-- Posted Wednesday, 16 May 2007 | Digg This Article
The World Gold Council and GFMS released their joint review of the world gold market in the first quarter of 2007 this morning. The WGC cites total demand for gold in the first quarter at record levels and 4% higher than in Q1 2006. Jewelry demand in India picked up a bit as prices stabilized and demand across the board in China has ramped up. Remember, it was less than three years ago gold ownership was legalized in China for private citizens. This system is just getting up and going. We haven't seen anything yet in terms of demand out of this country.
DRD Gold announced this morning that they have closed out nearly 150,000 ounces in hedges that had been on their books via some acquisitions. While certainly a marginal amount compared to the million plus ounce reductions from some of the bigger players, we're seeing more and more mid-tier and junior miners finally biting the bullet and wiping legacy hedges off the books to prepare for higher prices.
Just in the last few weeks and days the amount of chatter around PGMs in the investment world has picked up considerably. Should money start flowing into the platinum and palladium markets from the gold and silver markets we could experience some weakness in the traditional precious metals sector in favor of the PGM sector of the market. Time and monetary flow will tell.
So we've got a combination of the WGC and GFMS stating that we're seeing record demand in the market; producers are closing out hedge books left and right; mine production is slumping; despite a strong spike in April and May, central bank sales are more than likely to be short again this year; the US dollar is hanging on to the 81 index handle; so what gives? Why aren't prices higher with all of this great market news?
After charting and reviewing price action in the gold market over the past five months, it's our belief that there is a pretty significant battle going on behind the scenes in the London market which has significant spillover into the other metals markets around the globe. 84% of the last 40 trading days, market bottoms have been made during the London open. This trend generally holds true for the last year, but at a lower percentage of 72%. During periods that can be correlated with higher than average central bank sales, the percentage of market bottoms being made during the London open increases greatly. Also during the last four months, lease rates for gold have expanded three fold, most noticeably in the year long lease market. While these lease rates are still nearly razor thin, they've expanded in the last 6 months from a bottom of 0.065 to close to 0.2%.
These returns are still paltry, but seeing these rates of return triple, especially for the longer term contracts, has us believing that there has been a corresponding increase in loans into the market chasing after some of those returns further down the yield curve. Unfortunately, longer term lease rates are not published, but it has been confirmed that some central banks have entered or are entertaining three and five year leases at much higher rates. So while central bank sales into the market have ticked up considerably in the past two months (hopefully having run their course) data seems to bear out that there might also be a corresponding up tick in leasing activity with rates having increased considerably after rates hit a decade low in 2006.
Guess? Damn right! Everyone operates using guess work in the leasing market because no central bank or bullion bank is required (yet!) to publish any leasing information. No matter who's analysis is used, the leasing market is estimated to have a larger impact on the supply side of the market than annual mine supply, central bank sales, investment demand and dehedging. This is one trend that merits keeping an eye on should the spreads in the lending market continue to widen back out from all time lows. Keep in mind that we've also got the final, final, final decision on how to publish central bank loan and swap activity on the horizon in October.
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“YEAR OF THE GOLDEN PIG” GETS OFF TO STRONG START AS DEMAND FOR GOLD REACHES 1ST QUARTER RECORD OF $17.4BN
The ‘Year of the Golden Pig effect’ impacted strongly in China in the first quarter of 2007 providing a further boost to already robust growth in global demand for gold. Consumer demand for gold in China was up 31% on the same quarter last year, as the Chinese flocked to buy gold jewellery and commemorative “lucky balls”, particularly around Chinese New Year in mid-February.
Figures released today by the World Gold Council (WGC) showed global demand for gold reaching $17.4bn, more than double the level of four years earlier. The figures, compiled independently for WGC by GFMS Limited, showed identifiable demand for gold in Q1 2007 was 4% higher than Q1 2006 in tonnage terms and 22% higher in dollar terms.
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DRDGold closes Emperor hedge book
May 16, 2007
Johannesburg - South African gold miner DRDGold (DRD) on Wednesday said that it has closed out its gold forward-sell hedge book of 145,695 oz.
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