Russian PM: gold is going higher

From Moscow Times

Vyacheslav Shtyrov, president of Sakha, approached Prime Minister Vladimir Putin on Wednesday with a plea for help. The sparsely populated republic, home to companies including Transneft, Surgutneftegaz and Mechel, is suffering from the drop in prices for gas and coal.

Sakha is having trouble keeping up with its investment goals for 2020 and the region's labor market is suffering, Shtyrov said at the meeting.

Putin listened and then took a breath.

"Vyacheslav Anatolyevich," he said, addressing him by his patronymic, "the global prices of coal, gas, metals and even diamonds have fallen. But the price of gold is rising -- and gold is mined on your territory."

When Shtyrov called attention to miners' problems with creditors, he was once again rebuffed. "We'll solve the problem with gold mining," Putin said. "Especially since -- I'll say it again -- I'm well aware that the price of gold is rising on world markets."

While the price of gold might not be enough to save Sakha single-handedly, the prime minister, for the most part, is right.

Minus a slight setback this week, the commodity's value has increased steadily since Nov. 12, when it reached an annual low of $712.30 per ounce. Between then and this year's Feb. 20 high, it has gained 39.4 percent to $992.90.

Gold's decline this past week reflected a correction of a sharp rally, said Lenar Khafizov, a metals analyst at Rye, Man & Gor Securities. On Friday, prices for the metal fell to $984.74 an ounce, down 4.2 percent from the previous week.

Nonetheless, the rally should continue through the first half of the year, with gold reaching a maximum price of $1,150 an ounce in May or June, Khafizov said.

While gold tends to fluctuate in reverse correlation to the dollar, the longtime safe haven has been given an extra boost from the vulnerability of foreign currencies.

The leader in the Russian market is Polyus Gold, which saw its shares on the MICEX rise 172 percent from 448.95 on Nov. 18 to 1,220.46 on Friday. Shares of gold and silver producer Polymetal grew 207 percent on MICEX from a yearly low of 70.03 on Nov. 20 to close last week at 213.86.

Russian gold producers have also benefited from the falling ruble, said Nikolai Sosnovsky, a metals analyst at UralSib. "A strong gold price coupled with a weak ruble means lower cash costs for production, which in turn means better financials this year," he said.

"UralSib believes 2009 will be tough and we don't see a recovery this year," he said. "We don't see any positive movement in global economies, and for the moment that will keep gold prices high."

It remains to be seen, however, how the news will play out for Shtyrov. In a statement dated Thursday on the Sakha web site, Putin's second reminder on the price of gold appeared in a slightly different form from the official transcript.

"I think we'll solve the gold mining question. Especially since the price of gold on world markets is rising," Putin said, according to the Sakha statement.