July 26 (Bloomberg) — Gold may rise for the first week in three on expectations that the lowest prices in a month will encourage jewelry makers to increase purchases.
Twenty-four of 48 traders, investors and analysts surveyed in New York, London, Singapore, Beijing, Seoul and other cities on Thursday and Friday advised buying gold, which dropped 4 percent last week to $390.50 an ounce. Fourteen recommended selling, and 10 said they would hold the precious metal.
Jewelers are quick to increase purchases when prices drop, limiting the size of any sell-off in the gold market, industry figures show. Gold jewelry demand in India surged 72 percent in the three months after the end of the first quarter of 2003, as prices fell to a six-month low, London-based researcher GFMS Ltd. said. India is the biggest user of the metal.
“Buying gold at the current level will help us to reduce the costs,” said Zhong Yan, a trader at jewelry maker Shanghai Lao Feng Xiang Co.
Jewelers are the biggest users of gold, accounting for 61 percent of global demand in 2003, GFMS estimates. Fabricators typically buy gold at this time of year, before the year-end holiday season, when jewelry demand jumps. In the fourth quarter of last year, global jewelry demand climbed 24 percent from the third quarter and gold prices rose 7.8 percent.
Gold for August delivery dropped $16.10 last week to $390.70 an ounce on the Comex division of the New York Mercantile Exchange, the lowest closing price for a most-active contract since June 17.
The drop in prices may also spur mining companies such as Barrick Gold Corp., the world’s third-biggest gold producer, to hedge less by avoiding contracts that lock in prices for future delivery. Producers expecting a rally are unlikely to want to sell at lower prices, and some may seek to exit earlier contracts.
“When the price declines overtime, we will use that as an opportunity” to reduce hedges, said Jamie Sokalsky, 47, executive vice president and chief financial officer at Barrick in Toronto. Barrick, scheduled to report second-quarter earnings on Tuesday, reduced its hedges by 800,000 ounces to 14.7 million ounces in the first three months of the year. “Our goal is to continue to reduce that over time,” Sokalsky said.
Gold also may get a boost from concern about terrorism.
The Democratic National Convention begins in Boston today, spurring concern the event may be a target for terrorists. Some investors buy gold as a haven against declines in other securities.
The Federal Bureau of Investigation on Friday said it received “unconfirmed information” that domestic terrorists might try to attack television news trucks to disrupt the convention.
Gold futures jumped 4.4 percent on Sept. 14, 2001, as trading resumed after the Sept. 11 terrorist attacks in New York, Washington, D.C., and Pennsylvania.
“There will be some safe-haven buying” early in the week, said Daniel Vaught, an analyst at A.G. Edwards & Sons Inc. in St. Louis.
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