The gold price continues to hold above the $990 support level. Despite an initial rebound early Monday morning, 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.
This morning’s session in New York has also seen the Gold market begin the day on a positive note. Investors will be keeping a keen eye on trading to see if the bulls can keep it up. 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 on Monday.
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.
World Bank President Robert Zoellick raised 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 last 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.
On Wall Street, gold stocks have been generally stronger as the equity market responds to gold’s initial recovery.
The world’s largest gold producer Barrick Gold (NYSE: ABX) was also strong, rising over 1% today. Major International producer Randgold Resources (NYSE: GOLD) rose over $1.27c, gaining almost 2% to trade at $69.16.
Similarly Canada-based Yamana Gold (NYSE: AUY) also added 1%, to trade at $10.23.
Second-tier gold miners were positive across the board in North America this morning, generally rising between 1 – 3%.
International gold producer IAM Gold (NYSE: IAG TSX: IMG), New Gold (AMEX:NGD) and dual listed Eldorado Gold (TSX: ELD; NYSE:EGO) all rose over 2% in New York this morning.
Dual listed Eldorado Gold (TSX: ELD; NYSE:EGO) advanced almost 2% this morning. Nevsun Resources (AMEX: NSU) added 5c to trade at $2.09 this morning while Agnico Eagle (NYSE: AEM) gained more than 1%.
Low-cost gold producer Gold Resource Corp (OTCBB: GORO) advanced on yesterday’s gains, rising a further 2% to trade at $6.95. Meanwhile Ontario based Rubicon (AMEX: RBY) added 1% to yesterdays close.
Multi-listed, Middle East focused Centamin Egypt (AIM: CEY, ASX: CNT, TSX: CEE) went in the opposite direction to its European performance rising 1.25%.
Keegan Resources Inc (AMEX: KGN) eased slightly lower, dropping just 2 cents, while South American focused exploration play Exeter Resource Corp (AMEX: XRA) also slipped marginally lower.
Mexico focused explorer Minefinders (AMEX: MFN) were in negative territory despite announcing a successful fundraising of $66m in an institutional ‘Bought-Deal’.
On the Toronto Stock Exchange, Ontario based gold miner Kirkland Lake Gold (AIM, TSX: KGI) released a drilling update for the South Mine Complex, investors welcomed the update as Kirkland rose over 2% to trade at $9.04.
Elsewhere, TSX Venture stocks Victoria Gold Corp (TSX-V: VIT) added to yesterday’s gains, rising 1% to trade at 38 Canadian cents per share. Canada based junior gold developer Rambler Metals and Mining Plc (TSX- V: RAB & AIM: RMM) were also positive on the day, while Timmins Gold Corp (TSX-V: TMM) and Hawthorne Gold (TSX: HGC) were unchanged.