Gold Stabilises Following Thursday’s Sharp Fall

The Comex Gold futures have began to stabilise and regain some strength after traded as low as $992 per ounce this morning. Gold investors have been digesting Thursday’s events which saw a volatile gold market fall more than $20 within the space of an hour.

Gold future reached $1,021 on Thursday morning in London, before a slew of economic data and comment sent equity and gold markets scrambling late in the afternoon. The US Dollar Index gained 1% and gold fell $20 to trade below $1,000.

Comments from the Federal Reserve and the European Central Bank prompted a period of volatility in the forex markets, which saw sterling come under pressure and the dollar experienced a relatively broad based rebound.
Among other factors, US Initial Jobless data supported the US Dollar, as claims were reduced exceeding analyst expectations who expected a slight increase in claimants.

The most immediate evaluation of any market volatility usually prompts debate among analysts and investors alike. For Gold investors the key details arguably surround the Federal Reserves apparent confidence in the Dollar, with Timothy Geithner stating that ‘the US backs a strong dollar to ensure it stays the world’s reserve currency’.
On Thursday, the Fed stated that it would reduce the size of its Troubled Asset Fund (TAF) following signs that the economic recovery was beginning to take hold. In its comments the Fed also reiterated that it “remains prepared to expand” liquidity if needed.

The implied message taken by some economists was that the tone of Fed’s comments indicates that inflation may not become the significant issue that many have feared.

Similarly comment from today’s G20 meeting is expected to emphasise the view that now that financial markets have stabilised. And going forward global leaders and regulators will tighten capital requirements.
Other commentators merely viewed yesterday’s events as a natural trading led correction rather than a fundamental shift in economic perspective.

Some reports suggest that the intraday spike in the Dollar triggered profit taking among bullish gold investors. Many of whom had been sitting on substantial gains following gold rise over the recent weeks and months.
Subsequently some analysts indentified that automated ‘stoploss’ orders may have been activated to add further pressure the declines through electronic trading.

Analyst views are mixed ahead of another day in which the debate will be lead by global finance ministers and central bankers, as the world focuses on the G20 meeting in Pittsburgh. Discerning investors will remain poised as market reaction unfolds further.

Gold Equities in London were generally flat this morning as investors asses their options following yesterdays steep declines.

Major international gold producer Randgold Resources (LSE: RRS) and the newly renamed mid-tier precious metal operator Petropavlovsk Plc (LSE: POG) were both unchanged on the day, while Canada based Yamana Gold (LSE: YAU) slipped 1%.

In London’s AIM market several junior gold equities made positive starts to the session although generally the trend was neutral across the sector.

Pan African Resources (AIM: PAF) lead the sector rising almost 10%, fellow African based junior GoldPlat (AIM: GDP) was also relatively strong on the AIM market today, rising over 5%.

Frontier Mining (AIM: FML) and Mariana Resources (AIM: MARL) both gained 2%.

Fiji focused gold producer Vatukoula Gold Mines (AIM: VGM) rose 1% today as it reported higher than expected gold production in the fourth quarter.

A few other gold stocks fared less well today. This morning, Western Australia operating miner Norseman Gold (AIM: NGL; ASX: NGX) maintained its full year production guidance and announced a positive pre-feasibility study of the ‘OK Decline’ project. However the stock eased 4 pence because first-quarter production was below the company forecast.

Uzbekistan focused gold miner Oxus Gold (AIM: OXS) dropped 4% this morning, while Philippines focused Medusa Mining (AIM & ASX: MML) traded lower, losing 4p per share.

Elsewhere gold equities continue to trade sideways, pending further developments.