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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 miners lifted by higher gold price, Mariana, Rambler Metals and Centamin Egypt among top performers in London
The Gold price has generally consolidated this week after the previous week’s exciting rise. The gold market has generally traded sideways around the $1,060/ounce level.
Overnight in electronic trading the Comex futures managed to change hands as high as $1,066 before easing back in Europe this morning.
Over the course of the last month, 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.
International gold producer Randgold Resources (LSE: RRS) rose marginally, while Petropavlovsk (LSE: POG) rose 1.7%. Canadian producer Yamana Gold (LSE: YAU, NYSE: AUY) actually eased lower, dropping half a percent.
Centamin Egypt (LSE: CEY) was particularly strong this morning, the relatively new addition to London’s main market advanced more than 11% to trade at £1.33. In the junior market, Canada based junior copper-gold developer Rambler Metals and Mining Plc (AIM: RMM) was among the top performers jumping nearly 14%.
South American operating explorer Mariana Resources (AIM: MARL) also made considerable gains rising almost 10%
Some of the AIM markets other gold stocks also gained strength today. Philippines focused gold producer Medusa Mining (AIM&ASX: MML) tacked on over 5%, while Norseman Gold (AIM & ASX: NGL) and Archipelago Resources (AIM:AR.) rose more than 3% each.
Commodity asset development company Mercator Gold (AIM: MCR) and Australian gold and copper prospector Solomon Gold (AIM: SOLG) went in the opposite direction, shedding 3.8% and 2.8% respectively.
