Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
After a pullback to the lower $1,390’s which is now support, gold rose overnight and in early London time to $1,4000 as the U.S. dollar slipped against most currencies to $1,3715. This left gold in the euro down at €1,020.78 down €4. With the U.S. on holiday on Monday gold broke up to $1,408 before Asia began to take it back to $1,394.50 and €1,024.84 at London’s morning Fix. It appears that the euro dollar exchange rate is being managed to hold around these levels in a fairly tight trading range. The use of swap lines allows for this. SPDR gold ETF holdings fell another 4.8 tonnes but again this was absorbed or was a shifting of that gold out of the States by U.S. investors ‘redeeming’ their gold back to them for shipping elsewhere. Just ahead of New York’s opening the dollar gold price was at $1,402.70.
Gold – Very Short-term
After the breakout through $1,390 gold rose to $1,408 then pulled back to support in the mid-$1,394.50. We expect a strong day in New York today overall.
Silver – Very Short-term
Silver Fixed in London at $33.43 and €22.45 on Monday then at $32.89 yesterday. Again, it followed gold on a pullback to support in the higher $32 area. Today, we expect a strong day in New York.
Gold Price Drivers
Gold is attracting strong persistent buying from the Asian markets. In the U.S.A. selling slowed then rose yesterday with the SPDR holdings down 4.8 tonnes on the week so far. The amounts leaving gold ETFs are being easily absorbed to the extent that the gold price continues to be strong.
The shift of power in Libya has occurred moving from the government to the demonstrators as government members and certain army units changed sides. With BP flying its own people out and other, needed oil workers to depart we now expect an interruption in Libya’s oil supply. If Italy’s ENI workers are moved out then the interruptions will be critical, particularly for Italy dependent for a around 25% of their supplies from Libya. However, O.P.E.C. and 87 other oil producers have agreed to ensure a stable flow of oil to the market in an attempt to stabilize oil prices. In Libya, we expect supplies to be quickly resumed after the revolution as the new government will be dependent on oil exports as much as the previous one. Oil prices affect the gold and silver prices to the extent that global uncertainty rises.
Of greater concern is the impact on inflation both energy and food prices are having. Even if the oil world were to regain its composure and supplies unaffected, the global demand in a ‘recovered’ developed world and a rising emerging world will in time outstrip supplies. With food inflation set to rise from now on and no relief in sight, we also expect the level of social strife to rise in the months and years to come. The level of uncertainty then will be overwhelming. Gold and silver prices will reflect that uncertainty then too. As these structural problems are not and in some circumstances cannot be addressed the future looks bleak, except for precious metals
Currently, we are presenting in the Gold Forecaster, a series called “Financial Earthquakes”, covering the main crisis areas in the financial world and what they could lead to.
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