Gold gain points to currency risk
'Strange' buying of metal may be sign of distress
marketwatch.com
SAN FRANCISCO (CBS.MW) - As the world's economic leaders meet in New York, professionals wonder whether gold's steady price rise this week is the first crack in the global currencies dam.
UBS Warburg's precious metals team Friday said, "Gold remains strangely supported despite the strength in the U.S. dollar. Although there has been news of good buying out of bank-distressed Japan, the reported quantities are not enough to explain the precious metal's recent resilience. We suspect that one or more large buying programs have been executed since the start of the year."
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As for bullion itself, the gains in the metal during a time of dollar strength, usually a downer for gold, prompt the question of who is buying -- and why.
Ken Landon, a Deutsche Banc analyst in Tokyo, explains a rising gold price almost always indicates depreciating currencies, regardless of exchange rates. In the past 12 months, the yen, he says in a report, has fallen 21 percent against gold. The euro has lost 15 percent of its value against gold. The dollar is off by 6 percent.
Landon's report is making the rounds in Asia. His view is one that may come to haunt investors in coming weeks. "The rising price of gold in all the major currencies indicates that investors have been losing confidence in the monetary policies of Japan, Europe and the U.S., in that order of concern," he says.
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Reports that Japanese consumers are rushing to buy gold, first reported here more than a week ago, might explain part of gold's recent gains. Japanese investors bought about 10 tons of gold bars and coins in January, or double the monthly average from last year, according to the World Gold Council
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Andy Smith, a Mitsui Global Precious Metals analyst in London, tells me Friday it is almost always the mining companies who are responsible for large purchases and sales of gold. Many gold mining companies hedge their books by selling some of their production forward to lock in slightly higher prices, thus creating a need to buy gold in the futures markets.
"The finger in the air should normally point to miners," says Smith, whose price-range forecast for gold this year is $265 to $355 an ounce. See more on Smith. Smith said in the fourth quarter of last year alone, net buying by just two large gold miners, South Africa's Anglogold Ltd. (AU: news, chart, profile) and Australia's Normandy Mining (AU:NDY: news, chart, profile), amounted to more than 90 tons. |
