
After fixing at $266.20 on Wednesday morning, gold retreated a little as the market awaited an announcement on US interest rates. As expected, the Federal Reserve lowered interest rates by another aggressive half per cent. Initially this move had no impact on gold prices, but the higher euro started gold moving upwards again Thursday with quotations rising to a PM fix of $267.65. Friday morning saw prices attempting to break up to the $269 level, but overhead resistance here proved too strong, and with the dollar recovering, gold later gave up some of its gains on profit-taking, closing the week in New York at $267.25/267.75.
The Commodity Futures Trading
Commission's latest commitment of traders report shows only a
modest decline in the large outstanding net short position of
the large speculators on Comex. During the week ended January
31 this position eased back from 57,698 contracts (equivalent
to 179.5 tonnes) to 53,815 contracts (167.4 tonnes). Since that
date, open interest on Comex has dropped back from 141,156 contracts
to 136,759 contracts, indicating that further short-covering has
occurred. Gold lease rates strengthened over the week, especially
at the near-term end of the yield curve; the one-month rate moved
up from 0.56875% to 0.75875%, while the 12-month rate firmed from
1.12% to 1.17%.
22 January - 26 January, 2001
The gold market opened quietly but steadily on Monday with traders focussing upon the next day's gold auction by the Bank of England. Gold was fixed at $266.10 in the morning and pushed above $267 in New York as nervous pre-auction short-covering set in; the large speculative short position in the market was leading many traders to anticipate a short-covering rally once the auction was completed, and some market participants were tending to act early on this belief. On Tuesday gold was fixed at $267.10 in the morning. The allotment price for the 25 tonnes on offer at the 10th Bank of England auction was higher at $268.00, while the sale was 4.8 times subscribed, the highest ratio since September 1999. On balance, this was seen as quite a positive result and prices initially moved higher, but it soon became evident that the expected short-covering was not emerging, however, and quotations slipped back to the $267 level in disappointment.
On Wednesday prices continued to weaken, falling below $265 in the afternoon as the market expressed frustration at gold's failure to rally. The renewed strength of the dollar, which rose 1.5 cents against the euro, also served to undermine confidence. By Thursday morning gold had fallen to a fixing of $263.60. The market held quietly steady during the European session with the Chinese New Year keeping Asian interest depressed. Alan Greenspan, in his address to the Senate Budget Committee, expressed support for tax cuts but did not comment upon the direction of interest rates. Gold thus ignored the testimony and edged up to the $265 as positions on Comex were rolled over ahead of first notices. The news of the devastating earthquake in India, the world's largest gold consuming country, started prices on a downward course once again on Friday, with quotations gradually easing back to close the week at $262.80/263.30.
The latest commitment of traders
statistics published by the Commodity Futures Trading Commission
show that, despite the short-covering seen in the days leading
up to the UK's latest gold auction, fresh speculative short-selling
was quick to set in once it became clear that there was little
in the way of follow through buying in evidence after the auction.
As a result, the net short position of the large speculators on
Comex rose again on January 23 to 57,698 contracts, equivalent
to 179.5 tonnes; this is the largest speculative short position
seen on Comex since September 1999, when prices rallied sharply
on the news of the Washington Agreement on Gold. Over the last
few days open interest has remained basically unchanged, last
being reported at 140,267 contracts, which suggests that there
has been little change in the market's short position. Gold lease
rates were once again virtually unchanged, the one-month rate
easing slightly over the week to 0.56875% and the 12-month rate
to 1.12%.
15 January - 19 January, 2001
With the US markets closed for the Martin Luther King Day holiday gold opened the week very quietly, fixing at $263.35 in London on Monday morning. The dollar held steady against the euro, lending little incentive to traders to take fresh positions, so that gold remained within a very narrow trading range throughout the day. The reopening of Comex on Tuesday brought the market back to life as short-covering set in early; gold ran up to $265.50 but then eased back as the buying ran its course. Anticipation of the next week's UK gold auction was tending to weigh upon the market, and as the euro slipped lower against the dollar so renewed fund selling became evident.
On Wednesday morning gold slipped to $263.10 at the morning fixing, the lowest for 16 months. Prices then edged slightly higher, but physical demand was light and was mostly offset by further selling as traders continued to position themselves ahead of the auction. US consumer price data held no unpleasant surprises regarding inflation and quotations held below $264 until Thursday, when a firmer euro, light physical buying and fund short-covering lifted gold to $265. The slightly firmer tone continued Friday morning, helped by continued dollar weakness, and gold moved up to $265.75 at the AM fix. Activity then fell away and gold ranged quietly between $264 and $266 before closing the week in New York at $264.60/265.10.
The scale of the recent heavy
speculative short-selling was illustrated by the latest commitment
of traders report published by the CFTC, which showed the net short position
of the large speculators on Comex surging from 38,226 contracts
(equivalent to 118.9 tonnes) to 57,160 contracts (177.8 tonnes) during the week ended January 16. More
recently, some short-covering has occurred ahead of the UK gold
auction and open interest has consequently fallen from 139,180
contracts to 135,806 contracts as a result. Gold lease rates at
the shorter dated end were once again static, the one-month rate
holding unchanged at 0.58875%; the 12-month rate eased lower over
the week, moving down from 0.15% to 1.12%.
8 January - 12 January, 2001
Gold started the week little changed, being fixed quietly at $268.60 in London on Monday morning. The growing short position in the market was raising the possibility of a squeeze developing if prices failed to move lower, but with the market remaining thinly traded the focus began to move towards the next Bank of England gold auction due on January 23, discouraging the taking of long positions. The dollar's stronger tone against the euro and Australian dollar put some downward pressure upon prices Tuesday and gold slipped back to the $267 level, against the background of a firmer oil market and palladium reaching new all-time highs well above $1,000 per ounce.
Palladium continued to soar on the next day, but gold attracted fund selling from the outset as speculators perceived that gold was against a technical support level. Quotations broke below $266 and continued down to a fixing of $264.80 on Thursday morning. The recovering euro appeared to have little influence and renewed selling arose after the US opening pushing gold below $264. Friday saw much greater activity with determined selling being met by strong physical demand; gold fixed at $263.65 in the morning and held mostly steady throughout the European session. The increased activity then spilled into New York, where the absence of fresh fund selling also lent support ahead of the long US holiday weekend so that gold closed the week off the lows at $264.00/264.50.
The high level of speculative short selling seen on Comex during the first week of the year was confirmed by the Commodity Futures Trading Commission. It's latest commitment of traders report showed the net short position of the large speculators surging from 23,735 contracts (equivalent to 73.8 tonnes) to 38,226 contracts (118.9 tonnes) during the week ended January 9. Since then open interest has risen further from 126,527 contracts to 133,056 contracts, indicating another increase in short positions in recent days. Despite the increase in short selling gold market liquidity remained plentiful, with gold lease rates holding unchanged over the week, the one-month rate standing at 0.58875% and the 12-month rate at 1.15%.
At the turn of the year Greece became the 12th full member of the European Monetary System. It consequently transferred a proportion of its official reserves to the European Central Bank as its contribution to the reserves of the Eurosystem. As with the existing members, 15% of the transfer of reserves was in the form of gold.
After a year of steady decline,
statistics released by the London Bullion Market Association show
that a sharp upturn in gold market activity occurred during the
last month of 2000. Net clearing figures for December jumped to
the highest level for six months, increasing from a daily average
18.6 million ounces (578.5 tonnes) in November to 23.6 million
ounces (734.0 tonnes). Year-on-year the latest clearing figures
are still low, however, being 17% down on December 1999 and 22%
down on December 1998.
2 January - 5 January, 2001
The year started on a weaker note for gold as the markets reopened sluggishly after the long holiday. In spite of both the lower dollar and weaker stock markets, gold came under pressure on Tuesday, fixing at $272.80 in London in the morning but falling below $269 in thin trading as the day progressed. On Wednesday renewed fund selling was evident from the US opening, pushing gold down to below $267. The Federal Reserve's surprise move in cutting the federal funds overnight lending rate by an aggressive 50 basis points to 6.0% and the discount rate by 25 basis points to 5.75% then led to a sudden burst of short-covering, which carried gold up towards $270. However, gold quickly relinquished some of the gains in the face of rallies in the stock market and the dollar, and the price eased back towards $268 by the New York close.
Gold failed to benefit from the next day's renewed weakness in both the dollar and the stock market, trading mostly between $267 and $269. Gold trading was quiet in Europe on Friday, with the market fixing steadily at $268.00 in the morning. Selling in New York saw prices start to move lower again, but strong buying suddenly arose and gold bounced up to the $269 level before settling back to close the week at $267.85/268.35.
The latest commitment of traders statistics released by the Commodity Futures Trading Commission show that fresh speculative short selling occurred on Comex at the turn of the year, with the net short position of the large speculators rising from 14,259 contracts (equivalent to 44.4 tonnes) to 23,735 contracts (73.8 tonnes) during the week ended January 2. Since this point, open interest has risen steadily from 114,491 contracts to 125,762 contracts, confirming that the short-selling has continued over the past week. Gold lease rates have fallen slightly, probably reflecting the dollar's weakness relative to producer currencies, with the one-month rate easing to 0.58875% and the 12-month rate to 0.15%.
The Istanbul Gold Exchange has reported that Turkey's gold imports jumped by 91% during 2000 to 205.3 tonnes; Taiwan's Finance Ministry, meanwhile, reported that Taiwan's imports of gold bars and coins during 2000 were 17% up at 99.6 tonnes.
Based on the PM London gold fix, the average price of gold during 2000 was $279.10, barely changed from the $278.57 average in 1999. The year's highest PM fix was $312.70, seen on February 4; the lowest PM fix was $263.80 on October 27.
2001 Archive for The Week in Gold
2000 Archive for The Week in Gold
1999 Archive for The Week in Gold
Editor's Note: Reprinted with the permission of the World Gold Council/New York. Market Commentary is a review of the major events shaping opinion in the gold market during the past week. It is compiled by Council staff in London and New York based on contacts in the market and a network of WGC offices around the world.
If you have any questions or comments on this input, please address them to George Milling-Stanley in the New York office, Tel. +212 317 3800, Fax. +212 688 0410, E-mail: George.Milling_Stanley@wgcny.gold.org
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