UBS Warburg:
Gold traded down to $310/oz yesterday as we have been flagging all week. From here, there may be some more downside but a number of factors are making us feel warmer towards gold than we have of late. Firstly, our FX strategists took profit on short Swiss Franc trade due after a reduction in our UBS Warburg FX Risk Index. Secondly, liquidation from Comex-trading speculators has
continued over the past few days and we now estimate that the net speculative position is approaching the lows seen during the summer. And finally, we continue to expect producers to opportunistically reduce their hedgebooks at the bottom of the recent range. Further liquidation may see gold trade down to US$305/oz but we believe that will mark the low in gold for the rest of the year.
Gold: News: Australian gold and tantalum producer Sons of Gwalia Friday warned it was unlikely to meet the market’s profit expectations for the full fiscal year to Jun 30, 2003. First half results were also set to be below expectations, although second half profits would exceed the first half due to increased gold production and tantalum sales. SOG said it has had geotechnical problems
at its Tarmoola gold mine in Western Australia, which would negatively affect output, profitability and cash flow for the quarter to Sep 30, 2002. In addition, global economic conditions have resulted in a significant fall in demand for tantalum, prompting the company to cut its projected sales for the full year by 0.3m lb to around 2 m lb. SOG will unveil its September quarterly report on Oct 22 (Platts).
Trading: Gold remained under pressure in New York yesterday after falls through European trading. Speculative selling was seen on the Comex floor after the open against interbank buying but once the bank buying was completed gold traded down to the lows just below $310/oz as equities continued to soar. More than 4000 efps were posted, indicating that the source of selling during European
hours was comex trading speculators, although we will get a clearer indication later today. Decent physical demand around the lows together with one US professional buying saw gold rally and gold ended just short of the session highs. Strong corporate result s in the US saw gold drift lower in the thin aftermarket and the metal was once again quiet in Asia with light physical demand seen.
View: Gold will continue to track moves in the equity markets but we are increasingly of the opinion that the sell off in gold is approaching an end. The COTR report, released tonight, will give us more clarity on this issue.
1m 3m 6m 1y 3y 5y 10y
USD/XAU Impl Opt Vol (Mids) 15.2 15.3 15.3 14.75 13.17 12.75 12.2
Gold Fwd Rates (10:30) 1.63 1.47 1.27 1.15
Silver: Trading: In New York, silver could not rally due to the slump in gold. Spec selling continues while one US bank remains on the bid.
View: We continue to expect silver to rally due to speculative short-covering and the recent recovery in the equity markets may prove to be the trigger for further gains.
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