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

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Gold & Fiat Money

"I do not under any circumstance favor raising the price of gold. It would perpetuate that "barbarous metal" in international monetary use. We have quite rightly broken the link between gold and our domestic money.

We should also break the link between gold and international money. The supply of money, neither domestic nor international, should not be dependent over the long run on the accidents of supply and demand in the marketplace for just one commodity."

July 12, 1968 - Darryl R. Francis, President of the Reserve Bank of St. Louis.

And so it came to pass not long after the speech by Mr. Francis that in August 1971 US President Richard Nixon unilaterally broke the US$/gold peg and declared the US$ no longer convertible to gold.

The convertibility of US$'s to gold was the last tenuous link between fiat currencies pegged to the US$ and gold.

I pick up the tale of Gold and Fiat Money in January 1971 and will tell this tale with graphs. Graphs of fiat money; of consumer inflations and asset inflations; interest rates; central bank activities; gold prices; and official gold movements.

Placing the fiat money year of 1971 in the context of gold requires a pit stop at inflation. Often we are lulled into a sense of security by looking at the inflation rate. This time perhaps we should first look at the traditional inflation index, the CPI.

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Why Gold?

Centuries ago Aristotle said gold and silver were money because they fit the five properties of money.

Kings and governments used gold for international transactions.

JP Morgan, 100 years ago, said gold was money and nothing else.

If Gold has no use or utility, then why do central banks own it? Why does the US own gold and no paper reserves?

It is because gold is money and the ultimate backstop to our monetary system.

Throughout history no currency other than gold and silver has kept its value.

You can't get a stock bull or gold bear to admit to this, because it defeats their central argument against gold.

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Gold jumps as dollar declines

Gold prices jumped to the highest price in a week on Friday, rising for a second day, as the U.S. dollar fell versus the euro and traders noted a sense of returning willingness among investors to buy riskier assets, including commodities.

Gold futures for April delivery added $10.40, or 0.8%, to $1,118.90 an ounce, the highest since a week ago. It briefly rose as high as $1,119.50, back near the highest in a month.

Prices are still headed for a 0.2% weekly decline.

"Gold has a split personality in a schizophrenic market," said Jay Feuerstein, a commodities trader and founder of 2100 Xenon. "Sometimes gold trades like a de facto currency and sometimes it participates in a flight to quality, and now it's battling between the two."

Some investors may be buying gold as the weak data increases its investment appeal as a hard asset.

But also, as stocks gain and the dollar falls, commodities may join other so-called risky assets as investors move away from safer positions, like in the dollar. Read more on gold's decoupling from the dollar.

The U.S. dollar index, which tracks the greenback versus a basket of rivals, headed down after weak data on existing-home sales and consumer confidence. See story on existing-home sales.

The euro rose to buy $1.3618, from $1.3554 in late New York trading on Thursday, aided by a media report that a German bank may help Greece address its financial needs. See more on currencies.

"The metal is likely to continue to track the euro and broad risk sentiment in the coming sessions; however, dips are expected to draw further strong support from both jewelry and investment players and should provide a floor," said analysts at TheBullionDesk.com.

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Gold as the ultimate extinguisher of debt

If we accept the thesis that exorbitant debt and the destruction of capital is at the root of the present crisis, then we'll be directed to the solution of the problem. The solution is gold. The reason why there can be no resolution of the crisis without gold is two-fold.

* Gold is the only form of capital that is immune to destruction under any circumstances.
* Gold is the only ultimate extinguisher of debt.

I shall deal with the first reason in a moment. Here I just point out that when a debtor repays his debt by handing over Federal Reserve notes to his creditor, the debt is not extinguished. It is merely transferred to the Federal Reserve bank that issued the note. Transferring debt is not the same as extinguishing it.

One reason for the present plight of the world is that for the past forty years gold, the only ultimate extinguisher of debt, has been forcibly prevented by the U.S. government to discharge its debt-extinguishing function. As a consequence the debt-tower has kept growing, rain or shine. Conversely, until policy-makers at the Fed and the Treasury will understand that there is no substitute for gold in taming the debt-monster, their tinkering at the edges will keep making the global debt crisis worse.

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Inside the Global Gold Frenzy

MENDRISIO, Switzerland

HERE, in a corner of Switzerland where Italian is spoken and roughly one-third of the world’s gold is refined into bars and ingots, business is booming. Every day, bangles, bracelets and necklaces arrive in plastic bags — from souks in the Middle East, from pawn shops in Asia and from corner jewelers in Europe and North America.

“It could be your grandmother’s gold or the gift of an ex-boyfriend,” said Erhard Oberli, the chief executive of Argor-Heraeus, a major refiner here that processes roughly 400 tons of gold a year. “Gold doesn’t disappear.”

Amid a global frenzy fed by multibillion-dollar hedge funds, wealthy speculators and governments all rushing to stock up on the precious yellow metal, the price of gold briefly surpassed $1,100 an ounce on Friday, a record high.

Long considered the ultimate refuge for nervous investors, gold has climbed as the dollar has steadily weakened, budget deficits have expanded in the United States and Europe, and central banks have continued to pump trillions of dollars into weak economies, creating fears of another asset bubble that will ultimately pop.

“It’s not that gold has changed, but gold buyers have changed,” said Suki Cooper, a precious-metals strategist for Barclays Capital. “It’s a structural shift we’re seeing on the investing side, from Asian central banks right down to individual investors buying ingots and coins.”

“Gold’s appeal has broadened,” added Ms. Cooper, who predicts that it will hit $1,140 an ounce by the second quarter of next year.

Indeed, last month, Harrods, the 160-year-old London department store, began selling coins as well as gold bullion ranging from tiny 1-gram ingots to the hefty, 12.5-kilogram, 400-Troy-ounce bricks that are so often featured in movies and stocked inside the vaults of Fort Knox. Harrods’s lower ground floor, where the gold is peddled, has been packed with interested shoppers.

“The response has been astounding,” said Chris Hall, head of Harrods Gold Bullion. “Bars are definitely more popular than coins. The 100-gram is the most popular.”

IN the United States, ads promising high prices for gold are regular fodder for late-night television spots, while buyers are setting up tables at shopping malls or hosting gold-buying gatherings at private homes — like recession-era Tupperware parties.

“Everyone and their grandmother has a sign out saying, ‘We buy gold,’ ” said Ron Lieberman, the owner of Palisade Jewelers in Englewood, N.J. He estimates that 10 times as many people come into his store to sell gold now as when the metal was selling for $300 an ounce at the beginning of the decade. “I hear people come in and say gold is going to $2,000.”

Jewelry store shoppers aren’t the only ones forecasting lofty prices. Jim Rogers, an investor who has made his name investing overseas and in commodities, predicted to Bloomberg Television last week that gold might reach $2,000 an ounce — prompting a rebuke from Nouriel Roubini, an economist who gained attention for his early warnings about the global economic crisis. At a conference in New York on Wednesday, Mr. Roubini described Mr. Rogers’s forecast as “utter nonsense,” saying that there aren’t any inflationary or economic pressures that would drive the price of gold to $2,000 an ounce.

Even the most bullish of gold lovers were surprised last week when the Reserve Bank of India stepped in and bought 220 tons of gold from the International Monetary Fund for $6.7 billion, a sign that other central banks might move away from dollar-denominated assets like Treasury bonds in favor of the precious metal. India’s huge purchase means that gold will now account for about 6 percent of India’s $285.5 billion of foreign exchange reserves — up from the previous level of about 4 percent.

“We have money to buy gold,” said Pranab Mukherjee, India’s finance minister. “We have enough foreign exchange reserves.”

On Thursday, Sri Lanka’s central bank disclosed that it, too, was buying gold, in a trend that could hurt the United States over time because it needs foreign bond buyers, especially central banks, to finance its growing debt. Gold closed at $1,095.10 an ounce on Friday, down from its intraday high but up nearly 5 percent for the week.

Adjusting for inflation, gold would have to top $1,885 to set an all-time record.

China has already doubled its gold reserves over the last six years, but the Indian move underscored how even the most traditional investors are shifting a portion of their assets into bullion.

“I have never been a gold bug,” Paul Tudor Jones, the prominent hedge fund manager, told his investors last month. “It is just an asset that, like everything else in life, has its time and place. And now is that time.”

Over all, in the second quarter of 2009, consumption of gold for jewelry plunged 20 percent, while investor demand for gold increased 51 percent, according to the World Gold Council.

THE Harrods gold line is made by PAMP, a rival Swiss refiner down the road here from Argor-Heraeus, in the nearby town of Castel San Pietro. And demand for bars weighing 100 ounces or less for individual investors is up 80 percent, said Marwan Shakarchi, the chairman of MKS Finance, a Geneva company that owns PAMP.

Inflows of old gold jewelry and individual investor sales are especially strong in the United States and Western Europe, a new phenomenon for MKS, Mr. Shakarchi said. In the past, hoarding gold as an investment was much more popular in the Middle East and Asia. “Europe and the United States are our emerging markets,” Mr. Shakarchi said.

In addition to high anxiety about the future, recent political trends may also be playing a part in the global gold fever. With a crackdown on tax havens worldwide and Swiss bankers handing over the names of wealthy American clients to authorities, some experts say rich people now prefer an investment that can easily be hidden from the prying eyes of tax collectors.

“In Europe, people want physical gold to store themselves, with no documents,” said Bernhard Schnellmann, director for precious-metal services at Argor-Heraeus. Often, the company doesn’t know the ultimate destination of the bars it makes, only the identity of the bank in Zurich or London that is handling the order.

The region surrounding Mendrisio has dominated gold refining for decades, profiting from its close proximity to northern Italy — which has a long tradition of jewelry-making and cheap labor — as well as from Switzerland’s own reputation for financial stability and discretion. The Swiss government has also nurtured the business, guaranteeing gold assays for purity and carefully regulating the industry.

One of the 100-gram bars that is produced here just about fits in the palm of your hand, with a satisfying metallic coldness that belies its $3,500 price tag. The standard 12.5-kilo, 400-ounce brick, on the other hand, is a monster, straining the wrist as well as the imagination: just one of these thick bars commands a higher price than a studio apartment in Manhattan.

Although India is now a far bigger consumer than Italy of gold for jewelry, the region around here has retained its distinctive status as the gold workshop of the world, with ore arriving from South Africa along with the old bracelets and necklaces destined for the crucible.

“If you give somebody a ton of gold, you don’t have to worry about it in Switzerland,” said Mr. Oberli, the Argor-Heraeus chief executive. Efficiency, another Swiss virtue, and speed are of the essence in the gold business, because prices change quickly and buyer and seller want to lock in their order quickly, Mr. Oberli explained.

“Everything that comes in has to go out,” he said. “It’s not our material.”

Perhaps as a result, the gold-refining fraternity is secretive, with verbal discretion as much a part of the culture as the high concrete walls that surround Argor-Heraeus and the metal detectors workers pass through when they go home for the day.

“Everybody is afraid someone else is chasing their customers,” said Mr. Oberli. “The banks don’t want us to know.”

Mr. Oberli is wary of walk-in clients and accepts orders from mines only when he can vouch for the origin of the ore, fearing “conflict gold” from rebel-held areas in Africa and elsewhere.

ARGOR-HERAEUS makes sure that even the tiniest amount of the precious metal doesn’t disappear during refining. Gold dust from the soles of workers’ and visitors’ shoes is scooped up on special mats when they leave. And, annually, the overalls that employees wear during manufacturing are burned to recover the smallest fleck.

At the airport in Zurich, where there are special vaults to hold gold, shipments of jewelry arrive daily on early morning flights before making their way here via a twisty, three-hour journey through the mountains on tightly guarded trucks. After the jewelry is unloaded, gold ingots, bars and other forms of bullion — already stacked like cordwood along the sooty corridors of Argor-Heraeus — are sent back to Zurich in the same trucks.

“The truck never drives back empty,” said Mr. Oberli. “Time is so important because the value of the material is so high.”

Mr. Oberli is also confident that he is running a business that, even in the middle of one of the worst economic downturns of the last century, is relatively recession-proof and always of interest to investors.

“Gold has been around as an investment for 6,000 years,” Mr. Oberli said. “When there is no alternative, it’s there.”

http://www.nytimes.com/2009/11/08/business/global/08gold.html