UBS Warburg:
Gold had a comparatively quiet day yesterday and continued to broadly follow the moves in the FX market. With the dollar weak again this morning another test of recent highs around $356 / 357 looks possible although there was good evidence of decent OTC selling interest at that level.
Gold: News: Mali aims to overtake Ghana to become Africa’s second biggest gold producer after mining 60 tonnes of gold in 2002, President Amadou Toumani Toure said. Toure also said he wanted more transparency in the sector so that Malians could have a better idea of what was done with the proceeds from gold, the impoverished West African country’s biggest export earner. "At the moment, we are convinced we can overtake Ghana to get the second place," Toure told national media. Ghana exported some 70 tonnes of gold in 2001, while South Africa -- the continent’s top producer -- mined some 388 tonnes in 2002. Toure said the Treasury had earned 50 billion CFA francs ($80 million) from its share in the country’s gold mines in 2002. The 60 tonnes produced
last year compared with 51 tonnes for 2001. Toure said Malians should know more about the country’s gold industry. "This is why I have decided that an annual report will be published, explaining everything about gold output, receipts, revenues, and what has been done with the revenues", he said.
Trading: In New York, gold opened lower due to speculative selling and the Comex floor was awash with rumours of a large CTA liquidating long positions. Gold settled into a range of $352 / 353.50 for the rest of the day after this selling ceased with a US equity market recovery and a lower EUR adding to the pressure in gold. In Asia gold traded comparatively quietly, supported by late weakness in the US dollar.
View: The current levels of speculative long position held on Comex are almost unprecedented but in light of the recent additions to the net longs, it seems likely that new money has been attracted into the gold market. Since the size and durability of these flows are unknown and there are few obvious sellers of gold in evidence then gold could hold these levels or even make further gains. We would caution, however, that speculative-led rallies could end as quickly as they have started; physical demand is not supporting the gold price at the current levels.
1m 3m 6m 1y 3y 5y 10y
USD/XAU Impl Opt Vol (Mids) 21.0 19.2 17.9 16.9 14.53 13.46 13
Gold Fwd Rates 1.30 1.25 1.12 0.99 1.37 2.00 3.08
Silver: Trading: In New York, silver had a quiet day with little interest seen.
View: Silver’s catch-up rally has been almost entirely driven by Comex-trading speculators. With a much higher proportion of industrial applications, silver’s prospects looks uncertain at these high levels.
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