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 day of weakening consolidation yesterday Asia failed to move the price up and it stood at 1,425.50 before London got going. Then ahead of the Fix London moved it back up to $1,430.10 just ahead of the Fix at 10.30 hrs London time. The Fix was set at $1,431.50 and at €1,031.34 this morning. The dollar and euro exchange rates barely moved initially as it held around $1.3865 in the morning. Then it fell €2.5 in the euro and rose $3 as the dollar weakened again to $1.3935 just before New York opened.
We seem to be at one of the points in the market where physical demand dominates not only at the Fix but during the day as the price hardly moves from those levels. It is still around the levels seen yesterday at the Fixes. The Fixes remains as the world’s most important gold dealing events. [In total, London overall handled 67% of the $25.1 trillion in world gold trading in 2010 after 74% in 2009, with New York handling 22% up from 16% in 2009 followed by Mumbai with 6% and Tokyo 5% in 2010.] In the past the gold price used to fall as New York opened, but today and yesterday it was New York that gave it the initial lift.
What did open the market’s eyes was the purchase of nearly 7 tonnes worth of the shares of gold Exchange Traded Funds.
Gold – Very Short-term
Gold is trading in a narrow band in the euro between €1,027 and €1,032. We expect it to hold around these levels in New York today in a continuation of the consolidation.
Silver – Very Short-term
After Fixing at $36.37 yesterday, silver is trading at $36.23. Today we expect to see a continuation of consolidation with an upward bias, in New York today.
Gold Price Drivers
To touch once again the overwhelming currents in the gold market and to clarify why we remain as positive as we are, we repeat the two main gold price drivers: –
It is so easy to be distracted by dramatic news that excite commentators, but the old addage that “the price of gold is going up because there are more buyers than sellers”, is true today.
What is supporting falling supplies is the belief by so many in Asia that the price will rise. That in itself brings in buyers and deters sellers from selling.
As to falling supplies, yes, we accept that newly mined gold supplies could well be over 100 tonnes larger in 2011, but the absence of central bank and I.M.F. selling has removed 400 tonnes of supply from the market. Yes, 222 tonnes went directly to central banks, who may not continue buying, but we have been told by Russia that they will be buyers of at least 100 tonnes per annum going forward. Add to that the belief that China uses an agency to buy on its behalf and that the gold it buys will not be reported by the People’s Bank of China for two or three years, when it hands the purchased gold to the PBOC and announce it then, as they have done in the past. So central banks have turned from sellers to buyers now. The combination will tighten gold supplies considerably.
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