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Gold prices have moved higher in recent days and last week it broke through $320 an ounce for the first time since October 1999.
In recent weeks, much of gold’s success has been attributed to weakness of the dollar, an uncertain global economic and security outlook, and a reduction in forward selling by producers. Many analysts attributed its latest burst of speed to safe haven buying.
Andy Smith at Mitsui points out that speculative gross long positions on Comex are their highest since 1993. But this time there are more than 90 large speculators, compared with a maximum of 77 in 1993. He suggests the fact that the long position if spread more thinly could make gold’s gains more sustainable. The recent surge in the price of the metal showed that it has gained 15 per cent since the start of this year and brought gold back from the doldrums to the frontline of the investment activity.
Gold broke through the key $300 mark at the end of March after the Israeli troops launched its military aggression into the West Bank after a series of Palestinian attacks in Israel. Despite profit-taking, gold demand looked strong and a retreat below $310 is unlikely in the short-term traders said.
Andy Maag, meals analyst at the UBS Warburg, said a huge wave of profit-taking in gold was unlikely as the market consolidated in a $315-$320 an ounce, while the Barelays Capital said conditions remained in place for a tilt to $325. Other precious metals were lower in line with gold.
In the first quarter of 2002, global demand for gold fell by 10 per cent to 749.5 tons compared with the same period the previous year, despite greater investment interest in the metal.
The World Gold Council said in its quarterly Gold Demand Trends report that the first three months of 2002 were characterized by strong investment purchases especially in Japan, but this was offset by the floundering jewellery demand. A week global economy and concern about the tension in the Middle East put pressure on the jewellery demand, particularly in India, the Middle East and Thailand. Overall consumption was down by 15 per cent at 623.9 tons.
According to a recent study on silver trends, the metal is expected to rebound this year raising silver prices, as the world economy recovers from its slump.
In the World Silver Survey 2002, the precious metals research company Gold Fields Mineral Services, said the rebound in the global GDP is starting to lead to higher demand for a wide variety of silver containing products.
Last year a total of 863.6 million ounces of silver were used commercially, down from 907.8 million ounces in 2000. Of that, 338.5 million ounces went to industrial applications, compared with 377.1 million the year before, with electrical and electronics taking the lion’s share at 133 million. The health of the electronics industry, in particular will be an important factor for the rest of the year, the study said. The photography sector, the biggest consumer of silver, bought 210.2 million ounces, down from 219.5 million. The supply of silver to the market from all sources fell to 880.3 million ounces from 936.30 million. But conventional supply from mines and recycling rose to 774.2 million ounces from 760.4 million. That left a structural supply deficit of 89.4 million ounces.
“Chinese government sales accounted for 75 per cent of the world’s total of official stocks sales”, the release said. “The survey’s authors conclude that China does not have the capacity to supply indefinitely the market at the kind of levels seen in the last three years”.
