Monday June 25, 11:00 am Eastern Time
Merger news makes ripples in European gold market
biz.yahoo.com
LONDON, June 25 (Reuters) - Gold prices dipped back into negative territory in late European trade on Monday after news that two of the world's major producers planned to merge and the resulting hedge position would be
some 18 million ounces, traders said. ``The question is how bearish is this news and how high will lease rates go?'' said one analyst.
Barrick Gold Corp. (Toronto:ABX.TO - news) (NYSE:ABX - news) -- currently North America's second largest producer -- said it would buy rival gold producer Homestake Mining Co. (NYSE:HCX -news) in a $2.3 billion share exchange that it said would create the world's second biggest gold miner. The new merged company would have a hedge position of 18 million ounces and this could have a significant effect on the market, dealers said. ``If this is a new hedging position, the bullion bank would sell spot and borrow metal so the spot price would go down and the lease rates would go up,'' said one London-based dealer. ``But it's not a new mine, not new production, so the impact may well not be that major.'' Lease rates were last around 2.25 percent for one-month metal, historically high but still below records set earlier this year around seven percent. Higher lease rates signal a tightening market and suggest better long-term prospects for gold. The spot price meanwhile was at $272.80/$273.40 at 1450 GMT, down from the previous New York close at $272.30/$272.90 on Friday and well off the intra-day high of $274.90 bid. ``We could see the price head to a new all-time low (below $255) as it heads into backwardation,'' said one analyst.
``With money rates at less than four percent, gold will go into backwardation soon and this will perk people up to the big story of the year. Anglogold isn't going to just sit there, it's going to buy something else. This will accelerate thinking about consolidation which will net-net add to hedging and net-net add pressure to lease rates and downward pressure on price.'' Mergers and consolidation within the gold industry have been the buzzwords for some time now and speculation that Anglogold is ready to pounce is forever rife. The market had little other news on Monday and was expected to wait for the results of the U.S. Federal Open Market Committee (FOMC) on Tuesday and Wednesday before making any big moves. Expectations were for further interest rate cuts.
Elsewhere in precious metals the market was quiet, with silver failing to follow gold's mvoes, last at $4.31/$4.34, only slightly up from $4.30/$4.32 at the New York close. The platinum group metals (PGMs) had fallen back as their prices continued to diverge, upsetting a prediction and trend for parity that had been in place since the start of the month. Platinum was at $572.00/$577.00, unchanged from Friday's New York close, while palladium was at $607.00/$617.00 against $608.00/628.00. |
