Acquisitions Rife in Gold Sector


". . .there is a lack of understanding in the markets about what is at risk."

Money flows are being watched. Gold hit $955 an ounce on Tuesday in Tokyo, as Chinese stock markets showed signs of stability and oil prices gained ground. The precious metal dropped 0.5% the previous day on selling by short-term investors due to caution in the face of tumbling Chinese equities and a fall in oil.

Spot gold was at $954.50 an ounce, up 0.5% from New York's notional close of $949.65, but off a three-week high of $961.00 marked on August 28. In August, gold was mostly caught in a narrow range, falling 0.4%. It has been wedged within around $20 of the $950 mark since mid-July.

U.S. gold futures for December delivery were up 0.3% at $955.90 an ounce after falling $5.30 on the COMEX division of the New York Mercantile Exchange on Monday.

As the end of a summer holiday period nears, the financial markets are looking for the next theme to trade with, and the most recent focus was on Monday's sell-off in Chinese equities amid caution over optimism about the pace of economic recovery. Gold at that time took a hit together with other commodities, given that the precious metal's ceiling around $960 proved solid last week.

Another excuse to sell bullion on Monday was a weekend report that Chinese state-owned companies will be allowed to walk away from loss-making commodity derivative trades with six foreign banks, traders said. But there is a lack of understanding in the markets about what is at risk. Whether China's economy as a whole is at risk due to heavy losses at state-owned companies is yet to be seen.

Also, Monday's mild gains in silver and palladium suggested investors were not so risk averse as at times when they flee from any financial assets but cash, traders said.

"People are being extra careful and watching if there is a new trend in money flows as the month of September starts," said Naomi Suzuki, a senior analyst at SC Asset Management Co. "I think such nervousness is helping make people take notice of that report," she said, referring to the weekend report on commodity derivatives trades in China.

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