Gold May Rise as Demand From Jewelers Outpaces Growth in Supply
By Pham-Duy Nguyen
Sept. 4 (Bloomberg) -- Gold may rise for a second straight week on speculation demand from jewelers and investors this month will recover, outpacing production from the world's mines.
Eighteen of 28 traders, investors and analysts surveyed by Bloomberg from Sydney to Chicago on Aug. 31 and Sept. 1 advised buying gold, which rose 0.3 percent last week to $632.60 an ounce in New York. The survey results were the most bullish in seven weeks. Six respondents said to sell. Four were neutral.
Gold gained during every September since 2000 as jewelers stocked up on the metal for the winter holidays and speculators in New York and London returned from summer vacations. Mine output has barely budged in the past decade, forcing producers such as Goldcorp Inc. to acquire rivals to expand reserves.
``Our industry is not growing,'' Goldcorp Chief Executive Officer Ian Telfer said in an interview Aug. 31, after the Vancouver-based company agreed to buy Glamis Gold Ltd. for stock valued at $7.88 billion. ``New growth from mines is declining around the world, so you have production flat to down.''
Prices will climb by $200 an ounce to more than $830 in the next two years, and may reach $1,000, Telfer said.
Gold futures for December delivery rose $1.80 an ounce last week on the Comex division of the New York Mercantile Exchange. A majority of analysts surveyed Aug. 24 and Aug. 25 anticipated the gain. The Bloomberg survey has forecast the direction of prices accurately in 76 of 123 weeks, or 62 percent of the time. Prices have gained 42 percent in the past year.
`Renewed Interest'
``There has been renewed interest in gold, as evidenced by the Glamis Gold takeover,'' said Thomas Au, principal at R.W. Wentworth & Co., a New York-based consulting company.
Consolidation among mining companies worldwide has been spurred by a five-year rally in gold and soaring exploration costs. Goldcorp, Canada's third-largest producer, made more than $2 billion of acquisitions before its bid for Reno, Nevada-based Glamis. Barrick Gold Corp. bought Placer Dome for $10.4 billion in March to become the world's largest producer.
Annual mine production has been little changed at 2,500 metric tons for the past 10 years, according to GFMS Ltd., a London-based metals researcher.
A rebound in physical demand will be crucial in driving gold prices up for a sixth straight year, some analysts said. Jewelers are the biggest buyers of the metal.
September Rallies
``September will see more consumption from Indian and Chinese retail buyers'' of gold jewelry for holidays and weddings, said Ma Tian Yu, a gold trader at the Bank of China in Shanghai.
The metal has fallen only nine times in the month of September since gold began trading on public exchanges in 1975.
Gold demand fell 16 percent in the second quarter as price swings discouraged purchases by jewelers. The drop marked the third straight quarterly decline and the lowest level of demand since the third quarter of 2004. Jewelers still accounted for 85 percent of purchases in the period.
Futures have fallen 14 percent from a 26-year high of $732 on May 12, and some jewelers are using less gold on lower-priced pieces to counter higher costs for the metal.
``It has been difficult in a rising market to use the same amount of gold by weight,'' said Mark Hanna, vice president for Bel-Oro International Inc. in New York, a jewelry manufacturer who may buy 5 percent to 10 percent less gold this year. Necklaces, bangles and rings under $200 may have less gold than previous years, he said.
Adjusting to Prices
``As long as gold was in the $400 range, the business was quite stable and very viable,'' Hanna said. ``We all have to adjust. This Christmas will be a bit of a sticker shock. But next Christmas, $650 gold will be like $400 gold two years ago.''
``Between late August and late September, there tends to be a pronounced uptrend in the metal,'' said Dan Chesler, an analyst at Charttricks.com in Wellington, Florida, who studies historical price patterns. ``That's the historical tendency.''
Chesler recommended buying this week based on movements of 50-week and 100-week moving averages for the December contract.
Traders who look at price charts say the metal is poised to rise. Since spot gold plunged to $542.45 on June 14, prices have been forming a ``pennant,'' or a triangular pattern that usually indicates prices are poised to rise or fall once the apex is reached, said Phil Roberts, a technical analyst at Barclays Capital in London.
Hedge Funds
Hedge-fund managers and other large speculators decreased their net-long position in Comex gold futures in the week ended Aug. 29, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 87,716 contracts, the Washington- based agency said Sept. 1. Net-long positions fell by 8,232 contracts, or 8.6 percent, from a week earlier.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net
Last Updated: September 3, 2006 12:10 ED |
