Commodities | May 04 2007
By Greg Peel
The US dollar hit a long time low of 1.3680 euros on Friday night, but as a further breakdown into uncharted waters loomed, the market found itself very short dollars. To that end there has been a quick bounce back, to 1.3550 euros last night, supported by some more healthy US economic data over the week.
Last night the Institute of Supply Management announced its non-manufacturing (or services industry) index had risen from 52.4 in March to 56.0 in April, which surprised markets. Unit labour costs rose only 0.6%, which tempered further inflation fears.
But contrary to the status quo converse relationship gold has with the US dollar, gold staged a healthy 1.3% rally last night, finishing up US$9 to US$681.60/oz. When the US dollar hit 1.3680, gold was trading around US$677/oz. despite an initial drop on the dollar bounce, gold is now higher in defiance of the stronger greenback.
There were various reasons given for gold’s strength last night.
Firstly, South African miner Gold Fields – fourth largest world producer – provided its third quarter production report which showed output fell 3%, declining in seven out of eight mines. South African gold production has been on a long decline for many years.
Bloomberg reports Gold Fields CEO Ian Cockerill tipping a US$800/oz gold price next year. Chinese demand, he notes, is very strong. As Chinese incomes climb, China has moved into second place in world jewellery fabrication, passing Italy. India retains in top spot. Yet both China and Japan have been on holidays this week, so further demand is expected next week.
Also helping gold along is a miners strike in Peru, which has entered its fourth day. Peruvian miners marched in Lima last night as talks continue with the government. Peru is the world’s fifth largest gold producer (and second largest silver producer).
But more interesting is evidence that investment fund buying has returned to gold following a period of weakness. That’s at least the talk from the Comex trading floor, according to Reuters. Funds are ignoring the US dollar and setting themselves once more.
Meanwhile, from the “You’ve got to be kidding” department, the Royal Canadian Mint has just produced a 100kg gold coin that is as big as a car wheel and as thick as a hardback novel, Bloomberg reports. At 99.999% pure, it is the largest and purest gold coin ever produced, usurping the 31kg “Big Phil” coined minted in Australia in 2004. The Canadian coin has a face value of C$1 million, but is worth about twice as much.
The coin is somewhat of a publicity stunt, as Canada has found its coins sales dwindling in the face of competition from Australia, China and others. A more realistic smaller replica will also be produced. Gold coin trade is worth about US$3 billion worldwide.
However investors can order their own 100kg coin from the Canadian Mint. Please form an orderly queue thank you.