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Record for Gold. Milestone for China. |
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Good Morning,
Spot gold prices nearly hit the $950 per ounce target overnight, as the trade followed through on yesterday's turnaround rally sparked by the advent of $101.00 per barrel crude oil. Asian trading had bullion work within a $939-$949 channel while other metals rose as well benefiting from the current inflation-proofing quest seen among investors. While oil prices did come off record peaks and were seen near $99.50 per barrel, the US dollar eased back to just under 76 on the index following the latest domino in the structured (evidently not very well!) products debacle - Allianz SE. More precisely, Dresdner Bank (which is part of the group). Another half billion euros out the window, into the Main river.
New York spot trading opened on the firm side, with gold maintaining the $940 level (down $1 at $943) as players weighed the prospects of further advances (to possibly $975) versus the possibility of profit-takers taking the metal down to lower levels. Much depends on the strength of the longs' perceptions regarding the $950 level being only a milestone marker versus a 'road closed' sign. For the moment, the former is being talked about. Silver rose 7 cents to $17.87 after having briefly reached $18.08 and the noble metals continued their rise as if yesterday's scary slump had never taken place. Platinum gained $40 to $2161, and palladium rose $35 to $517.00 per ounce. If anyone wants to talk about parabolic spikes, have them take a look at the $600 trace that platinum etched on the charts over the past month.
In one of our commentaries last year we proposed that China would become the world's top gold producer based on observed trends. After our visit to the country, we felt that where there is production, consumption cannot be far behind. China used to export most of its bullion, but now has reason to hang on to its output. As we opined late last year, gold demand (primarily for jewelry) within the nation placed it on course to overcome the US for the second spot globally. While investment demand was only 24 tons, it appears that the World Gold Council's smart jewelry marketing efforts across the country are paying off nicely. Marketwatch reports:
"China's gold demand rose 26% in 2007 from a year earlier, according to a wire report citing figures from the World Gold Council and the Shanghai Gold Exchange Thursday. China's gold demand totaled 326.1 metric tons (1.5 million ounces), of which about 302.2 metric tons went to jewelry demand."
Kudos to my friends Roland Wang in Beijing and Albert Cheng in Singapore for their hard work and effective campaigns to popularize carat jewelry among Chinese women. Nicely done.
Look for nervous trades emerging as price achievements are digested. Do not discount fresh highs being put into the record books. Cues will continue to come from oil as the inflation watch intensifies. Central banks hate inflation with a passion and normally reach for the interest rate panic button. Final factoid: Switzerland sold 12 tons of gold in January as part of its plan to reduce overall holdings. Nothing unusual, although at least one report suggested that the pace was seen as picking up due to record gold values. Duh.
Happy Trading.
Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal
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