The Conversation (0)
Gold was on track to touch record highs on Friday, as anxiety over debt concerns in both the US and the Eurozone boosted the metal’s safe haven appeal.
By Leia Toovey – Exclusive to Gold Investing News
Gold was on track to touch record highs on Friday as anxiety over debt concerns in both the US and the Eurozone boosted the metals safe haven appeal. Gold futures for August delivery rose $17.20, or 1.1 percent, to $1,604.20 at 11:10 a.m. on the Comex in New York. Earlier, the metal reached $1,607.70, just shy of its July 19th record price of $1,610.70 an ounce.
Concerns over the Eurozone’s financially stability have been around for months, and during the week continued to encourage the flow of funds into gold while European leaders were hashing out plans to provide more aid for debt-stricken Greece. Adding more impetus was the inability of the US to reach a deficit solution, with a looming August 2 deadline, which fuelled concerns over a possible credit downgrade to the world’s largest economy. Both factors meant a high interest in gold futures. On July 20, total open interest in Comex futures climbed to a six-month high of 546,601 contracts.
This nervousness over the state of the global economy has resulted in a run-up for gold prices; however, some analysts are now sitting back and taking a look at the market, wondering if the metal has any upward momentum left. The head of commodity strategy at RBS, Nick Moore thinks that gold will underperform the industrial metals, in the medium- to long-term. Moore says that gold’s bull run is due to the metal’s dual nature, being perceived as both a haven and a hedge against inflation, “Nevertheless, we note that on a medium- to long-term horizon, both gold and silver look richly priced and are likely to underperform industrial commodities.”
According to a poll by Reuters, analysts right now are more optimistic that gold will hold on to prices above $1,500.00 per ounce than they were when they were polled six-months ago. The poll found that just over 50 percent of the respondents expect prices to average $1,500 an ounce or more this year, compared to 20 percent in the same poll in January. The survey returned a median average price prediction of $1,510 an ounce, up from $1,453 an ounce in January’s poll. The analysts maintained their “more bullish” price forecasts into next year, when, on average, they expect prices to average $1,575 an ounce, against expectations for $1,425 in the earlier poll.
Even if the economic picture stabilizes, gold will have other factors that could help it maintain prices in the record-high range. For one, the increased interest in gold by central banks. According to the World Gold Council, central banks turned net buyers of gold in 2010 for the first time in 21 years, as banks in emerging markets added to reserves and sales by the European official sector dried up. Global central bank gold reserves rose by more than 900 tonnes over the nearly three years to June 2011, a period that included the global financial crisis.
Another factor that will support gold prices in the long-term is inflation. While an improving global economic picture will alleviate the need for gold as a safe haven, it will boost its appeal as a hedge against inflation. Inflation fears in China have already proven to be a supportive factor for gold prices.
Company news
Pay negotiations between Freeport McMoRan Copper & Gold (NYSE:FCX) and workers at the Grasberg Mine entered their third day on Friday. The negotiations come after workers at the Indonesian mine went on strike for eight-days asking Freeport to double the salaries for workers earning $1.50 per hour, claiming that it is not a fair that other Freeport workers around the world on average earn ten times that amount. The eight-day strike, which halted mining, milling and shipment from the mine, resulted in a production loss of approximately 35 million pounds of copper and 60,000 ounces of gold according to company CEO Richard Adkerson. Earlier in the week, the copper and gold miner reported that its second-quarter earnings more than doubled, compared to the same time period of the previous year. Freeport-McMoRan’s second-quarter net income touched $1.37 billion, or $1.43 per share. In the year prior, income touched $649 million, or 70 cents per share. Revenue increased 50.5 percent to $5.81 billion.
