gpond
04-16-2003, 02:47 PM
April 16, 2003
After 2 Years of Gains, Gold Struggles to Keep Its Luster
By JONATHAN FUERBRINGER
Sales of gold coins in the United States are off to a fast start this year, with 251,000 ounces sold by the United States Mint so far. At this pace, the 2003 total will surpass that for all of 2002 by the middle of next month.
This is good news for gold bugs, who finally can say, "I told you so." The price of gold soared to a six-year high of $379.90 an ounce in 2002 and posted its first back-to-back annual gains since the end of the 1980's.
But the question now is whether this strong individual investor demand for gold will persist throughout the year. Or will it slow, now that the war in Iraq appears nearly over and the price of gold has fallen 14.3 percent from last year's peak, to $325.50 on Tuesday, and is now down 6.5 percent for the year?
If investor demand continues to be strong, there is a chance that gold could hit $370 or so an ounce again by the end of the year, which would put gold up about 7.5 percent for the year. But if investor demand is off the first-quarter's pace, it is possible that the price of gold will get stuck around $350 an ounce. If that is the case, gold runs the risk of ending the year where it finished 2002, at $348.20 an ounce on the New York Mercantile Exchange.
The issue of individual investment in gold came up again as Gold Fields Mineral Services, the precious metals research firm, released its annual outlook for gold at the end of last week. The report said several forces would play a big role in the fate of gold this year — but none bigger than investment.
One factor is a decline in hedging by gold producers. When companies hedge to lock in current gold prices, plus a small premium, they borrow gold, sell it and invest the proceeds. In a year or two, the company uses the gold it has mined to replace the borrowed gold. For years, selling borrowed gold to hedge has placed considerable downward pressure on the price of this precious metal.
But hedging has slowed significantly, in part because the price has stopped declining and in part because more gold companies have hedged less so their stocks can benefit more directly from a rally in the price of gold. According to Gold Fields, this decline in hedging was equivalent to the buying of 13.6 million ounces of gold last year, or 16.3 percent of mine production in 2002. That was nearly triple the impact of the decline in hedging in 2001.
Fabrication demand, which comes mostly from jewelry manufacturers, is the big negative for gold. Last year jewelry demand fell by 11.2 million ounces, or 11.5 percent. Whether jewelry demand rebounds this year depends a great deal on how the world economy rebounds. Whatever bounce-back there is in jewelry demand will not be a big factor in gold's performance, however, according to Gold Fields.
Then there is investor demand, which according to the report grew by 14.4 million ounces, or 85 percent last year. The demand was powered by the rise in the price of gold, the approach of a war with Iraq and a general intensification of geopolitical concerns, and the decline in stocks for the third consecutive year, which made gold a nice alternative investment. Low interest rates also helped, making bonds less attractive as an alternative investment.
Philip Klapwijk, the managing director of Gold Fields, said he expected the retreat from hedging by producers to provide support for the price of gold this year. But investment is still the key, he said. And so far, he said, "I don't think the data is that encouraging on investment."
So what's wrong with the gold coin sales? While they are way ahead of 2002, they are still way below the recent banner years of 1998, when 1.84 million ounces of coins were sold, and 1999, when 2.1 million ounces were sold. By this time in 1999, when fears of Year 2000 electronic disruptions were fueling buying, sales were approaching 800,000 ounces.
"It is still not enough to motor it," Mr. Klapwijk said of the investor appetite, as reflected in the American gold coin sales. "I think we need to see more investment or gold is not going above $350."
Link (may require registration)... (http://www.nytimes.com/2003/04/16/business/16CND-PORT.html?pagewanted=print&position=)
After 2 Years of Gains, Gold Struggles to Keep Its Luster
By JONATHAN FUERBRINGER
Sales of gold coins in the United States are off to a fast start this year, with 251,000 ounces sold by the United States Mint so far. At this pace, the 2003 total will surpass that for all of 2002 by the middle of next month.
This is good news for gold bugs, who finally can say, "I told you so." The price of gold soared to a six-year high of $379.90 an ounce in 2002 and posted its first back-to-back annual gains since the end of the 1980's.
But the question now is whether this strong individual investor demand for gold will persist throughout the year. Or will it slow, now that the war in Iraq appears nearly over and the price of gold has fallen 14.3 percent from last year's peak, to $325.50 on Tuesday, and is now down 6.5 percent for the year?
If investor demand continues to be strong, there is a chance that gold could hit $370 or so an ounce again by the end of the year, which would put gold up about 7.5 percent for the year. But if investor demand is off the first-quarter's pace, it is possible that the price of gold will get stuck around $350 an ounce. If that is the case, gold runs the risk of ending the year where it finished 2002, at $348.20 an ounce on the New York Mercantile Exchange.
The issue of individual investment in gold came up again as Gold Fields Mineral Services, the precious metals research firm, released its annual outlook for gold at the end of last week. The report said several forces would play a big role in the fate of gold this year — but none bigger than investment.
One factor is a decline in hedging by gold producers. When companies hedge to lock in current gold prices, plus a small premium, they borrow gold, sell it and invest the proceeds. In a year or two, the company uses the gold it has mined to replace the borrowed gold. For years, selling borrowed gold to hedge has placed considerable downward pressure on the price of this precious metal.
But hedging has slowed significantly, in part because the price has stopped declining and in part because more gold companies have hedged less so their stocks can benefit more directly from a rally in the price of gold. According to Gold Fields, this decline in hedging was equivalent to the buying of 13.6 million ounces of gold last year, or 16.3 percent of mine production in 2002. That was nearly triple the impact of the decline in hedging in 2001.
Fabrication demand, which comes mostly from jewelry manufacturers, is the big negative for gold. Last year jewelry demand fell by 11.2 million ounces, or 11.5 percent. Whether jewelry demand rebounds this year depends a great deal on how the world economy rebounds. Whatever bounce-back there is in jewelry demand will not be a big factor in gold's performance, however, according to Gold Fields.
Then there is investor demand, which according to the report grew by 14.4 million ounces, or 85 percent last year. The demand was powered by the rise in the price of gold, the approach of a war with Iraq and a general intensification of geopolitical concerns, and the decline in stocks for the third consecutive year, which made gold a nice alternative investment. Low interest rates also helped, making bonds less attractive as an alternative investment.
Philip Klapwijk, the managing director of Gold Fields, said he expected the retreat from hedging by producers to provide support for the price of gold this year. But investment is still the key, he said. And so far, he said, "I don't think the data is that encouraging on investment."
So what's wrong with the gold coin sales? While they are way ahead of 2002, they are still way below the recent banner years of 1998, when 1.84 million ounces of coins were sold, and 1999, when 2.1 million ounces were sold. By this time in 1999, when fears of Year 2000 electronic disruptions were fueling buying, sales were approaching 800,000 ounces.
"It is still not enough to motor it," Mr. Klapwijk said of the investor appetite, as reflected in the American gold coin sales. "I think we need to see more investment or gold is not going above $350."
Link (may require registration)... (http://www.nytimes.com/2003/04/16/business/16CND-PORT.html?pagewanted=print&position=)