Gold continues to hold its ground

After breaking back above the $1300 level, the yellow metal has struggled to go on from here.

The question over physical supply is being asked more and more frequently about gold, and the news from Newmont Mining this morning only adds to this conundrum.

The second largest gold mining company has taken the step of writing down the book value of the gold that it has by $2.26 billion, which adds to the already sizable write-downs of companies in this sector. The total in the last couple of months now stands at $15 billion.

With companies valuing gold at a more reduced level, the viability of a number of the gold mines around the world will be re-assessed and the natural consequence of this will be a reduction in production. The question that remains unanswered is: can the supply of exchange-traded fund’s or paper gold satisfy the market’s appetite, or will the increased requirement for physical delivery dictate an increase in market value?

Normally treading water is effectively viewed as going backwards in the financial markets, but as far as the gold price is concerned – and considering the bear market trend it has been stuck in – treading water would be progress.

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