Gold for April delivery, the most actively trading contract, ended at $942.50 on the Comex division of the New York Mercantile Exchange on Friday. The metal surpassed $1,000 an ounce the previous Friday, but last it has lost $60. The contract rose 7.4 per cent this month.
Gold is undergoing a pullback after topping $1,000, said Peter Spina, an analyst at GoldSeek.com. “$1,000 was a strong technical barrier and it was played by many trader-technicians,” he added.
U.S. bullion dealers say the demand for gold and silver coins and investment bars so far during 2009 is perhaps the strongest they have ever seen. Investors are snapping up physical metal amid ongoing worries about other financial investments, the health of the global banking system and fears about inflation down the road due to fiscal-stimulus efforts.
Buying gold in times of economic uncertainty isn't new, but bullion dealers have noticed some differences in this investment surge. Dealers have reported growing institutional demand, rather than demand from just small retail investors, and a lack of backdated coins that historically could be bought at lower prices. Bullion dealers said supply continues to be tight, although conditions have improved somewhat from 2008 when many of the mints around the world at times had to suspend sales due to a lack of blanks.
We're having some of our strongest months ever, said Scott Thomas, president and chief executive of American Precious Metals Exchange in Edmond, Okla. The bottom line is our numbers are probably double what they were last year, and last year was very busy. The demand is incredible. And even the strong prices for metals are not slowing it down.
James Cook, president of Investment Rarities in Minneapolis, told a newswire agency that last week may have been the busiest for retail sales since he started his company in 1973. When they (Obama administration officials) came out with the new bailout plan, people were alarmed at what could happen to the purchasing power of the dollar, Cook said. His company's sales are roughly 75 per cent silver and 25 per cent gold. Physical sales of bars and coins last week totaled $5 million.
He was not the only one who made money. Gold tends to do well in financial turmoil — be it deflationary or inflationary — and poorly in good times. Since the current global economic mess is far from over, now’s a great time to take a look at getting some, analysts aver.
Mining stocks swing
When Eldorado Gold Corporation (AMEX:EGO) withdrew its planned offering of common stock on Tuesday, its shares and those of competitor miners fell sharply. Eldorado opened the day at $9.34 and closed it at $8.19, off more than 12 per cent. Royal Gold Corporation (NASDAQ:RGLD) fell from $44.85 to $41.22, down about 8 per cent; IAMGold dropped from $8.74 to close at $7.66, down more than 12 per cent; and Gold Star Resources, Ltd. (NYSE:GSS) dropped from $1.40 to $1.16, off about 17 per cent.
Two gold ETFs, SPDR Gold Shares (NYSE:GLD) and Market Vectors Gold Miners (NYSE:GDX) both fell sharply as well, but both have recovered some. Miners, especially the smaller ones like Eldorado and Royal Gold, will continue to struggle with liquidity as the economy remains sour, state analysts. Mining ETFs like Market Vectors Gold Miners will follow along because the large gold miners like Barrick Gold Corporation (NYSE:ABX) included in the fund are also struggling to lower costs and increase production, they say.
However, gold mining companies listed on the NYSE witnessed a positive run last week. Harmony Gold Mining Co.(HARJ) closed positive on Thursday on NYSE as the stock had appreciated from its 52-week lows of US$5.47 during October-November 2008 to US$12.41 at present. Similarly stock prices of Gold Fields Ltd, (GFIJ.J) one of the largest gold miners in South Africa, rose from its 52 week low of US$4.64 on 24th October 2008 to US$10.30 last Thursday.
Gold miners’ shares have done well relative to other sectors too, and Canada’s Kinross Gold (TSX:K) and Australia’s Newcrest Mining (NCM:ASE) had outpaced the metal since the end of October 2008. Production costs, mainly energy and steel, have come down for gold miners, which have helped them boost their margins.
Experts have warned about the volatility of gold mining shares, which is far greater than bullion itself, that for every 1 per cent fall in the price of gold, gold miners’ shares would fall 3 per cent. They have also recommend investors to hold 5 per cent of their portfolio in bullion and another 5 per cent in gold miners.
Others insist that the golden scenario for the gold price is being set up, and further problems in the financial sector and a slumping stock market can only increase the safe haven appeal of gold. A few nasty shocks could yet power gold up to $1,200 over a few trading sessions. Indeed, is there any current scenario that looks bad for gold? Even in an all out deflationary collapse gold would hold its value better than probably any other asset, and decline less in relative terms.
The argument then of not to hold gold just does not make any sense at the moment, and the case for increasing investment allocation to the yellow metal, and associated assets like silverÂ and precious metal stocks is overwhelming. That ought to keep the price up and send it higher, some analysts have noted in their reports.
Amidst dwindling property prices, increasing unemployment and dip in equity trading, there is a glittering line of hope as far as gold investments are concerned in the Middle East nations. Gold investments across the Gulf countries are set for a sharp rise this year. According to the World Gold Council, several Middle East nations including the City of Gold, Dubai, are going to be action centers for gold investments.
We feel Middle East nations are going to witness lots of investments in gold sectors. Several global companies including gold mining processing and production companies are looking at Middle East for major investments, says Lama Al Saheb, head of marketing WGC head of marketing in Middle East.
Dubai's gold import registered a significant increase of 21 per cent to 674 tonnes in 2008 as against 559 tonnes in 2007 while exports rose 29 per cent to 371 tonnes compared to 287 tonnes in the previous year. According to Dubai Multi Commodities Centre, gold trade in Dubai touched a record $29 billion in 2008 or up by 53 per cent as compared to the $19 billion in the previous year, owing to the mass inflow of scrap gold when gold prices rose to all time high in 2008.