Wednesday, November 7, 2012

The future of gold



Which factors will influence the yellow metal’s direction? Our experts weigh in

Commodities and precious metals in particular have had a wild ride in the last 24 months. Last September, gold hit a nominal all-time high of $1,921 a troy ounce (although it was lower in real terms than a peak in 1980. Since then it has declined markedly to about $1,600. What’s behind its movements and what can business and investors expect in the coming months? Business without Borders hosted seminars on precious metals, featuring Leo Abruzzese, global forecasting director of the Economist Intelligence Unit, and James Steel, precious-metals analyst for HSBC Bank USA in June in Vancouver and Toronto. The experts offered explanations about gold’s behaviour, ranging from the state of the world’s economy, the popularity of President Obama and even the behaviour of Indian monsoons.

The future of gold

Photo: Jose Luis Pelaez
The foundation for understanding precious metals’ outlook is the performance of the global economy. Abruzzese said that the three main engines of the global economy—North America, Europe and China—face a difficult year. “The reason we’re talking about a pretty uncertain year this year, and even going into 2013, is that Europe is already in a recession. When you have a $15 trillion economy that’s contracting, that’s going to be an anchor globally.”

And while China has had what Abruzzese called “a great run” in the last 22 years it too is slowing down. “China’s economy as recently as a few years ago would grow by 11% or 12% a year. This year it might do 8%.”

Finally, there is the United States, which is not in recession but neither is it booming.

THE EFFECT ON GOLD PRICES

How does all this affect the price of gold? For gold bugs it’s perversely good news. Abruzzese said that if the economy were to take off at a time when there is a lot of liquidity in world markets, the price of gold would probably plunge, something he said investors should worry about.

There are several factors that make up the price of gold, Abruzzese said. One is jewelry, which accounts for 50% of global gold demand, and most of the remainder is consumed for investment. Jewelry consumption was flat last year after demand in India collapsed owing to declining consumer confidence in government policy and a slowing economy. India is traditionally the biggest consumer of jewelry gold.

The supply-demand balance for gold remains tight. Supply of new gold entering the market is barely sufficient to meet demand, which is being further stoked by a return to gold buying by central banks. For two decades beginning in 1988, central banks such as the Bank of Canada reduced their gold holdings. But now, with global economic uncertainty, many of them are turning away from U.S. dollars, whose value continues to decay. In the absence of another truly global currency the banks are repurchasing gold.

A SAFE HAVEN?

James Steel, HSBC gold analyst, said that gold is the only commodity to serve as a currency and that it “has kept its currency-like status for 5,000 years.” Since the economic crisis began in 2007, gold has out-performed all other asset classes, he said — until this year.

Steel suggested that gold has been behaving independent of other asset classes. Unlike so-called “risk-on” investments such as equities or emerging-market currencies, and unlike so-called “risk-off” ones such as U.S. Treasuries or German bonds, gold has been cutting its own path throughout the crisis. “Since the crisis started gold has neither acted like a risk-on asset or a risk-off asset. It’s actually been neutral, and that makes it very valuable as a portfolio diversifier. That’s one of the things that I discuss with hedge funds — if they’re looking for portfolio diversification it’s very hard to beat gold right now.”

Why is gold relatively stable compared to other commodities? Steel said that exchange-traded funds’ holdings of gold are now far bigger than those traditionally traded via the Commodity Exchange, Inc., a division of the New York Mercantile Exchange (COMEX). ETF holdings have grown to four times the size of COMEX’s. “It’s an enormous amount of gold,” he said. “ETFs really have dominated the traffic.”
What’s significant is that unlike the speculative traffic that flows in and out of COMEX, ETFs aren’t as liquid so they are steadying the price of gold. “Why is this type of investment solid? It’s because of the investor profile,” Steel said. “A lot of retail people in ETFs have high net worth, a lot of them are holding it for inheritance and so this gold could be held for a generation or more. We have a lot of pension funds in the ETFs. They also have a very long-term time horizon. They’re not worried about gold going down $50 or $100. They’re going to keep it there for 20 years.”

Another influence on gold’s price, Steel said, is Americans’ approval of their president. “Two [of the] most popular presidents in the post-Bretton Woods period have been [Bill] Clinton and Ronald Reagan, and in both cases the gold market collapsed. What we have for Obama is very interesting. You see the peak of his popularity was the day he assumed office, and that has been the low of the gold price. Ever since then his popularity has slid, and when it broke critical levels of 40% the gold market took off.”

A third more temporary influence is more colorful — the Indian monsoon season, Steel said. Two-thirds of gold in India is purchased in the agricultural regions. When the monsoon is good it results in a good crop and rural income for farmers who, Steel added, “are closer to a jeweler than they are to a bank, so they tend to keep their wealth in gold. When the monsoon is bad you don’t get a lot of gold-buying.”

While Indian gold consumption has been flagging in recent years China’s consumption has been rising. “This is a function of income,” Steel said. “Based on the demographics alone and rising income we think that the jewelry market will probably continue to get bigger [in China].”

Could desperate European nations sell gold stocks or issue gold-backed bonds? Leo Abruzzese said the optics of such a move would be disastrous. “At that point they’re basically selling family jewelry, which means they’re a goner. When you see that happen, look for that country to be out of the eurozone a few months afterward. It’s not going to save them.”

Steel offered a final long-term prognosis, one rooted in the physical. In 1970 it took one tonne of rock to yield an ounce of gold. Today it takes 2.5 tonnes. And this decline is happening around the world. “There’s no Saudi Arabia of gold,” he said. “Ore grades are dropping around the world.”

As well, young people are not taking up mining as a profession — 50% of mining engineers are over the age of 54. “We don’t have enough engineers, we don’t have enough geologists, we don’t have enough geoscientists,” he said.

Original post:

Saturday, October 20, 2012

10 nations that control the world’s gold


It is now more obvious than ever that gold is becoming the new global reserve currency. Continuous and aggressive central-bank actions from the United States and Europe are driving the demand for gold. Investors have not yet seen any of the real hyperinflationary pressures that seem likely down the road.

Gold’s substantial rise in price should speak for itself. In dollar terms, gold returned 11.1% in the third quarter and was up by 16% year-to-date through the end of the quarter. The World Gold Council said that gold has a low stock-market correlation through time. That was not the case in the third quarter. Gold still outperformed almost all the major equity markets in the largest gold-holding nations in 2012.

24/7 Wall St. analyzed how the gold rankings compare to each major nation’s gross domestic product and how those figures compare to the top 10 holders of gold. What is surprising in some cases is how countries with the largest GDP are not necessarily the largest holders of gold. Two small nations, the Netherlands and Switzerland, are major holders of gold. Under the terms of the Central Bank Gold Agreement among major European states, many countries are supposed to be selling gold but are not.

The United Kingdom’s $2.43 trillion in GDP is the world’s seventh largest, but its gold holdings of 310.3 tonnes rank only 17th in the world and account for only 15.9% of its total foreign reserves. Does the old term “pound sterling” mean that the British banks really care more about silver? Another standout exception is Brazil, which has tiny gold reserves compared with its GDP. Its $2.5 trillion in GDP ranks sixth in the world, yet it holds only 33.6 tonnes of gold, or 0.5% of foreign reserves. Brazil ranks a surprising 52nd in the world among gold holders.

The International Monetary Fund is the third-largest official holder of gold, with more than 2,814 tonnes. The European Central Bank ranks right behind India, with 502.1 tonnes and 32.3% of its total foreign reserves held in gold. Central bank buying of gold was recently undertaken by Russia, Turkey, Ukraine and the Kyrgyz Republic. Turkey went as far as raising the gold reserve requirements for its commercial banks.

The World Gold Council report shows low borrowing costs and the support of financial markets spur gold accumulation. Gold is no longer just an inflation hedge; it is the key protection against a global race to devalue currencies, even if consumer prices are somewhat stable. Bonds pay historically low rates and stock market volatility has spooked many investors, so gold is becoming the true safe haven.

Major central banks are growing their balance sheets by purchasing trillions of dollars in paper assets. The World Gold Council said that research showed that a 1% change in money supply, six months prior, in the United States, Europe, India and Turkey tends to increase the price of gold by 0.9%, 0.5%, 0.7% and 0.05%, respectively. The Council also said that inflation is still several years off and many central banks have been more worried about deflation. Investors would be well advised to heed a warning from bond king Bill Gross, who told global investors to have exposure to hard assets, which will rise in value with inflation.

24/7 Wall St. has listed the 10 nations with the largest gold reserves, along with the percentage of total foreign reserves held in gold, each nation’s 2011 GDP and how it ranks in the world, and the local stock market performance. We have added analysis about how the potential unraveling of the euro could play into the future buying or selling of gold by European nations. For nations outside Europe, we have provided some historical context and predicted the path that their central banks are likely to follow in the years ahead.

Original copy:

Wednesday, October 17, 2012

Gold holds near $1,750/oz


(Reuters) - Gold held near $1,750 an ounce on Wednesday, underpinned by gains in the euro after Moody's rating agency affirmed Spain's investment grade status, fuelling hopes that Madrid will soon apply for formal aid from its European Union partners.

The euro hit a one-month high and the dollar index .DXY dropped to its lowest in nearly two weeks following the Moody's decision. A weaker greenback makes dollar-priced commodities more attractive for buyers holding other currencies.

But investors' confidence in gold's ability to extend gains was muted after its drop to a one-month low on Monday, following forecast-beating U.S. data that called into question the extent of the Federal Reserve's latest quantitative easing programme.

The launch of QE3, which is expected to benefit bullion by keeping interest rates at rock bottom and fuelling inflation fears, helped send gold to its 2012 high at $1,795.69 earlier this month. It has struggled to maintain that rally, however.

"Markets are following fears that QE3 might end soon and it is not, as many believed, QE infinity (open-ended)," said Peter Fertig, a consultant at Quantitative Commodity Research.
Spot gold was flat at $1,747.54 an ounce at 1432 GMT, while U.S. gold futures were up $3.30 an ounce at $1,749.60.

Prices were expected to remain in a tight range as investors waited for fresh direction on Europe, where a summit of European Union leaders begins on Thursday.

"Normally I would expect that with the ratings outlook for Spain being confirmed as investment grade by Moody's that would be a positive, however you have the EU summit this week on Thursday which is a focus for markets," Fertig said.

Data released Wednesday showed groundbreaking on new U.S. homes increased by 15 percent in September to a seasonally adjusted annual rate of 872,000 units, its quickest pace in more than four years.
Investors will also be watching China's third-quarter gross domestic product figure due later this week.

Weak data would be considered likely to point to stimulative policies that could be supportive for gold.
"The overall attitude towards the yellow metal remains positive looking out over the months ahead, but hesitancy to express that view in the near term is becoming an obstacle. It feels like gold needs a healthy clean-out at this juncture," UBS analyst Edel Tully said in a note to clients.

"A further correction from here would ultimately be beneficial though, given the sharp run-up in prices since mid-October, the repeated failure to breach $1,800 and the degree of speculative length," Tully added.

ETF HOLDINGS RISE

Holdings in bullion-backed exchange-traded funds inched up by almost 16,700 ounces on Tuesday, as a 28,000 ounce inflow to New York's Comex Gold Trust more than offset an 11,500 ounce outflow from ETF Securities' holdings.

Meanwhile, silver ETF holdings slipped by 1.3 million ounces, following outward flows from the iShares Silver Trust and ETF Securities.

In South Africa, where industrial unrest has gripped the country's mining sector, bullion producer Gold Fields (GFIJ.J) said on Wednesday that an illegal strike at some of its facilities had ended.
It said 6,200 employees returned to work at its Beatrix site, which is expected to produce 360,000 ounces of gold this year.

Original:
http://www.reuters.com/article/2012/10/17/us-markets-precious-idUSBRE89G13T20121017


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Friday, September 28, 2012

Gold posts biggest quarterly gain in over two years

Gold eased on Friday, but the metal posted its biggest quarterly gain in more than two years as market stimulus and easy monetary policies by central banks around the world boosted bullion's inflation-hedge appeal.

The metal is within reach of its 2012 high, while open interest for U.S. gold futures surged to a one-year high on heavy buying related to fund positioning before the quarter end. (OI hits 1-year high: r.reuters.com/cud92t)

Gold priced in euro terms hit a record for a second straight day, highlighting the currency's weakness and bullion's safe-haven status among Europeans in times of economic uncertainty.

Bullion found support after an audit of Spain's major banks showed they would need extra capital to ride out an economic downturn, and France's Socialist President Francois Hollande unveiled higher levies on business and a 75-percent tax for the super-rich in a 2013 budget.

"Gold is being utilized as a protest by investors against governments which are failing miserably to solve their deficit and debt problems," said Jeffrey Sica, chief investment officer of SICA Wealth Management, which has over $1 billion in assets.

Sica said that gold should rise to a record $2,000 an ounce in the fourth quarter as investors piled into the safe-haven metal while other assets such as equities and bonds fell out of favor.

Spot gold was down 0.4 percent at $1,770 an ounce by 2:33 p.m. EDT (1833 GMT), sharply off an earlier high of
$1,783.10.

Gold still climbed around 11 percent this quarter, its best quarterly gain since the second quarter of 2010. September's gain of almost 5 percent also extended its monthly rise to a four consecutive month.

U.S. COMEX gold futures for December delivery settled down $6.60 an ounce at $1,773.90, with trading volume about 20 percent below its 250-day average, preliminary Reuters data showed.

COMEX futures' open interest surged 11,579 lots or 2 percent to a one-year high of 492,149 lots as of Thursday. The gauge which measures outstanding long and short gold futures contracts has rallied more than 25 percent in the past 30 days.

Some funds had added gold to "dress up" their third-quarter performance before the quarter ended, said George Gero, vice president of RBC Capital Market.

Bullion prices took off after the U.S. Federal Reserve said earlier this month it would pump $40 billion into the economy each month until it saw a sustained upturn in the weak jobs market. Gold investors also took heart on signs the European Central Bank and the People's Bank of China will ease their monetary policies to stimulate growth.

COIN, ETF SALES UP IN Q3

The precious metal has posted a positive quarter in terms of investment in gold exchange-traded funds. ETFs tracked by Reuters are on track for their biggest quarterly inflows in well over a year at around 3.3 million ounces.

Coin dealers said sales of U.S. American Eagle gold coins rebounded as bullion prices rallied, and they are optimistic about sales in the fourth quarter.

Read more:
http://www.reuters.com/article/2012/09/28/us-markets-precious-idUSBRE88Q0J320120928

Thursday, September 27, 2012

Gold Sets Records in Euros and Francs on Currency Concern

Gold climbed to a record priced in euros and Swiss francs on concern that central banks’ moves to boost economies will devalue currencies, spurring demand for the metal as an alternative investment.

Bullion for immediate delivery in London reached 1,379.32 euros an ounce and has rallied 14 percent this year, data compiled by Bloomberg show. Gold priced in dollars rose 13 percent this year to $1,771.30 by 4:49 p.m. local time and is trading 7.8 percent below the all-time high set in September 2011. The commodity set a record 1,667.18 Swiss francs today and peaked in Indian rupees earlier this month.

Bullion, typically priced in dollars, is extending 11 consecutive annual gains as the Federal Reserve announced a third round of quantitative easing and as central banks from Europe to China to Japan also pledged more action this month. Nations from South Korea to Kazakhstan are boosting their gold reserves and metal held in bullion-backed exchange-traded products rose to a record 2,551.9 metric tons valued at $145.3 billion on Sept. 25, data compiled by Bloomberg show.

“Central banks are weakening their currencies to boost their economies and gold is a beneficiary,” Matthew Turner, a precious metals strategist at Mitsubishi Corp. (8058) International (Europe) in London, said today by phone. “The story of weak currencies and strong gold is back in play and it’s not just the dollar, it’s all currencies.”

Fed Stimulus

The Fed said Sept. 13 it will buy $40 billion of mortgage debt a month and probably hold the federal funds rate near zero until at least the middle of 2015. The Bank of Japan (8301) said last week it will add to a fund that buys assets, the European Central Bank announced an unlimited bond-purchase program Sept. 6 and China approved a $158 billion subways-to-roads construction plan.

The 17-nation euro area is contracting as leaders strive to rein in the debt crisis. European bar and coin demand rose 15 percent to 77.6 tons in the second quarter, according to the London-based World Gold Council.

Higher local prices in India, last year’s biggest buyer, may curb consumption. The country’s imports slipped 56 percent in the second quarter, according to the World Gold Council. Jewelers there held a strike in March and April to protest government taxes on imports.

Gold reached an all-time high of 97,644.88 rupees on Sept. 13, data compiled by Bloomberg show. While gold in British pounds is about 8.5 percent below its September 2011 high, it still climbed about that much since the beginning of January.

“The dollar price is still the focus of the market and sometimes what it is showing is a weak dollar, rather than strong gold,” Turner said. “When gold is at a high in many currencies, it’s not a currency effect.”

Originally appeared here:
http://www.bloomberg.com/news/2012-09-27/gold-sets-records-in-euros-and-francs-on-currency-concern.html

Monday, September 24, 2012

Gold falls on weak commodities

Gold fell on Monday, retreating from the previous session's nearly seven-month high as broadly lower crude oil and grain prices prompted investors to take profits.

Palladium dropped 4 percent for its biggest one-day decline since March on signs of platinum output returning to normal in top producer South Africa, triggering heavy speculative selling.

Traders said volatility could increase ahead of Tuesday's U.S. COMEX gold option expiration, while open interest in U.S. gold futures rose to a one-year high for a third straight session.

Bullion's rally is showing signs of fatigue after five straight weeks of higher prices. Repeated failures to break above key technical resistance above $1,790 an ounce to set a new 2012 high also prompted some investors to lessen their bullish bets.

"There is no question that gold is consolidating its recent gains, but every dip seems to be bought," said Anthony Neglia, president of Tower Trading and COMEX gold options floor trader.

Gold could come under pressure as current prices may be too far away to reach the popular $1,800 call strike at Tuesday's option expiry, and that could prompt some disappointed futures investors to sell, Neglia said.

Original: http://www.cnbc.com/id/49152875

Saturday, September 22, 2012

Gold prices hit high for the year

Gold prices hit $1,790 an ounce in Friday trading, before falling back to $1,778. Gold prices rose on hopes of economic stimulus from a Spanish bailout.


Gold has hit a high for the year on speculation that Spain may be working on a request for financial help from other European countries.

December gold rose $7.80 to finish at $1,778 per ounce. Earlier Friday, it hit $1,790 per ounce, which topped the previous 2012 high, set in late February.

Analysts speculated that Spain is working on an economic reform plan that will include a request for bailout funding from Europe.

The country's borrowing costs have dropped sharply since the European Central Bank said recently it will buy unlimited amounts of government bonds to help countries with heavy debt loads. Those borrowing costs probably will rise again if Spain doesn't request a bailout soon, analysts said.

In the U.S., the Federal Reserve also has put a plan in place to encourage economic growth.

Such economic stimulus programs continue to benefit gold prices, said Phillip Streible, a senior commodities broker at RJ O'Brien.

Investors buy gold as a hedge against inflation and volatility in currencies. Gold is priced in dollars but can be converted into any currency.

Other commodities were mostly higher as traders waited for more clues about how the global economy will fare under economic stimulus programs in several countries.

Original article:

http://www.csmonitor.com/Business/Latest-News-Wires/2012/0922/Gold-prices-hit-high-for-the-year

Tuesday, September 18, 2012

Gold’s Heading to $2000, Strategists Say

Gold is still struggling to top the year-to-date high set back in February, despite the boost bullion prices got last week from the Fed’s latest loose-money plan.

But Wall Street is feeling enthusiastic about gold nonetheless, in the wake of the announcement that the central bank will buy up billions in mortgage-backed securities every month for the foreseeable future. On Tuesday Deutsche Bank and Bank of America Merrill Lynch both predicted in research notes that gold will shine in the months ahead.

Deutsche Bank said gold prices would top $2,000 per ounce in the first half of 2013, which would represent at least a 13% gain over Tuesday’s settle price of $1,768.40 in the New York futures market – as well as a new record high in nominal terms, well above the $1,888.70 hit in August 2011. Gold hit its high for 2012 on Feb. 28, when prices settled at $1,787.

“We expect the gold market to continue to respond positively to further central bank activity – which in our view is likely to continue to be biased towards further monetary expansion,” the bank’s analysts wrote.

Original appeared at:

http://blogs.wsj.com/marketbeat/2012/09/18/golds-heading-to-2000-strategists-say-thanks-qe3/?mod=google_news_blog

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Saturday, September 8, 2012

Gold spikes 2 percent

Gold shot up 2 percent on Friday for the second time in two weeks, hitting six-month highs as a tepid U.S. jobs report strengthened expectations of further monetary easing by the Federal Reserve.

Extending a month-long rally, spot gold bolted up by $30 an ounce just after the U.S. Labor Department reported that nonfarm payrolls rose 96,000 last month, well short of expectations for a 125,000 rise.

The numbers stoked expectations that Fed policy makers will agree at next week's meeting to launch a third round of government bond buying, or quantitative easing, also known as QE3, to stimulate the world's largest economy.

"Gold is going through the roof because this negative data makes QE3 more likely now," said Daniel Briesemann, commodities analyst at Commerzbank in Frankfurt.

Spot gold ended the day up 2.06 percent at $1,736 per ounce, having touched its highest level since February. Copper also rallied while the dollar .DXY dived more than 1 percent.

U.S. futures settled up 2.05 percent at $1,740.5 an ounce after hitting $1,745.4, also the highest since February.

Bullion outperformed the euro, which hit four-month highs against the dollar, and the broader market. Silver and platinum also rose.

The Thomson Reuters-Jefferies CRB index .CRB of 19 commodities rose 0.9 percent.

Bullion secured its third straight weekly gain, the longest streak since January. With growing hope for monetary stimulus in Europe and the United States, investors boosted holdings of bullion by exchange-traded funds (ETFs) to a record this week.

Investors who had taken short positions in gold have been punished two Fridays in a row. Last week prices jumped 2 percent.

"A lot of people didn't jump on the bandwagon (ahead of the data). The shorts are in trouble and will day trade out," George Nickas, commodities broker at INTL FCStone, said.

QE VS THE CHARTS

Many investors worry that a third round of quantitative easing by the Fed -- printing money to buy government bonds to keep long-term interest rates low -- will lead to higher inflation. Gold prices doubled in the last four years, as the Fed implemented the first two rounds of quantitative easing.

Gold has rallied almost 10 percent since the start of August, pushing its 14-day relative strength index to 80, well above the 70 level that signals an overbought market to technical analysts.

Still, chart watchers say the rally may have further to run after gold broke out of a six-week trading range when it pierced $1,636 on August 21.

Thursday's close above $1,700 per ounce provided psychological support to gold bulls, who had pushed prices to 5-1/2-month highs after the European Central Bank unveiled plans for a bond-buying program to stem the euro-zone debt crisis.

ETF HOLDINGS

Investor appetite for hoarding gold shows no signs of abating. Holdings of gold-backed exchange-traded funds hit a record high of 72.1 million ounces, or 2,044 metric tons, by Thursday. ETF holdings were up more than 38 metric tons this year, with most of the rise occurring since August when hopes for stimulus from central banks started to run high.

Read more: Here

Wednesday, September 5, 2012

Why is Putin stockpiling gold?

Commentary: Russia is bulking up its gold reserve


I can’t imagine it means anything cheerful that Vladimir Putin, the Russian czar, is stockpiling gold as fast as he can get his hands on it.

According to the World Gold Council, Russia has more than doubled its gold reserves in the past five years. Putin has taken advantage of the financial crisis to build the world’s fifth-biggest gold pile in a handful of years, and is buying about half a billion dollars’ worth every month.

It emerged last month that financial gurus George Soros and John Paulson had also increased their bullion exposure, but it’s Putin that’s really caught my eye.

No one else in the world plays global power politics as ruthlessly as Russia’s chilling strongman, the man who effectively stole a Super Bowl ring from Bob Kraft, the owner of the New England Patriots, when they met in Russia some years ago.

Putin’s moves may matter to your finances, because there are two ways to look at gold.

On the one hand, it’s an investment that by most modern standards seems to make no sense. It generates no cash flow and serves no practical purpose. Warren Buffett has pointed out that we dig it out of one hole in the ground only to stick it in another, and anyone watching this from Mars would be very confused.

You can forget claims that it’s “real” money. There’s no such thing. Money is just an accounting device, a way of keeping track of how much each of us produces and consumes. Gold is a shiny and somewhat tacky looking metal that is malleable, durable and heavy. A recent research paper by Duke University’s Campbell Harvey and co-author Claude Erb raised serious questions about most of the arguments in favor of gold as an investment.

But there’s another way to look at gold: As the most liquid reserve in times of turmoil, or worse.

The big story of our era is not that the Spanish government is broke, nor is it that Paul Ryan apparently feels the need to embellish his running record. It’s that the United States, which has dominated the world’s economy for several lifetimes, is in relative decline.

As was first reported here in April of last year, according to International Monetary Fund calculations, the U.S. is on track to lose its status as the world’s biggest economy—when measured in real, purchasing-power terms—to China by 2017.

We will soon be the first people in two hundred years to live in a world not dominated by either Pax Americana or Pax Britannica. This sort of changing of the guard has never been peaceful. The declines of the Spanish, French and British empires were all accompanied by conflict. The decline of British hegemony was a leading cause of the First and Second World Wars.

What will happen as the U.S. loses its pre-eminence?

Maybe this will turn out better than similar episodes in the past. Maybe the Chinese will embrace an open society and the rule of law. If you believe that, there is probably no reason to hold any gold.

On the other hand, we may be about to enter a much more turbulent and dangerous era of power politics and international competition.

Not long ago, world gold reserves were mainly in the hands of the U.S. and the Europeans, which accumulated their holdings during their centuries at the top. The U.S. has 75% of its currency reserves in gold. Many other first world powers have comparable proportions.

Read more: Click Here




Friday, August 31, 2012

Gold rises after Bernanke promises action


The price of gold and other precious metals jumped Friday, after Federal Reserve Chairman Ben Bernanke made clear that he expects to take further action to try to boost the economy.

The Fed can try to prop up the economy by buying government bonds, lowering interest rates and other measures. Those moves can lead to inflation. And when investors believe inflation is coming, they often buy gold and other precious metals because they believe they are protections against inflation.

In a speech at the Fed's annual retreat in Jackson Hole, Wyo., Bernanke stopped short of committing the Fed to any specific move. But he said that the central bank will do more, because unemployment is so high and the economic recovery "far from satisfactory."

Gold, palladium and platinum all jumped about 2 percent. Silver jumped more than 3 percent.

All can be traded as precious metals, though silver, palladium and platinum can trade as industrial metals as well since they are used in manufacturing certain products.

Copper, an industrial metal, rose only slightly.

http://www.huffingtonpost.com/huff-wires/20120831/us-commodities-review/


Thursday, August 30, 2012

At Long Last, Gold Miners' Turn to Shine

Gold gets all the attention, but gold-mining stocks finally are getting some action.

Anticipation that central banks led by the Federal Reserve and the European Central Bank will inject more liquidity into the financial system has helped spur a rally in gold-mining stocks. The Market Vectors Gold Miners exchange-traded fund (GDX) is up about 9% in the past month, compared to a 2.8% gain for the SPDR Gold Trust (GLD), which tracks the metal.

Investors can harness the momentum with a call-options strategy that would prove profitable if the Gold Miners ETF continues its advance through year's end.

Read more: Gold Miners' Turn to Shine

Tuesday, August 28, 2012

Gold Set for Best Year Since 2010 as Stimulus Bets Increase


Gold is poised to climb the most in two years as prospects for additional economic stimulus by governments from the U.S. to China stoke demand for the precious metal as a bet against inflation, a survey showed.

Bullion for immediate delivery may reach $1,800 an ounce by the year-end, extending gains this year to 15 percent, according to the median forecast in the Bloomberg survey of 15 traders and analysts at a conference in Hyderabad in South India on Aug. 25. That would be the most since a 30 percent surge in 2010, data compiled by Bloomberg show.
Enlarge image Gold Set for Best Year Since 2010 as Stimulus Bets Stoke Demand

Gold is set for a 12th year of gains as the European sovereign-debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the U.S. Federal Reserve, which may be considering a third round of so-called quantitative easing, or QE3.

Gold is set for a 12th year of gains as the European sovereign-debt crisis boosts haven demand amid speculation of further policy easing by central banks, including the U.S. Federal Reserve, which may be considering a third round of so- called quantitative easing, or QE3. Investment holdings have expanded to a record on demand for a hedge against inflation.

“The euro zone has been quiet of late, but that doesn’t mean the problems have disappeared,” said Jeffrey Rhodes, global head of precious metals at INTL FCStone Inc. (INTL), who expects gold to rally to $1,975 by year-end. “The U.S. economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market.”

Fed Chairman Ben S. Bernanke said last week there’s “scope for further action” from the U.S. central bank. He is scheduled to speak later this week at the Fed’s annual symposium in Jackson Hole, Wyoming. China’s Premier Wen Jiabao has urged additional steps to support exports and help meet economic targets as evidence mounts the slowdown is deepening.
Europe Strains

Gold for immediate delivery rose as much as 0.4 percent to $1,676.90 an ounce today, the highest since April 13, and was little changed at $1,670.60 an ounce at 4:42 p.m. in Mumbai. Prices gained 3.4 percent last week, the most since the week ended Jan. 27. Spot gold reached a record $1,921.15 on Sept. 6.

“Europe’s financial situation is straining at the seams and with no fix forthcoming, demand for safe havens is likely to remain strong,” said Bimal Das, director at ScotiaMocatta, the metals trading unit of Bank of Nova Scotia.

The European leaders are preparing for a critical month in the three-year-old crisis that will involve the formulation of a European Central Bank bond-buying plan, a progress report by Greece’s international creditors and a looming German court decision on bailout funding on Sept. 12.

“More cash is coming into the market from investors,” said Philip Klapwijk, the global head of metals analytics at Thomson Reuters GFMS Ltd. “We expect there to be QE3 by September and gold will move substantially higher. The ETF demand has picked up and will continue to grow as prices rise.”
Soros, Paulson

Holdings in gold-backed exchange-traded products, or ETPs, rose 0.1 percent to 2,448.64 metric tons on Aug. 24, data tracked by Bloomberg show. Billionaire investors George Soros and John Paulson increased their stakes in the SPDR Gold Trust (GLD), the biggest gold-backed ETP, in the second quarter, U.S. Securities and Exchange Commission filings showed Aug. 14.

Central banks will purchase close to 500 tons this year after becoming net buyers in 2009, according to the producer- funded World Gold Council. Central banks added 254.2 tons to their holdings in the first half, according to the council, as countries from Russia to South Korea added to reserves.

“There is official interest in gold and central banks are buying, from Russia to Korea,” said Jeremy East, global head of metals trading at Standard Chartered Plc. “Central bank purchases are not driven by price but by asset allocation.”
Losing Steam

Gold may “lose steam quickly” if the market is disappointed by a lack of action to stimulate economies, Barclays Plc said in an e-mailed report today. “For gold to extend its gains, it needs to continue to draw wider investor support in light of the fragile physical market,” analysts including Suki Cooper said in the report.

Gold imports by India, the biggest buyer, may decline by 250 tons to 350 tons this year as record prices in rupees cut into demand, East said. Consumption rose to a record 963.1 tons last year, driving bullion imports to the highest ever at 958 tons, according to the gold council.

“The Indian currency has weakened and could weaken further, so demand may not come in,” East said. The Indian rupee declined to a record of 57.3275 per dollar on June 22, making imports costlier.

Bullion for October delivery gained as much as 0.5 percent to an all-time high of 31,091 rupees ($559) per 10 grams on the Multi Commodity Exchange of India Ltd. today. Prices have climbed 13 percent this year.

Original article can be found here

Sunday, August 26, 2012

Buy (Gold) Low And Sell (Stocks) High

For the past few months, the markets have risen back to highs made earlier this year as traders attempt to front run potential EU and Fed intervention. Federal Reserve Chairman Ben Bernanke and his counterpart ECB Chairman Mario Draghi have used almost every arrow in their quiver in an attempt to juice the markets higher over the summer.

We have been told that the Federal Reserve stands ready to act, the ECB would do whatever it takes, and that the ECB stands ready to enact a policy of unlimited bond purchases and/or sovereign debt yield targeting in an effort to prop up the markets.

The problem with promises of intervention is that once the markets have front run the targeted asset classes there is little left for investors. For example, the S&P 500 (SPY) now trades for 16 times earnings, an expensive multiple when one considers that earnings growth in the second quarter stumbled into the single digits and the third quarter little or no growth is expected. At the beginning of the year, earnings growth was expected to be in the low teens indicating that the global economy is slowing more than anyone expected.

The question now becomes what happens if the Central Banks do or do not deliver on their promises?

The ECB has already poured cold water on the idea of granting the ESM a banking license making the idea of targeting sovereign bond yields impossible at best unless they want to become the only buyer in town. This solution would create more risk and open the door to moral hazard as the affected governments would have no incentive to fix their structural problems.

The idea that targeting sovereign bond yields can stem the crisis in the European bond market harkens back to the LTRO which was effective until it ran out of funds. The LTRO helped plug holes in Spanish banks during bank runs earlier this year, but in terms of bringing an end to the European crisis, it has been a failure.

Initially, yields fell but then rose once the money ran dry. A similar situation may be occurring now as European leaders put the finishing touches on a new bond purchase program. Traders are front-running the program, buying up as much sovereign debt as possible in the hopes that they can flip the bonds to the ECB. If the program does not appear, look for a swift selloff as the trade quickly reverses itself. If the program does appear, look for yields to fall initially as traders stuff the ECB full of debt they purchased earlier only to disappear once the program is full sending rates higher. One huge risk of targeting sovereign bond yields is monetizing all debt from Spain and Italy as the markets will test the cap repeatedly until the limit is found.

In this environment, investors should be taking steps to protect their portfolios against the coming selloff. Stocks like Coca-Cola (KO) are extremely overvalued in this market climate, trading for 20 times earnings while giving investors 4% growth through the first six months of this year. No one denies that they are a one of a handful of global brands whose logo is recognized anywhere in the world, but there is the question of how much premium that brand commands in this economic environment.

The old Wall Street adage of buy low and sell high applies here. Stocks are overvalued and trading near yearly highs, while Gold (GLD) and Silver (SLV) have spent the better part of the summer tracing out bottom formations, setting the stage for the next move higher.

In either case, intervention or no intervention, gold and silver will move higher after a short pullback. Intervention means that gold and silver once again will take on their roles of safe havens in an uncertain environment. If there is no intervention, that means the inevitable has been delayed, giving investors the opportunity to buy in before the storm hit.

Originally published here:

http://seekingalpha.com/article/828651-buy-gold-low-and-sell-stocks-high


Saturday, August 18, 2012

Slim Majority See Higher Prices For Gold Next Week


A slim majority of participants in the Kitco News Gold Survey are expecting higher prices next week, but a good number of respondents said there is no reason for the market to push out of its current trading range.

In the Kitco News Gold Survey, out of 33 participants, 28 responded this week. Of those 28 participants, 16 see prices up, while three see prices down, and nine are neutral or see prices moving sideways. Market participants include bullion dealers, investment banks, futures traders, money managers and technical-chart analysts.

Sources who see higher gold prices next week said they expect gold to start to get ready to break out of its August doldrums and try to retest the upper end of resistance at $1,626-30. Darin Newsom, Telvent DTN senior analyst, said looking at Comex gold futures, the most-active December contract “is nearing a breakout of its four-week high of $1,633.30. Also, the U.S. dollar index is in position to turn lower again.”

Those who see prices holding in a range said given the time frame, there’s little reason for gold to break out of its trading range and is likely content to hold in this current path. Frank Lesh, futures broker at FuturePath Trading, said while the pattern of a succession of higher lows since May suggests a move into the $1,700s eventually, “it won’t happen without corresponding moves in the currencies. Next week looks like more of the same, so I expect price to continue sideways and be unchanged.”

Participants who see weaker prices said the low volume, low open interest in the futures market, along with no change in the trading pattern doesn’t bode well for the market. If the minutes from the Federal Open Market Committee come out next week without a hint of more stimulus, that may encourage some selling.

Original appeared at: http://www.kitco.com/kgs/goldsurvey_august17.2012.html

Thursday, August 16, 2012

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