www.gold.org
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 Bounces Off Lows As Abu Dhabi Bails Out Dubai
Gold bounced off Friday’s low this morning as the US dollar weakened in the wake of news this mornings that Abu Dhabi would bailout Dubai. As news broke that Abu Dhabi had provided $10 billion to alleviate the threat of a sovereign default, the US Dollar fell against the major currencies. Both the Euro and Japanese YEN climbed against the Dollar as the higher yielding currencies became more attractive amid calming risk perceptions.
After trading at an intraday low of $1,111/ounce gold futures bounced to almost $1,130 before light profit taking took hold. The gold price has fallen somewhat since reaching the record breaking highs of $1,225 in November and many analysts believe that investor profit taking and the usual seasonal dip in trading volumes are likely to cap any potential gains in the coming weeks.
Gold and the US Dollar have a directly inverse relationship; typically a fall in the dollar will prompt an increase in value for gold and vice-versa. There are two primary factors that govern this relationship. Firstly like all major commodities gold is primarily priced in dollars, therefore a change in relative value of the dollar directly impacts on the commodities relative value, particularly for investors outside the US.
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. The majority of international reserves are held in US Dollars, when the dollar is weak, international reserves devalue, subsequently central banks increase their demand for alternative assets such as Gold.
On the London Stock Exchange gold stocks have generally had varied performances, among the producers international gold miner Randgold Resources (LSE: RRS) climbed almost 1.5%. Moving in the other direction was Petropavlovsk (LSE: POG) who lost around half a percent this morning, also in the red was emerging producer Centamin Egypt (LSE: CEY) as they dropped more than 2%. Canada-based major Yamana Gold (LSE: YAU) were unmoved.
Among AIM’s gold stocks Philippines operating Metals Exploration (AIM: MTL) led the sector rising 4%. Pan African Resources (AIM: PAF) and Avocet Mining (AIM: AVM) were also strong as the both advanced nearly 2%, while Cluff Gold (AIM: CLF) followed rising around half a percent.
Elsewhere among the fallers were Frontier Mining (AIM: FML) which slipped 6.5%, followed by Leyshon Resources (AIM: LRL) which lost 4.5%.
