Bullion’s strength is being tested - this time round it is not just against the U.S. dollar, but also currencies across the board. As volatile currency markets and solid investment demand spur bullion buying, spot gold price ounce rose as high as $902.50, the loftiest price ever since October 10, 2008.
The price of gold rose to a three-month high, climbing past $900 an ounce in both New York and London for the first time since October, as global equity markets tumbled, boosting demand for a safe harbor. It rose to an all-time high of 700.37 in euro terms, and a record 659.71 pounds when priced in sterling.
“There is ongoing nervousness in the market about the banking sector,” said Tom Kendall, precious metals strategist at Mitsubishi, who spoke to Reuters. “If you are looking to park your cash …there are not many options around and gold is one option.” Demand for investment products such as coins and bars and physically backed vehicles such as exchange-traded funds has been strong all of last week.
Call volume popped up significantly on Friday in a gold-related exchange-traded fund which was mostly tied to a large option trade that would benefit from a rise in the fund’s shares and a rally in the precious metal. Shares in the SPDR Gold Trust, the world’s largest gold-backed ETF fund, rose 4.66 per cent to $88.53. Options volume pegged to the fund’s shares was four times the normal level as about 167,000 calls and 49,000 puts changed hands, according to option analytics firm Trade Alert.
“I think that people are coming to the new year realising that the financial crisis is going to last longer than they had expected,” said Caesar Bryan, portfolio manager of GAMCO Gold Fund. Bryan, who manages $350 million in fund assets, said that more nervous investors were turning to gold because of high volatility in the foreign exchange market.
Added Simon Weeks, director of precious metals at the Bank of Nova Scotia, “Investors are getting out of currencies and getting into gold.”
Strength in the dollar against the euro tends to weigh on gold, which is often bought as a hedge against weakness in the U.S. currency. This correlation has been trumped by interest in bullion as a safe haven.
“Investors are starting to see that the yellow metal is one of the few havens for protection from what is an inevitable wave of inflation,” said Kevin Kerr, editor of Global Commodities Alert. “Technically, gold is surging through some key levels, along with silver, and we are starting to see investors dip their toes back in the market,” Kerr said.
In India, January 25 turned out to be a historic day for the gold market. Spot gold prices surged to touch a historic high of Rs 14,150 per 10 grams in several jewellery stores across the country.
Gold markets in many cities remained open on Sunday, as Monday, January 26 is a holiday in India as the country celebrates its Republic Day.
On Sunday, gold prices rose by Rs 450 per 10 grams compared to the market price on Saturday. India is the largest consumer of gold in the world. Analysts said gold prices have gone up to such dizzy heights in the country because of the continuing rise in the prices of the yellow metal in the international market thanks to the global economic meltdown.
Win Win Situation
A world away in London’s financial district, the price of gold is still a lot higher now than the low of US$250 in 1999, when investors bought stocks and houses, and kept money in high interest accounts. “Gold has always been about wealth preservation, not wealth creation,” says Mark O’Byrne, director of Gold and Silver Investments, a precious metals broker in London. “In good times there are far better ways to make money, but in bad times, holding gold coins and bars is a way of making sure your wealth doesn’t disappear altogether.”
This past fall, as banks in Europe and America teetered on the brink of collapse, house prices went into freefall and stock markets slumped, gold’s value soared as it took on its age-old role as a safe haven in times of trouble.
One of London’s most established gold bullion dealers, ATS Bullion, had lines outside its offices tucked away by the entrance of central London’s Savoy hotel. Another bullion dealer, Baird & Co, said business jumped 40 per cent in the same period, and it was inundated with so much demand for gold bars that it could only take orders from its best customers.
Also in Egypt, Centamin Egypt, a gold mining company,Â has said it has entered into a new Canadian $60 million agreement with a syndicate of underwriters. Centamin has been exploring for gold in Egypt since 1995 and holds an exploitation lease over the Sukari Hill gold project, which has a current resource of 9.01 million ounces of gold measured and indicated.
Led by Thomas Weisel Partners Canada and Cormack Securities, the syndicate has agreed to buy 92,308,000 ordinary shares from the gold exploration firm on a bought-deal basis to sell to the public. Though the deal is currently subject to approval by the Toronto Stock Exchange, the company has plans to use the net proceeds of the offering for the continued development of its Sukari gold project in Egypt.
In a breakthrough announcement, the Shanghai Gold Exchange has allowed individual investors to participate in the spot transaction of real gold. SGE, the country’s first such exchange which was set up in October 2001, began free trade in gold one year later, but it served only institutional investors. As of Friday, individual investors have been allowed to buy and sell Au99.95-category gold.
A Nome-based airline has struck gold by offering passengers working for mining companies service to the Russian Far East. Bering Air is flying workers of Russia’s Juliana and Kupol mines who have contracts with Kinross Gold Corp (TSX K). Bering’s founder Jim Roe said, “Flights from Nome to mines in Chukotka are being boarded by Canadian mine workers. We usually do two charters a week in the summer months, and one a week in the winter.” Chukotka is located less than 50 miles from Alaska across the Bering Sea, but is 21 hours ahead of Alaska time.
Kinross, a Canadian-owned mining firm finished the construction of the Kupol mine in July 2008 in a joint mining deal with the government of Chukotka. Kinross owns a 75 per cent share and the regional Chukotka government has a 25 per cent interest, said Louis Diaz, a Kinross spokesperson. The Kupol mine alone needed US$360 million to develop the mine near Bilibino on the northeast peninsula of Chukotka.