Gold price fever to continue

Marc Ashton | Wed, 04 Nov 2009 08:59
[miningmx.com] -- GOLD fever is likely to once again hit the JSE today as the gold price surged over $30 to trade at an above the $1,083 level an ounce in US trade.

The spike was attributed to news earlier this week that India's central bank bought 200 tonnes of the International Monetary Fund's (IMF's) 402 tonne gold sell down programme.

In recent months, gold has been bought as a hedge against underlying weakness in the US dollar and a hedge against perceived inflation in the system.

Andrew Kinsey of derivatives trading firm Global Trader told Miningmx: "This was a pretty big move in gold. There was an anticipation of it in the Anglogold Ashanti share price yesterday prior to the actual gold move itself."

He added: "Once we took out the old high at $1,071/oz it was a virtual one step to $1,085/oz," he said.

Kinsey believes that a key factor was that the while the US dollar came off its highs, there was nothing like the sell off that markets have seen in the last few months when gold has moved higher.

Big picture wise, India is saying it would rather have gold reserves than dollar reserves

On top of this global equity markets seemed to be virtually unmoved by the gold price action, breaking what recently has been a reasonably strong correlation. While equities have remained under pressure since last Friday, gold turned around in the mid $1,030’s last Friday evening and has started moving higher.

Kinsey concluded: "I am not sure but we are in for a bout of volatility."

For traders looking for exposure to the underlying South African listed gold shares, stockbrokerage Imara SP Reid has recently updated its call on three of the local major gold producers. The firm has "buy" recommendations on AngloGold Ashanti and Gold Fields as well as an "add" recommendation on Harmony Gold.

Gold Fields said yesterday that it was positive on the group’s outlook particularly after developments at the group South Deep which has reported an improvement in operating efficiencies.

"The group is the least sensitive of the South African majors to the strong Rand and has the lowest cost structure. We believe the share offers the best value for bullion investors," the firm told clients.

Rory Mackay of binary options trading firm Justrade.com said that interest in his firm's daily gold contracts had been growing since it started listing the instrument two months ago.

Using binary options, traders can take a daily or weekly view on the gold price at various levels with active trade above the $1,055 and $1,065 levels for Friday close.

"Big picture wise, India is saying it would rather have gold reserves than dollar reserves," said Mackay adding that it meant that this was a slightly different approach to China which had tied much of its wealth to the US dollar.

Asked whether Justrade would be adding contracts with higher strike prices during the week Mackay said: "We'll list keep on listing as the price moves."

For traders looking for exposure to the underlying gold price but not wanting to take a punt on the individual miners themselves, another tried and tested tool is the Newgold Exchange Traded Fund (ETF).

Trade in the ETF was brisk on Tuesday with more than R184m going through - almost triple what had been recorded on any other trading day last week.

Call warrants, which allow traders to take a leveraged position on underlying gold stocks rising, also had a busy day on Tuesday.

Harmony warrants HARSBM (2.3 million units traded) and HARSBN (4 million traded) saw traders taking punts that the Harmony share price would close above R80 and R92 respectively by either January or April 2010.

More than four million warrants in ANGSBC changed hands with traders expecting AngloGold Ashanti to finish above R320 a share by May 2010.