Gold bounce continues as stimulus stays

Gold, gold, gold for Australia.

Legendary sports broadcaster Norman “Nugget” May’s Moscow Olympics swimming call will set the tone for the Australian market this morning.

Bullion prices surged another 3% overnight after rising almost 7% in the past fortnight, the biggest climb since November 2011. The New York close, however, was only 1% higher than the close in our region yesterday and some resistance could emerge today.

The yellow metal’s recovery has been driven by the wind back in expectations for the removal of monetary stimulus both in Japan and the US, after Shinzo Abe cemented control of Japan’s upper house over the weekend and US Federal Reserve chairman Ben Bernanke’s comments last week (see Clifford Bennett's The aggressive play is gold).

Australian Gold stocks rallied hard yesterday with Newcrest , Kingsgate and Regis up more than 7% while smaller operators like Medusa up 20% and Resolute rising 17%. Perseus jumped 14% and Oceana rose 6%.

That follows serious bounces in Australian gold stocks during the past fortnight.  But Newcrest, Australia’s biggest gold producer, is still battling its costs structure and the recent bullion bounce still leaves the company under water on its cost base at its Telfer operation.

Much of the demand for bullion overnight revolved around short covering and that should continue this morning after gold extended its position above $US1,300.

Much of that gain was priced into gold equities yesterday although there is room for a further 1% rise in bullion that has yet to be added to Australian gold equities.

On US commodity futures markets, speculators have increased their net-long position by 56% to 55,535 futures and options by July 16, the highest since June 4.

Short contracts, by contrast, fell the most since November after reaching a record the previous week.

Commodity, equity and currency markets appear to be more comfortable with the concept of tapering and finally have come to the realisation that the withdrawal of stimulus is not synonymous with a lift in the Federal Reserve rate.  Easy monetary policy will persist.