Trichet's Tribulations

• Print
• E-Mail

Good Afternoon,

The "big event" of the day was the fact that the US dollar did not breach 1.60 against the euro. Hawkish anti-inflation rhetoric by Mr. Trichet did not manage to allay concerns that the eurozone economy may be weakening. Rates we left alone but the ECB appears caught in a bit of a bind (not unlike the Fed). Maybe they can sort if out at the G-7 powwow. On the other hand, no such attitude from London today. The Bank of England as it took a page from the US playbook this morning and cut its key rate to 5% trying to hold back a replay of the current American situation. Alas, the US strategy appears to have been rather ineffective in reviving borrowing as lenders are still clenching their fists. Like we said, better bring plenty of coffee to the G-7 get-together...

New York gold trading tired for higher ground today but once the dollar overcame 72 on the index and crude oil lost $1.75 to just above $109 per barrel, the day's tilt became clear. At last check, spot gold was down $7 at $927.10 as the trade (okay, it was one trader) summed up the day as a case of 'the dollar got stronger because the euro did not get stronger.' Silver broke back under $18 and lost 21 cents to $17.96 while platinum remained relatively firm, losing only $3 to $2023 and palladium actually gained $2 to $463 per ounce.

Our friends at Standard Bank in S. Africa inform us that: "Eskom, the power utility, has secured a five-year deal to import 250MW in hydro-electric power from its neighbour Mozambique in which 100MW was rolled out last week Friday. Further negotiations are being held with Zimbabwean authorities, with the possibility of a further 500MW being imported. However, the current political uncertainty in Zimbabwe presents a risk to this."

As London-based consultancy and research group GFMS presented its annual analysis of the preceding year on the gold market yesterday, a number of issues surfaced. Among them, trends that we have alluded to in earlier reports and which we also observed in the recent CPM 2007 Yearbook. Mining Weekly relays the story:

"Presenting the findings of the group's 'Gold Survey 2008', [GFMS analyst] Neil Meader said that the price of gold would likely reach a peak, perhaps around $1,100 per ounce, either in the last quarter of this year or in the first half of 2009.

However, he pointed out that the subsequent correction, which GFMS expects will take the price to levels around $600 per ounce in the longer term, represented a shift from previous forecasts.

"I think that's important to bear in mind ... previously, in all our forecasts we were only talking about the push being one way higher - but now I think it's very possible to start seeing the endgame," he commented.

"I think we would say...we've got another 12 months of strong prices, and after that we would expect to see the market turn; it could be 18 months."

Gold prices were pushed skywards in the fourth quarter of 2007 and the first few months of this year, largely by investment demand, as a weakening dollar, the US credit crisis, inflation concerns and geopolitical tensions and uncertainty raised the metal's attractiveness as a safe haven, or wealth-preservation investment."

On the other side of the demand coin, higher metals prices do, however, lead inevitably to a slowdown in demand for gold jewellery. While GFMS estimates that global jewellery fabrication rose 5% last year, growth was entirely in the first half, before the price surge, with fourth quarter demand dropping by over 20% year-on-year.