The gold price continues to hold above the $990 support level. Despite an initial rebound during the early stages of American trading yesterday, gold markets could not advance the run to re-establish trading above $1,000. Instead gold rallied as far as $997 before selling off overnight, slipping down to an intra-session low of $990.30. Dollar strength against the Euro was the primary cause for the evenings slide.
Analysts highlighted profit taking and liquidations of the substantial speculative long positions as a cause of the volatility occurred when gold began to advance upwards from $990.
Over recent sessions, several issues have dominated the long term gold debate, with several commentators discussing the long term potential of a gold market which has risen over 4% in September.
The key issue over the past week, aside from forex fluctuations, relates to gold’s position as a global reserve asset. Last week the International Monetary Fund (IMF) announced it would be selling an eighth of its gold reserves to provide an appropriate level of liquidity to assist and support the worlds recovering economies.
Several reports over the weekend explored the implications of the IMF gold sale. Market commentators have identified that ultimately the selected method of transaction may indicate the relative strength of the current gold price. The IMF’s primary goal is to sell its gold to another ‘official sector’ entity, either a central bank or another recognised international entity. Such transactions would be conducted at prevailing market prices and would not change the official gold holdings.
Recent reports suggest that if successful, this sale method would indicate strong support for the current gold price as it implies confidence in the long term value of gold from its currently elevated price.
The alternative view among analyst and commentators is less positive. Should the IMF have to sell its reserves through the open market it will be required to ‘drip’ the transactions through over a prolonged period to avoid disruption.
Whilst this would not cause a sharp fall in the price, many investors who are currently ‘long’ on gold may fear their gains will be capped going forward. With speculators in the gold market maintaining a record level of net long positions, sustained caution may gradually evolve into broad profit taking.
Of course the gold market will not trade without influence from the foreign exchange market, specifically the relative position of the US Dollar. Recent economic comment has lead to varied speculation in the wake of last week’s G20 meeting.
Generally comments surrounding G20 emphasised the view that financial markets have stabilised and going forward global leaders and regulators will tighten capital requirements. A subsequently weaker dollar would be required to re-balance world markets.
Today World Bank President Robert Zoellick is expected to raise caution over the dollar maintaining its role as the primary reserve currency, highlighting the emergence of ‘other options’. Meanwhile Federal Reserve chairman Timothy Geithner reiterated his confidence in the Dollar on Thursday, stating that ‘the US backs a strong dollar to ensure it stays the world’s reserve currency’.
Following last week’s pull-back below $1,000, it’s clear that the longer term view for gold investors will continue to remain fairly clouded until the wider economic climate stabilises. Having almost risen to its all time highs in the past few weeks, many analysts and investor are re-evaluating their options until the macro picture becomes clearer.
London major gold stocks experience mixed trading.
International gold producer Randgold Resources (LSE: RRS) declined 1%, losing 58p to trade at £43.35 per share. The FTSE 250 gold miner Petropavlovsk (LSE: POG), formerly known as Peter Hambro Mining, slid 3%, while Canada based Yamana Gold (LSE: YAU) eased marginally lower, slipping just two pence per share.
Kazakhstan operating gold producer and copper developer Frontier Mining (AIM: FML) was the runaway leader among the small caps, rallying 20%. Western Australia operating Norseman Gold (AIM: NGL) and London listed Australian gold producer Leyshon Resources (AIM: LRL) rose 7% and 6% respectively.
Argentina operating gold explorer Patagonia Gold (AIM: PGD) and Tajikistan operating gold miner Kryso Resources (AIM: KYS) both gained 3.5%. Shares in African focused gold miner Pan African Resources (AIM: PAF) and Canada based junior gold developer Rambler Metals and Mining Plc (AIM: RMM & TSX- V: RAB) declined 3.5% and 4.2% respectively.
Turkey operating gold miner Ariana Resources (AIM: AAU) released its interims, reporting a narrower pre-tax loss, investors welcomed the news as Ariana share rose almost 3%. While Turkey and Saudi Arabia focused explorer KEFI Minerals (AIM: KEFI) also released interim results today, however they were less favourably received, KEFI shares fell 5%.