By Kishori Krishnan Exclusive To Gold Investing News
The firmer dollar has curbed buying of the precious metal as a currency hedge. An immediate consequence - gold prices slipped another 1 per cent on Thursday, extending the losses of the two previous sessions.
After a pretty impressive run last week, where there was ample profit taking, gold failed to break through $920 an ounce. Commerzbank senior trader Michael Kempinski said, “Gold is also re-establishing its relationship with the dollar and oil after dissociating from its two main external drivers last week, as risk aversion came to the fore.”
The dollar climbed overnight as investors took heart from U.S. Congress’ headway on a $825 billion stimulus package. U.S. President Barack Obama’s plan cleared its first Congressional hurdle, passing through the House of Representatives, as the Federal Reserve eyed more extreme measures to ease credit market strains.
Crude oil, meantime, rose slightly, despite more inventory builds amongst U.S. stock-piles. The gold price in Euros fell to about â‚¬674, platinum closed at $950, and copper rose slightly to $1.48. Gold mining and silver equities traded slightly lower and ended with about 2% losses.
Frank Lesh, a trader at Future Path Trading LLC in Chicago, has maintained that the current climate represents a good opportunity to buy gold. Gold price - which rose by 5.5 per cent over the course of 2008 - has suffered a mini-slump in the past few days, falling to lows last seen mid-December. However, Lesh noted to Bloomberg, that it outperformed all other raw materials last year in a tough environment and that it will continue to grow - meaning the recent slip is a good chance for investing in gold.
“Gold is not as weak as some of the other commodities. Volatility in other markets and the geopolitical tensions are always supportive for gold. Even a small dip in price is a buying opportunity,” he said.
That view was also expressed last week by Tim Coughlin, the president and founder of Lydian International, a major Canadian-listed mining, development and exploration company. In an interview with a wire service, he revealed that he expects gold to perform well in the coming months. “I know it is volatile, like everything at the moment, but we will hopefully bounce along the bottom of this trough,” he told Reuters. “But I think gold is looking good over the medium term.”
As if on cue, South African gold major Gold Fields (GFIJ.J), and the world’s No. 4 gold producer, said on Thursday its December quarter earnings rose more than four-fold on a weaker rand and forecast higher output, sending its shares 6 per cent higher. Gold Fields’ balance sheet remained robust with manageable debt levels and adequate liquidity, despite the current credit crisis, CEO Nick Holland said.
The company reported headline earnings for the quarter ended December 31, 2008, of 74c a share, compared with 6c a share in the quarter ended September 2008. This also was slightly higher than the 70c a share achieved the year before. Adjusted earnings had increased to R542-million, compared with R120-million in the quarter ended September. This was, however, down 10 per cent on the adjusted earnings for the second-quarter ended December 2007.
Meanwhile, gold production for the second quarter increased by 5 per cent to 839 000 oz, compared with 798 000 oz produced in the quarter ended September 2008. Production at the South African operations has increased by 2 per cent to 492 000 oz.
Incidentally, the price of Randgold Resources Limited (LSE RRS) has almost doubled since November 2008 coming back from a low of $22.50. Investing in this sector of the market is certainly volatile and not for the faint hearted.
Randgold has a market capitalisation of $3.22 billion, a P/E ratio of 68.78 with 76.50 million shares outstanding. The average volume of shares traded is 1.07 million per day. This stock had a 52 week high of $56.28 and a 52 week low of $22.28.
Meanwhile, the booming gold market in India that imports and consumes the largest quantity of the yellow metal in the world is attracting global players. Leading global banks are now lining up to trade gold in India.
If Scotiabank is given permission, the bank may enter into a strategic tie up with either HDFC Bank or ICICI Bank to start trading in gold and other precious metals through India’s commodity exchanges. Scotiabank is in the process of setting up a wholly-owned subsidiary to trade in gold.
Incidentally, Scotiabank has branches in major Indian cities like Mumbai, New Delhi, Bangalore and Coimbatore. The Canadian bank now plans to increase its branch network in India. “We are planning to foray into commodities trading in India. Our target is gold, as for people in India, gold is the best investment opportunity,” said an official with Scotiabank. One of North America’s leading financial institutions, Scotiabank has a presence in 50 countries with over 2,000 branches.