Oil & Gold- Divorce, or Happy Reunion?

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Gold prices picked up another 2.4% on Friday, as the dollar dropped quite a hefty amount, to 72.79 on the index. A $3.69 rise in crude oil during the day (to $127.82) was met with a correlated move in gold this time around. A commendable turn in gold over these past two days. If it can rise to and close above $905, the metal could try for $925 on this wave. However, the risks of a major correction in crude oil have increased exponentially this week and such a fall will carry many a commodity in its brutal wake. For more on this topic, please see below.

New York spot trading was last seen enjoying a $21 gain, quoted at $902.10 per ounce, as participants monitored the dollar's decline . Silver added 31 cents to $16.96 while platinum rose a healthy $47 to $2128 as more forecasts of $3K floated around the market this Friday. Palladium rose $13 to $451 per ounce.

The latest VM Fortis Hedging and Financial Report is out today, and for the full study you are invited to visit the link on our homepage under "Technical and Fundamental Analyses." The report contains a mixed bag of news on several fronts. The good news is that hedging fell through the floor in Q1 and that central bank sales show signs of coming in under target once again. The worrisome news is that hedging is anticipated to grow quite soon and that the ETFs have lost a sizeable amount of gold during the latest correction. Here are the highlights of the release, courtesy of Mineweb:

"Global gold hedging saw the largest decline in percentage terms on record in the first quarter of 2008 as an 18% or 4.8m ounces reduction brought the global gold book down to 22m ounces. But the Fortis Hedging and Financial Gold Report says dehedging volumes will significantly decline in 2009 and beyond.

The quarterly report issued by the VM Group said AngloGold Ashanti, Barrick, Buenaventura and Newcrest reduced their hedge books with a total of 4m ounces in the quarter. AngloGold Ashanti reduced its hedge book with 1.2m ounces, Barrick converted 1.1m ounces of fixed-rate contracts to floating-rate contracts, Buenaventura closed out its entire hedge book of 0.9m ounces and Newcrest cut its hedge book by 0.7m ounces to 0.2m ounces.

The balance of the reduction in the global hedge book came from 32 different companies making reductions in their hedge books. The first quarter of 2008 also saw the lowest total new hedging since the second quarter of 2002, at 7,137 ounces.

The VM Group has increased its forecast for hedging in 2008 to 10-12m ounces on the back of AngloGold Ashanti's announcement that it will close another 3.8m ounces of hedging this year.

"This means the global book will be only 15-17m ounces at the end of the year. The support the market has had from producer buybacks is coming to a close, volumes are likely to significantly decline in 2009 and beyond."

The mark-to-market valuation of the global book improved slightly in first quarter 2008 at an estimated negative $11.2bn, $0.1bn "better" compared to end of fourth quarter 2007, said the report. The improvement was small despite the large reduction in hedging, due to the $97/ounce increase in the gold price in the quarter.

Exchange-traded funds suffered its worst month on record for outflows in April. The StreetTRACKs product fell by 62.5 tonnes, but has made a slight recovery since.