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Gold Jump Pulls Mining Stocks Higher as Asian Dealers Fear Summer Shortage

Commodities / Gold and Silver 2013 Jul 22, 2013 - 03:34 PM GMT

By: Adrian_Ash


The WHOLESALE price of gold leapt in thin Asian trade Monday morning, jumping 1.7% inside half-a-minute and then extending its run in London to new 1-month highs at $1322 per ounce.

London-listed gold equities followed, with shares in Randgold Resources – tipped today by analysts at both J.P.Morgan and Morgan Stanley as better able to cut costs and avoid write-downs than competitors – rose 2.5%.

So too however did shares in African Barrick Gold – named by Morgan Stanley as a gold miner facing "heightened risks [with] limited scope to raise returns."

Russian gold miner Petropavlovsk, which by end-May had sold forward 70% of its 2013 output to hedge the falling gold price, meantime rose over 4.3% on the London stock market, taking its rally of the last two weeks above 40%.

Shares in the former million-ounce miner remained 75% below the start of 2013, however.

Randgold Resources was trading today 25% down for the year so far.

"Gold broke through a key technical level at $1300," said one Singapore trader to Reuters this morning.

The first breach of this "psychologically important" level since end-June, however, gold "is still a good $230 off the technically important 200-day moving average," says the daily note from Germany's Commerzbank.

"For a month," adds technical analysis from Societe Generale analysts, "the price has been evolving within a steep corrective channel."

"Gold is now facing short-term resistance at April's low of $1322."

Cutting its forecast gold price average for 2013 by 6% last week, Barclays Capital says nearly 1-in-6 miner operations in South Africa will lose money if its $1200 prediction for July to October proves true.

South African gold mine workers are demanding "up to 61% pay increases," saysThe Daily Telegraph, citing Commerzbank analysis.

Last week the world's third-largest gold miner, AngloGold Ashanti, said it's likely to writedown between $2.2 and $2.6 billion on its assets following the spring's 25% drop in the gold price.

"The mining companies," says Commerzbank, "which have their backs against the wall in any case on account of the fallen gold prices, are unable to meet such unrealistic demands."

Back in Asia overnight, "We heard some gold refiners in Switzerland will close in August for the summer holidays," a Hong Kong dealer told Reuters.

"They have stopped taking orders."

Switzerland is the major producer of the 1-kilo gold bullion bars preferred by Asian investors with 0.9999 fineness as opposed to the wholesale standard of 0.995.

Gold premiums in Shanghai however, over and above the international benchmark of London settlement, edged another dollar lower again today, falling to $21 per ounce.

Interest rates for borrowing gold were meantime unchanged Monday from Friday in London, heart of the world's wholesale bullion market.

Rising demand from gold miners wanting to hedge their exposure to further price falls ahead was last week cited for driving up gold borrowing costs so far in July.

"Demand has slowed down" in India – the world's No.1 gold consumer market – according to Bombay Bullion Association director Suresh Jain, pointing to the traditional summer shutdown in gold-buying festivals and weddings.

US gold futures and options meantime saw a marked rise in speculative bullishness last week, new data showed after Friday's close.

The so-called speculative "net long" position – meaning the balance of all bullish minus bets held by non-industry players – jumped 37% to a four-week high equal to 135 tonnes of gold bullion.

The sharpest percentage jump since November 2008, however, the move – which was driven by bearish speculators closing their positions as prices rose – was only a four-month record by weight.

Compared to the end of 2012, the spec' net long position stood 78% lower.

"Despite the pullback in gold equities," says Morgan Stanley's note, "we see risk of further de-rating triggered by reserve downgrades and weak cash flows."

"We believe," says J.P.Morgan's analysis, "that premium ratings are appropriate for [producers] with...high-quality assets and operational capability to cut their cloth according to prevailing market conditions."

By Adrian Ash

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold and silver in Zurich, Switzerland for just 0.5% commission.

(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.

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