U.S. gold futures ended higher on Monday as a weaker dollar boosted bullion’s appeal as a hedge against the weakening value of paper assets due to currency depreciation. Gold, little changed in London Monday, may gain on speculation a weaker dollar will boost the metal’s appeal as an alternative investment.

The Dollar Index, a six-currency gauge of the greenback’s strength, fell as much as 0.3 percent Monday. Bullion has climbed 20 percent this year as investors sought to protect their wealth from the declining dollar and as a hedge against inflation. Gold prices, heading for a ninth annual gain, reached a record US$1,070.80 an ounce on Oct. 14.

“It is still too premature to short gold,” Andrey Kryuchenkov, a VTB Capital analyst in London, said Monday in a report.

Immediate-delivery bullion added US$2.72, or 0.3 percent, to US$1,056.32 an ounce at 11:36 a.m. local time. The metal rose 0.4 percent last week, the eighth gain in nine weeks. December gold futures were 0.5 percent higher at US$1,057.10 an ounce on the New York Mercantile Exchange’s Comex division.

CME Group Inc. will allow gold to be used as collateral to back trades on its exchange, according to a member notice dated Oct. 16. Gold would be the first commodity to be used as margin on CME trades, spokesman Jeremy Hughes said by phone Monday.

The metal gained to US$1,054.50 in the morning “fixing” in London, used by some mining companies to sell production, from US$1,047.50 at the afternoon fixing on Oct. 16. Still, nine of 16 traders, investors and analysts surveyed by Bloomberg, or 56 percent, said bullion would fall this week. Five forecast higher prices and two were neutral.

“The whole market is expecting to see some consolidation first before another round of buying,” said Kate Harada, a senior trader with Mitsubishi Corp. Futures & Securities Ltd. in Tokyo.

UBS AG raised its one-month and three-month forecasts for gold to US$1,000 an ounce and US$1,050 an ounce, from US$950 and US$1,000 respectively, John Reade, the bank’s head metals strategist in London, said Monday in a report. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a seventh day at 1,109.31 metric tons on Oct. 16, according to the company’s Web site.

Assets in ETF Securities Ltd.’s exchange-traded products fell 5.1 percent to 8.068 million ounces on Oct. 16, its Web site showed.

An investor who recently bought shares in one of the company’s gold products made a “one-off” transaction, Nicholas Brooks, head of research and investment at ETF Securities, said Monday by phone. He declined to name the investor.

UBS also raised its one-month and three-month forecast for silver to US$16 an ounce and US$17.50 an ounce, from US$14 and US$15.50 respectively. The bank increased its three-month platinum estimate to US$1,375 from US$1,275, and its three-month palladium forecast to US$330 from US$240.

Silver for immediate delivery in London added 0.3 percent to US$17.515 an ounce. Platinum rose 0.6 percent to US$1,350.95 an ounce, while palladium lost 0.2 percent to US$328.50 an ounce.

Russian gold miner Petropavlovsk, formerly Peter Hambro Mining, said its gold production for the first nine months rose 29%, mainly due to a significant increase at its Pioneer mine. The company remains confident of delivering its full-year overall target of 500,000oz of gold.

London-listed Petropavlovsk, Russia’s third-biggest gold producer, said nine-month output rose to 346,200 ounces helped by significantly higher output from its Pioneer mine.

It said a second production line at Pioneer was successfully commissioned in September and is processing 135,000 tonnes per month of ore.

Combined year-to-date gold production at the Pokrovskiy and Pioneer mines increased by 36% to 301,500oz.

The second production line at Pioneer was commissioned in September at 135,000 tonnes per month of ore. Expected commissioning of Pioneer’s third line has been brought forward from August 2010 to March and will provide additional capacity of 135,000 tonnes per month.

Throughput at the Pioneer mills, producing about 35,000oz per month, supported the full-year production target. Joint ventures and alluvial operations contributed a further 44,700oz.

The Malomir project is on track for commissioning in the second half of 2010. The infrastructure programme at Albyn has started and production is scheduled to begin at the end of 2011. A new metallurgical testing plant in Blagoveschensk has been commissioned.

Cash operating costs for the nine months were in line with the group’s forecast.

Chairman Peter Hambro said, ‘The successful commissioning of the second stage of the processing plant at Pioneer and the fact that it has now achieved 107% of its design capacity is a powerful demonstration of the abilities of our design and construction teams. It is remarkable that this was successfully commissioned in only 10 months.

‘During our visit to China to coincide with Prime Minister Putin’s attendance at the Russo Chinese Economic Forum we agreed with the equipment suppliers that the completion of Stage 3 of the Pioneer processing circuit should be advanced to March 2010 from August 2010, thereby enabling us to expand current capacity of the Pioneer mine.

‘The success at Pioneer is a strong signal that the plans at Malomir and Albyn can be achieved.’

In April, Petropavlovsk re-acquired iron ore miner Aricom and the combined group began trading on the London Stock Exchange’s main market.

As leading economies recover, Chinese copper smelters expect consumption in the world’s top copper consumer and global prices of the metal to strengthen in 2010.

Senior executives at large Chinese copper smelters, including Jiangxi Copper, Yunnan Copper, Tongling Nonferrous and Jinchuan Group attended an exclusive gathering of copper smelters late on Wednesday in London.

They said Chinese copper consumption growth in 2010 would be supported as Beijing’s $585 billion stimulus package, launched earlier this year, would produce significant results.

“Demand for investment and stockpiling would also be steady next year,” said Niu Hao, general manager of Yunnan Copper, the fourth-largest smelter in China.

China’s consumption may rise at least 10 percent on the year to above 5.5 million tonnes in 2009, said Gan Chengjiu, chief financial officer at Jiangxi Copper.

Gan’s estimate topped the prediction made by state-backed research group Antaike which has put this year’s consumption at 5.5 million tonnes.

High availability of cash resulting from relatively loose monetary policy in China would also boost demand for copper, said an executive at Jinlong Copper, majority owned by Tongling Nonferrous which is the second-biggest copper producer in China after Jiangxi Copper.

Loose credit has prompted Chinese speculators to stock copper this year and boosted the country’s imports to record highs in the first half.

Antaike said some 860,000 tonnes of copper may be stored in private warehouses as of late September.

Copper prices on the London Metal Exchange MCU3 have doubled this year on strong Chinese demand.

The price is expected to stay strong next year and the average price would be higher as the global economy would be better than this year, smelter executives said.

A Reuters poll released on Thursday found that copper is set to extend its bullish streak in 2010, with analysts overhauling mid-year forecasts due to unprecedented financial stimulus that they expect to boost demand for base metals.

“Copper prices in 2010 should be stronger than this year,” Yunnan Copper’s Niu said.

Tight copper concentrate is also expected to support global copper prices next year, a senior executive at one of the top smelters in China said.

It is said that there is no major new copper mine to start production Next year.

It is reported that WISCO (Wuhan Iron and Steel Corporation) signed a cooperation agreement with China’s logistics and shipping giant SINOTRANS Friday to conduct cooperation in iron ore and steel shipping.

WISCO, the parent company of Wugang, is one of China’s major state-owned steel enterprises. Currently, the company is striving to expand business in Central and Southwest China, which will need lots of shipping support.

SINOTRANS, the largest key inland shipping corporation and the third largest shipping company in China, possesses worldwide businesses in both comprehensive logistics and shipping.

Earlier, WISCO started strategic cooperation with China Shipping Company, another shipping giant, from October 2007 when the then shipping cost was too expensive even to exceed the iron ore price.

It is said from Li Shijun (vice secretary general of CISA) that motivation for the steel production in China mainly comes from domestic development when demand on the international market is declining, said .

The development is sustainable even after the Chinese government’s huge economic stimulus plan comes to an end. The government’s economic stimulus plan, especially the large-scale investment in infrastructure construction, has boosted China’s steel industry to recover ahead of other countries.

China’s 80,000-kilometer railway network saw the construction of another 30,000 new kilometers underway this year. Some 2.39 million tons of rail tracks have been produced in the first half of this year, up 105 percent over a year ago.

However, Li noted it is unnecessary to worry about the China’s steel industry would lose development momentum after the government’s stimulus plan comes to end.

The automotive industry, an important steel consumer, has witnessed a considerable sales this year with the government’s stimulus plan, and it still has plenty of room for development in China even without the stimulus plan, Li added.

At present, China owns only 37 units of automobiles for every 1,000 people on average, while the world’s figure has already reached 140 units.

Meanwhile, the country’s urbanization will also support steel industry development, though Li warned not to over-estimate the effect of this.

It is reported that the debate over the next year’s iron ore benchmark prices has got off to an acrimonious start with China seeking to separate its negotiations from other countries while global giant miners refuse to budge downwards on prices.

Shan Shanghua, secretary-general of China’s top iron ore negotiator China Iron and Steel Association (CISA), said on Friday that iron ore contracts should run for a calendar year instead of beginning on April 1, according to the Japanese financial year.

“We will not insist on other countries taking China’s iron ore price as a reference,” he said at an iron ore conference in the coastal city of Qingdao.

The iron ore conference is usually regarded as the unofficial start of benchmark price negotiations for the next contract year.

“There may be another failure in agreeing a benchmark price next year, as happened this year, if CISA sticks to its position,” a mining executive familiar with the negotiations told China Daily on the sidelines of the conference on Friday.

“BHP prefers to use spot prices, which are market-oriented and index-linked,” he said. “If both sides are not happy with the benchmark price negotiation, the next year ore trading might again be based on spot rates.”Iron ore is the only commodity that is negotiated with a benchmark price system. Other commodities such as copper and oil are linked to an index.

This year’s iron ore price negotiations became deadlocked in June when China insisted on a 45-percent discount on 2008-09 prices after a 33-percent cut in benchmark iron ore prices had been set with other Asia steel mills.
Shan said Chinese steel mills would not be able to make money at the current price that iron ore producers are demanding because an oversupply is causing steel prices to fall sharply.

“If the demand side is always losing money while the supply side is always making huge profits, can that relationship survive long?” he asked, insisting that global miners should offer better terms.

Chinese iron ore imports rose 36 percent to 469.4 million tons in the first nine months from a year earlier, the Customs said on Oct 14. Shipments have exceeded real demand by 50 million tons, the steel association said on Oct 12.

But mining executives from iron ore producers said the iron ore price was driven by demand, even if the demand side suffers lower profits. As long as the demand is there, there will always be possibility of rising prices.

Miners are optimistic because the economic recovery is leading to increased demand for steel.

Samarco Mineracao, an iron ore pellet joint venture between miners BHP Billiton and Vale, expects to produce at full capacity next year as demand recovers, its chief commercial officer, Roberto Lucio Nunes de Carvalho, said on Friday.

“Our expectation is to produce at full capacity of 22 million tons in the next year,” he said. “Industry demand is improving. Next year will be much better than this year.”

However, some Chinese steel mills are not optimistic about next year’s steel demand. China’s steel industry may end up losing money next year as oversupply weighs on prices. That might force steel companies to cut production next year, said Han Weidong, deputy chief of the market section of Hebei Iron and Steel Group Co Ltd.
“China’s domestic steel demand is unlikely to reach 600 million tons next year, while tight bank lending next year could hurt both demand for steel and expansion at steel mills, restraining growth in iron ore consumption,” he said.

A sales representative from a Hebei-based private steel company also said his company felt times were hard now because steel prices have fallen sharply since August and the iron ore spot prices remained at a high level. He also said that if the situation continues for a month, they may make cutbacks.

It is reported on Oct. 14 that soaring prices are likely to dent the demand for gold tomorrow, which is Dhanteras.

Merchants are expecting demand to fall by as much as 50 per cent, with buyers opting for smaller items.

The yellow metal rose to a record high of above $1,070 an ounce on Wednesday in London as the dollar slid to 14-month lows against the euro and oil prices inched towards $75 a barrel, boosting interest in commodities.

In India, where markets are influenced by global trends, prices are sizzling at record levels. In Calcutta, pure gold is at Rs 16,265 per 10 gm after scaling Rs 16,385 yesterday.

Dhanteras, when precious metals are bought in the belief it would lead to prosperity, generally accounts for sales of 15-20 tonnes of gold. But when consumers throng to jewellery shops and banks on Thursday, they are expected to look for smaller items.

“This year, our new initiative has been the 2 gram coin,” said an executive in a private bank in Mumbai. “Smaller coins are definitely going to sell more,” the executive added.

Traders and dealers said high prices, inflation and the economic slowdown are turning people into cautious buyers. “We see gold demand to drop by 50 per cent tomorrow because prices are ruling at an unaffordable level now,” Bombay Bullion Association president Suresh Hundia said.

Dhanteras is also expected to show Indians’ growing love for gold as an investment in the form of coins and bars rather than jewellery.

Jewellers and traders said the shift towards buying bullion over the past 4-5 years was here to stay as more consumers realise it is the more economical way to buy gold.

It is said from Harmesh Arora (director of NIBR Bullion Pvt Ltd, a Mumbai-based gold refinery that sells coins) that now even small investors have started buying gold coins. They collect it for their children.