Friday, February 23, 2007


Gold Gains With Miners "Confident"

CNN Money reports on the precious metals markets. "U.S. gold futures rose 1 percent and silver jumped to a nine-month high on Friday as investors poured money into the precious metals markets before the weekend because of heightened geopolitical tensions and firmer energy prices. At 10:23 a.m. EST, most-active gold for April delivery on the COMEX division of the New York Mercantile Exchange was up $6.90 at $689.90 an ounce, trading in a range between $676.20 and $690.90, the loftiest level since July of last year."

"The April contract has gained more than 13 percent since it hit a low of $607.20 in early January, and is now within $10 to the key psychological mark of $700."

"'People would feel more comfortable being long gold with the potential risk involved with the Iranian problem,' said Carlos Perez-Santalla at Hudson River Futures. Perez-Santalla said that the dollar's weakness and the market's ability to hold on to its $23 gain Wednesday also fueled buying."

"Oil climbed above $61 to its highest level this year on the Iran situation and after the United States, the top fuel consumer, reported an unexpected drop in gasoline stocks."

"Neal Ryan, director of economic research at Blanchard and Co., said that gold jumped because of preweekend positioning, short covering after Wednesday's rally and strengthened energy prices. 'Over the last month and a half, the investment demand for physical metals has significantly picked up' for both silver and gold, Ryan said."

"Silver jumped more than 2 percent on Friday. COMEX March silver rose 30.0 cents to $14.550 an ounce, trading in a range between $14.190 and $14.630, the highest level since May of last year."

"NYMEX April platinum gained $10.00 to $1,240.00 an ounce. NYMEX March palladium jumped $4.80, or 1.4 percent, at $355.50 an ounce."

From MarketWatch. "Confident that sub-$300 gold is a bogeyman of the past, miners of the precious metals are increasingly doing away with hedging contracts designed to insure against a drop in prices. Producers reduced their hedging positions by 25% last year, the sharpest drop in at least five years, to 40.2 million ounces, said a study published Friday by Mitsui & Co."

"Taken another way, dehedging totalled 13.4 million ounces, or more bullion than European central banks sold last year."

"Miners have been shying away from using financial instruments like forward contracts, which act as agreements to sell gold at a certain price in the future, to manage their gold sales. These contracts protect them from a drop in prices, but don't work so well if prices go up."

"'While dehedging in 2007 is not expected to be of a similar magnitude to what it was in 2006, little appetite exists for new hedging,' said Edel Tully, head of precious metals research at Mitsui's Mitsui Global Precious Metals."

"On Thursday, Barrick Gold Corp. said it had completely eliminated its corporate hedge book and planned to eliminate its remaining floating spot price contracts by the end of the second quarter. Barrick, the world's largest gold producer, accounted for 70% of dehedging activity last year, the study said."

"The dollar fell against other major currencies Friday, weighed down by concerns over Iran's nuclear ambitions and traders locking in gains after the greenback's recent rise."

"'It appeared a couple of factors combined to weigh on the greenback, as traders cited a speculative market seen long of dollars going into the session, and the effects of geopolitical concerns,' said foreign-exchange strategists at research firm Action Economics. 'The apparent heating up of rhetoric from Iran of late has resulted in the unwinding of a good number of these positions going into the weekend.'"

"Late in New York, the euro stood at $1.3163, compared with $1.3122 late Thursday. The dollar was quoted at 121.03 yen, compared with 121.51 yen. On the week, the dollar lost marginally against the euro, down 0.2%, but gained 1.4% versus the yen.
The British pound traded at $1.9628, compared with $1.956. The dollar changed hands at 1.2332 Swiss francs, compared with 1.2384 francs."

"Elsewhere, the yen recovered modestly as traders reduced bets against the Japanese currency. The yen has continued to play victim to carry trades, in which speculators borrow the yen at low costs and reinvest in higher-yielding currencies and assets elsewhere, this week after Bank of Japan Governor Toshihiko Fukui said interest rates are to rise very gradually."

What's amazing about traders shying away from the US$, is that not that long ago they would have gone long heading into a weekend!

Long time readers will remember that these hedge positions hel by the miners was a pet peeve of mine and why I didn't look at the sector much. This news is bullish, IMO.

I plan to post the gold topic from the HBB weekend suggestions on this blog tomorrow, if any of you care to join in.
Barry has a great post on gold over at TheBigPicture today.

Looking forward to that gold topic, Ben. Agreed on elimination of those hedgebooks, too... very bullish!
Barrick hedging was used by the government to suppress the gold price. The only reason they would stop, IMO, was if Barrick was going bankrupt. What will they use now to attack gold? Jawboning of course, and maybe even sales?
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