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Gold is a highly sought-after precious metal which, for many centuries, has been used as money, a store of value and in jewelry. The metal occurs as nuggets or grains in rocks, underground "veins" and in alluvial deposits. Modern industrial uses include dentistry and electronics, where gold has traditionally found use because of its good resistance to oxidative corrosion.
Gold Returns to Record Highs amid Falling Dollar, Waning Dubai Fears and Chinese Whispers
Gold bulls appear to have picked themselves up and shook off their concerns following the subdued end to November, in which the yellow metal wobbled after making substantial gains. With an intraday high of $1,199 gold futures returned to their record breaking ways, as Dubai-related fears settle and speculation grows surrounding a Chinese plan to buy 10,000 tonnes of gold over the next decade. Gold was last changing hands at around $1,195 an ounce.
A number of commodity market commentators reported that a Chinese ‘task force’, representing the People’s Republic’s largest state-owned companies have recommended that the country increases its bullion reserves by 10,000 tonnes by 2020.
The gold price also appears to be buoyed by more tangible influences this morning as sentiment from UAE Central Bank reassured global markets. Additionally the US Dollar’s temporary recovery has waned and once again turned negative. The Dollar Index fell another half percent lower again this morning. The US Dollar index represents the relative strength of the greenback versus a basket of the 6 other major global currencies.
The gold price has risen from around $750/ounce twelve months ago driven primarily by growing fears over inflation and specifically the decline of the US Dollar. The greenback's decline has increased the relative appeal of physical assets, particularly gold, to protect against further devaluation.
There are two primary factors that govern this relationship. Firstly, like all major commodities, gold is primarily priced in dollars therefore a weaker dollar increases the inherent value of the commodity particularly for investors outside the US. For example as the value of the dollar declines against the Euro, someone investing in gold with Euros would be able to buy more physical gold per Euro invested.
The second and perhaps the most crucial factor relates to international reserves. All nations, through central banks, store a proportion of their wealth in a reserve, which exists to protect the relative value of the economy's wealth.
With the US Dollar suffering some of the heaviest devaluation for several decades, the gold price continues to gain support as investors and central bankers sell dollars and buy gold due to perceptions of greater stability in the physical asset against volatile currency markets.
In London gold stocks have generally found strength buoyant commodity market. FTSE 100 gold producer Randgold Resources (LSE: RRS) climbed more than 1% this morning, while FTSE 250 constituent Petropavlovsk (LSE: POG) and emerging gold producer Centamin Egypt (LSE: CEY) advanced further, rising 3% and 2% respectively.
Elsewhere Canada based, dual listed producer Yamana Gold (LSE: YAU, NYSE: AUY) was unmoved in European trading.
Among the junior’s South American focused Patagonia Gold (AIM: PGD) and Tajikistan operating gold explorer Kryso Resources (AIM: KYS) were the strongest in the sector with both stocks rising around 15% on Tuesday.
Solomon Gold (AIM: SOLG) and GMA Resources (AIM: GMA) climbed 3%, meanwhile Uzbekistan focused explorer Oxus Gold (AIM: OXS), Cluff Gold (AIM: CLF), Vatukoula Gold (AIM: VGM) and Medusa Mining (AIM: MML) were all trading in positive territory also.
