By Kishori Krishnan
Investors in gold have had it too good for too long. After months of prices climbing to unfathomable levels, an uncertainty has surged into the bullion market, keeping everybody on the edge. Obviously. What goes up has to come down some day.
The big question on everybody’s mind, though, is - have gold prices bottomed out for the time being, or is there worse to follow? Investors are left scratching their heads, wondering whether to take the plunge and buy gold now or wait awhile for it to take a further beating.
In fact, last week saw prices of various commodities including gold taking a tumble over fresh concerns on macro-economics, compounded by concerns over the Euro area debt and the higher-than-expected jobless claims in the US. Not to speak of the dollar strengthening to its highest levels against the euro since May last year.
The excessive selling has been put down by many to a crisis of confidence in the global recovery. Clearly, investors should now understand that in the short-term, the markets including bullion are going to be influenced by the flow of macroeconomic data and the US dollar movement. Gold prices are at their lowest since November 2009.
In London, on Friday last, gold PM Fix was at $1,058 an ounce, down from $1,083.25/oz the previous day. Clearly, precious metals are likely to track dollar movements. Spot gold’s relative strength index, a gauge of whether a commodity or security is overbought or oversold, plunged to 36.09 from 49.5 on February 4, as bullion fell the most in 14 months. The gauge approached the level of 30, that some investors and analysts who scrutinize technical charts view as a signal of an impending climb.
A section of analysts feel that in the coming days, if the flow of data does not turn negative, one can expect prices to rebound sharply.
Investor interest in gold surely remains intact, but less-committed speculators are bound to exit. David Levenstein, a leading expert on investing in precious metals, says even though there has been a sell-off in gold, in the long-term, the prospects for a higher gold price look very good. As gold price approaches the $1,000 level, the markets may see some renewed buying from some of the central banks. According to him, the next support level test will be at $ 1,025. Levenstein believes that gold will find support at prices around $ 1,025 and that this correction is almost complete.
Carlos Sanchez, associate director of research with commodity research and consultancy CPM Group, says gold may have support at $1,050 and then $1,020 and $1,000. He doesn’t believe prices will fall below $1,000 until US interest rates are raised, or at least expectations of higher rates increase.
Higher interest rates would likely boost the dollar, adding pressure to gold. Like him, many speculators have hatched their bets on gold settling down to anywhere between $1,000 to $1,025 per ounce levels.
MF Global analyst Tom Pawlicki begs to differ, though. The downward move could carry the market toward the $1,018-$1,033 support range by the end of this month, but it is too early to look for a break of $1,000 because of bargain hunting amid this price decline, he feels.
International analysts are pinning their hopes on the Indian and Chinese markets to help push up prices again. China may see some amount of buying because of the Spring Festival around the corner.
In India, markets underwent a correction last week reflecting international price movements. A report filed by Reuters said gold prices were being viewed as a positive by many investors in the East. Quoting Koichiro Kamei, managing director at research firm Market Strategy Institute, Tokyo, it said while a reduction in risk-taking and a falling euro were restricting gold price, some investors were viewing this as an opportunity. Kamei said concerns about waning risk appetite and the euro’s slide were playing against gold, but at the same time lower prices were attracting physical buyers widely from Asia, particularly China. The report quoted Richard O’Brien, president of Newmont, a gold producer that has been in business since 1921, who said prices will rise again due to the fact that the commodity cannot be diluted.
O’Brien said gold this year could land up somewhere between US$ 1,100 and US$ 1,250, maybe US$ 1,350.
But a section of the Indian analysts tracking gold do not share the same optimism as their European and Chinese brethren. This section is of the opinion that there will be no boost in demand for bullion in the short-term.
Many bullion followers are happy that the sell off in gold in recent days has brought the price of the metal closer to what some investors consider to be a more rational level.
“At the very least, some degree of irrational exuberance will be shaved off by fear, and a corresponding degree of level-headed sobriety could come in and replace it,” said Kitco Metals analyst Jon Nadler, in a report in the Wall Street Journal.
Gold futures for February delivery settled Friday at $1,052.20 an ounce. The contract declined nearly $60 in the final two sessions of the week, amid rising concerns about the health of the global economy and debt problems facing euro-zone countries. The latest move has coincided with a strengthening of the dollar, as investors move out of assets that are considered riskier.
Some last minute fight back saw bullion making a come back before markets closed over the weekend. Last Friday, gold stocks saw a surge in their price, helping the Toronto stock market to close higher after a volatile session highlighted by investor turmoil over doubts that European countries could get their massive deficits under control and mixed employment reports. The S&P/TSX composite index come back from a 138-point deficit to close 94.36 points higher at 11,223.12.
Monday, too, saw some good news emerging from the European markets. Gold gained in London as a halt in the dollar’s rally increased demand for the metal as an alternative investment. “The dollar is down and stock markets have recovered,” said Peter Fertig, owner of Quantitative Commodity Research Ltd in Hainburg, Germany, while speaking to Bloomberg.
“While gold’s longer-term investment credentials remain sound, the metal is temporarily caught up in the slipstream of uncertainty currently being generated,” said Gavin Wendt, a senior resource analyst with Mine Life Pty Ltd in Sydney.
Eight of 16 traders, investors and analysts surveyed by Bloomberg said bullion would fall this week. Six forecast higher prices and two were neutral.
According to MarketWatch, Randgold Resources on Monday said its profit had more than tripled during the fourth quarter as it increased production and benefited from rising gold prices. Randgold said its profit rose to $32.1 million from $9.12 million during the quarter, and its annual earnings per share of 84 cents came in ahead of the 73-cents-a-share analyst estimate. The company’s fourth-quarter production rose to 137,332 ounces from 118,925 ounces, and combined with a 39 per cent rise in average gold prices, gold sales rose 34 per cent to $139.2 million.
Randgold said the rising production was due to an expansion at its Loulo operation that’s 20% held by the government of Mali.
Gold Fields has declared an interim dividend of 50c a share, which amounts to half of the dividend payout in terms of dividend policy and is 65 per cent higher than the interim dividend paid in 2009. Gold Fields’ net debt has remained consistent in the December quarter at R6,7-billion, with its decrease of cash on hand to R1,8-billion reflecting a consistent net debt.
Gold Fields is one of the world’s largest unhedged producers of gold with attributable production of 3.6 million ounces per annum from 9 operating mines in South Africa, Ghana, Australia and Peru. Net profit in the December quarter increased R400-million to R1,6-bilion and normalised earnings to more than R1-billion. Operating profit increased 25 per cent to R3,5-billion and the operating profit margin rising to 43 per cent.