Gold
GOLD spiked to a 23-year high and silver rose to its highest for 18 years on December 2 in a volatile bull market driven by fund managers who are seen pushing the market higher, dealers said. Spot gold rose to as high as $506.50 an ounce, its highest since February 1983, but eased to $502.60/503.40.
Earlier gold had reached a new 18-year high on November 29, when it burst through $500 a troy ounce on a wave of buying from the Japanese private investors. The price of gold bullion has been rising since 1999, marking its longest upward run since it was freely floated in 1968. But its recent run to record levels has come as the dollar has risen to two-year highs against key currencies and as oil prices have fallen – two factors that would normally drag gold prices lower.
The latest price surge appears to have been driven purely by speculative interest from private investors in Japan. Gold rose to a peak of $502.30 during Asian trade but fell back during European trade to $498. Gold was also at long-term highs in other currencies, including the euro, yen and sterling.
The last time gold moved above $500 was in December 1987 but it only stayed there for a day. In 1983 it remained above this level for 10 days. During the heady days when gold peaked at $850 in 1980 the precious metal remained above $500 for 13 month.
Gold has risen in all significant currencies this year, as it has de-coupled from traditional role as a negative correlation to the dollar. Gold rose to a record high in euro terms at 426.65 euros. In terms of the British pound, gold surged to 291.79 sterling pounds, the highest in nearly two decades.
Gold’s rise was accompanied by platinum breaking through the $1000 an ounce level for the first time since 1980. This is a 26-year high.
A remarkable feature of the current rally is the breaking down of the traditional linkages between the prices of gold, dollar, euro and crude oil. Traditionally, gold has been treated as a proxy for dollar and as a hedge against inflation. Whenever the dollar fell, investors got out of the greenback and took positions in gold. Thus, there has been a negative correlation between the greenback and gold. By the same token, gold prices and the euro moved in tandem. So, whenever the euro was invested in gold, there would be no appreciation.
This trend has now been reversed. Between September and now, gold has appreciated substantially even though the dollar has strengthened against the euro from $1.2390 a euro on September 1 to $1.1808 a euro on November 23. This signals that the greenback-gold link has been broken and the euro-gold relationship has turned inversed. Even the commodity market is discovering a new correlation between crude oil and gold. Gold prices are moving up when crude prices are down. It could be argued that now gold has become an independent investment by itself and not a proxy for currency.
Gold mine supplies have remained flat in recent years in the face of rising demand. Global gold production peaked in 1999 at just over 2,600 tons, having risen steadily from 1980 base of about 1,300 tons. In 2004, global gold production was 2,464 tons.
Mine production has remained relatively flat for the past eight years and is now not enough to fill annual gold jewellery demand. Gold output has matured among traditional producers – South Africa, the US, Canada and Australia.
Copper
Copper prices have fallen after record highs a few weeks earlier, as China announced plans to hold three further public auctions — a move intended to calm fears over potential market instability China’s State Reserve Bureau announced plans to sell additional copper stocks in an effort to calm fears that China is struggling with an obligation to deliver large amounts of the metal to the world market over the next month.
Copper prices fell close to a two-week low of $4,020 a ton before recovering to $4,098 in late trade on the London Metal Exchange. But they remained six per cent below the peak they reached on November 18, on rumours China had a large short position of between 100,000 and 200,000 tons of copper that it needed to cover next month.
The state bureau has not confirmed its trading position. Last week, prices have weakened on speculation it has rolled forward its short, position over the next two years, reducing the need to deliver vast amounts of the metal to the LME warehouses in December.
Over the past two weeks, the Chinese bureau has held two copper auctions to sell 40,000 tons and said it would hold another three auctions in the coming weeks to sell a further 60,000 tons as part of an effort to calm the market. However, last week’s auction only managed to sell about two-thirds of the 20,000-tonne planned sale. Barclays Capital said the lacklustre buying was the result of the reserve price being set at market prices.
Oil
A forecasted blast of cold weather in the United States shoved crude oil prices above $59 a barrel on December 2 despite further assurances from oil cartel Opec that it would pump flat out to fill fuel tanks this winter.
Private and government forecasters expect an arctic chill to hit the US East Coast by the end of the week and remain until mid-December, possibly shoring up demand for heating fuel after a warm spell.
By the close of last month, oil prices extended losses owing to warmer temperatures in the US northeast region, the world’s biggest consumer of heating fuel. New York’s main contract, light sweet crude for delivery in January, dropped 46 cents to 56.90 dollars per barrel in electronic dealing.
The contract had closed 1.35 dollars lower at 57.36 dollar per barrel on November 28. In London, the price of Brent North Sea crude for January delivery fell 53 cents to 54.35 dollars per barrel.
“The market remains led by prospect of warmer-than normal weather in the US dampening heating oil demand,” analysts at the Sucden brokerage firm said. The US northeast accounts for 80 per cent of US demand for heating fuel.
Inventories are currently running at above year-ago levels, which is adding to pressure in the market,” Sucden said. Its analysts noted that US crude stocks were 34.2 million barrels higher than at the same time in 2004 — a figure that was “well above” the average for this time of year. The distillate stocks which are heating fuel were meanwhile 3.4 million barrels higher than a year ago. Taken alone, heating oil stocks were up by five million barrels.
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