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Source : TheStreet.com

Gold Corrects As Dollar Rebounds, Chinese Demand on Pause

Gold corrected sharply on Thursday, falling to a new low for the week at 1237.70, but support defined by last week's low 1230.85 remains well protected. The retreat is being attributed to the Fed's decision yesterday to taper further, and slackening demand for gold in China.

Despite the recent spate of weaker U.S. economic data, and the heightened volatility in emerging markets, the Fed opted to continue scaling back on asset purchases. The FOMC announced on Wednesday that they would taper by an additional $10 bln per month. That was in line with expectations, but $65 bln a month moving forward is still a pretty hefty addition to the Fed's balance sheet.

Gold initially held up well in the wake of that news, but then started to retreat in Asia. Reuters reported that volume on the Shanghai Gold Exchange was "just 1.5 tonnes on Thursday, compared with Wednesday's 8.4 tonnes and Tuesday's 14 tonnes."

This should come as no surprise as pretty much the whole of China goes into motion in the days before the Lunar New Year, which is Saturday, February 1. People travel to spend the two-week long holiday with family. It's sort of like equivalent of our Thanksgiving, Christmas and New Year's combined.

I would say this is more likely a pause in Chinese demand, rather than waning demand. This may make this pullback a pretty good buying opportunity.

A firmer dollar and a rebound in stocks is adding further weight to the yellow metal. The Dow registered it's lowest close in 13-week yesterday, and was more than 5% off the record high of 16,588 from late December. Despite today's modest bounce, stocks are still looking a little shaky.

We saw some mixed economic data this morning: Q4 advanced GDP came in at +3.2%, pretty much in line with expectations, showing a marked slow-down from the 4.1% pace in Q3. Initial jobless claims rose 19k last week to 348k. Hardly good news.

The NAR pending home sales index plunged 8.7% in Dec to 92.4, way below expectations of -0.3%. That's the lowest print since October 2011, when the home buyer's tax credit expired. Realtors blame weather this time around. However, the preponderance of recent housing market data is suggestive of renewed weakness in the sector, more likely attributable to higher mortgage rates triggered by the taper.

Emerging currency markets seem to be getting a bit of a reprieve today as well, following crazy volatility yesterday in the Turkish Lira and South African Rand specifically. It is very unlikely that rate hikes in both of those countries are panacea, so rather than declaring the storm has passed, I think this is just the eye of the storm.

Source : UsaGold.com/DailyQuotes

Gold Mines' Hedge Book Shrinks To A Decade Low

Gold hedging activity by gold mines has reached to a decade low level in quarter ended September 2013, according to latest quarterly Global Hedge Book Analysis by Societe Generale Thomson Reuters GFMS.

World over gold mining companies hedge their future production in derivatives market generally in options to lock their earnings and when prices fall the hedging activities also take a knock. “At end-September, the outstanding global hedge book stood at 2.94 Moz (92 t), the lowest volume since our quarterly series began in 2002,” said the analysis report released by the Thomson Reuters GFMS.

Mines have either allowed hedges to mature as scheduled or proactively to close out contracts for a profit and use the proceeds to pay down debt. “To date, fresh hedging in this lower price environment has remained comparatively modest,” said Cameron Alexander, Manager, Precious Metals Demand, Asia, GFMS Thomson Reuters in an email response to business standard query on hedge positions of mines.

Generally gold producers/mines refrain from hedging when they feel prices will fall further and in the rising [rice scenario they lock upper value by doing hedging. In the last phase of bull run many mnes who had sold or hedged future production had cut their position which is known as dehedging which further pushed prices. However a sudden crash in gold prices in april, 2013 tempted miners not to hedge when in September quarter prices averaged $1326 per ounce. However in subsequent months prices corrected further putting pressure on many mines as prices started trading below many of their cost of mining. GFMS global average gold mining cost including all corporate expenses is $1350 an ounce and even after considering write downs global average cost comes to $1200.

As reflected in the hedge book analysis, state of gold mining is not good. According to the hedge book analysis report, an industry wide cost containment effort has begun. Producers have cut back on non-essential capital expenditure, instituted wage freezes, cut corporate overheads and where possible, optimized mine plans for higher throughput and higher grade ore processing, leading to reduced mine lives. Furthermore, some of the larger multi-asset producers have already divested some of their higher cost mines and begun mine closures, which will afford these producers a certain degree of flexibility in this price environment. For non-cash generative juniors, it is likely that project finance will remain difficult to arrange.

While mines absence in hedging market would have given rise a belief that gold prices have bottomed out but that could be temporary as many of them may soon start looking at fresh hedging to lock current prices.

Cameron says, “If however, we start to gold prices wane further we believe this will lead to a growing willingness to hedge, and we therefore expect a return to net hedging this year, with larger-scale hedging activity in 2015 and 2016. Pressure may come from share holders to protect revenue streams in a declining price environment.”

The crisis began in mining industry doesn’t seem to be ending soon. Mines cutting down production (to cut losses when prices are lower and not covering costs) could support prices but that will depend upon whether demand contraction is lower than cut in production.

Cameron said, “mine supply is expected to edge lower this year before decreasing more rapidly in 2015 and 2016. Over 2014, a number of new operations will largely compensate for scheduled decreases in output from ageing mines elsewhere, as well as the supply lost due to the small number of operations closed so far on account of unsustainably high costs. However, from 2015 onwards, we expect to see more widespread closures or suspensions, as the declining gold price cuts more deeply into the cost curve for a sustained period.”

Source : Business-Standard.com

The Direct Economic Impact Of Gold

A new independent research report, The direct economic impact of gold, from PwC commissioned by the World Gold Council, reveals striking insights into the direct economic contribution of gold in the world’s major gold producing and consuming countries. This research is ground-breaking in the breadth of its perspective, covering the entire value chain of the gold industry, from mining and refining to end-user consumption.

The research reveals that supply and demand for gold makes a consistently positive contribution to global economic growth. Overall, in 2012, at least US$210 billion of value was created by the gold industry and added to global GDP.

Consumer demand for physical gold products – jewellery and small bars and coins – is estimated to have directly contributed around US$110 billion in 2012 to the world economy.

Another key finding of the research is the significance of gold mining to the economies of developing nations. PwC estimate that gold mining made an economic contribution of over US$78.4 billion to the economies of the top 15 mining countries in 2012. Proportionally, however, gold mining has the most substantial impact on growth and wealth creation in developing countries; greatest in Papua New Guinea (15% of GDP), followed by Ghana (8% of GDP) and Tanzania (6% of GDP). For these nations, gold is also a major source of exports and, therefore, foreign exchange earnings. In 2012, gold provided 36% of all Tanzanian exports and 26% of the exports of Ghana and Papua New Guinea.

The scope of the research only extends to examining direct economic impacts; it excludes consideration of indirect contributions to national economies from additional taxes, secondary employment and social and infrastructural development. Furthermore, it does not attempt to measure the economic impact of less formal and artisanal gold production.

Also, when looking at gold investment products, PwC did not attempt to measure the economic impact of holding gold in investment portfolios, although the World Gold Council has produced a sizeable body of research addressing this subject (see, for example, our Investment Research publications).

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Gold Edges Slightly Higher

GOLD futures have settled near unchanged, edging slightly higher after data showing US inflation remains below the Federal Reserve's target.

The most actively traded gold contract, for February delivery, on Thursday rose $US1.90, or 0.2 per cent, to settle at $US1,240.20 a troy ounce on the Comex division of the New York Mercantile Exchange.

The consumer-price index, a measure of how much Americans pay for goods and services, rose by 1.5 per cent in December from a year earlier, the Labor Department said. Excluding volatile food and energy costs, prices were up 1.7 per cent.

Analysts say that while tame inflation could sap interest in gold as a hedge against rising costs, it may also push the Federal Reserve to reassess the pace of the rollback of its bond-buying program. The US central bank has set an inflation target of two per cent. More muted price rises, along with a potentially slowing labour market, could suggest to Fed officials that the economic recovery isn't strong enough to further reduce its stimulus.

Slowing price rises "may add upward pressure to gold," Standard Bank analyst Walter de Wet said in a note.

Still, many market watchers expect gold to remain under pressure should economic growth remain on track. A separate report on Thursday showed new US claims for unemployment benefits fell by more than economists had expected last week.

The Fed's bond buying programs in recent years have drawn investors, looking for a hedge, to gold. Worries that a recovery in the US economy would spur a reduction in the central bank's bond buying helped send gold prices to a 28 per cent loss in 2013.

"If you see a better economy, the bet is the Fed is going to continue with the reduction in its asset purchases," said Ralph Preston, a market analyst with Heritage West Financial.

Settlements (ranges include open-outcry and electronic trading):

London PM Gold Fix: $1,241.50; previous PM $1,236.00

Feb gold $1,240.20, up $1.90; Range $1,235.80-$1,244.90

Mar silver $20.054, down 8.0 cents; Range $19.970-$20.250

Apr platinum $1,431.50, up $2.90; Range $1,418.20-$1,437.30

Mar palladium $743.90, down 10 cents; Range $738.00-$746.55

Source : News.com

My gold fund has fallen by half. Should I sell?

Ask the experts: Investors lost thousands last year backing gold funds. Should they sell or hang on?




Some gold funds lost 50pc in 2013, will their fortunes change this year? Photo: Alamy


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It is the ultimate investment conundrum. Last year you backed an investment fund that has tanked and as a result have racked up huge paper losses. What should you do?

Those savers who backed gold funds last year suffered more than most. Some funds, such as Way Charteris Gold Portfolio Elite and BlackRock Gold & General, lost half of savers’ money.

But even worse was the Junior Gold fund, which declined by 65pc. This was the worst performing fund in 2013 out of the 1,500 available to UK savers, turning a £10,000 investment into £3,500.

The reason behind the heavy losses was the gold price plummeting by 30pc. The precious metal was trading at around $1,700 an ounce last January but by the end of the year had slumped to just over $1,200.

As a result, gold and natural resources funds suffered. These funds invest in both gold itself and the shares of gold mining companies.

Investors who have money in gold funds face a difficult decision. Selling now will effectively lock in losses, and you could miss out on bumper returns if the gold price reverses. On the other hand, the gold price could fall even further, meaning you will lose even more money.

We asked Nik Stanojevic, who buys fund and shares for wealth manager Brewin Dolphin, whether investors should hold their nerve and stay invested or sell out of gold funds. Here is his answer.

"We expect the investment case for gold funds to be driven mainly by the direction of gold prices. On this point, we believe that the starting point for any rational investor must be negative.

"The outlook for inflation is low, and there are good reasons why this is likely to remain the case over the medium term as there is still plenty of spare capacity in the global economy.

"Given that central bank money printing, or 'quantitative easing', is starting to slow down in the US, interest rates are likely to rise. Meanwhile, with inflation down and interest rates up, 'real' returns on cash should benefit.

"Gold prices tend to do poorly in an environment of rising real interest rates because the cost of avoiding other assets in favour of gold rises. As gold prices are driven by investment (as opposed to industrial) demand, there is no theoretical floor to the gold price.

"Funds exposed to small mining companies such as the Junior Gold fund are particularly vulnerable. In a falling gold price environment, shares in these companies typically under perform, for technical reasons to do with the way new mines are financed.

"Therefore we would advise cutting losses and selling these funds, unless investors have a strong conviction in rising inflation expectations."

Source :-  Telegraph.co.uk