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Gold and South African Gold Miners Tumble on Rising Costs

Commodities / Gold & Silver Aug 01, 2008 - 09:19 AM GMT

By: Adrian_Ash

Commodities THE SPOT PRICE OF GOLD fell into the New York open on Friday, beginning August almost 4.5% below July's start despite news that US unemployment just rose to a four-year high.

"Everything is down this morning as margin calls bite," says Mitsui in its Gold Market note today – "equities, the Euro, the oil price and precious metals.


" Gold should find short-term support at Wednesday's lows [$894/oz] but it is looking more and more likely that the market wants to test the longer term support at $890."

Following an AM Fix here in London of $909.50 per ounce, physical Gold slipped 0.7% to bounce off $902.80 despite news that US unemployment rose to a four-year high of 5.7% in July.

Last month saw non-farm payrolls cut by 51,000 – but that was smaller than analyst forecasts of 75,000 job losses.

After data showing German retail sales fell 1.4% month-on-month in June, the Euro sank to a five-week low of $1.5515 on the US jobs data.

Europe-wide, the PMI Manufacturing survey for last month showed a marked deterioration in confidence.

The Gold Price in Euros today held just 1.7% below its level of 1st July.

Crude oil today dipped below $123 per barrel, helping to pull the major commodity-price indexes lower.

"I would say Gold has got potential upside from where it is now," said Nick Holland, CEO of South African gold-miner GoldFields to CNN today.

"It is a safe haven because of the issues going on with the US economy, but also around the world. We're starting to see negative real interest rates creep in, and that's always a good sign for Gold ." ( Find out why Gold Rises When Real Returns to Cash Tumble in this free report... )

After a raft of corporate earnings already this week, all pointing to Higher Costs for Gold Miners , Gold Fields today reported a 32% drop in quarterly profits, sending the stock to a three-year low on the Johannesburg Stock Exchange.

Cash-costs per ounce rose 27% to $470 for the world's fourth-largest Gold Miner . Expenditure on GoldFields Cerro Corona gold & copper mine in Peru – located some 4km up in the Andes – will have to rise from $450 million to $550m because of "costs overruns, delays, new contractor claims and under-estimation of costs that we had not projected before," according to Holland.

The JSE's gold mining index today tumbled almost 5% in what one equity trader called "a miserable market – but most of the miserliness is confined to the resource stocks."

On the broader stock markets, meantime, European equities shed 0.4% on average while US stock-market futures pointed sharply lower after General Motors – formerly the world's No.1 auto-maker – reported its third greatest loss ever at $15.5 billion for April to June.

Revenue fell 18% from the same period in 2007. The losses included $3.3bn in redundancy checks for 19,000 workers who left in June, plus $1.3bn of write-offs at GMAC Financial Services – most notably on bad loans to buyers of trucks and SUVs.

Earlier on Friday in Tokyo , Japan 's third-largest car-maker – Nissan – reported a 43% drop in second-quarter earnings.

Top luxury car-maker BMW said in Frankfurt , Germany this morning that its Q2 profits fell 33%, blamed on a collapse in US sales forced by the strong Euro currency.

On the other side of the trade, meantime, French energy giant Total – the world's fourth-largest oil & gas producer – reported a rise of 39% in its quarterly profits.

"There is not a huge amount of Gold Buying," said an Indian bank dealer to Reuters today.

"People are spreading it across several levels."

This week's break below $900 per ounce in the international Gold Price met a flood of buying in India – destination for one ounce in every five sold worldwide last year.

Today the price of Gold held above 12,600 Rupees per 10 grams. The heaviest Gold Buying Season is due to start once India 's harvest ends in mid-Sept., culminating with Diwali – "festival of lights" – in October.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
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 2008

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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