Capital Gold Group Report: U.S. Federal Reserve Gave Gold the Fuel It Needed

Gold revs its engine and squeals down the track

Prices were stuck in a $50 trading range until the Fed sent the dollar reeling

By Myra P. Saefong, MarketWatch

June 27, 2008

SAN FRANCISCO (MarketWatch) — The U.S. Federal Reserve gave gold the fuel it needed to restart its engine and the precious metal has already driven through the trading range barrier it’s been stuck in for the past month.

Gold futures had been trapped in a $50 trading range between $860 and $910 an ounce on the New York Mercantile Exchange since May 28. It climbed past $920 in electronic trading Thursday evening as the U.S. dollar slumped in reaction to the Fed’s failure to signal urgency to raise rates to curb inflation.

On Wednesday, the Fed decided to hold short-term interest rates steady at 2%, but sharpened its focus on inflation, saying that the risks posed to the economy by upward pressure on prices have increased.

“Gold broke decisively out of the trading range that had constrained it as investors came to realize that the Federal Reserve won’t be able to begin a rate-hike campaign until 2009,” said Brien Lundin, editor of Gold Newsletter.

The Fed’s policy statement essentially acknowledged the “trick box” the central bank is in — “facing growing inflationary pressures, but unable to raise rates while economic conditions are so weak and with a national election so near,” he said.

That combined with growing expectations that the European central bank will begin its own rate hikes well before the Fed can act to create a bearish environment for the U.S. dollar which in turn, provided a very bullish outlook for gold, he said.

“People are finally coming out of the fog and realizing that we’re in a world of hurt and people are plain scared,” said Dale Doelling, chief market technician at Trends In Commodities.

“Stocks are in the toilet, the dollar is getting hammered, oil is going through the roof, food commodities are in the stratosphere [so] there’s only one solution,” he said. “Buy gold! Buy silver! Buy them because they’re the only defense against what’s happening in all the other markets.”

Fed Muck

The Fed’s in quite a predicament as it tries to help improve the economy and most scenarios point to higher prices for gold, analysts said.

James Steel of HSBC says that record-high crude oil and dollar weakness are boosting gold prices. (June 27)

Fed Chairman Ben Bernanke is “caught between wilting growth and rising inflation,” said Julian Phillips, an analyst at GoldForecaster.com. “With such toothless words against inflation, their rate-holding action told [everyone] that they can expect no interest rate support for the dollar in the foreseeable future.” “This is positive for precious metals,” he said.

Gold’s value as a hedge against inflation — especially as it pertains to a weakening dollar and rising oil prices — helped lift prices for the metal to nearly $1,034 an ounce in mid-March, the highest futures price level ever recorded.

And with ongoing concerns about inflation and a slowing economy, gold may be poised to return to record territory, analysts said.

“Inflation is a lot like toothpaste — once it is out, it is very hard to get back into the tube,” said David Beahm, a vice president at coin and precious metals retailer. And gold is a “tremendous hedge to both protect wealth during these inflationary periods and also generate positive investment returns when other asset classes decline in value.”

The Fed’s policy statement noted “two situations weighing on the economy: tight credit and the housing contraction — that could be best addressed by an accommodative monetary stance,” said Lundin. But at the same time, it noted just one, high energy prices that could be combated by a tighter monetary policy.

Crude prices climbed near a record $140 a barrel earlier this month and U.S. retail prices for regular gasoline stand near an all-time high above $4 a gallon.

“In short, they’re damned if they do and damned if they don’t,” said Lundin. The Fed can only talk inflation down and talk the dollar up for now. “It won’t be able to take any real, substantive action until after the fall elections.”

Dollar Doom is Gold’s Boom

Of course, at the root of the issue for gold is the dollar, Lundin said.

“Whatever developments drive the greenback will send gold in the opposite direction,” he said.

The Fed can protect the U.S. dollar by sharply increasing rates, but that would sink the economy and make servicing our huge debt loads unmanageable, said Peter Spina, an analyst at GoldSeek.com. So the Fed “must keep rates low and keep liquidity in the system, which will ultimately lead to further debasement of the dollar’s value,” he said.

Protection for the dollar can really only come in the form of confidence or perception and then capital controls, he said.

Spina said he senses “increasing desperation” on the Fed’s part and if the economy hasn’t recovered as we enter 2009, “the confidence game could unwind quickly.”

The Fed is “in a corner and the U.S. dollar is going to be a victim of their policies,” Spina said. “It already has been punished harshly.” . . .

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Capital Gold Group Report: Gold Rises Above $925; Oil Hits New Record High; DOW Loses 20% Since October

by Myra P. Saefong & Joyce Koh

June 27, 2008

SAN FRANCISCO (MarketWatch) — Gold futures climbed above $925 an ounce Friday as a new record high in crude oil, persistent weakness in the U.S. dollar and a recent plunge in the U.S. stock market encouraged investment demand for the precious metal, setting prices up for a weekly gain of almost 3%.

Gold for August delivery traded as high as $929 an ounce on the New York Mercantile Exchange, its strongest intraday level since May 27. It was last up $14.20, or 1.6%, at $929.30.

The contract was poised to end the week with an almost 3% gain.

“Gold has continued to remain firm and safe haven demand has reemerged on decreasing risk appetite,” said Mark O’Byrne, executive director at Gold and Silver Investments Ltd., in a note to clients.

On Thursday, gold futures rallied $32.80 to finish at $915.10 an ounce.

Overall, “fund money seems again to be leaving the imploding equity markets and heading into commodities, with energy and precious metals in the lead, while base metals are a distant third as a group,” said Edward Meir, an analyst at MF Global, in a research note.

Crude-oil futures surged to yet another record high on Friday — this time above $142 a barrel. . .

. . . Gold is likely to regain $1,000 an ounce by the end of 2008 and work higher through 2009-2010, said John Hill, an analyst at Citigroup, in a research note.

Front-month gold futures reached a record of nearly $1,034 in mid-March.

Gold, like crude oil, has been boosted by persistent weakness in the U.S. dollar. On Thursday, it broke through a trading range barrier it had been stuck in since late May and many analysts predict that prices will soon return to record levels.

Dollar Dance

The greenback dipped lower after a report showing a measure of inflation came in lower than forecast, reducing speculation that the Federal Reserve will have reason to raise interest rates this year.

The dollar index (DXY) which tracks the performance of the U.S. currency against other major counterparts, was at 72.43 compared with 72.48 in late North American trading Thursday.

With the Federal Reserve leaving its key interest rate unchanged at 2%, market watchers say this increases gold’s value as a hedge against inflation.

On Wall Street, U.S. stocks struggled to recover from Thursday’s plunge, when the Dow Jones Industrial Average (DJIA) skidded nearly 400 points.

As July 3 approaches, the European Central Bank is “expected to do that which the Fed currently won’t,” said Jon Nadler, a senior analyst at Kitco Bullion Dealers, implying that the ECB will soon rate interest rates.

“The dollar continues to have problems on the index and against the euro,” he said in a note to clients. “The footprint of momentum hedge funds is wide and deep in these markets and the massive amount of money being tossed around simply bends various commodities out of any recognizable shape.”

Among other metals traded on Nymex, September silver gained 36 cents to $17.58 an ounce. It was ready to end the week 0.4% higher. September copper rose 4.5 cents to $3.87 a pound — trading 1% higher for the week.

Platinum bucked the trend in the metals sector. July platinum fell $15.80 to $2,053 an ounce. September palladium edged down $9.50 to $470.30 an ounce.
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Capital Gold Group Report: DOW SINKS 300 POINTS AS GOLD BACK OVER $900 AND OIL HITS RECORD $140

DOW LOWEST IN 21 MONTHS

NEW YORK (CNNMoney.com) — Gold prices jumped Thursday, rising back above the psychologically important $900 mark, on renewed fears about the health of the U.S. economy.

Gold for August delivery settled at $32.80 to 915.10 an ounce on the New York Mercantile Exchange. The precious metal hit an all-time intraday high of more than $1,030 an ounce back in mid-March.

“Weakness in the dollar has helped propel gold sharply higher today,” said James Steel, an HSBC metals analyst in New York.

In addition to the dollar’s decline, gold was supported by a surge in the price of oil and signs that the credit crisis is alive and well on Wall Street.

“I think the bottom is rather limited, given the dollar and credit concerns, plus high oil prices,” he said.

Dollar weakness The dollar lost ground against the euro Thursday after the U.S. government reported that the nation’s economy grew at a sluggish rate of 1% during the first quarter.

The euro rose to buy $1.5736 in afternoon trading, up from $1.5667 late Wednesday.

The greenback’s weakness also stems from the Federal Reserve’s decision Wednesday to hold interest rates steady at 2% as the central bank struggles to deal with a flattening economy coupled with rising prices.

The Fed’s decision “signaled that inflation in near term is still uncertain,” Steel said. That can drive gold prices higher because many investors see precious metals as a hedge against inflation.

Oil jumps T

The dollar’s decline helped boost oil prices Thursday. Reports that Libya may cut oil production and that an OPEC official said crude could hit $170 a barrel this summer gave crude prices additional support.

Light, sweet crude for August delivery rose $3.65 to $138.20 a barrel on the New York Mercantile Exchange. The price climbed as high as $138.95 – a $4.40 gain and within $1 of the all-time intraday high of $139.89 – earlier in the session.

“To some extent, the gold market takes its cues from oil,” Steel said. When oil rallies, gold tends to follow suit because oil is such a large component of commodities indices, he said.

Stocks swoon

Wall Street was battered Thursday afternoon, with the Dow industrials hitting its lowest intraday level in 21 months. The selloff was prompted by downgrades in the financial sector, the resurgence of credit concerns and the fallout from disappointing quarterly reports in the tech sector.

Gold often rallies when the stock market is in decline. “It is a traditional safe haven in periods of financial stress,” Steel said.

Stocks came under pressure after Goldman Sachs cut its ratings on U.S. investment banks to “neutral” from “attractive” because of continued deterioration of the banking industry and the prospect of a lengthy recovery. It also added Citigroup to its “conviction sell” list.

Meanwhile, the stock market is digesting corporate results released late Wednesday from tech leaders Oracle and Research In Motion.

Oracle (ORCL, Fortune 500) easily beat Wall Street expectations for its fiscal fourth quarter results but the software maker gave more conservative guidance that disappointed investors.

BlackBerry maker Research in Motion (RIMM) missed its target and guided down its profit forecast for the quarter.

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Capital Gold Group Report: GOLD CLIMBS ON INFLATION CONCERNS, IRAN TENSIONS

“Dollar is going to get slammed again.”

By Pham-Duy Nguyen

June 26 (Bloomberg) — Gold surged the most in 16 months on speculation the Federal Reserve won’t rush to raise borrowing costs to curb inflation. Silver jumped the most since March.

The Fed yesterday kept its benchmark interest rate at 2 percent, even as policy makers acknowledged heightening inflationary expectations. An OPEC official said crude oil may reach $170 a barrel soon. Gold reached an all-time high of $1,033.90 an ounce in March as fuel, corn and other commodities soared and the dollar fell to a record against the euro.

“The Fed said that inflation is a major concern, but they’re not going to do anything about it, which made gold go ballistic,” said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. “The dollar is going to get slammed again.”

Gold futures for August delivery jumped $31.10, or 3.5 percent, to $913.40 an ounce at 12:18 p.m. on the Comex division of the New York Mercantile Exchange. A close at that price would mark the biggest percentage gain for a most-active contract since Feb. 21, 2007.

Silver futures for September delivery soared 75.3 cents, or 4.5 percent, to $17.36 an ounce. A close at that price would mark the biggest increase since March 5.

Before today, silver advanced 11 percent this year, while gold climbed 5.3 percent.

Traders trimmed bets on a rate increase in the next three months after the Fed’s announcement yesterday. Interest-rate futures show a 26 percent chance the Fed will keep borrowing costs at 2 percent in September, compared with a 2 percent chance a week ago.

Iran Tensions

Chakib Khelil, Algeria’s oil minister and the president of the Organization of Petroleum Exporting Countries, said in an interview on France 24 television that a conflict involving Iran might push oil prices over $200 and as high as $400.

Oil rose as much as 3.3 percent today to $138.95. The record was $139.89 on June 16. Iran has the second-biggest proved oil reserves and is OPEC’s second-largest producer.

“Gold rose on the comments from OPEC,” said Narayan Gopalakrishnan, a trader at MKS Finance, one of Switzerland’s four bullion refiners.

Investors traditionally buy gold to hedge against a loss of purchasing power. Gold rallied 39 percent from Sept. 17 to March 17 as the Fed slashed rates from 5.25 percent after a housing slump and credit crisis threatened to push the U.S. economy into recession.

Analysts say the economy is too feeble for the Fed to raise rates any time soon. The U.S. gross domestic product expanded at an annual rate of 1 percent in the first quarter, capping the weakest six months of growth in five years.

Commodity Rally

The Reuters/Jefferies CRB Index of 19 raw materials rose to a record today and has gained 29 percent this year. In May, U.S. consumer costs climbed at an annual rate of 4.2 percent and wholesale prices rose 7.2 percent, according to data from the Labor Department.

“The Fed seems to have decided to protect growth by holding rates low and to accept the fact that this period of inflation is inevitable and unstoppable,” said Patrick Chidley, an analyst at Barnard Jacobs Mellet in Stamford, Connecticut. “Inflation is the lesser of two evils. Investors will increase their positions in gold, and it’s likely to continue upward.”

The Fed has been more aggressive in cutting rates and slower to raise borrowing costs than other central banks, eroding the value of the dollar, analysts said.

`Major Problem’

“The Fed’s decision to not fight inflation is having a direct impact on gold prices along with many other commodities,” said Tom Hartmann, an analyst at Altavista Worldwide Trading Inc. in Mission Viejo, California. “Interest rates will not rise, though that would be a quick way to combat high commodity prices. The Europeans and other central banks seem keenly aware that inflation is a major problem.”

The European Central Bank has held its benchmark rate unchanged at 4 percent since June 2007. The Bank of England’s key lending rate is at 5 percent.

Russia’s oil funds may invest in gold, Moscow-based agency RIA Novosti said, citing a finance ministry official. Russia’s Reserve Fund and the National Wellbeing Fund were worth a combined $161.9 billion on June 1. . . .

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Capital Gold Group Report: ANZ Bank Approved for Membership in Shanghai Gold Exchange

Shanghai Gold Exchange Approves Membership of ANZ Bank

By Ginger Ding
26 Jun 2008 at 08:42 AM GMT-04:00

SHANGHAI (Interfax-China) — ANZ Bank is to become one of only four foreign banks permitted to trade gold on the Shanghai Gold Exchange (SGE), after becoming an SGE member, ANZ announced Tuesday.

Alistair Bulloch, ANZ chief executive officer of North East Asia, said in the announcement that the SGE membership would help to position ANZ in both the commodity and financial markets of the Chinese economy.

“The gold trading approval strategically enhances ANZ’s client servicing capacity and core bank status. This approval is a further step in ANZ’s plan to become a leading foreign bank in China,” Bulloch said.

According to ANZ’s announcement, the SGE will only grant a total of five foreign banks membership at this stage. However, when reached by Interfax, Tong Gang, an official with SGE’s press department, said there is no limit to the number of foreign banks that can be granted membership to the SGE, and that China will gradually open up its gold market.

HSBC Bank (China) Co. Ltd. (HSBC), Standard Chartered Bank (China) Ltd. and the Bank of Nova Scotia (Guangzhou Branch) became SGE members in February. They were able to trade gold on the SGE from June 5, 2008.

Aside from the above three banks, preliminary approvals to apply for SGE membership were granted to UBS AG and Societe Generale by the People’s Bank of China (PBOC) last June. However, Tong told Interfax that neither UBS AG nor Societe Generale have applied for SGE membership yet.

ANZ is the only Australasian-based bank with both local and foreign currency commercial banking capabilities in China. It has fully-licensed foreign bank branches in Shanghai and Beijing.

In addition to its own branches, ANZ has a 19.9% stake in the Shanghai Rural Commercial Bank and a 20% stake in the Bank of Tianjin.

The SGE is the sole spot gold trading bourse in China. The most-traded AuT+D contracts on the SGE closed at RMB 195.82 ($28.51) per gram Tuesday, RMB 3.68 ($0.54) lower than the previous trading day.

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Capital Gold Group Report: Buffett Concerned About U.S. `Stagflation’

Warren Buffett, Billionaire Investor and World’s Richest Man, Says He’s Concerned About U.S. `Stagflation’

By Josh P. Hamilton

June 25 (Bloomberg) — Billionaire investor Warren Buffett says he’s concerned about “stagflation,” or slowing in the U.S. economy while inflation accelerates.

“We’re right in the middle of it right now,” said Buffett, chairman of Omaha, Nebraska-based Berkshire Hathaway Inc. in an interview on Bloomberg Television today. “I think the `flation’ part will heat up and I think the `stag’ part will get worse.”

Buffett, the world’s richest person, runs a company with a $72 billion stock portfolio and businesses ranging from candy to corporate jet leasing and insurance. He’s said the U.S. housing slump has been a drag on Berkshire’s earnings, adding today he’s unsure when the economy will recover.

“It’s not going to be tomorrow, it’s not going to be next month, and may not even be next year,” he said.

The U.S. economy will expand 1.4 percent in 2008, the weakest performance since 2001, according to a survey by Bloomberg. Federal Reserve Chairman Ben S. Bernanke said June 9 the risks of a “substantial downturn” in the economy have diminished and policy makers will “strongly resist” an increase in inflation expectations. Consumer prices rose 4.2 percent in the 12 months ended in May, the fastest pace since January.

Buffett, whose Berkshire is the second-largest shareholder of Anheuser-Busch Cos., declined to comment on InBev NV’s $46.3 billion bid for the St. Louis-based brewer. He disavowed comments in the media attributed to him about whether he favors the offer.

Mistaken Identity

“I’ve been reported to be in St. Louis, I’ve been reported to be at dinner with August Busch IV,” Buffett said referring to the chief executive officer of the brewer. “There must be some guy in St. Louis that looks a lot like me, because I have not been in St. Louis since this started.”

Federal regulators may not need to step in to help Lehman Brothers Holdings Inc., the securities firm that lost about 62 percent of its market value this year, Buffett said.

“The fact that they intervened on Bear Stearns prevents them from needing to intervene on other large investment banks,” Buffett said. “The very act of the fire engine showing up when there was a fire means that other fires won’t break out in this particular case.”

The second-largest underwriter of mortgage debt last year, Bear Stearns Cos. sold itself after an exodus of clients and lenders threatened to plunge the company into bankruptcy. New York-based JP Morgan Chase & Co. agreed in March to buy Bear Stearns with backing from the Fed.

Buffett also praised Barack Obama, the Democratic senator from Illinois running for president against Republican John McCain, an Arizona senator.

“He will have more concern for the people who don’t get the lucky breaks in life like I’ve gotten,” said Buffett, ranked the richest man by Forbes magazine.

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Capital Gold Group Report: Marc Faber Favors Commodities as Inflation Quickens

Marc Faber Favors Commodities as Inflation Quickens

By Patrick Rial and Lynn Thomasson

June 24 (Bloomberg) — Japanese stocks, Asian real estate and commodities are investors’ best bets as faster inflation erodes returns in the rest of the world’s markets, said investor Marc Faber, author of the Gloom, Boom & Doom Report.

“Demand for commodities and oil will not vanish.” Faber said at a conference in Tokyo. “The shift in demand that drove up commodity prices is not going to go away.”

Record prices for commodities have accelerated inflation around the world and lifted shares of raw material and energy producers. Oil more than doubled since the beginning of last year, while products including coal, rice and fertilizer also reached record highs in 2008.

Faber, who told investors to buy gold as the metal began a seven-year rally, predicted inflation may boost Japanese share prices and Asian property will benefit as more people gain access to mortgages.

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Capital Gold Group Report: Gold Ends Above $900 to Gain Nearly 4% on Week

SAN FRANCISCO (MarketWatch) — Gold futures closed with a modest loss Friday but remained above the $900-an-ounce level to finish the week with a gain of almost 4% as rising oil prices and weakness in the dollar fueled investment demand for the precious metal.

Gold for August delivery closed at $903.70 an ounce on the New York Mercantile Exchange, down 50 cents for the session. But it closed last Friday at $873.10, so it gained 3.5% for the week.

On Thursday, gold futures closed at their highest level in more than three weeks as concerns over global economies and a decline in South African gold production lifted prices by $10.70.

Long- and short-term investors, with their eyes on the dollar and oil, took gold prices higher,” said Julian Phillips, an analyst at GoldForecaster.com.

Higher oil prices have shrugged off a high-profile summit of oil producers and consumers set for this weekend in Saudi Arabia as well as China’s move to hike fuel prices, while the dollar has become “anemic, sending gold up as it fell,” he said in emailed comments.

“If good news for oil doesn’t push it down, what will?” asked Phillips. “It seems the market doesn’t want talk — it wants action [and] until it gets it, the prospects are good for gold and silver.”

In Nymex energy trading, crude futures closed higher, recouping part of the sharp fall in the previous session on the heels of weakness in the dollar and concerns about hostilities in the Middle East.

Crude futures had dropped nearly $5 a barrel on Thursday, retreating after China, the world’s No. 2 consumer of oil, announced a surprise increase in fuel prices. “China’s decision to hike fuel prices again reflects the level of concern toward inflation, and will continue to draw investment demand towards gold,” said James Moore, an analyst at TheBullionDesk.com, in a research note.

Gold is typically seen as good hedge against inflation.

In foreign-exchange trading, the U.S. dollar fell against the euro and the yen Friday.

The dollar index touched a low of 72.93 before recovering to trade little changed in late Friday afternoon trading. Weakness in the greenback typically boosts dollar-denominated commodities, including gold.

Price lid

Gold finished a “positive week and this momentum is likely to at least continue into the start of next week,” said Peter Spina, an analyst at GoldSeek.com.

The key market drivers, the dollar and oil, are strongly favoring the gold and silver complex today, but “the price is not reacting as strong as one would expect as some overhead resistance around $900 is keeping a bit of a lid on an extended rally,” he said in emailed comments.

Spina doesn’t expect the “lid” to be able to hold the growing pressures for too long, he said. And “with sustained current conditions, the short-term gold price has the ability to make another solid run into the $900’s.”

Mixed base

Rounding out the action in the Nymex metals pits, July silver gave back 7.3 cents to close at $17.397 an ounce, but the contract was still 5% higher for the week, while September palladium closed flat at $479.20 an ounce, leaving it around 1% higher for the week.

July platinum gained $6.60 to finish at $2,062.40 an ounce, up 1.3% for the week. July copper futures rose 5.3 cents to close at $3.832 a pound — up 6.8% for the week.

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Capital Gold Group Report: Physical Gold — Safety from Anticipated Bank Failures

FDIC seeks to increase hiring to deal with anticipated bank failures

March 26, 2008

Federal regulators, anticipating a surge in troubled financial institutions, will boost by more than 60 percent the number of workers who handle bank failures.

The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 workers in the division that handles bank failures, John Bovenzi, the agency’s chief operating officer, said Tuesday.

“We want to make sure that we’re prepared,” Bovenzi said, adding that most of the hires will be temporary and based in Dallas.

There have been five bank failures since February 2007, following an uneventful stretch of more than two years. The last time the agency was hit hard with failures was during the 1990-91 recession, when 502 banks failed in three years.

Analysts see casualties rising but don’t believe they will reach that level. Gerard Cassidy, managing director of bank equity research at RBC Capital Markets, projects 150 bank failures over the next three years.

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Call and speak to a Precious Metals Specialist at the Capital Gold Group to discuss how you can safeguard your long term savings in gold – 800-510-9594.

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Capital Gold Group Report: DEMAND INDICATORS POSITIVE FOR GOLD

Platinum up 2.5% on South African Supply Woes

Wed 18 Jun 2008, 13:17 GMT

LONDON (Reuters) – Platinum and palladium prices rose on Wednesday as traders fretted over the outlook for supply from South Africa, while gold ticked up as oil edged higher and the dollar firmed against the euro.

Platinum climbed 2.5 percent and palladium reached a three-month high as a South African official warned the country could face a severe energy crisis, and after state power utility Eskom said it would lift electricity prices.

South Africa’s public enterprises minister Alex Erwin said on Wednesday the country could “face a very, very severe energy crisis in one to two years’ time” if Eskom failed to raise funds in the capital markets.

Spot platinum rose to $2,095.00/2,105.00 an ounce from $2,052.00/2,072.00 late in New York, having earlier touched a session high of $2,103.50.

Spot palladium rose to $460.50/468.50 an ounce from $456.50/464.50, after reaching a high of $468.50, its firmest level since March 19.

The metals had already been firmly underpinned by supply issues linked to South Africa’s power problems and the prospect of a miners’ strike next month.

“When you have 75 percent of the world’s platinum produced in one country and you have power problems there, that is going to be explosive in terms of price action,” said BNP Paribas analyst David Thurtell.

The republic also produces a third of the world’s palladium and 11 percent of gold mine supply.

“South Africa is the world’s number two gold producer,” added Thurtell. “When you have rising energy costs and problems with supply, that will have an impact on prices.”

Earlier on Wednesday, Eskom received regulatory approval to raise its electricity tariffs by an additional 13.3 percent year-on-year for 2008/2009.

The tariff increase amounts to a 27.5 percent average raise year-on-year, the regulator said. A rise in power costs is likely to hit all mining activity in the republic.

“We expect the power shortages in South Africa to hit output of gold, platinum and base metals quite badly,” said Commerzbank analysts in a note.

“Global production of platinum metals in particular is likely to suffer severely, as most platinum is mined in South Africa,” they added.

Meanwhile gold edged higher as oil prices ticked up and as the dollar firmed a touch against the euro.

Gold was trading at $887.40/888.40 an ounce at 1403 GMT from $884.20/885.40 late in New York on Tuesday.

The precious metal is struggling to find direction as the market debates the next move for the dollar. Gold typically moves in the opposite direction to the dollar, as it is bought as a hedge against weakness in the currency.

However, demand indicators are positive.

There are also signs that Middle Eastern jewellery demand may be picking up, with Dubai gold sales for May rising 18 percent from the previous month as easing prices brought buyers back to the market.

Among other precious metals, silver was higher at $17.36/17.42 an ounce from $17.05/17.13 late in New York.

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