Jessica Cross, CEO of Virtual Metals
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Gold can move higher - Cross
Allan Seccombe
Posted: Thu, 28 Sep 2006

[miningmx.com] -- Demand for gold received a shot in the arm from prices trading below the $600 level in the past couple of weeks and if bullion consolidates above $600 it could be poised to go a lot higher, said Jessica Cross, CEO of Virtual Metals.

Cross is quick to concede that predicting the direction of the gold price for the remainder of the year is extremely difficult because of the presence of hedge funds in the market. The lower gold price appears to have failed to dislodge them.

“If gold consolidates over $600, it will be right over $600 (in the fourth quarter). If it staggers around $600 and keeps bopping up and down there might be a breakdown again,” she told Miningmx.

it will be right over $600
The gold price was last trading at $604/oz, it’s highest level since 11 September. It closed as low as $572 on 19 September, levels last seen in June this year. Market reports have linked gold’s recovery to a pick up in the crude oil price.

Virtual Metals, the London-based metals consultancy, will soon release its Yellow Book, the research report that looks back on the 2006 gold market and looks forward to 2007.

European central banks have just completed the second year in a five-year agreement limiting their gold sales to 500 tonnes a year. The year closed on September 26 and the final data on their sales will be released on Tuesday, something Virtual Metals is waiting for before completing its Yellow Book.

“It appears as though they’ve sold under 500 tonnes and not met the target,” Cross said, adding a decision by Germany to hold onto its gold reserves might be the reason for the target not being met this year.

Virtual Metals analyst Matthew Turner estimated the banks have sold 398 tonnes of gold, deducing this by comparing their holdings now compared to a year ago.

The market will watch Tuesday’s release very closely to see if gold sales this week include a large tonnage, which would most likely imply a rush by the banks to meet their quota for the year. However, the data will include three days of the new sales year, making it difficult to pin down exactly what the final 2006 sales are.

Gold demand in the form of investment jewellery – purchased mainly in India, the Middle and Far East – took a massive hit early in the year when gold rocketed to 26-year highs and peaked at $730 in May, she said.
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“We are forecasting physical offtake to be substantially lower than 2005 on the back of prolonged higher prices,” she said. In the Yellow Book released in April this year, total demand in 2005 was put at 4,230 tonnes, with investment jewellery accounting for 1,502 tonnes of that.

“The Indian buyers have become accustomed to higher prices and there was also a correction in the price which would have helped a lot,” she said, adding diamond jewellery had made sizeable inroads into the Indian market.

“Under $600 buying is picking up to what would might be considered more normal levels. It’s very stop-start and it’s extremely responsive to price,” she said of gold buying in the Middle East.

Investec Australia in Sydney said in a daily report: "As we set ourselves to enter the fourth quarter, the market will watch closely the physical demand by jewellers, especially in India, and also the support received by gold as it hovers around the $600 mark.”