Daily Market Update

South Africa Unrest To Affect Bullion Supply And Support Gold

Today’s AM fix was USD 1,755.25, EUR 1,365.32, and GBP 1,084.16 per ounce.
Yesterday’s AM fix was USD 1,763.75, EUR 1,369.80 and GBP 1,089.07 per ounce.

Silver is trading at $34.10/oz, €26.62/oz and £21.13/oz. Platinum is trading at $1,647.00/oz, palladium at $632.40/oz and rhodium at $1,075/oz.

Gold fell $10.10 or 0.57% in New York yesterday and closed at $1,751.30. Silver hit a low of $33.32, but it recovered and rallied back finishing with a gain of 0.56%.

Gold inched up on Thursday but continued tension over the eurozone debt crisis has bolstered the dollar, weakened oil and is expected to limit bullions gains.

Protests against government austerity are on the rise in Greece and Spain and have led to violence against police in Athens.

Downward pressure on oil is negative for gold. Higher oil prices, a sign of soaring inflation, sends investors to gold as a hedge to rising costs.  The correlation between oil and gold was at 0.367, just under a 6 month high hit earlier in the week.  A reading of 1 shows perfect correlation and the two assets move in tandem.

SPDR Gold Trust ETF saw its largest 1 day drop in holdings since May (10 tonnes), but this may be due to end of quarter window dressing.

Gold will continue to be supported by the ‘US Fiscal Cliff’ which is the US government deadline to agree on a plan to decrease the federal budget or trigger $600 billion in spending cuts, which will create austerity for the people and a huge knock to an already unstable US economy.

In South Africa, gold mine strikes ceased nearly 39% of production, at AngloGold Ashanti Ltd. (ANG) and Gold Fields Ltd. (GFI), as labour walkouts spread across the country amid demands for above-inflation pay increases.

Today, AngloGold, the world’s 3rd largest gold producer, said all of its South African mines have been stopped. Gold Fields lost nearly 32,000 ounces, or metric ton, of output because of strikes at its KDC and Beatrix sites. The Kopanang mine was shut down after a strike last week that began with 5,000 workers, and AngloGold decided to halt all South African operations as most of its 35,000 employees have joined the industrial action. 

In addition to the mining strike there is also a transport strike.  More than 20,000 freight transport workers are also on strike, demanding a wage increase of 12%, reports the South African Press Association.  Unions rejected an offer of a staggered increase of 8.5% next March followed by an additional 0.5% in September, SAPA said.

The Lonmin Plc’s Marikana platinum mine northwest of Johannesburg endured a six-week strike that took 46 lives and concluded last week with miners receiving pay increases of almost 22%, which is four times the country’s August inflation rate. 

Due to the settlement on Sept. 20th with Lonmin platinum workers, gold miners have decided on wildcat strikes instead of using the National Union of Mineworkers representative’s to negotiate with employers.

AngloGold workers on strike at the Kopanang mine since Sept. 10th were told by a company spokesman, “Wages are not something that’s negotiated at company level, and won’t be.” 

While the company received wage demands today from the strikers, it doesn’t intend to negotiate directly with them.

Production costs for Mining companies in South Africa have been soaring as above-inflation hikes in wage and electricity costs have risen in the past 3 years.  Power costs rose 26% in 2011 and 25% in 2010.  Mines have to dig deeper and it is harder to yield output as orebodies continue to dwindle.

South Africa’s gold yield was 1.35 million ounces this quarter, according to the Chamber of Mines.  It was the 5th largest gold producing nation in 2010, according to GFMS Ltd. However, South Africa’s production has been decreasing every year.

In total there are about 100,000 miners and transportation workers on strike in South Africa.  

Certainly this disruption in production will cause a contraction in supply, while consumer demand and central bank demand in the yellow metal are on the rise, compiled with the central banks printing money to bolster their sagging economies – all signal a very bullish environment for gold.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS

Gold Set to Extend Best Quarter Since 2010 Amid Mine Strikes – Business Week

Gold prices slide 1 percent to two-week low – Reuters

Gold futures tumble amid Europe worries – MarketWatch

South African Strikes Halt 39% of Nation’s Gold Output – Business Week

COMMENTARY
Not even the great economists of history can get us out of this fix – The Telegraph

Spain is turning into the new Greece, and Rajoy has himself to blame – The Telegraph

Historic coin collectors strike gold – The Telegraph

Quadrillion Dollar Derivatives Market 20 Times Global GDP – Truth-Out

 

Mark OByrne

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