#Gold plunges to 4-month lows on rising #dollar

Gold plunges to 4-month lows on rising dollar
With gold buyers remaining largely absent, the gold price has fallen nearly 4% so far this week, its worst weekly performance this year, prompting investors to seek refuge in the dollar.
Author: By Jan Harvey
Posted:  Friday , 11 May 2012


LONDON (REUTERS)  - 
Gold prices fell more than 1 percent to a four-month low on Friday as worries over the financial health of Greece and Spain and huge trading losses for JPMorgan hurt stock markets and the euro, prompting investors to seek refuge in the dollar.
Investors liquidated gold holdings to cover losses on other markets, analysts said, as a rise in risk aversion sparked selling across assets seen as higher risk, while lifting the U.S. currency and safe-haven German Bunds.
Spot gold slid to $1,573.29 an ounce, its weakest since Jan. 3, after support gave way at $1,579, and was down 1 percent at $1,578.56 an ounce at 0917 GMT. U.S. gold futures for June delivery were down $16.60 an ounce at $1,578.90.
Spot prices have fallen nearly 4 percent so far this week, their worst weekly performance this year.
"May is turning into a trouble month for investors in most asset classes once again. Gold, offering high liquidity, is being hurt by the need to realise cash and move to the sidelines," Saxo Bank vice president Ole Hansen said.
"We saw another sweep lower this morning assisted by another upside attempt on the dollar," he said. Nonetheless, he added, the downward move could soon run out of steam.
"We are moving into an area of support with many talking about 1,550 as the line in the sand. The dollar should by now have been a lot stronger considering the strong buy signal given this week in the EUR/USD. This has so far not materialized."
European shares fell on Friday as uncertainty over Greece's political outlook, a huge loss from JPMorgan and mounting concerns over Spain's banking sector led to a sharp deterioration in market confidence.
German Bund futures pushed higher, while peripheral euro zone government bonds were set to remain under pressure as Greece made a last-gasp attempt to cobble together a government. The euro hit a 3-1/2 month low against the dollar
Although last year gold tended to benefit from worries over the health of the euro zone, it has reverted to trading more in line with assets seen as higher risk as the dollar has taken over as the haven of choice.
"Safe-haven gold buyers remain largely absent while bullion continues to trade in the same direction as riskier assets," VTB Capital said in a note. "Risk appetite for gold is simply not there, with players preferring the greenback at the moment."
INDIAN GOLD DEMAND SOFT
Buying of physical gold has been lacklustre in recent weeks in major consumer India, where appetite has been dampened by rupee weakness, further eroding confidence in the metal.
Some buying was seen in the United States, where sales of American Eagle gold coins hit 31,500 ounces so far this month, already 50 percent more than was sold in the whole of April.
On the demand side of the market, the world's biggest gold miner, China, produced 29.8 tonnes of gold in March, bringing total gold output in the first quarter to 80.8 tonnes, the Ministry of Industry and Information Technology said on Friday.
Among other precious metals, silver was down 1.4 percent at $28.58 an ounce, tracking losses in gold.
The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, broke through 55 on Friday for the first time since mid-January as the white metal underperformed.
The world's biggest silver-backed exchange-traded fund, the iShares Silver Trust, has seen outflows of just over 87 tonnes of metal so far this month.
Spot platinum was down 1.3 percent at $1,461.44 an ounce, while spot palladium was down 1.4 percent at $601.70 an ounce, having earlier touched its lowest since mid-December at $596.33.
Platinum Week, at which traders, miners, refiners, recyclers and buyers will meet, takes place in London next week. Recent price declines in both metals is likely to be discussed.
"After some sizeable price declines, we can't help thinking that both platinum and palladium look like good value here," UBS said in a note on Friday. "From the year's high of $1,737, platinum has already given back $245, while palladium has shed 15 percent from its high of $726."
"While some residual liquidation is possible if markets suffer another extreme risk-averse event, we tend to think that the bulk of the price declines are in the past and that PGMs have entered a value zone."
(Reporting by Jan Harvey; Editing by Alison Birrane)
 
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Fear Miners Set to Fall Off 'Supercycle' - Business News - CNBC

Fear Miners Set to Fall Off 'Supercycle'

Published: Thursday, 10 May 2012 | 4:30 AM ET

By: Jack Farchy and Helen Thoma

For a decade, life has been kind to miners. Perhaps more than any other, the mining industry has ridden the Chinese boom – or “supercycle” – in commodity prices.

But now investors are asking whether the sector’s best days are behind it. After the boom, they say, surely must come a bust. With metals prices down more than 20 percent from last year’s highs, could the supercycle be over?

The answer has profound implications for investors of all stripes, and particularly in the UK.

Following a surge in share prices and a string of listings, the mining sector now accounts for about an eighth of the market value of the FTSE 100[.FTSE  5495.99    -34.06  (-0.62%)   ], and so a large chunk of many British pensioners’ savings.

“We believe that the tail wind of ever-higher commodity prices, which has been the principal driver of share prices, is now over,” says Heath Jansen, head of metals and mining research at Citigroup, in a note entitled “Super-Cycle Sunset”.

The bears’ argument is two-pronged. First, Chinese growth is slowing, and becoming less commodity-intensive.

China is the main driver of demand for commodities such as iron ore, coal and copper [HGCV1  3.6545    -0.005  (-0.14%)   ], accounting for as much as three-quarters of forecast consumption growth.

But Beijing has lowered its growth target to 7.5 percent, the lowest since 2004. Put that together with the prospect of rising supplies as miners’ investments begin to kick in and, some investors argue, metals pricesare unlikely to rally much from current levels.

“We are looking at an inflection point in terms of China’s growth rate, which should slow gradually over the next decade after the pulsating growth of the last decade,” says Robert Lind, chief economist at Anglo American. “That has triggered a debate about whether commodity prices can return to their previous cyclical peaks.”

At the same time, the costs of running and building mines is rising rapidly.Kazakhmys [KAZ-LN  768.00    9.00  (+1.19%)], the London-listed copper miner, reported inflation of 18 percent in its production costs last year. Analysts at Deutsche Bank estimate that cost inflation across the industry was 10-15 percent in 2011 and predict it will slow only slightly in 2012.

The obvious conclusion is that margins will fall—and, with them, share prices. Indeed, the FTSE All-World mining index has already dropped 31.8 percent from its peak in April 2011. “This is usually the point at which the demand cycle finally matures and the supply response kicks in,” says Andrew Keen at HSBC, noting that stock valuations are already starting to discount a shift.

“If this is the case, it won’t be a repeat of the 2008/09 downturn, which turned out to be a brief intermission, but the start of a long, unwinding and normalisation of margins.”

Not everyone believes the supercycle is dead. Commodities prices could stay robust should China’s slowing growth be counterbalanced by difficulties bringing new supply to the market, as companies brave ever more tricky geological challenges and difficult jurisdictions in search of promising deposits.

“Exchange inventories are relatively low still despite this trough in demand currently affecting China and Europe,” says Simon Collins, head of bulk commodities at Trafigura, the second-largest metals trader. ”There’s not that much available material.”

Nonetheless, the idea of a shift in momentum for the mining sector is gaining greater credence among investors and executives alike.

BHP Billiton, the world’s largest miner by market value and a bellwether for the industry, acknowledged that growing caution among investors last week, when it said it would slow development of its big projects to match expectations for earnings.

Other miners are likely to follow suit, executives say, turning their focus from reinvesting profits to returning them to shareholders.

The result is likely to be a fundamental shift in mining as an investment prospect: putting money into the sector will no longer be a one-way bet.

“In the last 10 years as long as you got ‘long’ the right thing it didn’t matter,” says George Cheveley, natural resources portfolio manager at Investec Asset Management.

“That has not been the case since the middle of last year—we have seen much more differentiation in performance between companies and between commodities.”

Moreover, rising costs may not be entirely negative for mining equities.

In markets from iron ore to copper, the highest cost producers are seeing the most dramatic inflation in costs, meaning that even if prices fall, they are unlikely to return to pre-boom levels. That may help cushion margins for other producers—those at the lower end of the industry “cost curve”—even if their costs are rising too.

Those companies that are able to differentiate themselves – either by controlling costs and delivering projects on time, or by returning larger chunks of their profits to shareholders through buybacks and dividends – are likely to outperform, analysts and investors say.

“In an environment where metal prices remain elevated but range-bound, investors would have to pick winners and losers based on who can execute and manage cost pressures, as well as their policies on shareholder returns,” says Jeff Largey, analyst at Macquarie. “It could become a stockpickers’ industry again.”

Copyright 2011 The Financial Times Limited

Fear Miners Set to Fall Off 'Supercycle' - Business News - CNBC

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