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China seen draining foreign exchange reserves to prop up state banks
Gold May Halt 7-Week Slide on U.S. Inflation Concern
By Claudia Carpenter
Bloomberg News Service
Monday, May 17, 2004
http://quote.bloomberg.com/apps/news?pid=nifea&&sid=a6zPrW3X8JpI
Gold may rise for the first week in eight on concern
that U.S. inflation will accelerate, according to a
Bloomberg survey of 36 traders, investors, and
strategists.
Twenty respondents polled from Sydney to New
York on Thursday and Friday advised buying gold,
which some investors buy as a hedge against
accelerating prices that erode the value of stocks,
bonds, and the dollar. Seven in the survey
recommended selling gold, and nine said they
would hold the precious metal.
Gold had its biggest gain in more than two weeks
on Friday after a report showed U.S. consumer
prices climbed in April for a fifth straight month,
and China said its inflation rate rose to a
seven-year high.
"Everybody knows that when they go to the store
to buy something, it's much more expensive now
than it was in the past," said Sean Boyd, 45, chief
executive of Agnico-Eagle Gold Inc., owner of
Canada's biggest gold mine. "There's inflation in the
system, and we think that's going to lower the
attractiveness of holding paper assets."
Crude oil rose to an all-time high in New York of
$41.56 a barrel, reviving concern about rising r
aw-material costs. The U.S. pump price of
gasoline is at a record, and airlines have boosted
ticket prices as jet-fuel costs soared. The
energy-weighted Goldman Sachs Commodity
Index is close to a 29-year high.
Gold for June delivery rose as much as $2.40, or
0.6 percent, to $379.50 an ounce in after-hours
trading on the Comex division of the New York
Mercantile Exchange. It traded at $379.30 an
ounce at 12:43 p.m. in Sydney. The precious
metal fell 0.5 percent last week and has declined
11 percent in the past seven weeks, the longest
period of weekly drops in almost five years.
Consumer prices in the U.S. rose 2.3 percent in
the 12 months ended in April, following a gain of
1.7 percent in the year ended in March, the Labor
Department said. The report bolstered expectations
that the Fed will raise its target interest rate from a
45-year low as soon as next month, analysts said.
At 1 percent, the Fed's target rate is half that of the
European Central Bank.
"Concerns about inflation in the U.S. are increasing
as oil prices rise," said Alec Kim, a manager at Korea
Exchange Bank Futures Co.'s international marketing
division in Seoul. "Concerns about a U.S. interest-rate
hike have already been reflected in the markets."
Other consumer goods also are rising. Dairy product
prices jumped 10 percent in April, the biggest monthly
rise since July 1946, the Labor Department said. St.
Louis-based Panera Bread Co., which has 637 bakery
cafes, said last week it plans to raise menu prices
about 2 percent because of rising commodity prices
for dairy and meat products.
Gold reached a record $873 an ounce in 1980, when
U.S. consumer prices rose 13 percent.
The precious metal has fallen 9.4 percent this year as
gains in the dollar against the euro and yen reduced
gold's appeal as a hedge against declines in other
dollar-denominated assets. The dollar fell against the
euro and yen on Friday, amid speculation that the
dollar's three-month rally already reflects investor
expectations of higher interest rates.
"The beginning of a tightening monetary policy in the
U.S. is usually preceded by a strengthening dollar,"
said Jonathan Battershill, an analyst at brokerage
Hartleys Ltd. in Perth, Australia. "This has resulted
in a weakening gold price. However, we believe that
the dollar is close to reaching its peak."
"Gold is cheap," said Jonathan Barratt, head of
foreign-exchange and precious-metals trading at
Tricom Securities Pty. in Sydney.
Many analysts say inflation won't run rampant.
Economists forecast prices this year to rise 2.2
percent, the median estimate in a Bloomberg News
survey. The average annual increase from 1920 to
March 2004 was 3 percent.
"It does not yet appear as though the market in
general is willing to buy into the possibility that
inflation will continue to rise rapidly over the next
year," said Patrick Chidley, an analyst at Barnard
Jacobs Mellet USA in New York.
The decline in gold prices from a 15-year high of
$433 an ounce last month has increased demand
in India, the world's biggest consumer of the
precious metal, AngloGold Ashanti Ltd. Chief
Executive Officer Bobby Godsell, said in an
interview.
"Physical demand is fantastic," said Bernard Sin,
chief precious metals trader at MKS Finance SA
in Geneva.
Hedge funds last week slashed their holdings in
gold futures by 31 percent, the fifth straight weekly
decline, the Commodity Futures Trading Commission
said Friday.
Hedge funds and other large speculators bought
38,016 more gold futures than they had sold as of
Tuesday, down from 54,663 a week earlier, the
report showed. It was the smallest "net-long"
holding of gold futures by large speculators since
July 15. The most-active futures contract rose 7.2
percent from July 15 to July 28.
Shares of Toronto-based Agnico-Eagle on Friday
rose 27 cents to C$16.96 ($12.20) on the Toronto
Stock Exchange. They have gained 15 percent in
the past year. Johannesburg-based AngloGold
Ashanti, the world's second-biggest gold producer,
fell 3.98 rand to 214.02 rand ($31.80). The stock
has dropped 6.9 percent in the past year.
Newmont Mining Corp. is the world's largest gold
producer.
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NEWS AND ANALYSIS
Free sites:
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http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
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Ted Butler silver commentary archive:
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