May 2008 Archives

23 Mar, 2008, 1125 hrs IST,Aman Dhall & Dheeraj Tiwari, TNN

With the stock markets on a downhill trek, a wave of panic has gripped the retail investors. In these uncertain times, you may have also found yourself struggling, and sometimes worried, on how to get the right portfolio mix and avoid the bear’s claws.

The same stands true for 45-year old Anand Sharma, who ran out of his wits after his year-long investments eroded in a matter of few seconds. If analysts are to be believed, in such turbulent phases, you can always look up to gold as an investment option not only as an insurance against the choppy markets but for better returns as well.

The Golden Scenario

With an expected slower US growth momentum, Fed rate easing, a weakening dollar, rising oil prices and heightened geopolitical concerns, gold prices appear to be firmly supported in the months ahead. Strong investor demand coupled with strong jewellery demand from Asia and the Middle East is also likely to push the prices. “In the present context, gold is expected to provide better capital appreciation, provided it is bought at a right price. It is also a good hedge against inflation,” says Mukesh Agarwal, director of Wealthcare Securities.

Strong fundamentals put aside, gold has also given a return of 18% in the first two months of 2008. “Today, it is the most recession-proof asset and is actually playing the role of insurance in the investor’s portfolio,” says Vandana Bharti, senior research analyst (commodity) at SMC.

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Gold seen as safest investment option

Story by: Gemma Westacott
Magazine: FT Adviser 
Published Thursday , May 29, 2008

Gold is seen as a safe bet, with 28 per cent of people claiming to feel most confident investing in gold during the current economic uncertainty.

Philip Scott, This is Money

24 May 2008

 

Investors running scared from global stock market turmoil have flocked to gold funds, but is it worth putting your cash into the metal itself - sold as coins and bullion? tom of Form

With investors fearing global stock market volatility, gold has enjoyed a bumper year after finally hitting the $1,000 mark on March 17.

 

Although it has pulled back in recent weeks, the price of gold remains high and its climb has been steady.  It averaged $924 per ounce in the first three months of the year - an 18% rise over the last three months of 2007.

 

And investors are piling in, snapping up gold directly or buying funds that back the precious metal. Figures from the World Gold Council show investment surged 163% to 284 tonnes in the first quarter of 2008.

 

But in addition the gold coin market has had a very strong ride. John Mulligan, investment research manager at the World Gold Council, says: 'The retail coin market has had a very successful year.

 

'It would appear that the failing of Northern Rock, the credit crunch and all the general uncertainty that followed, has pushed consumers towards gold.'

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A spokesperson from one of the world's biggest mining corporations has predicted that gold prices could reach $1,000 an ounce again due to a lack of new discoveries of the precious metal.

Alexander Davidson, head of exploration and corporate development at Barrick Gold, told Reuters that he is bullish on future long-term gold prices, with a steady $1,000 an ounce price a distinct possibility.

He said that the costs involved in the gold mining process are causing the global output to fall, although demand is as robust as ever.

"The industry cost structure is such that to find a mine, build a mine, or acquire a mine and then operate a mine the break-even cost for the industry now is probably in the $700 to $800 range," he said.

Earlier this week, David Galland, writing for Resource Investor, said that he believes the era for gold discoveries has now peaked, with new mines only yielding a fraction of previous outputs.

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FXStreet.com
Fri, May 23 2008, 12:56 GM

LONDON (Thomson Financial) - Gold jumped above $925 after closing well below a one month peak on Thursday on bargain hunting, expectations for dollar weakness and as inflation concerns remained ahead of a long weekend.

The U.S. and UK markets will be closed on Monday, leading to some increased purchases.

Rocketing oil prices, which remain close to record highs, coupled with expectations for dollar weakness are supporting the precious metal. Meanwhile, the threat of more economic weakness remains, which boosts gold's safe haven appeal.

"The macroeconomic environment remains broadly supportive of gold prices," said HSBC analyst James Steele. "Factors supporting gold include the credit crunch, heightened financial market instability, and an increase in inflationary pressures associated with rising oil and food prices. These factors, including prolonged dollar weakness, in our view, encourage investor demand for safe-haven assets, notably gold."

While the dollar has picked up against the euro slightly over the past day, analysts say the greenback's rise will be limited, particularly ahead of the release of U.S. home sales data later on Friday.

"A major test arrives today ... in the form of the U.S. existing home sales data for April," said Steve Pearson, analyst at HBOS.

"The downtrends in both mortgage applications for home purchase and pending home sales point to further weakness. This could well provide something of a reality check to markets, with the U.S. dollar and equities turning tail simultaneously," he said.

Such weakness could spark another round of gold buying.

At 1:31 p.m., spot gold was trading at $925.80 per ounce against $918.60 in late New York trade on Thursday. Gold hit $935.18 Thursday, its highest value in a month.

In other precious metals, platinum was higher at $2,180 per ounce from $2,171.

Meanwhile, sister metal palladium edged down to $447 per ounce from $451.

Silver rose to $18.21 per ounce from $17.94.

Copyright Thomson Financial News Limited 2008. All rights reserved.

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Thomson Financial News
Metals - Gold prices firm as rising oil price fuels inflation fears
05.19.08, 10:40 AM ET

LONDON (Thomson Financial) - Gold was higher in the early afternoon as oil rose back towards last week's record high, fueling buying of the precious metal as an inflation hedge and as the dollar languished after earlier touching a two-week low against the euro.

Rising fears over inflation have helped buoy gold prices in recent days, analysts said.

'Inflation hedging and safe haven buying is reemerging on both the surging oil price, inflationary pressures and with much of the economic data being very negative last week, especially the appalling consumer sentiment numbers which showed consumer confidence falling to their lowest levels since 1980, 28 years ago,' said analysts at Ireland's Gold Investments in a note.

Concerns about the ongoing health of the dollar, despite what many see as a short-lived bounce in recent weeks, are also helping sentiment towards gold, they added.

The currency hit a two-week low against the euro in the morning, although it has since recovered some ground. Weakness in the greenback supports buying of gold, which is typically seen as an alternative investment to the U.S. currency. 

At 2:14 p.m., spot gold was trading at $908.53 per ounce against $899.70 in late New York trade on Friday.

Among other precious metals, platinum prices reached an intraday high of $2,171 per ounce after Johnson Matthey released a report predicting prices will post a 'strong performance' this year, with 2007's market deficit seen continuing in 2008.

The white metal could reach a high of $2,500 an ounce this year, with a floor in prices seen at $1,775, the metals consultancy said.

The platinum market swung to a deficit of 480,000 ounces in 2007 from a surplus of 355,000 ounces the year before, Johnson Matthey said, as South African supply was cut by labor disruptions, accidents and equipment failures.

Overall supply fell by 4.1 pct last year to 6.55 million ounces, with South African supply down 4.9 pct, or 260,000 ounces, to 5.04 million ounces.

Investment demand hit 170,000 ounces last year, against disinvestment of 40,000 ounces in 2006. Investment buying was buoyed by the launch of two exchange-traded funds in London and Switzerland, which accounted for new demand of 195,000 ounces in 2007.

While prices initially edged higher on the news, with a positive report from Johnson Matthey already largely priced into the market earlier into the day, platinum prices later slipped back from highs to trade at $2,155 against $2,121 in late trade on Friday.

Meanwhile platinum's sister metal, palladium, eased to $442 per ounce against $446, while silver rose to trade at $17.04 per ounce from $16.92.

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Still, it's been "a commendable turn in gold over the past two days," Nadler wrote.

July silver futures rose 26 cents at $16.95 an ounce, July platinum futures moved up $71 at $2,157.90 an ounce, June palladium rose $5.65 at $446.25 an ounce and July copper futures rallied 9 cents at $3.83 a pound.

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May 6, 2008

Thomas Winmill, President of Midas Management Corporation, sees gold rising to $1,200 by year's end and possibly $1,500 by the end of next year.

"We think the longer term stimulus that has brought gold to this point are still in effect," Winmill stated in an interview with Betty Liu on Bloomberg Television.

View the complete interview by clicking here or cut and past the following URL into your browser:

http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vuNT5waaCO7k.asf


 

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by Ruth Sullivan,

The Financial Times

May 07, 2008, 00:36

Gold is holding its attraction as a safe haven for investors attempting to navigate the choppy waters of volatile equities, a falling dollar and a worsening macroeconomic outlook in the US.

Natalie Dempster, investment research manager at the World Gold Council, says: "The ongoing credit crisis and increased market volatility in the first quarter caused investors to seek safe haven investments, pushing up the price of gold to a new all-time high."

An appetite for gold last month drove the price to a record nominal high of $1,011 an ounce, though it has since slipped. "Although the gold price did not escape the volatility of the markets entirely, it did remain less volatile than other asset classes," adds Dempster.

Investment demand for gold has risen from nine per cent of total demand in 2001 to 20 per cent last year and is displacing jewellery demand, which has fallen from 77 per cent to 68 per cent in the same period, according to GFMS, the precious metals consultancy.

Inflows to gold exchange traded funds have been a key driver of rising prices. In the first quarter, investors bought 72 tonnes of gold in exchange traded funds (ETFs), taking total holdings to 943 tonnes, valued at $28 billion by the end of March, says the WGC.

The strong performance of the gold market has helped the BlackRock Gold & General fund, a unit trust, return 40.8 per cent in 2007 and 6.39 per cent in the first quarter of this year.

"Gold has a long history of providing a hedge against inflation, the weak US dollar and geopolitical tension," says Graham Birch, the fund manager.

He believes the price is underpinned by strong fundamentals such as limited supply and demand from investors and consumers.

In inflation-adjusted terms, gold does not look so expensive, argues Birch. "Putting today's price in perspective, it is worth noting that the previous high of $850 an ounce, set in January 1980, would be equivalent to approximately $2,279 in today's dollars."

Ian Henderson, fund manager at JPMorgan's Natural Resources fund, an open-ended investment company, has increased exposure to gold this year. Last year, the weighting was below 20 per cent but by the end of March it had increased to 28.6 per cent.

"Investor appetite has been robust over the past year but has been momentum driven by the high price [of gold] and will continue to be. If the price goes down investor interest will follow.

"Gold shares had a good run from August to January but they have been a bit disappointing in share price performance since then," he says. Nevertheless, he prefers to invest in companies that are leveraged to the gold price than to invest in ETFs.

Keeping an eye

Asset managers that are exposed to mining companies are keeping a wary eye on production problems. In South Africa, an energy crisis is triggering blackouts. Issues over the safety of mine workers are also adding to costs, leading fund managers to look at companies in China, South America and Russia.

A scaling back of exploration and the rising costs of extracting the metal are adding to problems.

Supply is not keeping up with burgeoning investment demand. During the 1990s, the price of gold was kept low by central banks selling off chunks of their reserves, adding to supply in the market.

As prices fell, mining companies reduced spending and industry investment has not kept pace with the subsequent rise in the price.

Mine production peaked in 2001 and is falling slowly, by three per cent in 2006 and one per cent last year. Barrick, the gold producer, forecasts mine supply will fall 10-15 per cent over the next five years because of a lack of new production coming on line.

In the near term, Henderson sees "real opportunities in Russia where there is a lot going on in mine development". He also sees prospects in Ghana and Bolivia. Some fund managers, such as BlackRock's Birch, have shifted asset allocation from South Africa to South America, Russia and China, helping to bolster returns.

At Investec's Global Gold fund, another Oeic, Daniel Sacks, the fund manager, is upbeat.

"The fund is up 10 per cent year-to-date in dollar terms and was up 18 per cent in the first two months but fell in line with metals in March." The fund, which is invested primarily in equities with a 15 per cent exposure to precious metal ETFs, could see returns of 30 per cent this year, he believes.

Sacks also likes "gold shares [in companies] that have an ability to grow production and output". He lists Rangold, Kinross and Gold Corp as among those increasing production.

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by Bill Bonner, The Daily Reckoning Australia, May 12, 2008

The markets didn’t reveal anything very telling yesterday. The Dow rose 52 points. The dollar held steady. Oil remained near its all time record of $123. And gold went up $10.

So far, things have worked out more or less as we expected. The “war” between inflation and deflation has produced plenty of noise and casualties...but no decisive victory.

We guessed that the Fed would be far more interested in fighting a deflationary recession than in fighting an inflationary boom. America’s central bankers see their mission in three parts – to protect the value of the dollar...to protect the banks...and finally to make sure that all politicians are re-elected and all Fed governors are reappointed. This last part of their mission leads them to ignore the first part.

In order to help the career prospects of politicians and their Fed appointees, the latter must try to keep the economy moving forward – even to its own destruction. In the present context, that means holding off badly needed corrections. Consumers, government and business are all deep in debt. But none of them are going to cut back on spending unless they have to. A correction would force the issue; so, it is to be avoided at all costs. And the most direct and immediate cost is what is supposed to be the Fed’s number one priority...the U.S. dollar.

We guessed that inflation would push up commodity, oil, gold and consumer prices...more than it would help the real economy and stock prices. That seems to have happened too. Commodities, oil and gold have all soared. The economy, meanwhile, is growing more slowly than the population. And stocks rallied and retreated – and ended up about where they were 10 years ago.

But what about the kind of inflation people worry about? What about consumer price inflation? How come consumer prices have not gone up more?

Give it time...dear reader...give it time.

This week, both the Bank of England (BOE) and the European Central Bank (ECB) decided that it was more important to fight inflation than it was to try to boost economic activity. Both left their key lending rates where they have been – at 5% for England, 4% for Europe – or two to two-and-a-half times the Fed’s rate.

Naturally, each of the 7 rate cuts in the United States made the U.S. dollar less attractive; who wants to hold a deposit in dollars paying 2% when he can shift his money to euros and earn twice as much? [CGG Comment:  Or shift his money into gold and earn ten times as much, as gold has been averaging annually since 2001?]

Speculators saw the trend coming and sold the dollar down below $1.60 per euro – and sent gold over $1,000. Then, they saw what looked like the end of the line for this trend too. The Fed only has 200 basis points left. And it has warned that there may not be any more cuts coming soon. The dollar strengthened. Currently, it is at $1.53 per euro. Gold also retreated...and yesterday stood at $882

Meanwhile, Claude Trichet, head of the ECB warns that we may be in for a “rather protracted period of high inflation.” The BOE also says it has to try to keep a lid on inflation. The Daily Mail came out with one of its shocker stories two days ago, saying inflation had so raised the cost of necessities in Britain that the average household now has less discretionary spending money than it had 17 years ago. In effect, the typical family is poorer than it was in 1991.

We have not seen comparable numbers for the United States, but we suspect they will show the same thing: that by the time a family has finished paying for food, fuel and medical care it has less money left over than it had before Bill Clinton’s first term. Why? Because inflation is doing its work – it is reducing Americans’ real wealth.

But so far, it has come in like a black cat at midnight...on paws so silent hardly anyone has noticed. The U.S. government even claims it is not there at all. “Core” inflation is still under control, say the feds.

What was amazing about the last 20 years was that the dollar-based monetary system worked as well as it did. You would have thought – and we did think – that once the link with gold was severed in 1971, there would be no stopping inflation. Instead, inflation went down...to levels that hadn’t been seen since Eisenhower. Why? Because there were so many things holding consumer prices down – 2 billion new workers in the labor pool, Wal-Mart’s Everyday Low Prices, just-in-time inventory systems, computers, globalization, deregulation, and the rise of modern capitalism worldwide. But now, the benefits from those trends seem to have reached their limits.

Labor rates are going up rapidly in China and India. Commodities are soaring...governments are re-regulating...modern capitalism has been weakened by its own excesses...and inventories are at 40-year lows.

Inflation – like everything else in the financial markets – has been globalized. And soon, inflation will come in – not as a little kitty, but as a mean panther...

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The Price of Gold Has More Than Tripled

Bill Bonner, The Daily Reckoning Australia, May 5, 2008

Friday, the Dow rose a big 189 points. Gold fell a big $14.

Readers will note that these trends are opposite to the way we think things ought to be going. For the entire decade, we've been long gold and short stocks. We're going to stay in that position for the rest of the decade too - unless we lose all our money or think of a convincing reason to change.

So far, neither has happened. The price of gold has more than tripled. Stocks have mostly gone nowhere. And nothing has happened to make us think that the fundamentals are different today than they were in 2000.

The debt bubble has been only partially deflated. Americans are still living beyond their means. And the people who run America's central bank and its central government are still numbskulls.

What then, to make of yesterday's price trends? Maybe the Bernanke Fed and the Bush feds have won the battle; maybe they've succeeded in keeping the economy growing. Maybe the dollar will strengthen. Maybe gold will continue its death march, back down to where it began the decade - under $300. Maybe we're the numbskulls.

Yes, and remember the feds "rebate" program? This week they began sending money they don't have to people who didn't earn it. It's supposed to encourage consumers - who've been spending too much already - to spend more. Maybe it will work after all.

And the Fed's latest interest rate cut - down to 2%...maybe that will work too.

And maybe enlightened public officials really can improve the world. When people have made errors - as they inevitably do - the feds can somehow make the errors disappear. They can pass laws and jiggle policies...and abracadabra, instead of suffering a correction...the whole thing is forgotten and it's on to bigger and better things.

Which makes us wonder what went wrong in ancient Rome and modern Japan. The Romans tried every trick - from price controls to inflation to giving away bread (similar to the 'tax rebate' program). Still, the economy deteriorated. From the period which Gibbon considered the happiest and most prosperous of man's history - the age of the Antonine Caesars - the empire slipped and slid...and finally collapsed into the Dark Ages, which lasted nearly a thousand years. Of course, the Romans did not have modern central banking. But the Japanese did. Their central bankers read the same books as ours do. They believe the same theories and have the same wrenches and pliers in their tool belts. How come they couldn't fix whatever ailed Japan Inc.?

We don't know. But yesterday, it looked like the U.S. authorities had things in hand. The U.S. economy is still growing, though barely. General Motors' stock rose...and Citigroup found that it could raise even more money than expected.

Gold, meanwhile, continued its correction.

"What the wise man does at the beginning the fool does at the end," says Warren Buffett. No doubt, the wise man bought gold below $300. But were they fools who bought over $900? We don't think so. As near as we can tell, we are not at the end...we are still at the beginning of a monumental trend.

The credit bubble developed a major leak last year. Banks wobbled. Credits plunged. Hedge funds went broke. And the feds panicked. Bernanke and Co. pushed $200 billion in new cash and credits into the marketplace...and cut rates seven times. It was clear that the authorities had no interest in protecting the value of the dollar; they were desperately trying to avoid a serious correction. Naturally, gold went up.

Then, the markets calmed. It began to look as if the Bernanke & Bush team might win. Martin Feldstein, head of the National Bureau of Economic Research and a close friend of Ben Bernanke, said on television that 2% would probably mark the end of the Fed's rate cuts. With no more rate cuts in sight...and an economy that seemed to have survived the crisis...speculators thought it was time to lighten up on gold. Silver too.

But what has changed? Oil is still over $100. The Chinese economy is still booming - with the manufacturing sector reportedly expanding at a record rate. Emerging market demand is so strong, it is holding key commodity prices up - even as demand from the United States eases off. In America, people are switching to smaller cars...but in other places, they're buying so many new cars that gasoline use is still going up.

Which puts Americans in an even tighter jamb. A slowdown in the U.S. economy used to bring a bit of relief. Americans earned less...but prices fell too. For example, when Paul Volcker put up rates in the early '80s, it caused a major recession. But it brought good news too - the higher rates rewarded savers. Higher rates also attracted money to the dollar; the greenback rose, which lowered prices.

Now, unemployment in the United States has reached a four-year high...but prices are still going up. Oh, dear reader, what have our geniuses really wrought? Americans' earnings and assets are going down...while their consumer prices are going up - and their leaders congratulate themselves on having saved the economy from a correction.

A correction is just what the economy most needs, in our humble opinion...and what it is still going to get.

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Jim Rogers, American investor and financial commentator, and co-founder, along with George Soros of the Quantum Fund, is a college professor, author, world traveler, economic commentator, and creator of the Rogers International Commodities Index.   He picked up and moved from the USA to Singapore, and courtesy of the China Post, offers his predictions on gold and oil:

- "Gold is in a correction right now. I suspect it could go down to US$800, who knows, or US$750. I'm terrible at market timing, but if gold goes down some more, I plan to buy some more."

- "Oil in my view will certainly have to go above US$150 or even US$200 during a bull market. This is not a short-term view. We've not had a major oil field discovery anywhere in the world over 40 years."

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05.09.08, 6:55 AM ET

LONDON (Thomson Financial) - Gold rose as record oil prices stoked inflation jitters and as the dollar weakened against the euro.

Gold moves in line with high oil prices as investors hedge against inflation and counter to the dollar as it is seen as an alternative asset.

'Some weakening in the U.S. Dollar and increased investment interest have been pushing up prices,' said John Meyer, Fairfax analyst.

Oil rose to a series of records highs, hitting almost $125 at one point, as peak prices attracted a rush of fund investment. The dollar meanwhile, weakened against the euro which was up as markets continued to digest yesterday's European Central Bank interest rate decision and the lack of any signal that borrowing costs in the 15-nation currency zone will fall anytime soon.

At 10:37 a.m., spot gold was trading at $888.45 per ounce against $881.10 in late New York Trade on Thursday.

While prices were higher today, some analysts reckon gold might be in for some falls going ahead.

Gold is already some 15 percent lower than the record $1,032.50 it hit mid March, largely as expectations for the U.S. economy and the dollar appear to have bottomed out.

Recent dollar strength and rising expectations that the U.S. may hold off cutting interest rates further, prompted heavy selling in recent weeks.

'Gold prices are nearing the bottom of our forecast range for 2008. The healthy $130/oz price correction in the past seven weeks looked justified compared to a less-strong Euro performance since the start of the year,' said ANZ analyst Mark Pervan. 'Prices will ease back to $840/oz by September 2008, with further downward pressure on the Euro and a seasonal slowdown in oil prices dulling gold's appeal as a financial hedge.'

Among other metals, silver rose to $17.02 an ounce from $16.81.

Elsewhere, platinum rose to $2,079 an ounce against $2,019, while palladium was trading at $436 against $433.

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In Gold's Defense
by Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors, Inc.
May 5 2008 2:41PM

The price of gold has corrected by close to 20 percent since peaking on March 17. If you have been listening to the popular press and business TV, you may be convinced that the gold and commodity “bubbles” have popped.

Once you back away from the day-to-day noise and put things into perspective, we believe this correction in gold, while painful in the short term, is just another pause in a long-term secular bull market. As it has been said, bull markets climb a wall of worry.

Over the past year, gold bottomed around $640 per ounce in late June. As the financial crisis unfolded, it staged a spectacular rally, surging more than 60 percent to $1,032. Gold has since pulled back, but given that the long-term fundamentals remain intact, we believe it is setting the stage for the next leg up.

Here are some of the reasons why:

Negative real interest rates

The macro environment for gold is still supportive based on negative real interest rates. The one-year Treasury bill is offering just 2 percent, while the official inflation rate is around 4 percent.

Negative interest rates make gold look more attractive compared with other safe investment alternatives, such as T-bills and certificates of deposit.

We believe the Federal Reserve will keep interest rates below the rate of nominal economic growth in order to support a fragile economy in an election year.

Negative real rates between mid-2001 and spring 2005 powered gold’s biggest bull run in decades, with prices rising from $255 to $455 per ounce.

Real inflation is underreported

The official inflation rate is around 4 percent, but when you include the rapidly rising prices for food and energy and understated housing costs, the real inflation rate is even higher.

One of the best ways to protect yourself against inflation is to participate in it by investing in commodities such as oil and agricultural products. Historically, gold also has proven to be a viable hedge against rising inflation because it maintains its purchasing power.

We agree with those who estimate that the actual inflation rate is close to double digits due to the Fed’s massive injection of new money into the economy to avert a recession. MZM (money zero maturity), the amount of money in the economy that’s easily accessible for spending, is up 15 percent compared with the same time last year.

ETF redemptions

The current correction in gold has been led by sizable ETF redemptions.

The StreetTracks Gold Shares ETF (ticker GLD) lost 1.3 million ounces of gold over the past two weeks, with nearly a third of that amount being redeemed this Tuesday alone. This may mark the first-ever ETF-led gold correction.

This correction is not surprising, given the strong acceleration in the first quarter of 2008 and typical seasonal trends. Some short-term profit-taking is likely, along with speculation that prospects have improved in financials and technology.

But in our opinion, this move out of gold is not indicative of the smart money, as momentum investors chased performance on the way up. The price action appears to be signaling a rotation from weak gold holders, perhaps back into the broader equity market.

Other factors

On top of the factors above, there are other fundamental factors that we believe will drive the price of gold higher over the longer term.

Declining output from existing mines, particularly in South Africa, and a virtual absence of large new discoveries will reduce the supply of gold available in the market.

At the same time that gold supply is falling, demand is increasing due to rising wealth levels in China, India and other nations with cultural affinity for gold.

In addition, history suggests that jewelry demand, which fell off when gold surpassed the $1,000 mark, is likely to pick up again during a gold-price retrenchment.

It’s easy for investors to get swept up in the emotion of a strong rally or a significant correction. In these volatile times, we suggest that investors protect themselves from suboptimal decision-making by not losing sight of their long-term asset allocation strategy.

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June crude rose past $120 a barrel in electronic trading Monday in New York to touch a new record, propelled by oil supply disruptions in Nigeria.

Investors previously holding long positions in gold who sold at peak prices to secure profits are buying back in.

 

 

 

3 May, 2008, 1611 hrs IST, PTI

MUMBAI: Gold prices recovered on fresh demand from stockists in the bullion market on Saturday in view of higher advices from New York.

Silver prices also moved up in line with the gold. Gold futures regained some ground on Friday as participants bought back previously sold positions, a dealer said.

June gold rose by $7.10 to $858 an ounce on the Comex division of the New York Mercantile Exchange.

The yellow metal rose amid "a general short covering rally in commodities," with a rise in crude oil leading the way, he added.

Silver also benefited from short covering as it followed gold. Comex July silver rose 26 cents to $16.465 an ounce.

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by Curtis Hesler

Forbes.com Newsletters

 

WHY BUY GOLD?    Gold is underbelieved, but it is finally gaining serious investor attention.  China still wants to be a global player.  In order to come up to speed with the rest of the central banking world, it is estimated China needs to purchase 2,000 to 3,000 tons of gold.  China's sovereign wealth fund has over $1 trillion to invest, and it has been stockpiling commodities - including gold - all the while the Chinese and Indian middle classes have been accumulating gold like mad. 

Deep problems are developing in the U.S. credit markets.  The housing industry is crashing while debt problems are infecting the general economy.  Consumer demand is beginning to suffer.  Consequently, the U.S. is entering a recession that may well last longer and run deeper than most think.  The average citizen is being hoodwinked about the seriousness of these problems by media sound bites while the purchasing power of their dollars dwindles.  However, knowledgeable investors are not so easily distracted, and gold is becoming more enticing as a financial safe haven and inflation hedge. 

One thing you can count on is that as long as the Fed continues to push interest rates below the true rate of inflation and balloons the money supply, gold will be attractive as an inflation hedge.  While demand for precious metals is increasing on a global scale, supply is being severely curtailed due to played-out reserves and South African production being shut down for a lack of power.  South African mines will not be up to full production again for several more years, and they account for a full 20% of the world's gold supply.   

At the root of it all - underlining gold's continued advance to $1,600 is the declining value of the U.S. dollar.    Essentially, when you see some high school kid get a multi-million dollar contract to play basketball, you know that your dollars are becoming worthless.  As the U.S. dollar falls, gold will rise; and the dollar is about to be taken out and shot ... again.

 

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Allan Seccombe
Posted: Wed, 09 Apr 2008

MiningMX.com -- The gold price could regain its footing above $1,000 this year, with market conditions that drove the gold price to a record high in March still in place, but the consequences for jewelery demand will be dire, said GFMS chairman Philip Klapwijk.

Central banks outside the European banks represented in the Central Bank Gold Agreement became net buyers for the first time in a decade, London-based precious metals consultancy GFMS said in its Gold Survey 2008.

In presenting the Survey, Klapwijk said the correction seen after gold hit an unprecedented high of $1,030/oz on 17 March was only natural. Gold fell steeply to below $900/oz only to recover and bounce back to around $920 this week.

“We weren’t at all surprised that the market saw a hefty correction in the last few weeks, as the speed of the earlier gains looked a little unsustainable. However, we don’t think current hesitancy means it's game over for the rally,” he said.

“Many of the drivers behind this investor push after all - dollar weakness, skeletons in banks’ closets - are still very much with us. But quite where it’ll top out is a difficult call - maybe $1,100 is achievable this year but $1,200 plus could be going a bit far”.

While China leap-frogged Turkey and Italy during 2007 into the second position behind India as the largest jewelery market, the outlook for the market is not rosy.

“Another break above $1,000 is a real possibility, but even if gold does not reach four figures again in 2008, we still expect to see a fall of in excess of 200 tonnes in global jewelery demand this year,” Klapwijk said.

Stripping out scrap, global jewelery manufacture increased by 10%, much of it coming from the Middle East.

The Survey noted a positive climate for gold investment would continue into late 2008, possibly rolling into the first half of 2009 as investors continued to seek alternatives to preserving their wealth in light of falling confidence in banks, a moribund US economy and inflation.

“This view is mainly based on expectations that the credit market crisis will persist in the medium term, perpetuating increased risk aversion as well as creating a bearish outlook for the US dollar, the global economy and equity markets coupled with rising inflationary expectations under conditions of negative real short-term US interest rates,” Klapwijk said.

“That said, the large involvement of speculators in the market suggests that corrections such as the one experienced recently are likely to be repeated, resulting in a volatile rally to a peak comfortably over the $1,000 mark later this year or perhaps early in 2009.”

The Survey noted the market had been in divestment mode from January to August, particularly in the over-the-counter market, with “stellar growth” seen in the following four months. GFMS estimates the net investment figure for 2007 at a lower 158 tonnes.

“Combined with numbers on bar hoarding and official coin fabrication, this generated a world investment figure of 531 tonnes for the year, down by close to a third year-on-year.”

Signatories of the Central Bank Gold Agreement (CBGA) lifted their sales by 50% to a more “normal” level of 481 tonnes during 2007, the third year of the agreement.

“Moving to countries outside the CBGA, in 2007 these swung to the demand side on a net basis for the first time in over a decade, as a handful of purchases of moderate magnitude more than offset other sales seen over the year.” 
International Monetary Fund (IMF) sales of 403 tonnes are still some way off, needing to gain approval from members, particularly from the US government, Klapwijk said.

GFMS forecasts that global mine production in 2008 will remain broadly in line with the level recorded in 2007, which was down 0.4% year-on-year to an 11-year low.

Gains in Asia offset declines from other gold-producing areas, particularly Africa, where output dropped 29 tonnes led by South Africa.

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By Wendy Lynn Ip
April 28, 2008

Last week, we observed some weakness in gold, silver, platinum, and palladium. With good long-term support steaming from economic weakness, inflationary pressures, and a declining dollar value over the course of this past year, many question why we have observed this type of shift in sentiment as well as wonder whether the sentiment is transient.

I will wager that the sentiment is transient. Furthermore, the past nine years of data (1999 through 2007) reveals to us that, individual economic and market factors aside, we should actually expect a downturn in the metals around the onset of the second quarter.

The data revealed that, for the months of April to June, the metals showed a marked decline from anywhere between 1% to as high as 9%. Moreover, the metals would generally pick up around August to December, recovering from the losses, as well as pressing upward through January of the following year. Again, this does not give us an absolute indication that we will observe the same pattern for 2008, as the credit crisis and economic conditions can play on the markets differently. I can say that, so far, the data on the metals’ performance has turned up as expected and if the metals continue along this path, then we should expect to see a positive year-end growth. The average year-end growth from January to December for the metals over the past nine years of data came in at around 13%.

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