Media Coverage

By Myra P. Saefong & Polya Lesova, MarketWatch
Last Update: 11:44 AM ET Feb 15, 2007

SAN FRANCISCO (MarketWatch) -- Gold futures fell Thursday to give back a portion of the nearly $5-an-ounce gain they've seen in the past two sessions as traders digested news of record gold demand in 2006, with a wary eye on the dollar's outlook and a mixed batch of U.S. economic data.

"Gold prices have been testing and probing this $670-$675 per ounce level now for a week.," said Neal Ryan, director of economic research at Blanchard.

"When you see gold test and retest a certain upside support over a week period, prices are eventually going to break one way or another and it's our believe that the break will be to the upside, especially in light of the methodical $70 increase we've seen in gold the last month since we called a bottom Jan. 5th," he said, in e-mailed comments.
Gold for April delivery was last down $2.20 at $669.80 an ounce on the New York Mercantile Exchange, erasing a portion of Wednesday's advance of $3.50 an ounce. The contract tallied a total gain of $4.70 between Monday and Wednesday.

Other metals prices mostly followed gold lower. However, March copper gained 2.4%, rallying 6.1 cents to $2.638 a pound after having touched a one-month high of $2.69.

March silver fell by 11 cents to $13.855 an ounce. April platinum lost $9.10 to $1,208 an ounce, while March palladium dropped $3.35 to stand at $342.50 an ounce.

"This hesitation in gold has taken place despite a series of seemingly auspicious news for the precious metal," said Jon Nadler, an investment-products analyst at bullion dealers Kitco.com.

"The sharply lower industrial production and capacity utilization numbers point to contraction in the economy and the more worrisome news of net capital outflows amid a steep decline in fresh inflows has to have dollar bulls on the run once more," he said, in e-mailed commentary.
"Perhaps the news offset each other, as lower economic growth might dampen metals demand, while a declining currency would certainly stimulate it," Nadler said.

Demand up, supply down
Looking ahead, "the dollar, oil prices, inflationary pressures, Fed and ECB rate decisions, etc. will be what causes [gold] price fluctuations on a daily basis, but it's the new reality of a different supply/demand equation in the precious metals markets that will keep prices moving up from left to right on a long term chart," said Ryan.
Ryan points out that a report shows that gold production in Zimbabwe fell in 2006, down 50% since 2004.

"Zimbabwe isn't a particularly large producing gold country, but combine that with news from South Africa that has shown monthly year-on-year declines of 12.4% in December, 7.6% in November, 5.5% in October, and 5% in September -- along with declines in Australia, Peru, Chile, Indonesia, etc. and you begin to get an appreciation for the larger picture," he said.
"Gold could go to $1,000 per ounce and these countries and companies couldn't pull one more ounce out of the ground than they are currently," he said. "I believe that we reached a peak production in the late 90s that will possibly be matched in some years, but never eclipsed."

Meanwhile, demand for gold in 2006 was a record $65.3 billion, despite a fall in tonnage and reduced supply, according to figures released by the World Gold Council on Wednesday.
Industrial demand was the highest ever at 458 tons, and investment demand was 7% higher than in 2005 in tonnage terms and 45% higher in dollar terms, said the World Gold Council, an advocacy organization funded by the world's leading gold miners.

Supply fell 13% in tonnage terms, including a sharp reduction in net selling by central banks. Jewelry sales were also at an all-time record in dollar terms at $44 billion, although jewelry demand fell back by 16% in tonnage terms due to a volatile gold price in the first half of the year.

"Prospects for both jewelry and investment demand in the first half of the year are good, although any return of excessive price volatility could hinder jewelry purchases," the World Gold Council said.

Crude, dollar lose ground
Elsewhere on the commodity markets, crude-oil and natural-gas futures touched their lowest levels in more than two weeks after data this week showed smaller-than-expected declines in U.S. heating fuels despite the cold snap last week.

In currencies trading, the dollar fell against its peers Thursday after a government report showed monthly capital flows to the U.S. reversed in December to the first outflow in a year and a half
A decline in the greenback this week had boosted demand for gold.

U.S. monthly capital flows reversed in December to an outflow for the first time since June 2005, the Treasury Department reported. The U.S. recorded an outflow of $11 billion in December, compared with an inflow of $70.5 billion in November, the Treasury said.

On the supply side, gold inventories were unchanged at 7.49 million troy ounces as of late Wednesday, according to Nymex data. Silver supplies were unchanged at 115.44 million troy ounces, while copper stockpiles dropped 22 short tons to 35,881 short tons.

Tracking stocks in the metals and mining sector as a whole, the Philadelphia Gold and Silver Index
The DJ Wilshire Nonferrous Metals Index was up 0.2% at 6,289.39 points and the DJ Wilshire Industrial Metals Index rose 0.9% to stand at 3,703.66 points. The DJ Wilshire General Mining Index rose 2% to 1,339.26 points.