Miner Hedging & Smart Buying Seen If Gold Falls To "Symbolic" $1000

November 12, 2013

WHOLESALE GOLD bumped up to $1285 Tuesday lunchtime in London, reversing an overnight drop to fresh 3-week lows at $1277 as European stock markets slipped with government bond prices.

"A slip through the six-month support line at $1270.16 will confirm our bearish outlook," says Commerzbank's Axel Rudolph.

"We could potentially," says French bank Natixis' precious metals analyst Bernard Dahdah, "see gold prices reach levels of $850 to $1,000. But this is our very low-case scenario."

Gold prices that low could unleash a wave of forward selling by mining companies, says French investment bank BNP Paribas, with miners trying to lock in current prices for fear of further falls ahead.

"Producers, the share prices of which have not been faring well of late," BNP's commodity team notes, "might initiate and/or accelerate hedging were we to approach the symbolic $1000 level, adding supply to the market and further downward pressure to prices."

Were gold to fall below that price, investment author and hedge-fund manager Jim Rogers told India's ET Now TV last week, "I hope I'm smart enough to buy a lot more."

Explaining why he's not buying gold right now, "It went up 12 years in a row, which is highly unusual for any asset," says Rogers. "And of course, India's doing its best to kill the gold market."

This month's Diwali festival saw gold buying drop by more than one-third from 2012, according to retail dealers, thanks to the lack of supply caused by the Indian government's anti-gold import rules.

Even with gold falling a further 3% in the wholesale bullion markets for November so far, "There's little sign yet of a boost in physical demand," says one Asian dealing desk.

"Gold is clearly lacking bullish conviction," says another.

"With equities performing well," agrees Scotiabank's latest Metals Matters monthly, "and with the global economy looking more stable, investment demand for gold may well remain subdued.

"That could keep the lid on prices."

Confidence levels amongst UK private investors rose in October for the third month running, says a survey from retail stockbrokers Hargreaves Lansdown, reaching a nine-year high with 8 in 10 respondents saying the stock market will rise again in 2014.

Market professionals have also "fallen into a state of relative complacency," says bond-fund giant Pimco's CEO Mohamed El-Erian, "comforted by the notion of a 'central-bank put'.

"The result is financial risk-taking that exceeds what would be warranted strictly by underlying fundamentals."

Contrasting with last week's strong GDP and new jobs figures, the National Federation of Independent Businesses said Tuesday that its optimism index dropped 2.3 points to 91.6 last month, primarily due to the government shutdown.

Gold for UK investors had earlier turned higher from its 3rd dip below £800 per ounce this year as the British Pound sank on news of much weaker than expected consumer price inflation.

The news comes after strong GDP and other data raised expectations that the Bank of England could soon raise UK interest rates from their all-time low at 0.5%.



Adrian Ash

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.


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