Gold Market "Quiet" as Seasonal Bull Run Approaches; ETFs Shrink, But Hedge-Fund Giant Extends Gold Investment - 14 August 2009

The Gold Price held firm above $956 per ounce Friday lunchtime in London, little changed for the week as European stock markets crept up to fresh 10-month highs and crude oil moved back above $71 a barrel.

Silver broke new two-month highs at $15.00 an ounce. Government bond prices held firm after yesterday's strong auction of 30-year US Treasury debt.

"We're approaching a seasonally bullish time for Gold," notes Colin Abrams at South African news-site MiningMX.com.

"Historically – over decades – there's been a strong tendency for the Gold Price to rally in the six-month period between September and February."

Research from BullionVault published by the Financial Times late last month shows that a summer dip in the Gold Price – followed by strong gains to finish the year higher than it began – has been the most common seasonal pattern since 1969.

Repeated 20 times across the last four decades, this pattern gave UK investors buying the summer low an average 13.7% gain by the following Feb.

"The Gold market is quiet," said Walter de Wet at South Africa's Standard Bank early Friday.

"We will look at [today's] US industrial production growth figures to see whether demand from the industrial sector is improving. Note that after the 15 months of de-stocking by US businesses in 2001, there was a period of massive commodity demand.

"Should growth figures show a marked improvement, inflationary expectations may also climb faster."

Today in Tokyo – where Japanese Gold Futures ended the week almost 2% lower as the Yen rose on the currency market – minutes from the Bank of Japan's latest showed policy-makers debated further credit and cash injections to try and depress the currency to revive the economy.

"Another extension [of monetary stimulus] might become necessary," Board members said.

Last week the Bank of England surprised UK analysts by raising its Quantitative Easing program from £125 billion to £175bn of newly-created Pounds Sterling.

In Washington this week, the Federal Reserve extended until October its $300bn program of Treasury-bond purchases.

"The most important demand driver from the Gold Investment side, the Gold ETFs, is non-existent," noted Eugen Weinberg at Commerzbank this morning. "The ETF has been experiencing outflows recently."

New York's SPDR Gold Trust, the world's largest Gold ETF, has now reported lower gold holdings for eight weeks running, down more than 6% from June's record high of 1,134 tonnes.

The fund's largest shareholder, however – John Paulson's $35 billion hedge fund – continued to hold the $2.9bn position it took between Jan. and April during the second quarter of 2009, official filings show.

Paulson, who also acquired a 2% stake in Bank of America between April and July, saw the value of his fund's gold and Gold Mining investments rise by more than two-fifths last quarter, says Barron's magazine, rising further to $5.5bn by Thursday's close.

"The topside [in Gold] seems to be constrained at $960 on a closing basis," says a short-term technical note from Scotia Mocatta. "Downtrend resistance currently comes in $969.75, with a break of that leading to a $980 target."

Meantime on the supply side, gold output in South Africa – formerly the world's No.1 producer nation – fell more than 12% in June from a year earlier, contrasting with a 6.4% drop in non-gold mineral output.

US Gold Mining giant Newmont Mining today said its US$2.9bn Boddington mine in Western Australia is now in production, processing 100,000 tonnes of ore during the first two weeks of August and on target to "become a cornerstone asset in our portfolio," according to president and CEO Richard O'Brien.

Globally, however, new gold discoveries continue to lag production, shrinking the below-ground assets of the mining industry.

Between 1992 and 2005, according to research from Metals Economics Group, world output totaled 1.1 billion ounces. New discoveries of large reserves – judged at 2 million ounces or more – were barely half that size.

The last major find was in 2007 and there were none in 2008. A decade earlier, says MEG, the gold-mining industry made 15 large-scale discoveries per year.

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