Gold futures jump on global cues

February gold contract on MCX jumped 5.39 per cent in anticipation that funds would continue investing in precious metals after the US financial market crises. The metal was quoted at Rs 13280 per 10 gram in early Thursday trade.

Near month contract of the yellow metal also breached the psychological barrier of Rs 13,000 per 10 gram following suit of long term contracts. Gold for delivery in October jumped 2.31 per cent to Rs 13041 per 10 gram while the metal for December delivery perked up 2.13 per cent to Rs 13121 per 10 gram.

Meanwhile, Philip Klapwijk, Executive Chairman of Gold Field Minerals Services (GFMS) Ltd, the largest precious metal consultancy firm, estimated a rebound in gold price. “A further bank failure or two in the next few months can not be considered as surprise. Add that to an unwinding of dollar gains and you should see gold back over $900, and maybe $950,” he added.

However, the consultancy feels it has become unlikely that the record high, mid-March’s $1,011.25, is going to be broken this year.

In London, gold is currently traded at $869 an ounce against the $783 an ounce late Wednesday evening.

In the first update of its survey released on Wednesday, the consultancy finds more than halving gold output in major producing countries including South Africa, Australia, the United States and Canada. Consequently, mine production fell by over 70 tonne year-on-year in the first half. Companies involved in mining of yellow metal posted heavy losses in the first half of the current year. In contrast, growth for world number one, China, continued, if more slowly than recently, and new projects raised output in Russia.

Producer cash costs rose 20 per cent in the first half, as a result of such factors as higher labour charges and energy costs. First half net official sector sales fell by just over a quarter. This was chiefly due to lower sales by countries in the Central Bank Gold Agreement - mainly higher Swiss releases not offsetting the disappearance of Spain as a seller. Net sales by banks outside the Agreement reached just seven tonne. Central bank lending again fell due to low leasing rates and counterparty risk concerns.

Higher gold prices fed through to a surge in scrap in the first half of 25 per cent. The largest gain was in the Middle East, while sizeable increases were also seen in East Asia and India. The world total, however, was still down on the record set in the first half of 2006.

Jewellery demand in the first half slumped by almost a quarter (and in terms excluding scrap by more than a third). The key driver was the price, both its record highs and volatility, as suggested by the fact that India accounted for over 60 per cent of the gross decline. Most other regions also saw hefty losses, with price again the chief driver although worsening economic prospects were also important. This was particularly significant for the slump in US jewellery consumption, a change which also hit fabrication in Italy and the East Asian exporters.

China’s robust economy meant it bucked the trend and saw demand growth, as did Russia and Egypt. The 12 per cent drop for other fabrication in the first half was mainly due to the slump for medals & imitation coins, although all its remaining components (electronics, official coins, dentistry and decorative) also fell.

Producer de-hedging in the first half of the year exceeded last year’s projections of a significant slow down in the rate, as producers collectively removed 255 tonne from the global gold hedge book. Pivotal to the large scale cut were large unscheduled book reductions, most importantly that undertaken by AngloGold Ashanti, following a rights issue first announced in May, while the world’s largest gold producer, Barrick Gold effectively repurchased some 1.4 million ounces, by way of additional conversions from fixed price to floating price forward gold sales during the first half of the year, a trend established in 2007.

One of the key findings of the report was a 24 per cent year-on-year drop in global jewellery fabrication, which was recorded during the first half of 2008. The Update concludes that high and volatile gold prices were chiefly responsible for the decline, which saw the world total fall by some 300 tonne, compared with the first six months of 2007. Looking at jewellery fabrication excluding the use of scrap can provide a better indication of the call on the global gold market, as this measures demand for new gold. During the first half, jewellery fabrication, on this basis, shrank by 36 per cent or close to 350 tonne, to its lowest level in around two decades.