Gold Jumps into US Open as Mining Supply Flags & Fed Injects Another $6bn to the Money Markets

By: Adrian_Ash

SPOT GOLD PRICES ticked higher in London early Thursday, recovering all of yesterday's late losses in New York before jumping towards the US open and trading above $735 per ounce, well above last week's closing level.

The US Dollar meantime slipped to a new record low against the Euro, and crude oil rose back above $81 per barrel.

Gold Prices for French and German investors wanting to Buy Gold Today rose 0.8% from their overnight low to regain €519 per ounce.

India 's gold markets had earlier seen the Gold Price hold flat overnight. In Japan , gold futures for delivery in Aug. '08 rose 0.2% to equal $735 per ounce, while the Nikkei stock index leapt 2.4%.

Europe 's major equities gained 0.7% on average during morning trade. US stock futures also pointed higher and bond prices slipped back after the US Federal Reserve added another $6 billion in 14-day loans to the New York money market.

That takes the Fed's total lending in Sept. to $199 billion.

"Investors have to look for assets which cannot multiply as fast as the pace at which the Fed prints money," said Dr.Marc Faber, editor of the widely-respected Gloom, Boom & Doom report, at a CLSA conference in Hong Kong late last week.

He advised Buying Gold to defend against monetary inflation – and the world's new supply of gold bullion is now "facing headwinds" as the Toronto Globe & Mail reports today.

Speaking at the Denver Gold Forum, president and CEO of Newmont Mining – the world's second largest gold mining company – Richard O'Brien said yesterday that his total production costs are set to rise above his previous guidance of $400 per ounce.

Newmont's stock dropped 7% on heavy trading on the news. But the greater problem for the gold mining industry remains the lack of significant new finds.

BHP Billiton, the world's largest diversified mining group, was rumored at the start of this week to have found a huge "elephant deposit" at its Olympic Dam mine in southern Australia .

BHP itself, however, yesterday upgraded reserve estimates for Olympic Dam by less than 10%.

"Year on year, we believe the industry is struggling for growth," Newmont's O'Brien went on in his presentation Wednesday. "In fact we believe the industry is probably not growing. That is, there is a lack of growth in production."

Barrick Gold, the world's largest gold producer, also told Denver delegates that its cash-costs are rising. Third-quarter costs will be the highest so far in 2007, warned vice-president of investor relations Deni Nicoski, driven by Barrick's recent buy-out of Placer Dome.

Ironically, the surging Gold Price is also adding to Barrick's costs, he added, as it increases royalty fees.

"No doubt it is getting harder to replace reserves and resources at mature properties," added senior vice-president Alex Davidson – a hard fact of world gold-mining right now, not least given the sector's own view of where the Gold Price is headed.

"I think before the end of the year we'll see $800," Barrick's CEO Greg Wilkins told reporters in Denver yesterday.

As for Dr. Marc Faber, "he recommends holding physical gold bullion investments in gold-friendly countries such as Hong Kong , India and Switzerland ," reports Finance Asia magazine. "He counsels against holding gold in the US for fear that it might be nationalized by the government."

By Adrian Ash
BullionVault.com

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City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

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