The Gold price has remained in something of a range over the past few sessions; overnight the US dollar has recovered marginally and has been further supported by a weak pound, as this morning’s UK retail sales data disappointed. The report indicated that the summers tentative retail sales growth has stagnated for the second month in a row.
The Comex gold futures have fallen around $5 through the morning, with the December contract trading at $1,054.
The weak US Dollar has provided a fundamental base to the rally over recent weeks but there is a definitive speculative element also. The level ‘net-long’ speculative trading is at an all time high, with reports suggesting that hedge funds and institutional traders hold significant speculative positions. Some analysts have pointed to ‘long liquidations’ and profit taking as potential caps to the immediate sustainability of the rally.
Also in an interesting move, the CME Group announced yesterday that it will now accept gold as trading collateral for exchange members for all its exchange products. This is the first time a recognised exchange has allowed the commodity as an accepted collateral asset. Under the new ruling the CME will allow each exchange member to lodge up to $200m worth of physical gold as collateral against its open trading positions.
Famously the highly valued yellow metal has been regarded as fairly useless in a practical sense, however as an asset class it would appear that gold is gaining stature. Analysts identified the fact that the eligible exchange members will already have substantial physical gold holdings and subsequently the CME’s decision will not have an immediate impact on demand.
Crucially the CME’s decision highlights a growing theme in the global economy, with international investors turning away from America. Using gold bullion as a collateral reserve provides traders with another alternative to the US Dollar and US Debt Securities, which predominantly feature as trading collateral.
Last month several reports suggested that certain oil producing states were exploring a move away from a Dollar pricing mechanism in the Crude Oil market. Similarly in recent months, a number of international Finance minister have been reported to have questioned the effectiveness of the Dollar as a global reserve currency.
Some may argue that the US Dollar and US Government Bonds are becoming less relevant to International institutions, both in the investment industry and the wider economic organisations. Undoubtedly the US Dollar’s role in the global economic structure has been under the microscope, however at such an early stage many feel as though the line between political posturing and the potential for real practical measures will remain blurred for some time.
What is certain however is gold’s persistent appeal in this uncertain time for the US Dollar. The current high represents a 21% rise over the year to date. The more bullish analysts are expecting a sustained rally; some even expect that gold will rise a further 10% from today’s record breaking high, with prices speculated to reach between $1,100 - $1,300 an ounce before the end of 2009.
Gold stocks have been generally weaker this morning on the London Stock Exchange, FTSE 100 constituent Randgold Resources (LSE: RRS, NYSE: GOLD) was the worst effected in early trade, as the international gold miner dropped more than 2% to trade at £44.70
The FTSE250’s Canada based Yamana Gold (LSE: YAU, TSX: YRI, NYSE: AUY) fell marginally while, diversified precious metals producer Petropavlovsk (LSE: POG) was unmoved.
Philippines focused Metals Exploration (AIM: MTL) rose more than 5%, West African gold producer Cluff Gold (AIM & TSX: CLF) was also fairly strong, rising 4.5%. South American operating Mariana Resources (AIM: MARL) rounds off the select few gold stocks on the rise this morning, as the copper-gold explorer and developer rose almost 2.5%.
Elsewhere most of AIM’s gold equities fell, generally losing between one and two percent, including Uzbekistan focused explorer Oxus Gold (AIM: OXS), Avocet Mining (AIM: AVM), Frontier Mining (AIM: FML) and European Gold (AIM: EGU).