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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: J.T. who wrote (6405)	1/30/2001 11:39:01 PM
From: J.T.	Read Replies (1) \| Respond to of 19219

Gold's "only saviour" is investment demand - GFMS report Old Post: 2001/01/10 By: David McKay mips1.net Gold Fields Mineral Services (GFMS), the independent UK research consultancy, provides an interesting snapshot of the torpor affecting the gold market lately. The consultancy reckons gold will continue to trade between $260 to $290 per ounce for the first half of this year and average $274 per ounce. Supply-side pressure is expected to be a factor capping a gold price recovery. However, GFMS director, Hester Le Roux, says the nub of the issue is that supply fundamentals will be little changed, apart from a modest return to producer hedging in 2001. Slightly higher mine production is expected (a two per cent increase or some 22 tons in the first half) accompanies by a reduction in overall cash costs. This is owing to the effects of currency weakness in South Africa and Australia where costs are converted into dollars. But Le Roux says that relative stasis on the supply side leaves gold market watchers to bet on either an improvement in gold investment demand or the knock-on effects of outside factors, chiefly US dollar weakness. Gold fabrication is expected to be steady to end June 2001 – a factor GFMS considers essential if gold is to remain above the $260 per ounce level. "In the short-run this leaves investment demand as gold's only potential saviour, however, as yet, there is no sign that either the weaker dollar or crashing stock markets have prompted any move into gold by investors," the GFMS Gold Update states. Investment demand, the funds that invest in commodities and equities, have tended to steer away from gold's relative quiet, according to Le Roux. So she is hoping for a more exciting year to tempt the funds back into the gold market. Might this come from a meltdown in the US? Is a economic cataclysm desirable? "GFMS recognises that there is now a chance, albeit a slim one, for recession in the United States to initiate the kind of credit collapse and financial panic that could make gold once again a safe-haven for some investors," the report says. But meltdown is clearly a cleft stick. "Dollar weakness can also be followed by a weaker US economy which would in turn blunt the appetite for gold jewellery demand," Le Roux says. Key supply-side obstacles to a higher gold price GFMS has identified four key obstacles on the supply side hindering a higher gold price. An expected 22 ton increase in mine supply in the first half of this year – some two per cent – is one obstacle; an increase in producer hedging is another. Last year, supply from hedging sank back to a mere 14 tonnes from 506 tonnes in 1999. Levels of net official sector sales are expected to be maintained. "The majority of sales are once again expected to come from Europe," GFMS says. Official sector sales in 2000 were broadly in line with market expectations at 491 tonnes, up 17 per cent on 1999's 420 tonnes, GFMS reports in its Gold Update. Finally, supply from private stocks of bullion – bar dishoarding and disinvestment – and fabricated products such as old scrap, would be likely to surge should gold to a price of $300 per ounce or beyond. Disinvestment in 2000 totalled 282 tonnes of which roughly a third was from heavy physical disinvestment of bars and coins. Le Roux says much of the coin disinvestment followed the fizzling out of Y2K fears. Strangely, the majority of last year's disinvestment cannot be identified by GFMS. Short positions by funds cannot account for some 180 tonnes, the consultancy says: "Implied net disinvestment may well therefore include some as yet unidentified alternative elements of supply, perhaps additional fourth quarter producer hedging and/or central bank sales". On the subject of short positions, Le Roux believes these were not substantial enough to support the assertions of a conspiracy among bankers to keep the gold price artificially low. This is the clarion call of Gata (Gold Anti-Trust Association) which is taking legal action against a number of bankers and other gold-related authorities on the issue. "But we're watching their (Gata's) activities with interest," Le Roux says. Best Regards, J.T.