A Look at Possible Gold Trends

Today we will report on China and gold because that is where the headlines are. But we will also report on Portugal and Japan where they are not.

China will allow some foreign companies to list in Shanghai and we already figured that banks active in China will grab slots in the market, among them Asia hands like HSBC (HBC) and Standard & Chartered (SCBFF.PK).

But according to what CLSA's Jonathan Slone told Bloomberg Monday, others planning to apply include GE (GE) and another stock in our stable mentioned for paid subscribers below. Plus a new China pick.

Gold is down maybe because the dollar is up, but also maybe because Barrick Gold (ABX), which last week announced that it had unwound about $2.9 bn in forward gold sales, has stopped buying back the gold. Mining companies for years financed exploration and investment by selling their output forward, which has capped the gold price. But once they have unwound their forward hedges, the market can set its own prices.

That means future gold price increases may still be triggered by other mining companies buying back their hedges. Anglogold Ashanti (AU), the African miner, still has significant forward sales on its books. But more and more, the price of gold will depend on real demand out there in the market, from industrial, ornament, and inflation or political protection purchases.

Industrial depends on the world economic recovery, since it is mainly electronic products that use gold. Ornament is a matter of custom but also of price. Big bangle buyers in India and the Middle East are said to be scarce now. As for inflation-protection, it will not be a draw for gold unless there are signs of prices rising, currently absent.

And while there are plenty of problem spots in the world, not many gold buyers are turning up from Zimbabwe or Argentina, Venezuela or Darfur, Chechnya or Iran. It is partly cultural and mainly because they have more immediate needs.

Comments

[BIOWOLFF:]

Big Bangle buyers also seem to be busy in China where shares of FUQI are making me a happy bangle bug

Sep 15 01:37 PM

[MarvinMBA:]

Gold and Silver are alternate currencies and its supply cannot be manipulated by central banks...its always a storehouse of value and particularly important at this junctions because of the paper printing without corresponding real GNP increase....inflation for sure,,,marvinmba

Sep 15 08:48 PM