Gold surged at the open in Asia (from $830/oz to just over $836/oz) but has given up some of the early gains in volatile trade. It remains marginally higher in early trading in London but is under pressure due to continuing dollar strength and the failure of oil to rally significantly despite the threat posed by Hurricane Gustav.
August saw a sharp drop in the gold price and bulls will be hoping that last week’s gains (gold up 0.25% and silver up .52%) may mark the end of the summer doldrums. July and August have seen the seasonal lows in 6 of the last 7 years prior to the strong autumnal period and this is likely to be the case again especially as geopolitical and macroeconomic risk are heightened, physical demand internationally is very strong and supply is failing to keep up with physical demand.
Last week came news of shortages, delays and rising premiums in the gold and particularly silver bullion markets. Today comes further news of the continuing failure of supply to increase despite the rise in gold prices in recent years. Australian gold production has again fallen. Australia which is the world’s third-largest producer, saw its gold production slump 13% in the last quarter to an 18 year low. There have not been any major gold discoveries in Australia for many years and the difficulty and cost of gold mining is leading to falling supplies year on year since 2001.
South African production has been plummeting also (see http://blog.goldassets.co.uk/2008/06/19/gold-investments-market-update-south-african-gold-production-down-sharply/). Of the world’s three biggest gold producers (China, South Africa and Australia), only China has managed to increase gold production in recent years and this Chinese gold is used in China to meet the rapidly growing demand for gold as jewellery and as an investment in China. Thus Chinese gold is not exported into the international market which remains the supply/demand balance in gold is becoming increasingly tight and is likely to lead to markedly higher prices in the coming years.
Today’s Data and Influences
US markets are closed today for Labour Day, however the remaining few days of the week are data packed. The US unemployment report at the end of the week is likely to show a contraction while monetary policy meetings from the European Central Bank and the Bank of England are also on the agenda. Both central banks are widely expected to keep benchmark borrowing costs on hold at 4.25 percent and 5.0 percent respectively as they balance the treat of recession and persistently high inflation.
Gold and Silver
Gold is trading at $830.60/830.90 per ounce (1100 GMT).
Silver is trading at $13.68/13.70 per ounce (1100 GMT).
Platinum is trading at $1445/1455 per ounce (1100 GMT).
Palladium is trading at $301/307 per ounce (1100 GMT).