Barrick Buyback Rumors Drive Soaring Gains for Gold Futures
By GAVIN MAGUIRE
OsterDowJones Commodity News
NEW YORK -- Gold futures on the Commodity Exchange division of the New York Mercantile Exchange soared on rumors that Barrick Gold Corp. was buying gold to cancel forward sales, and on a weaker U.S. dollar.
The most active December gold contract climbed $8.80, or 2.9%, to $316.10 a troy ounce.
Dealers said rumors circulated early that Barrick Gold, a Canadian mining company, had opted to buy back part of its forward sales agreements through two large U.S. investment banks, which duly bought heavily.
A Barrick spokesman said he wouldn't comment on the rumor, but referred to the company's recent announcement that it would be reducing its hedge book by a further one million ounces by the end of this year.
As a result of the rumor, many players held off selling into the resulting strength until clarification came as to the origin of the buying interest.
The rising prices then prompted increased levels of trade interest, as various U.S. commission houses either covered short positions established within the past two weeks, buying futures to negate previous sales, or bought futures outright.
One investment bank was said by traders to have bought around 2,000 contracts within the first hour of trading alone, which coincided with the majority of the price move seen Wednesday morning.
John Johnston, vice president at Refco LLC, said, "basically, the rumors were of a quality name making a buyback, and that caused the sellers to hold off and drew in a drag of buyers."
He and others said that actual volumes were still relatively light -- estimated at 42,000 lots versus 25,000 Tuesday -- and that the movement was accentuated by the prevailing thin conditions during the slow summer months.
Adding to the upside momentum was a weaker dollar, which rendered gold slightly cheaper to non-U.S. consumers, and statements from giant gold miner Newmont Mining Corp. that declining gold production would help prices over the coming five years.
"When we look at the fundamentals for this [gold] industry over the next three, four, five years, we see production declining 2% to 4% a year," said Newmont Chief Executive Officer Wayne Murdy on a conference call discussing the company's second-quarter results released Wednesday. "We think that bodes very well for gold price," he said.
Dealers said the recent choppiness of gold trading amid the prevailing thin conditions has left them unwilling to predict trading ranges, but many argued that from a technical perspective support should be forthcoming around the 100-day moving average around $314 initially and then at around $310, while resistance is expected around $318-$319.
"I think a 'you-first' attitude may develop over the coming days in terms of picking tops and bottoms to ranges as people don't want to get caught out again, so things could stay pretty quiet," said one analyst at a large futures brokerage firm.
Leonard Kaplan, president of Prospector Asset Management, a precious metals consultancy and trading firm, noted that gold fell to five-month lows of $300.30 last week amid the widespread equity-market weakness.
"These shorts were then forced to cover this morning, which helped the gold price along nicely, and now I think that if the dollar stays weak and the equities continue to struggle, we're headed higher -- probably to the low $320s for the moment," he said.
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