The Herald (Harare)

21 November 2012

Zimbabwe: Diamond Council Pours Money Into Gold Production

analysis

According to the World diamond council the world is pouring its assets into gold at the rate of US$77 billion. One result is a building boom by companies that transport and store the precious metal. High quality gold deposits are now getting harder to find and by so doing the industry is now spending billions to dig deeper underground or to open up mines in politically volatile countries or remote regions mostly in African countries like Zimbabwe.

What African politicians don't get is that gold remains a hedge against uncertainty, increased government printing flooding the global markets with cheap money and increased volatility.

Demand for gold investments is now an increased phenomenon creating a new multi-billion dollar demand wave rife with opportunities for upcoming entrepreneurs, savers and speculators.

The 10-year old Shanghai Gold Exchange saw its trading volume rise by 40 percent from 2004 to 2011 according to statistics done by a Chinese brokerage firm.

According to a recent report bullion vault a leading spot for online trading, claims 41 500 active customers hold US$2,2 billion on the bullion platform, more than the amount held by the Zimbabwean central bank in gold value.

Gold is currently hovering near a one-month high of US$1 731,55 an ounce with Greece heading deeper into financial woes and sovereign debt being avoided by investors.

A weaker dollar is also giving support for the bullion as the dollar fell on budget optimism that the US could avoid falling into a recession.

The risk-on attitude on the market has really spiked commodities like gold with geo-political issues cushioning the bullion.

The euro rose being assisted by that rally in European stocks driven by optimism that a deal is going to be reached by the US to avert recession.

The dollar declined against its peers trading at US$1,2813 to the euro falling by 0,1 percent and fell by 0,2 percent against the sterling pound trading at US$1,5904. Despite the dollar decline, it held gains against the yen as yen losses accelerate and that political turmoil is stalling as bears see an uphill task on Bank of Japan policies. The yen was trading at 81,350 yen to the dollar.

At the moment as a trader monitors gold rally versus USD/CHF that relationship is important they are currently trading to the upside and both trades are being driven by geo-political issues.

The Swiss franc pared gains against the euro and dollar trading at CHF1 2038 and 94,01 US cents respectively. In London, a slow and subdued economic recovery has been hurting economic revival and puts pressure on the pound despite that rally against the dollar on US budget optimism.

The sterling pound was trading 0.2 percent higher at US$1,5904 against the dollar and fell against the euro trading at 80,53 pence per euro. Economic analysts believe the sterling pound is still strong and this has pushed the Bank of England governor King.

King has lost patience as a stronger pound is making exports even harder to sell to its neighbours ravaged by the sovereign debt crisis.

In Australia, the Aussie dollar rose by 0,4 percent on US budget optimism prompting demand for riskier assets. The Aussie dollar was rose to trade at US$1,0401 to the US dollar.

South African Markets

The rand rebounded mirroring sentiment in the US that the world's largest economy could avoid falling into recession by reaching a deal on its fiscal cliff.

The rand was 0,1 percent higher and traded at 8,8150 against the US dollar.

Another driver that could help the rand firm against the US dollar is the noise in South Africa that the Reserve of South Africa could keep rates unchanged and we could see rand strength breaking to the upside entry could be at 8,8150 stop loss at 8,82 and profit taking at 8,7820.

We are likely to see bullish tone on forwards and option traders ahead of this trade data.

Commodity markets

On the commodities front crude oil led gains as geo-political issues in Israel and the Gaza strip intensify. Crude oil touched its one-month high by rising 3 percent to trade at US$89,16 a barrel.

As middle-east tensions continue crude oil could break above US$90 a barrel as bearish sentiment subsides

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