Oil, Gold Drive Higher

Sydney, Oct 29, 2007 (ABN Newswire) - Gold rose to the highest level since 1980 after crude oil surged to a record and the dollar fell to the lowest ever against the euro as US-engineered tensions with Iran bubbled over into financial markets..

Gold is now up 23% so far this year as it gets back on track after the weakness earlier on.

The Aussie dollar edged closer to 92 USc Monday morning in early Australian trading.

It's now heading for the seventh straight annual gain, driven by the weak US dollar and now rising tensions in the Middle East, a traditional source of gold price pressure.

Rising oil prices, also flowing from the weak greenback, Middle East tensions and continuing strong demand and weak supply picture, is also impacting gold.

Just as in the late 70s and early 80s during the second oil shock and the Iran hostages' crisis, gold and oil have emerged as the two commodities where speculative activity has concentrated.

December Comex gold surged $US16.50 an ounce on Friday to close at $US787.50 an ounce, and then went onto touch $789.50 in after hours trading, the highest level since that record $US873 was set in early 1980.

New York crude oil futures hit a record $US92.22 a barrel on Friday on that tension with Iran after the US tightened sanctions on the country's military and banks.

Nymex December West Texas Intermediate hit that peak but then eased to trade 85 cents higher at $US91.28 a barrel at the close on Nymex, up 3% for the week.

ICE December Brent in London touched $US87.80 a barrel, up 4.8% over the week.

The Middle East seems to be in some sort of replay of 1980: Turkey continues to threaten military action against Kurdish militants in northern Iraq, there're those new sanctions against Iran by the US (and Alexander Downer says Australia will match the US move); Iraq remains in crisis, with considerable turmoil and damage to oil exports. Israel and Syria remain at loggerheads, as does Israel and Hamas in the Gaza Strip.

Complicating matters is that Iran is the second largest producer in the OPEC, so could it retaliate by boycotting the west, even though that would hurt it?

China has been complaining to Opec about not pumping enough oil to keep prices under control and traders claim there are signs it has already started to ship more oil ahead of its planned supply increase of 500,000 barrels a day this Thursday, November 1.

 


 

Meanwhile those bulls at the World Gold Council Friday issued a mostly upbeat look at world supply and demand in the June quarter.

"Dollar demand for gold in the jewellery, retail investment and industrial sectors all reached new heights in the second quarter of 2007. Global demand for gold jewellery showed the strongest surge, reaching a record $14.5 billion, 37% higher than Q2 2006, with particular strength across the key gold markets of Greater China, India, the Middle East and Turkey, The WGC said on its website.

"A return to more normal levels of gold price volatility, growing acceptance by consumers of a price that averaged 6% above the same period a year ago, and strong economic performances in the key consuming regions all helped gold to set records in the second quarter, according to Gold Demand Trends, released today by the World Gold Council (WGC).

"In tonnage terms India, the world's largest gold market, achieved all-time records in both jewellery and retail investment. Turkey achieved second-quarter records for both categories while Russia recorded its highest ever level of jewellery demand.

"In tonnage terms India, the world's largest gold market, achieved all-time records in both jewellery and retail investment. Turkey achieved second-quarter records for both categories while Russia recorded its highest ever level of jewellery demand.

"The figures, compiled independently for WGC by GFMS Ltd, showed that identifiable gold demand made a further substantial recovery in Q2 2007 from the impact of the volatile prices experienced in 2006, rising 19% in tonnage terms on Q2 2006 to 922 tonnes, and reaching $19.8 billion, a 27% increase, in value terms year-on-year.

"At 317 tonnes, India's total demand for gold in Q2 2007 was equivalent to half the global mine output for the quarter. More stable gold prices, a booming economy and the increasingly successful Akshaya Thritiya festival in April all contributed to a strong second quarter despite prices being in the mid-$600s/oz.

"Strong economic growth, reduced price volatility and the auspicious Year of the Golden Pig saw China's gold demand increase 32% in tonnage terms from year-earlier levels to 76 tonnes. In the Middle East, strong economies and stable prices influenced demand for gold which rose 20% in tonnage terms to 97.5 tonnes compared with the same quarter in 2006.

"Turkey enjoyed second-quarter records for both jewellery, at 52.2 tonnes, and net retail consumption, at 20.5 tonnes, an increase of 14% and 5% respectively on the previous year.

"In Russia, where jewellery demand has grown steadily over recent years, consumption increased by 27% to 20.3 tonnes compared with Q2 last year.

"Globally, net retail investment rose by 51% in tonnage terms to 132.9 tonnes, and 60% in dollar terms to $2.9 billion, compared to Q2 2006. Total identifiable investment fell just 4.8% in tonnage terms to 130.4 tonnes and was 1% higher in dollar terms at $2.8 billion compared with Q2 2006.

"Running counter to the generally stronger trend, investment in Exchange Traded Funds and similar products was negative over the quarter, with small net redemptions of 2.6 tonnes. The redemptions were confined to the market leader streetTRACKS Gold Shares (ticker symbol GLD), and coincided with a much steeper decline in speculative long positions on the Comex division of the New York Mercantile Exchange.

"While the two vehicles are not directly comparable, GLD effectively followed the trend in the broader gold market, suggesting that investors and traders are increasingly accepting the ETF as simply another component of that market. Renewed creations in GLD since the end of the period under review have carried assets to a new peak over 500 tonnes.

"Global industrial demand saw a further steady increase over year-earlier levels of 2% in tonnage terms to 116.5 tonnes; this was equivalent to a 9% increase in value terms to $2.5 billion, a new quarterly record. Electronics demand, which grew strongly in 2006, also recorded a further 2% increase in tonnage compared to Q2 2006.

"Gold supply remained constrained in Q2. Stable prices reduced the supply of scrap, and this served to offset increased central bank selling." Supply is being reduced by the de-hedging that the likes of Lihir and Newcrest have announced in recent months.

 


 

Copper had a good week, its best in two weeks thanks to the growing speculative activity in gold and oil and renewed optimism about China's level of demand.

But it still finished the week lower than the week before.

Figures released last week showed that copper imports into China almost doubled in the nine months to the end of September. Copper prices are 23% higher so far this year.

December Comex copper rose 5.15 cents to $US3.5375 a pound on Friday. But the metal still fell 0.4% last week, the third straight weekly fall on continuing worries about the US economy (so what will a Fed rate cut do this week?).

China's imports of copper and its alloys jumped 93% to 1.2 million tonnes in the nine months to September.

Investment bank, JPMorgan, boosted its 2008 copper forecast by 19% last week to an average $6,950 a tonnes, up from the previous estimate of $5,821.

Stocks overseen by the London Metal Exchange rose 2,725 tonnes Friday to 154,175 tons: that's a gain of 18% so far in October and a sign perhaps that the strong Chinese demand might not be enough to continue soaking up surplus metal supplies from around the world.

LME three month copper rose $US105 to $US7,870 a tonne, ($US3.57 a pound).


 

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