UBS Warburg:
Gold firmed further yesterday after weak economic data led equities and the dollar to sag. Now that the equity markets have realised that economic data is not really supportive of a surging shares, gold may find some more friends in coming days. We continue to favour a move to the upside in the near term.
Gold: China’s first gold exchange began formal trade on Wednesday in a long-awaited launch marking a key step in the liberalisation of one of the world’s largest precious metals markets. The price of gold of 99.99 percent purity jumped in the first 10 minutes, hitting 92.38 yuan ($11.16) almost immediately after opening at 83.98 yuan per gramme, bank dealers told Reuters. Analysts said the Shanghai-based exchange was a turning point for China’s massive but insular precious metals market. The government has
maintained a tight grip on the market since the Communist Party took power in 1949. Before Wednesday, the central People’s Bank of China acted as the sole intermediary between domestic gold buyers and sellers (Reuters).
In other news, Australia’s Newcrest Mining Ltd said on Wednesday it was committed to simplifying its gold hedge book after A$74 million in accounting provisions wiped out benefits of lower production costs last year. Newcrest, Australia’s second largest g old miner, held (a hedge book of about) 5.7 million ounces -- more than six years’ production. It also hedges some of the copper it mines.
"The board is committed to simplifying the hedge book, which in future will be used only to provide a floor to underlie our capital investment while at the same time retaining maximum exposure to rising gold and copper prices," Newcrest Chairman Ian Johnson told the annual meeting of shareholders.
Trading: In New York, gold opened at 316.90 / 317.20 and traded higher as one US bank was an obvious buyer of 50koz on the floor. Still, gold remained in a relatively tight range until the release of the weaker than expected consumer confidence data gold jumped a dollar but found good resistance around the $318 spot level. For the rest of the day gold traded quietly, belying the higher spot price until late speculative buying saw the metal end firm. In Asia, gold opened lower and traded quietly between $316 and
$317. Gold is quiet in early European trading, perhaps related to the after effects of the LBMA Bi-annual Dinner last night.
View: Gold is at the upper end of our expected range and has moved steadily higher over the past couple of days. We do not think that there are material stops above the market as the market is not short, however, the metal feels firm and we belevie that the bias remains to the upside.
1m 3m 6m 1y 3y 5y 10y
USD/XAU Impl Opt Vol (Mids) 14.95 15.2 15.1 14.65 13.4 12.75 12.2
Gold Fwd Rates (10:30) 1.66 1.50 1.23 1.07 1.57 2.17 3.32
Silver: Trading: After a miserable end to last week silver finally came to life yesterday. Early professional buying during European hours was followed by commission house buying after the Comex open in New York. Stop hunting from one trader triggered buying above $4.49. After these stops were filled silver then dropped a couple of cents and stayed quiet for most of the rest of the day before late aggressive buying from one US bank saw silver end near the highs.
View: We continue to expect silver to rally further due to speculative short covering. Although the recent flurry of borrowing proved to be short lived, the increase in the net short position may persuade traders to have another go at silver over the next couple of weeks.
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