Gold comes into its own as Citigroup flounders
Email this article By Kishori Krishnan Exclusive To Gold Investing News
Speculation is rife: the slumping global economy is expected to reduce demand for commodities. Investor confidence is shaken: Citigroup, the second-largest U.S. bank by assets, looks at options, including a sale of parts of the company or a merger. In the midst of all this gloom, there is light on the horizon. The appeal of the precious metal as a hedge against inflation has arisen.
Mounting economic uncertainties has ensured that gold rallied above $800 an ounce in New York, ending the week 8 per cent higher. That gold is holding up well in the midst of the commodity decline bodes well for the yellow metal.
“Gold is really starting to re-emerge as the safe-haven asset,” said David Meger, a metals analyst at Alaron Trading, in a Reuters report. U.S. gold futures for December delivery (GCZ8) settled up $43.10, or 5.8 per cent, at $791.80 an ounce on the COMEX division of the New York Mercantile Exchange.
Canadian stocks rose too, rebounding from the worst sell off since 1987. Mining and energy companies climbed with gold and oil prices and slower-than-forecast inflation. Energy and materials stocks got a lift from firmer commodity prices after the market dropped 9 per cent the previous session to its lowest in five years. As Michael Sprung, president at Sprung & Co. Investment Counsel said: “The big question is how long is the euphoria likely to last.”
“Gold prices managed to rally, even though global equities fell … It is possible that gold is benefiting from safe-haven buying, which could be offsetting the impact of rising deflationary pressures,” said James Steel, chief commodity analyst at HSBC.
But gold is still about 25 per cent below a lifetime high of $1,030.80 struck in March, which it has been unable to revisit after selling choked off recent rallies. It hit a two-month high of $931 in October. Whether or not the US economy falls into a prolonged painful period of deflation depends on the imponderables of a storm-tossed economy.
“The prospect that the economy is to weaken into 2009 will continue to keep commodity prices under wraps, including metals,” said Stephen Platt, a commodity analyst at Archer Financial Services Inc. in Chicago. “As long as you don’t have the demand chasing goods, the wiping out of inflationary expectations is inevitable,” he said, in a Bloomberg report.
Hiring on
There’s news that a mining company is looking to hire laid-off miners. A gold mining company based in Toronto came to Montana, hoping to fill spots at a mine in Nevada.
Barrick Gold (TSX: ABX) of North America held interviews. Officials with Barrick say they need to fill about 50 underground mining positions. With hundreds of Montana miners laid-off last week, officials with the company say the interviews couldn’t have come at a better time.
Looking good
Harmony Gold Mining Co. (HAR SJ), Africa’s third-biggest gold producer, expects South African mine workers to seek 13 per cent to 16 per cent pay rises next year, Reuters said, citing the company’s Chief Executive Officer, Graham Briggs.
Harmony Gold is a mining company which produces gold from its operations in the district of Virginia, Orange Free State. Harmony owns and operates the Harmony, Randfontein, Evander, Consolidated Modderfontein, Grootvei and Bissett gold mines. Harmony also has gold mining operations in Australia.
AngloGold Ashanti Ltd., Africa’s largest gold producer, agreed a $1 billion loan from Standard Chartered Plc to refinance a convertible bond and give the company time to seek cheaper funding. Its shares posted their biggest ever gain. The terms and covenants of the Term Facility are similar to those of AngloGold Ashanti’s existing $1.15 billion Revolving Credit Facility.
“There were a lot of legacy issues,” Shoaib Vayej, head of resources at Sanlam Investment Management in Cape Town, said. “This is the last ball around his legs.”
The company (ANGJ.J) may seek loans at more favorable terms once the international credit market begins to recover and will be able to proceed with an asset-sale program without being forced to sell mines at low prices.
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