By John Jameson on November 30, 2009 2:12 PM
|Permalink
Business Day, Australia
theage.com.au
December 1, 2009 - 7:39AM
US gold futures
ended higher Monday as the US dollar fell further, more than offsetting
follow-through weakness and investors' need to raise cash on the back
of Dubai's debt woes.
COMEX February gold settled
up $US6.80 at $US1182.30 an ounce on the NYMEX, while spot gold was at
$US1176.25 an ounce, compared with $US1176.70 late in the previous
session in New York. The US dollar added losses against the euro as economic optimism supports the equities and commodities markets.
Gold investors initially sold to cover losses after worries about Dubai's debt default pressured equities last week.
‘‘Dubai,
typically a major gold buyer, could unload bullion holdings to opt for
cash, and that adds selling pressure to the market,’’ said Miguel
Perez-Santalla at Heraeus.
But comments by a senior Chinese
official that Dubai's debt crisis could be China's opportunity to snap
up gold and oil assets stabilized the market.
Investor
sentiment is still firm after last week's news that Sri Lanka acquired
gold from the IMF, and a report that India is open to buying more IMF
gold.
By John Jameson on November 30, 2009 2:10 PM
|Permalink
Reuters
Monday, November 30, 2009; 8:39 AM
BEIJING (Reuters) - Dubai's debt crisis could be China's opportunity to
snap up gold and oil assets, a senior Chinese official said in remarks
published on Monday.
No Chinese banks have yet reported exposure to debt from Dubai
World, a flagship firm that last week said it was seeking to delay debt
payments by six months. Some Chinese real estate and construction firms
have limited exposure to projects in the emirate, state television
reported this weekend.
China's $2.27 trillion in foreign exchange reserves are mostly
parked in U.S. treasuries, despite calls from some in China to invest
the reserves in oil and other natural resources that the fast-growing
Chinese economy will need in future.
While the impact of the Dubai crisis on the global economy and on
China was not known yet, it would last a while at the very least, Ji
Xiaonan, who chairs the supervisory board for big state-owned companies
under the State Council's state assets commission, told the Economic
Information Daily.
"That could give China a buying opportunity to put some forex reserves
into gold or oil reserves," Ji was quoted as saying by the paper, which
is widely read by Chinese officials.
Another paper, the China Youth Daily, quoted Ji as saying that a
team of experts from Beijing and Shanghai had set up a task force last
year to look at the issue of gold reserves.
"We suggested that China's gold reserves should reach 6,000 tons in
the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper
quoted him as saying.
That is in line with many officials' view that China should decrease
the proportion of its $2 trillion foreign exchange reserves held in
dollar-linked investments and raise its gold holdings to diversify its
portfolio.
For a graphic on the world's top gold reserve holders: http://graphics.thomsonreuters.com/119/GLD_TP121109.gif
China last acknowledged a change in its national gold holdings in
April, when Hu Xiaolian, head of the State Administration of Foreign
Exchange (SAFE), told Xinhua news agency that the country's reserves
had risen to 1,054 tons from 600 tons since 2003.
But it did so by buying domestically produced gold to help soak up
unsold output. It has not yet shown any interest in buying from
international gold markets.
"If the gold price comes down for a while, we might take the
opportunity to buy a bit," the Economic Information Daily, run by
Xinhua news agency, quoted economist Li Yining as saying.
Li added that China must gradually diversify the asset and currency
composition of its foreign exchange reserves. He recommended buying
more land, mines and equity stakes in companies.
Wu Nianlu, a professor at the central bank's graduate school, expressed concern about the safety of China's non-bond holdings.
"Strictly speaking, almost half of our country's foreign exchange
reserve is not stable in value and is of high risk," Wu was quoted as
saying by the same paper.
By John Jameson on November 30, 2009 11:18 AM
|Permalink
by Patrick Hosking and David Robertson
November 27, 2009
Fears of a dangerous new phase in the economic crisis swept around the globe
yesterday as traders responded to the shock announcement that a debt-laden
Dubai state corporation was unable to meet its interest bill.
Shares plunged, weak currencies were battered and more than £14 billion was
wiped from the value of British banks on fears that they would be left
nursing new losses.
Nervous traders transferred the focus of their anxieties from the risk of
companies failing to the risk of nation states defaulting. Investors owed
money by Mexico, Russia and Greece saw the price of insuring themselves
against default rocket.
Although the scale of Dubai’s debts is comparatively modest at $80 billion
(£48 billion), the uncertainty spooked the markets, with no one sure who its
creditors are. Several banks rushed out statements to reassure investors
that their exposure was small.
The FTSE 100 plunged by 171 points to 5,194 — its biggest one-day fall in
eight months in one of the most jittery days in the financial markets since
the depths of the banking crisis.
The Treasury, the Bank of England and the Financial Services Authority were
monitoring events closely and are demanding figures from UK banks on their
loan exposures to Dubai.
According to a senior government official, Dubai’s crisis is regarded as
modest and manageable for Britain, but there were growing fears that Abu
Dhabi, the oil-rich neighbouring emirate that has in the past given rescue
loans, would leave Dubai to its fate.
Dubai World, the state-owned corporation that began the panic on Wednesday by
demanding a standstill on its interest payments, worsened the mood when it
postponed a teleconference for its bond holders, saying the phone lines were
overwhelmed.
Gerard Lyons, chief economist with Standard Chartered, said: “The market
reaction shows how vulnerable some economies are to the aftermath of the
debt binge. This highlights how fragile confidence is.”
The Eid al-Adha religious holiday in the Middle East, and the closure of
financial markets in the United States for Thanksgiving, exacerbated the
sense of uncertainty in markets that were open for business.
A computer crash at the London Stock Exchange, which by coincidence is 21 per
cent owned by the Dubai Government, left dealers unable to trade for three
and a half hours.
Shares in HSBC slumped by 5 per cent, wiping £6.2 billion from its value.
According to the United Arab Emirates Banks Association, HSBC has £11
billion of loans outstanding to the UAE, of which Dubai is one of seven
emirates. HSBC declined to comment.
More than £2.6 billion was slashed from the value of Barclays, while Lloyds
and Royal Bank of Scotland, both partly owned by the taxpayer, saw their
values fall by £1.7 billion and £1.5 billion respectively.
One analyst said that the fears were overdone because Abu Dhabi would
eventually come to the rescue to save the UAE from embarrassment. Dubai
World has liabilities of £36 billion, about three quarters of Dubai’s total
state debt. Its subsidiary Nakheel built The Palm Islands development, but
the property bubble in the emirate burst a year ago, leaving buildings
unfinished, debts unpaid and paper fortunes erased.
By John Jameson on November 30, 2009 9:35 AM
|Permalink
Buyers Take a Pass on Some Failed Banks
By Matthias Rieker
People's
United Financial Inc. wanted to buy failed banks on the cheap. Instead,
it struck a deal to buy a healthy equipment-leasing company.
Last Monday's change of plans by the Bridgeport, Conn., bank-holding
company underscores a problem with the growing pile of terminally ill
U.S. banks being wrestled with by the Federal Deposit Insurance Corp.
Associated Press
A
Chittenden branch in Burlington, Vt. Its owner, People's United, bought
an equipment firm when it failed to find a lender it wanted.
Some
are in such bad shape that potential buyers won't touch them at any
price, even if the government agrees to eat losses on the failed bank's
bad loans. In addition to their depleted capital, many seized banks
operate in areas with sluggish growth prospects, are puny and are
loaded with expensive deposits gathered through brokers that are likely
to leave when the acquiring bank reins in interest rates, some bankers
complain.
Philip Sherringham, chief executive of People's United, said it is
getting harder to find the dream deal that bank officials hoped to
hatch from a wrecked bank. The supply of ideal targets—sensible
deposit-gatherers that fatally "overextended" their loan portfolio—is
slim and the competition fierce, he said.
The company's roots go back to 1842. Its biggest deal was the 2008
purchase of Chittenden Corp., including six banks owned by the
Burlington, Vt., company. The financial crisis has given People's
United an appetite for dying banks that nevertheless might have some
valuable pieces.
But of the 124 banks to fail so far this year, many of those put up
for sale by regulators as part of the seizure process "are of very poor
quality," said Norm Skalicky, chief executive of Stearns Financial
Services Inc. "It's not as if you can walk in and you are in business."
The St. Cloud, Minn., bank has bought five failed banks since the
financial crisis erupted, including two in Florida and one in Atlanta,
where soured real-estate loans are piling up and deposits are expensive.
Fifth Third Bancorp CEO Kevin Kabat complained at an investor
conference recently that the "relative quality…of available FDIC
transactions have really not been very attractive from our perspective."
The Cincinnati bank bought failed Freedom Bank of Brandenton, Fla.,
in October 2008 and is looking mostly for FDIC-arranged deals in
geographic areas where Fifth Third already has branches.
Sluggish interest in doomed banks could push the FDIC's losses
higher at a time when the agency's fund to shield depositors is in
negative territory for just the second time in its history.
Kevin L. Petrasic, a lawyer at Paul, Hastings, Janofsky &
Walker LLP, said FDIC officials might be forced to bundle some small
banks together in order to lure potential buyers.
An FDIC spokesman said the agency isn't having trouble lining up
buyers. About 95% of banks seized by regulators have been sold. While
some attract few bids, the FDIC has "had tremendous success in finding
buyers," the spokesman said. Two of the nine banks that failed this
month were sold without loss-sharing agreements.
People's United, the largest bank based in New England, has been
hunting all over the U.S. for attractive acquisition targets. The bank
has relatively few problems compared to the overall banking industry
and $2.6 billion in capital to spend.
Last
month, regulators notified People's United that its bid for FBOP Corp.,
the battered Illinois owner of nine banks, wasn't chosen by the
government, according to people familiar with the matter.
U.S. Bancorp bought the banks and reopened the branches as part of the Minneapolis-based regional bank.
Financial Federal
Corp., the leasing company that People's United agreed to buy in a
stock-and-cash deal valued at $738 million, is a move to expand some
loan businesses rather than gain more overall heft.
Still, People's United hasn't entirely soured on the bad banks being
shopped around by the FDIC. "In difficult times, bad banks will fail
and good banks will fail," Mr. Sherringham said in an interview.
In many cases, though, "there are fewer bidders" and "the folks that
are bidding realize that," lowering their offers, said Mr. Petrasic,
the banking lawyer.
As a result, said Kip A. Weissman, a partner at Luse Gorman Pomerenk
& Schick PC, there are "probably going to be more liquidations and
high-loss deals."
The St. Cloud, Minn., bank has bought five failed banks since the
financial crisis erupted, including two in Florida and one in Atlanta,
where soured real-estate loans are piling up and deposits are expensive.
Fifth Third Bancorp CEO Kevin Kabat complained at an investor
conference recently that the "relative quality…of available FDIC
transactions have really not been very attractive from our perspective."
The Cincinnati bank bought failed Freedom Bank of Brandenton, Fla.,
in October 2008 and is looking mostly for FDIC-arranged deals in
geographic areas where Fifth Third already has branches.
Sluggish interest in doomed banks could push the FDIC's losses
higher at a time when the agency's fund to shield depositors is in
negative territory for just the second time in its history.
Kevin L. Petrasic, a lawyer at Paul, Hastings, Janofsky &
Walker LLP, said FDIC officials might be forced to bundle some small
banks together in order to lure potential buyers.
An FDIC spokesman said the agency isn't having trouble lining up
buyers. About 95% of banks seized by regulators have been sold. While
some attract few bids, the FDIC has "had tremendous success in finding
buyers," the spokesman said. Two of the nine banks that failed this
month were sold without loss-sharing agreements.
People's United, the largest bank based in New England, has been
hunting all over the U.S. for attractive acquisition targets. The bank
has relatively few problems compared to the overall banking industry
and $2.6 billion in capital to spend.
Last
month, regulators notified People's United that its bid for FBOP Corp.,
the battered Illinois owner of nine banks, wasn't chosen by the
government, according to people familiar with the matter.
U.S. Bancorp bought the banks and reopened the branches as part of the Minneapolis-based regional bank.
Financial Federal
Corp., the leasing company that People's United agreed to buy in a
stock-and-cash deal valued at $738 million, is a move to expand some
loan businesses rather than gain more overall heft.
Still, People's United hasn't entirely soured on the bad banks being
shopped around by the FDIC. "In difficult times, bad banks will fail
and good banks will fail," Mr. Sherringham said in an interview.
In many cases, though, "there are fewer bidders" and "the folks that
are bidding realize that," lowering their offers, said Mr. Petrasic,
the banking lawyer.
As a result, said Kip A. Weissman, a partner at Luse Gorman Pomerenk
& Schick PC, there are "probably going to be more liquidations and
high-loss deals."
By John Jameson on November 25, 2009 1:46 PM
|Permalink
Published: Wednesday, November 25, 2009
WASHINGTON (Reuters)
-- The International Monetary Fund said on Wednesday it had sold 10
tons of gold to the Central Bank of Sri Lanka, using Monday's market
prices for the transaction.
In a statement, the IMF said
proceeds were equivalent to US$375-million, adding the sale was part of
403.3 tons approved by its executive board in September 2009. The fund
has already sold 202 tons of gold to the Reserve Bank of India and the
Bank of Mauritius.
Gold hit a record high at just over
$1,190 an ounce on Wednesday due to a broadly lower dollar and renewed
interest from central banks. Year to date, the metal has risen more
than 35%.
The IMF declined to comment on the reports.
The
sales are part of plans adopted last year to diversify the fund's
sources of income and to increase low-cost lending to poor countries by
up to US$17 billion through 2014.
The IMF reiterated it
would inform markets before any on-market sales commence, and would
report regularly to the public on progress with the gold sales.
By John Jameson on November 25, 2009 12:43 PM
|Permalink
NEW YORK, Nov 25 (Reuters) - The U.S. Mint said on Wednesday it will suspend sales of the popular American Eagle 1-ounce bullion coins as rising demand depleted its inventory.
"The United States Mint has depleted its current inventory of 2009 American Eagle 1-ounce gold bullion coins due to the continued strong demand for this product," the Mint told its authorized dealers in a memorandum on Wednesday.
November sales to date were at 124,000 ounces, higher than the 115,500 ounces sold in each month of September and October, the Mint said.
The Mint said it expects to resume sales in early December.
Increasing worries about inflation, a falling U.S. dollar and geopolitical tensions are prompting individual investors to take physical possession of gold coins and other bullion products due to the metal's appeal as a safe haven in financial and political crises.
Gold XAU= hit a record high at just under $1,190 an ounce on Wednesday due to a broadly lower dollar and renewed interest from central banks. Year to date, the metal has risen more than 35 percent. [GOL/]
Last year, the Mint had also briefly suspended sales of its American Eagle gold and silver coins due to high demand and a lack of coin blanks.
Produced from gold mined in the United States, the 22-karat American Eagles have been novel items among collectors and investors since their introduction in 1986. Each coin has a face value of $50 but it is sold by authorized dealers at a premium to the price of gold.
The Reserve Bank of India announced that it will consider buying
the IMF's remaining stash of 201.3 tons of gold igniting gold prices.
Central bank purchases often trigger momentum buying as investors invest in gold as an alternative asset.
Currently India has only 6% of its reserves in gold, after buying 200 tons
from the IMF in early November. At one point the country had 20% and
countries like the U.S. and Portugal have 70% and 90% respectively.
India's 6% seems paltry in comparison. "Every time any kind of news
comes out its instantaneously regarded as this is it, this is bullish,
must be great" says Jon Nadler, senior analyst at Kitco.com.
India is paying up for gold buying the first 200 tons at a
spot price of $1,045 and now considering buying the rest as gold inches
towards $1,200. But Nadler thinks that India could be buying in order
to play a larger role in the IMF as a voting member and that buying
gold has less to do with a bullish outlook and more to do with keeping
reserves in line with allocations. "Central banks in general look at
foreign reserve management as an ongoing policy. They will buy when
they feel the allocation is too small vis a vis reserves. Price is
really not the issue it's a percentage issue."
Even though India represents a shift from central banks away
from being net sellers of gold to being net buyers, it's still the weak
U.S. dollar that is pushing prices to $1,200.
"I think a lot of what is driving gold in the very near term is part of
this weak dollar risk trade element and therefore I think having an
extra bit of news like India coming through has driven the price even
higher", says Nicholas Brooks, head of research and investment strategy
for ETF Securities. "When central banks start looking at gold as a good
diversifier away from the dollar it just confirms private investors'
concerns about the types of policies put into place by governments
right now."
By John Jameson on November 25, 2009 10:36 AM
|Permalink
Nov. 25 (Bloomberg) -- Gold climbed to a record in New York and London
on a further drop by the dollar and on a report that India may buy more
bullion for its central-bank reserves.
Gold futures have
rallied 12 percent since India said on Nov. 3 it bought 200 metric tons
of metal from the International Monetary Fund. The country, the world’s
largest gold consumer, is open to additional purchases from the IMF,
the Financial Chronicle newspaper reported. The U.S. Dollar Index fell
for a third day, sliding to the lowest level in more than 15 months.
“Central-bank buying has been one of the main factors of this recent
rally,” Peter Fertig, owner of Quantitative Commodity Research Ltd. in
Hainburg, Germany, said today by phone. “The weaker dollar is driving
commodities higher.”
Bullion futures for February delivery on
the New York Mercantile Exchange’s Comex division climbed as much as
$17.30, or 1.5 percent, to $1,184.70 an ounce. They traded at $1,181.70
by 8:40 a.m. local time. Up for a ninth day, futures are set for the
longest stretch of gains since August 1982.
Gold for
immediate delivery added 1 percent to $1,180.63 an ounce in London
after earlier reaching $1,182.95. Prices may advance to $1,200 next
week, according to Fertig.
The metal rose to a record
$1,176.50 an ounce in the morning “fixing” in London from $1,163.25 at
yesterday’s afternoon fixing. Some mining companies use fixings to sell
production. Spot prices are up 34 percent this year.
Overtaking Russia
A further purchase by India would make its stockpile the world’s
eighth-largest, overtaking the Netherlands and Russia, according to
figures from the producer-funded World Gold Council. Reserve Bank of
India Governor Duvvuri Subbarao declined to comment on the report.
“Actions from central banks are very important at the moment,” said
Eugen Weinberg, an analyst at Commerzbank AG. “The purchase from India
was like a seal of prices above $1,000 an ounce. Also, other central
banks are buying gold.”
The central banks of Russia and Sri
Lanka have acquired gold, prompting analysts at Bank of America Merrill
Lynch, Societe Generale and Barclays Capital to forecast more such
purchases. Governments are the biggest bullion holders. Mauritius
bought 2 tons of gold from the IMF last month for $71.7 million after
India’s $6.7 billion purchase.
The IMF, which set out two
months ago to dispose of one- eighth of its gold reserves, still has
more than 200 tons to sell. It will do so on a “first-come,
first-served” basis, Andrew Tweedie, head of the fund’s finance
department, said in a Nov. 20 interview.
Central-Bank Demand
“The additional stimulus for gold is the increased demand emerging from
central banks, who are now keen to diversify away from the falling
value of dollar reserves,” said Mark Pervan, a commodity strategist
with ANZ Banking Group Ltd. in Sydney.
Bullion typically
moves inversely to the U.S. currency. The dollar index, a six-currency
gauge of the greenback’s value, slid as much as 0.9 percent today after
Federal Reserve officials refrained from voicing concern over this
year’s 8.4 percent decline.
Assets held by the SPDR Gold
Trust, the biggest exchange- traded fund backed by bullion, expanded
for a second day yesterday to 1,122.37 tons, the most since June 29.
The fund’s holdings reached a record 1,134 tons on June 1. Gold held in
ETF Securities Ltd.’s exchange-traded products fell 0.5 percent to
7.936 million ounces yesterday, its Web site showed.
“Speculators betting on higher prices have a very good argument on
their side,” Weinberg said in a Bloomberg Television interview. “It’s
the weak dollar, the possibility of longer-term inflation, and also
actions from central banks. It’s definitely investment demand that is
pushing prices higher.”
Scrap Sales
The rally has pushed the 14-day relative strength index for futures
above the level of 70 viewed by some investors and analysts who follow
technical charts as a sign that prices may soon fall. Today’s reading
was 85.05.
“Technically, gold remains overbought,” Walter de
Wet, a London-based Standard Bank Ltd. analyst, wrote today in a
report. “We have seen some scrap metal coming to the market at current
levels, but still not enough to offset buying.”
Silver for
March delivery in New York gained 1.4 percent to $18.755 an ounce.
Platinum for January delivery climbed 2.7 percent to $1,482 an ounce,
the highest price in more than 14 months. Palladium for March delivery
rose 1.7 percent to $377 an ounce.
ETF Securities’ silver
holdings rose 0.7 percent to a record 22.861 million ounces yesterday,
its Web site showed. Platinum assets added 164 ounces to a record
426,639 ounces, while palladium holdings climbed 1.4 percent to an
all-time high of 624,859 ounces.
SAN FRANCISCO (MarketWatch) -- Gold has long been favored by a fringe
of the investment world, but this year some of the world's leading
hedge-fund managers have loaded up on the precious metal amid concern
government efforts to avoid another Great Depression that could
undermine major currencies and fuel rampant inflation.
"I have never been a gold bug," Paul Tudor Jones, chairman of
hedge-fund giant Tudor Investment Corp., wrote in an Oct. 15 letter to
investors. "It is just an asset that, like everything else in life, has
its time and place. And now is that time."
Tudor has been building positions in gold and other precious metals in
recent months and they now represent the firm's largest commodities
exposure, he noted.
John Paulson's Paulson & Co., one of the world's largest hedge fund
firms that made billions betting against subprime mortgages, is
launching a new gold fund Jan. 1 and became the largest holder of the
SPDR Gold Trust exchange-traded fund this year.
Greenlight Capital, run by David Einhorn, reversed a long-time aversion
to gold, while Kyle Bass's Hayman Advisors LP held more than 15% of its
portfolio in gold and other precious metals earlier this year. Eton
Park Capital, headed by former Goldman Sachs trader Eric Mindich, has also got in on the act.
"I can't remember in 20 years so many respected investors focused on a
single strategy," said Bradley Alford of Alpha Capital Management,
which invests in hedge funds. "Some of these people are icons of the
industry with at least 15-year track records. It's a losing proposition
to bet against guys like that. They aren't billionaires because they
make bad bets."
It's not only hedge funds. Managers of mutual funds and insurance
company portfolios are often limited in how much gold they can buy, but
these investors have been purchasing the metal for their personal
accounts, according to Ed Yardeni, president of Yardeni Research.
"A surprising number of level-headed folks, who I have known over the
years, are confessing to me that they've become gold bugs," he said.
"They're starting to give more respect to what was for a long time
considered the lunatic fringe."
On Monday, the most active New York gold contract notched a new high of $1,174 an ounce.
SPDR Gold gained 1.6%, bringing its November advance to 12%.
The original gold bugs have been fans of the metal for decades. They
yearn for the past, when the so-called Gold Standard was the central
cog of the world's currency system. A similar system known as the
Bretton Woods Agreement tied the U.S. dollar, and all currencies pegged
to the dollar, to the price of gold. When the system broke down in
1971, there was no longer a limit on the amount of money that could be
printed by governments.
Gold bugs hung on grimly as prices dropped in the '80s and '90s amid
quelled inflation and roaring stock markets. But gold prices began
climbing at the start of this decade, when the Federal Reserve slashed
interest rates to revive the U.S. economy in the wake of the dot-com
bust.
That helped fuel a housing and credit market boom that came crashing
down last year, triggering a global financial crisis and the worst
recession since the Great Depression.
The Federal Reserve, headed by Ben Bernanke, responded by slashing
interest rates to almost zero and spending more than $1 trillion buying
long-term U.S. Treasury bonds and mortgage-backed securities and other
debts from collapsed housing giants Fannie Mae and Freddie Mac.
That's stabilized the economy, but some leading hedge fund managers
worry about the long-term consequences of this so-called quantitative
easing and are using gold to protect themselves.
'Grandpa Ben'
"The Fed is making loans collateralized by toxic waste and has now
begun a policy called 'quantitative easing' -- a fancy term for
'printing money,'" Greenlight's Einhorn wrote in a January letter to
investors.
David Einhorn of Greenlight Capital, Inc.
Printing so much new money will cut the value of the U.S. dollar, which
could fuel rapid inflation. In such an environment, the solidity of
gold could shine.
"If the chairman of the Fed is determined to debase the currency, he
will succeed," Einhorn added. "Our instinct is that gold will do well
either way: deflation will lead to further steps to debase the
currency, while inflation speaks for itself."
Einhorn initially invested in the Market Vectors Gold Miners ETF,
which tracks shares of gold-mining companies. He'd also bought call
options on gold, as well as buying the metal directly, according to
Greenlight's January investor letter, a copy of which was obtained by
MarketWatch.
Since Einhorn launched Greenlight in 1996, he's shunned gold and other
broad economy-based trades in favor of tracking down under-valued and
over-priced stocks.
"We never thought we would ever buy gold or gold stocks," Einhorn wrote
in January, recounting the lesson he learnt from his grandfather's
obsession with the precious metal.
"David's grandfather Benjamin was a gold bug," Einhorn recalled. "From
the time David was 10, Grandpa Ben took every opportunity to tell David
about the problems with fiat currencies and the coming inflation and
advised that the only sensible thing to do was to buy gold and gold
stocks."
Einhorn's grandfather followed his own advice for the last 30 years of his life and lost money.
"Being a patient investor is one thing. Being 'wrong' for three decades is quite another," Einhorn noted.
'Grandma Cookie'
However, Greenlight Capital lost more than 15% last year -- its first
ever annual loss -- as the global financial crisis rocked the hedge
fund industry. Einhorn had rightly warned of the demise of Lehman
Brothers before it happened, but he underestimated the broader impact of such an event.
"The lesson that I have learned is that it isn't reasonable to be
agnostic about the big picture," he said during an Oct. 19 speech at
the Value Investing Congress in New York.
At the same conference four years earlier, Einhorn advocated his Grandma Cookie's approach of investing in stocks like Nike, IBM, McDonald's and Walgreens, over his Grandpa's holdings of bullion and gold stocks.
"I explained how Grandma Cookie had been right for the last 30 years
and would probably be right for the next thirty," Einhorn said.
"However, the recent crisis has changed my view."
Gold should do "fine" until policymakers and politicians show more
monetary and fiscal restraint. The metal will likely do "very well" if
there's a sovereign debt default or currency crisis, he added.
Einhorn said last month that he moved all his positions into physical
gold because it's a cheaper, more-certain and more-liquid way of
investing in the metal.
Physical delivery
Hayman Advisors, a Dallas, Tex.-based hedge fund firm run by Kyle Bass,
became another proponent of holding physical gold this year.
Most precious-metal investing has historically been done via paper
futures contracts on COMEX, part of the New York Mercantile Exchange,
owned by CME Group.
However, Hayman expects more demand for physical delivery of precious
metals. That could cause problems because there are only enough
inventories in COMEX warehouses to supply 15% to 30% of open interest
on futures and options contracts, the firm explained in a presentation
to investors earlier this year.
"It is prudent to focus efforts on obtaining physical delivery of
metals backing paper contracts 'while supplies last,'" Hayman wrote in
its presentation, a copy of which was obtained by MarketWatch.
Faster Monopoly
Bass, Einhorn and others are holding gold because they're concerned
that a damaging bout of inflation will be triggered by the efforts of
several central banks to stabilize economies by pumping lots of new
money into the global financial system.
"In God-like fashion (with a little ecclesiastical white-out), the
central banker decides to add two more banks of money to the game that
are distributed to the participants," Bass wrote. "Under this scenario,
did the real value of anything change? Does the bartering for property
increase or decrease prices? Did each unit of money become worth more
or less?"
Reserve multiplier
Quantitative easing by the Fed has pumped roughly $1.2 trillion into
the U.S. financial system this year. But M1 money supply, the most
liquid measure of money outside of tangible currency, has only
increased a seasonally adjusted $73.2 billion, Hayman said, citing Fed
data.
This hides the potential for a massive increase in money supply that could be unleashed from bank reserves, the firm added.
The foundation of money supply is the monetary base of an economy,
which consists of tangible currency and reserves that banks are
required to hold against customer deposits.
The reserve requirement is usually about 10%. This means banks can lend
out 90 cents for every dollar they get in deposits. That money often
ends up in another bank account, and 81 cents of this is re-lent, and
so on, Hayman explained.
Banks usually lend as much as possible, but since the collapse of
Lehman last year they've been hoarding excess cash. As the Fed's
quantitative easing picked up steam this year, the extra money has
piled up in bank reserves, rather than flowing out into the economy.
Excess reserves in the U.S. banking system stood at an unprecedented
$855 billion recently, up from $2 billion a year earlier, according to
Hayman.
If banks decide they're comfortable enough to lend out these extra
reserves, "it would not increase the money supply by $855 billion;
rather it would increase the money supply by some multiple of that," as
the money is deposited again and re-lent over and over, Hayman wrote.
This so-called banking reserve multiplier has historically been at
least seven times, which suggests that the money supply could balloon
by about $6 trillion, Hayman estimated.
"Do you trust the Federal Reserve et al. to select the precise timing
of when to withdraw the money from the system, such that a recovery is
sustained and inflation does not take hold?" Hayman wrote. "We believe
the market, in its forward-looking nature, does not."
20% under-valued
But what if gold prices already reflect concern about future inflation?
The precious metal is storable and portable and has been universally
accepted as a medium of exchange for over 5,000 years, outlasting
governments, fiat money systems and the rise of other metals and
minerals, according to Paul Tudor Jones of Tudor Investment Corp.
"These somewhat esoteric descriptions of gold's value do not help in
evaluating if gold is cheap or expensive," Jones added in letter to
investors last month.
Compared to the long-term average of M2 money supply in the G-20
countries, gold is cheap. It should also increase in value as it
becomes scarcer relative to a growing supply of printed currencies,
Jones explained.
If gold prices are adjusted for inflation, the price is still a long
way below records hit 25 years ago. Depending on which inflation
measure is used, the peak is between $1,600 and $2,400 per ounce, he
wrote.
Tudor's proprietary model, which takes into account inflation, M2
growth and real rates, suggests gold is 20% under-valued over the next
24 months, Jones concluded.
Supply and demand
Jones also reckons old-fashioned supply and demand could drive gold prices higher too.
Despite a three-fold jump in spending on metal exploration in the past
decade, new gold mine production has stagnated at 80 million troy
ounces, he noted.
"They just aren't making that much of it anymore," Jones wrote. "Any
incremental demand for gold must be met through sales from current
owners."
Some of that extra demand may come from investors in ETFs. These
securities have flourished in recent years by giving investors who
previously struggled to invest in gold an easier way of getting into
the precious metal, Jones said.
By the end of 2009, ETFs will hold 3% of available supplies, making
them the sixth-largest holder of gold in the world. That may only be
the start, according to Tudor.
"With only $50 billion in total assets of listed, physically-backed
ETFs as of October 14th, there is huge scope for increased flow," Jones
wrote. "The private-wealth universe of trillions of dollars is
under-exposed to gold and now can readily get exposure."
G-13
Tudor also expects central banks, which have been net sellers of gold
for many years, to become net buyers during the second half of 2009, a
"remarkable" turnaround for a market that's used to absorbing big sales
from this official sector.
The large, developed countries of the G-7 already have roughly 35% of
their reserves in gold, but the remaining members of the G-20 only have
3.5% of reserves in the precious metal, Tudor estimated.
These 13 countries, which include China and India, have seen a $2.2
trillion surge in reserves in the past five years, making up well over
half of the increase in global reserves during that period, Tudor said.
Almost that entire surge has been in paper currency or debt backed by paper currencies, the hedge fund firm noted.
If non-G-7 countries in the G-20 lifted gold holdings to 10% of their
reserves, they would need to buy 370 million troy ounces, or 20% of
current above-ground supplies. If they lifted holdings to 35% of
reserves, they could need to buy 1.3 billion troy ounces, or 35% of
above-ground supplies, Tudor estimated.
"There is huge potential for more buy-side interest to emerge from
central banks," Jones wrote in his Oct. 15 letter to investors.
Indeed, India's central bank bought 200 tons of gold bullion from the
International Monetary Fund in the final two weeks of October.
"The scope for increased investment demand over the coming years is
much stronger than the potential from new supply," Jones wrote. "As a
result, incremental new demand must buy gold from current holders... We
doubt the transfer of gold from current holders to its new owners will
occur at, or near, current prices."
Gold M&A
Paulson & Co., which made billions of dollars betting against
mortgage-related securities before the housing bust, is starting a new
fund Jan. 1 that will invest in gold stocks and gold-related
derivatives. John Paulson, who heads the firm, will invest a chunk of
his own money in the vehicle, according to a person familiar with the
matter.
Paulson told investors recently that the rally in gold has only just
begun, according to The Wall Street Journal, which noted that Paulson
is putting $250 million of his own money in the new fund.
Paulson has already been building gold positions in the firm's current
funds. The firm, which oversees more than $25 billion, recently held
31.5 million shares in the SPDR Gold Trust /quotes/comstock/13*!gld/quotes/nls/gld
(GLD114.56,
+0.27,
+0.24%)
, the largest ETF backed by bullion. The stake was worth $3.1 billion on Sept. 30, according to a recent regulatory filing.
Paulson has his roots in merger arbitrage -- a strategy in which
traders bet on the outcomes of mergers and acquisitions. So he may also
be betting on more deals in the gold-mining industry.
Paulson's firm held a $1.75 billion stake in AngloGold Ashanti
at the end of September, a position it initially bought from diversified miner Anglo American in March.
The firm also owned shares of Kinross Gold Corp. worth $668 million and stock in Gold Fields Ltd.
/quotesworth $317 million as of Sept. 30, regulatory filings show.
Rather than allowing such gold positions to become a larger and larger
part of Paulson's main hedge funds, the firm decided to create a new
vehicle to focus on the strategy, the person familiar with the matter
said on condition of anonymity.
Paulson took a similar approach as the firm's subprime trades grew
earlier this decade. The Paulson Credit Opportunities fund was launched
to focus on the strategy. It generated returns of almost 600% in 2007
as the housing market began to crash and mortgage-related securities
collapsed.
Eric Mindich's Eton Park hedge fund firm has also taken stakes this
year in gold-mining companies including AngloGold Ashanti, Gold Fields
and Harmony Gold /quotes/comstock/13*!hmy/quotes/nls/hmy
(HMY10.59,
-0.16,
-1.49%)
. Eton Park also held shares and call options on the SPDR Gold Trust at the end of June, according to regulatory filings.
Gold share classes
Paulson has also offered a share class denominated in gold, tapping into investor concern about holding paper currencies.
Other hedge fund firms, including Christian Baha's Superfund and Osmium
Capital Management Ltd., run by former ABN Amro trader Chris Kuchanny,
also launched new share classes denominated in gold this year. See full story.
The idea is that investors get the same returns generated by the
underlying hedge fund, but those returns are denominated in troy ounces
of gold, rather than in U.S. dollars, euros or pounds. If such
currencies lose value, the hedge fund gains may be preserved.
Excluding Japan, the world's major currencies have experienced money
supply growth of 15% to 55% in the past three years, Bass estimated in
an Oct. 2 letter to investors.
The Hayman managing partner compared the efforts to a game of Monopoly
in which the banker decides money is too tight, the "velocity" of the
game is slowing down, or a few players are about to go broke.
By John Jameson on November 20, 2009 3:11 PM
|Permalink
Fri Nov 20, 2009 3:35pm EST
NEW YORK, Nov 20 (Reuters) - U.S. gold futures ended higher for a sixth straight session on Friday despite a dollar rise, and a late session rally in the face of a stronger dollar could boost sentiment early next week, traders said.
For the latest detailed report, click on [GOL/].
GOLD
* COMEX December gold GCZ9 settles up $4.90 at $1,146.80 an ounce on the NYMEX.
* Range spanned from $1,132.50 to $1,148.50. It hit a record $1,153.40 set on Wednesday.
* After Friday's settlement, December hit a high $1,150.50.
* Gold initially pressured as the dollar rose for a second straight session as investors cut risk exposure. [USD/]
* Technical buying and short covering started late session rally - Frank McGhee at Integrated Brokerage Services.
* Strong buying may boost prices early next week - McGhee.
* Gold ended higher than a week earlier for a third straight session.
* Gold's ability to stem losses despite weaker equities and oil prices drop signal strong buying interest - traders.
* December $1,200 call strike options set to expire worthless on Monday, despite strong open interest - option traders.
* Gold-to-oil ratio at 14.93, up from the previous session's 14.74.
* COMEX estimated final volume at 192,162 lots.
* Spot gold XAU= at $1,149.45 an ounce at 3:25 p.m. EST (2025 GMT), compared with $1,143.50 late in the previous session in New York.
* London's afternoon gold fix XAUFIX= at $1,140 an ounce.
SILVER
* December silver SIZ9 ends down 1.5 cent at $18.440 an ounce, tracking gold's weakness.
* Ranged from $18.035 to $18.595.
* COMEX estimated final volume at 51,595 lots.
* Spot silver XAG= was at $18.46 against $18.51 in the previous session in New York.
* London silver fix XAGFIX= at $18.18.
PLATINUM
* January platinum PLF0 finishes down $2 at $1,441.90 an ounce on broad-based commodities weakness amid a strong dollar.
* Spot platinum XPT= $1,442.50 an ounce.
PALLADIUM
* December palladium PAZ9 closes down $5.55, or 1.5 percent, at $364.35 an ounce on platinum's weakness.
By John Jameson on November 16, 2009 11:26 AM
|Permalink
By Millie Munshi and Nicholas Larkin
Nov. 16 (Bloomberg) -- Gold prices jumped to a record for
the fourth time in six sessions as investors purchased the
precious metal as an alternative to a slumping dollar.
The U.S. Dollar Index, a six-currency gauge of the
greenback’s strength, fell as much as 0.6 percent today,
extending this year’s losses to 7.8 percent. Before today, gold
jumped 26 percent in 2009 as the lowest interest rates ever,
coupled with increased government spending, sent the dollar to a
15-month low on Nov. 11.
“People want to own gold now because gold is the ultimate
currency,” said Gijsbert Groenewegen, a partner at Gold Arrow
Capital Management in New York. “It’s clear that with such low
interest rates, the dollar is being allowed to weaken, and
there’s no incentive to hold it. There’s an increasing awareness
among investors that they should hold some insurance against the
lower currency.”
Gold futures for December delivery rose $13.30, or 1.2
percent, to $1,130 an ounce at 9:52 a.m. on the New York
Mercantile Exchange’s Comex division. Earlier, the metal touched
a record $1,133.50. Futures added 1.9 percent last week.
“Gold is in a secular bull market and all the fundamentals
show that prices will keep moving higher,” Joe Foster, who
helps manage $8 billion at Van Eck Associates in New York, said
in an interview last week. “We’re in an environment where
financial stress, including the weaker dollar, is driving the
price. Gold had been a forgotten asset for years and years, and
now people are all starting to diversify into gold.”
Demand for Gold
The Federal Reserve has cut borrowing costs and the U.S.
government boosted spending to a record to combat a recession in
the world’s biggest economy, fueling speculation that the dollar
will be debased. The Reserve Bank of India bought 200 metric
tons of gold from the International Monetary Fund last month,
and Sri Lanka’s central bank said this month the country will
continue buying the metal.
Gold will reach $1,300 in the next six months, Foster said.
Shares of gold-mining companies may outperform bullion, he said.
The Philadelphia Stock Exchange Gold & Silver Index is up 49
percent this year.
Touradji Capital Management LP bought 2.23 million shares
of Barrick Gold Corp., the world’s biggest producer, while
selling shares in SPDR Gold Trust during the third quarter.
Barrick has jumped 31 percent in New York since June 30 while
gold rose 22 percent. The SPDR is the largest exchange-traded
fund backed by bullion.
SPDR Holdings
Investors at “all levels, from retail investors to central
banks, are really diversifying their portfolios,” said Toby Hassall, an analyst with CWA Global Markets Pty Ltd. in Sydney.
Holdings in the SPDR fell 0.61 metric tons to 1,113.83 tons
on Nov. 13, its Web site showed. The holdings reached a record
1,134 tons on June 1.
Gold bullion for immediate delivery gained 0.9 percent to
$1,128.93 an ounce in London, after earlier reaching a record
$1,133.20.
Silver futures for December delivery added 2.8 percent to
$17.87 an ounce on Comex.
Platinum for January delivery rose 2.8 percent to $1,428.10
an ounce on the Comex, after earlier touching $1,434.50, the
highest price since Sept. 4, 2008. Palladium for December
delivery advanced 2.7 percent to $366.50 an ounce.
By John Jameson on November 13, 2009 12:37 PM
|Permalink
The precious metal recovers from an early bout of weakness as the dollar depreciates against other currencies.
By Ben Rooney, CNNMoney.com staff reporter
November 13, 2009: 12:42 PM ET
NEW YORK (CNNMoney.com) -- Gold prices rose Friday, recovering from
earlier losses, as the U.S. dollar weakened against rival currencies.
December
gold was up $9.80 to $1,115.80 an ounce after hitting a low of
$1,105.00 earlier in the session. Gold fell Thursday to settle at
$1,106.60 an ounce.
Gold prices have rallied to a series of
record highs this week, hitting an all-time trading high of $1,123.40
early Thursday. Analysts said gold could continue to push higher if
prices close above $1,100 on Friday.
The dollar succumbed to
selling pressure at midday Friday after firming in early currency
trading. The dollar index, which measures the currency's value against
a basket of rivals, was down 0.3% to 75.33.
A softer greenback
makes gold, which is priced in dollars around the world, cheaper for
buyers using stronger currencies. The weak dollar has also raised
expectations that overseas central banks will move to increase their
gold holdings as an alternative to the U.S. currency.
Given the bleak outlook for the dollar, many analysts expect gold to continue rising into next year, albeit at a slower pace.
"We
believe the outlook for gold prices remains bullish," analysts at
Deutsche Bank wrote in a research report. "However, the speed of the
appreciation over the past few weeks may be difficult to sustain
without a further weakening in the U.S. dollar."
By John Jameson on November 11, 2009 8:24 AM
|Permalink
Wed Nov 11, 2009 10:54am EST
NEW YORK, Nov 11 (Reuters) - U.S. gold futures hit a record high near $1,120 an ounce on Wednesday, boosted by a dollar decline and strong investment demand spurred by renewed interest by central banks toward bullion.
For the latest detailed report, click on [GOL/].
GOLD
* COMEX December gold GCZ9 up $14.60, or 1.3 percent, at $1,117.10 an ounce at 10:14 a.m. EST (1514 GMT) on the New York Mercantile Exchange.
* Range spanned $1,105.60 to $1,119.10 -- an all-time high.
* Gold, equities and other commodities rose sharply as the dollar fell to a 15-month low against major currencies.
* Euro rises above $1.50 against the dollar, lending support to gold and other dollar-denominated commodities.
* Downbeat economic views by U.S. Federal Reserve officials and bullish Chinese economic data increase risk appetite.
* Low U.S. interest rates, economic uncertainty and geopolitical tension should support gold - MF Global.
* Gold-to-oil ratio down at 13.87 against 13.98 -- a late quote from the previous session.
* COMEX estimated 10 a.m. volume at 105,931 lots.
* Spot gold XAU= at $1,115.80 an ounce, compared with $1,105.30 late in the previous session in New York.
* London's afternoon gold fix XAUFIX= at $1,115.25 an ounce.
SILVER
* December silver SIZ9 up 48.80 cents, or 2.8 percent, at $17.710 an ounce, up with gold and other precious metals.
* Range from $17.330 to $17.725.
* COMEX estimated 10 a.m. volume at 25,249 lots.
* Spot silver XAG= was at $17.65, against $17.32 in the previous session in New York.
* London silver fix XAGFIX= at $17.630.
PLATINUM
* January platinum PLF0 up $27.90, or 2.1 percent, at $1,379.10 an ounce on investment buying, tagging on gold's strength.
* Spot platinum XPT= $1,365 an ounce.
PALLADIUM
* December palladium PAZ9 up $11.30, or 3.4 percent, at $346.50 an ounce, tracking platinum.
* Spot palladium XPD= $344.65 an ounce. Prices at 10:15 a.m. EST (1515 GMT)
By John Jameson on November 9, 2009 10:56 AM
|Permalink
By Nicholas Larkin and Pham-Duy Nguyen
Nov. 9 (Bloomberg) -- Gold futures climbed to a record for
the second straight session as the slumping dollar spurred
demand for the precious metal as an alternative investment.
The greenback slid to a 15-month low against a basket of
six major currencies after the Group of 20 industrial nations
maintained economic stimulus measures. Before today, gold
climbed 24 percent this year, while the dollar dropped 6.8
percent. Last week, the Federal Reserve held U.S. interest rates
at historic lows.
“It looks like gold will carve out new highs until further
notice,” said Michael Guido, a director of hedge-fund sales at
Macquarie Capital USA Inc. in New York. “The Fed made it quite
clear that rates are going nowhere. The dollar is sinking. The
bullish holders of gold are adding positions when the market
makes a new high.”
Gold futures for December delivery rose $12.40, or 1.1
percent, to $1,108.10 an ounce at 12:15 p.m. on the Comex
division of the New York Mercantile Exchange. Earlier, the price
reached a record $1,111.70. The metal was up for the sixth
straight session, the longest rally since March 2008.
The dollar dropped 0.6 percent last week against the
currency basket as the Fed kept its benchmark interest rate at
zero percent to 0.25 percent, where it was set in December. Gold
is heading for the ninth straight annual gain.
‘All Dollar-Driven’
“You’re getting rotational support into gold,” Guido
said. “It’s all dollar-driven.”
Gold probably will top $1,500 within the next 18 months,
Bank of America Merrill Lynch said in a report distributed
today. It cited moves by some central banks to hedge against
declines in currencies including the dollar, euro and yen.
“With G-10 fiat currencies suffering from a credibility
problem, a move toward hard assets like gold is likely,” the
bank said.
India’s central bank last month bought 200 metric tons of
bullion from the International Monetary Fund for $6.7 billion.
The country now holds 557.7 tons in its reserves, the 10th-
largest stockpile by nation after Russia’s 568.4 tons, according
to data from the producer-funded World Gold Council. The IMF
agreed in September to sell 403.3 tons of gold as part of a plan
to shore up its finances.
“India’s surprise purchase was bullish in two ways:
quickly removing half of the IMF’s announced sales, as well as
raising the chance that the entire remaining supply could be
sold off-market, with China still the most obvious potential
purchaser,” Morgan Stanley said today in a report.
Scrap Sales
Scrap sales haven’t increased in tandem with price, said Afshin Nabavi, a senior vice president at bullion refiner MKS
Finance SA in Geneva.
“You’d expect at these levels there would be tons and
tons, but it’s not the case,” Nabavi said.
Gold’s gains may be limited as some investors sell the
metal following last week’s 5.3 percent advance, the most since
April.
The 14-day relative strength index for gold futures topped
70, signaling that prices may retreat, some analysts said.
Silver futures for December delivery rose 32 cents, or 1.8
percent, to $17.695 an ounce. Earlier, the price reached $17.78,
a two-week high.
By John Jameson on November 9, 2009 9:43 AM
|Permalink
Mon Nov 9, 2009 4:12pm GMT
NEW YORK, Nov 9 (Reuters) - U.S. gold futures rose to a record high $1,111.70 an ounce Monday as the dollar tumbled on expectations of continued ample money supply and low U.S. interest rates after a weekend Group of 20 meeting.
For the latest detailed report, click on [GOL/].
GOLD
* COMEX December gold GCZ9 up $10.30 at $1,106.70 an ounce at 10:31 a.m. EST (1531 GMT).
* Range spanned $1,096 to all-time high $1,111.70
* Gold up with equities, oil and other commodities as the dollar index fell 1 percent against major currencies after a weekend G20 meeting. [USD/]
* Currency and inflation worries boost gold due to monetary easing and fiscal spending expectations after G20 - Nicholas Brooks, head of research and investment strategy at ETF Securities.
* Gold on its own for now but could correct at some point if the dollar rebounds - Heraeus.
* China should not buy gold from the IMF and should wait for the price to drop - ex official. [ID:nPEK352010]
* Gold-to-oil ratio down at 13.97 against 14.15 -- a late quote from the previous session.
* COMEX estimated 9 a.m. volume at 65,241 lots.
* Spot gold XAU= at $1,105.45 an ounce, up from $1,096.30 late in the previous session in New York.
* London's afternoon gold fix XAUFIX= $1,106.75 an ounce.
By John Jameson on November 9, 2009 8:48 AM
|Permalink
2009-11-08 06:40:00
MUMBAI (Commodity Online): With the Indian central
bank Reserve bank of India buying 200 tonnes of IMF gold at $6.7
billion, speculation is rife that the bank must have sold US Treasuries
bills to grab the yellow metals.
According to a report appeared
in the Economic Times, India’s leading business daily, The RBI may have
sold US Treasuries to fund its gold purchase from the International
Monetary Fund.
This purchase suggests that the Indian monetary
authorities are seeking to change the composition of their foreign
reserve holdings, most likely diversifying away from US Treasury
securities, the report said.
The move was prudent as India needed liquid assets as a buffer against sudden, destabilising capital outflows.
The
central bank has, however, refrained from disclosing the details of the
transaction in its weekly statistical supplement released on Friday.
According
to the RBI release, total foreign exchange reserves including gold and
SDR (special drawing rights —the reserve currency with IMF) dipped by
$1.129 billion to $284.4 billion during the week ended October 30.
While foreign currency assets dipped by $1.580 billion, the value of
SDR dipped $25 million. The value of gold in reserves rose $484 million
to $10.8 billion.
Going by the current composition of reserves
comprising various foreign currency assets, SDR, gold and reserves with
the IMF, gold which is valued at the month-end bullion prices at the
London bullion exchange has for long hovered around $10 billion and
roughly accounts for 4% of the total reserves.
Had last week’s
purchase been reflected in the latest reserves figures, the value of
gold would have gone up by at least 50%. One would also know how the
central bank has funded this purchase. According to an RBI official,
the purchase was out of the foreign currency assets and not SDR, the
report said.
By John Jameson on November 6, 2009 10:37 AM
|Permalink
1 hour 19 mins ago
The price of gold hit a record high above 1,100 dollars an ounce in trading here on Friday following a report that Sri Lanka had joined India in purchasing the precious metal in favour of the US currency.
"The
Central Bank of Sri Lanka has announced that it is buying gold to
diversify its reserves," industry body the World Gold Council (WGC)
said in a statement issued before gold struck a record high of 1,101.42
dollars.
It later pulled back to stand at 1,092.65 dollars an ounce in late London trading.
Gold
had struck a series of highs already this week after the IMF said it
had carried out a massive sale of the precious metal to India.
"Over
the past year central banks, which have been net sellers of gold are
now a new and increasingly important source of demand," WGC chief
executive Aram Shishmanian said in the council's statement.
"This latest announcement demonstrates that many central banks are reassessing their reserve asset management policies."
Gold
had reached a record high of 1,087.80 dollars on Tuesday as the IMF
said it had sold 200 tonnes of gold to India's central bank over a
two-week period last month for 6.7 billion dollars to bolster its
finances.
Gold and other commodity prices have surged in recent
months amid a move away from the dollar, which has been slumping. The
move accelerated last month on a report that Gulf states may stop using
the greenback for oil trading.
The metal is also winning support
from fears over a possible spike in inflation, as gold is widely
regarded by investors as a safe store of value.
The sale to India was nearly half the 403.3 tonnes of gold that the IMF has targeted for sale over the coming years.
The
Washington-based IMF, which currently holds 3,217 tonnes of gold, is
the third-largest official holder of the precious metal after the
United States and Germany.
India
is the world's biggest consumer of gold, importing between 700 and 800
tonnes of the metal every year or 20 percent of global demand.
A
senior IMF official said that the IMF was "lucky" in selling the 200
tonnes to India for roughly 1,045 dollars an ounce, compared with 850
dollars an ounce in April 2008.
Gold's price, which has risen
more than 20 percent this year, has a bright future thanks to improving
demand caused by the financial crisis, industry experts said this week.
"Although
it's difficult to predict in the short term, the overall picture is
very healthy," Mark Lynam, an executive for AngloGold Ashanti -- the
world's third largest gold producer -- told the London Bullion Market
Association annual conference in Edinburgh.
Plush London
department store Harrods last month surprised the retail industry by
starting to sell gold bars, with prices fluctuating according to the
current market price.
By John Jameson on November 6, 2009 10:00 AM
|Permalink
By Pratima Desai and Veronica Brown
Fri Nov 6, 2009 3:35pm GMT
LONDON (Reuters) - Gold surged to a record high above $1,100 per
ounce on Friday as investors pounced on the metal in volatile trade
after data showed U.S. employers cut a bigger-than-expected 190,000
jobs in October.
Dealers also said the market continued to find residual support from
the prospect of central bank buying of gold to diversify their reserves.
"The market has the bit between their teeth -- all these investors
have piled into gold in a quasi-physical sense and now they are being
supported in that by the actions of Mr Central Bank," said RBS metals
analyst Stephen Briggs.
The precious metal hit a record high at $1,100.90 per ounce earlier, having gained more than 25 percent this year.
By 3:14 p.m., it was bid at $1,097 a troy ounce from $1,089.55 late in New York on Thursday.
The trigger for the surge this week was news that the International
Monetary Fund had sold 200 tonnes of gold to the Reserve Bank of India
for $6.7 billion (4 billion pounds).
"People are focusing on pent up demand for gold from central banks
in emerging markets," said Michael Lewis, head of commodities research
at Deutsche Bank.
"The central bank community for the first time in 20 years is
possibly going to be a net buyer of gold having been a net seller since
1988 ... Today the market will also focus on the U.S. jobs data and how
the dollar reacts."
WEAK JOBS DATA
Data released earlier showed the U.S. unemployment rate rose to 10.2
percent, the highest in 26-1/2 years, as employers shed 190,000 in
nonfarm payrolls in October.
The dollar initially rose as investors were at first risk averse
after the numbers, but as U.S. stock market indexes turned positive the
greenback fell against the euro and a basket of currencies.
A weaker U.S. dollar makes commodities cheaper for holders of other
currencies, while gold is often used by investors as an alternative to
the dollar.
Gold rallied $25 on Tuesday, largely driven by India's purchase of
gold from the IMF, which soothed investor nerves about possible
oversupply.
"Most central banks outside of the US and Europe have low gold reserve ratios," Calyon said in a note.
"Those central banks with low reserve ratios and are keen to
diversify into gold, notably those located in Asia, will be potential
candidates to buy the remainder of the IMF's 203.3 tonnes of gold in an
off-market purchase."
The high chances of Asian central bank gold purchases were
reinforced by Sri Lanka, which said on Thursday it had been buying gold
for the last five or six months.
Linked in with this is the dollar, which central banks will sell when they switch to gold from U.S. Treasuries.
However, some think Asian central banks may not hurry to follow
India's lead given current record prices and the availability of
cheaper domestically produced gold.
"Indian buying was very significant, but those getting excited about
the potential for copy cat moves need to consider a number of factors,"
said David Thurtell, analyst at Citi.
"Culturally, India is more favourably disposed to gold than every
other country. Second, it might be politically dangerous to be
accumulating reserves at the all-time price high."
The central bank story has offset some selling by investors as seen
in the world's largest gold-backed exchange-traded fund, SPDR Gold
Trust.
SPDR's holdings fell 0.055 tonnes to 1,108.344 tonnes on Thursday, marking the first decline since October 30.
Silver was bid at $17.48 from $17.37 late on Thursday, platinum at $1,349 from $1,353.50 and palladium at $329.50 from $328.50.
By John Jameson on November 3, 2009 5:28 PM
|Permalink
Filed at 2:49 p.m. ET
NEW YORK/LONDON (Reuters) - Gold swept to a record high above $1,080 an ounce on Tuesday, defying dollar strength as the International Monetary Fund's 200 tonne sale of gold to India's central bank boosted sentiment towards the metal.
The
purchase by the Reserve Bank of India underscored gold's increasing
status as an official reserve. Gold's rally in the face of a stronger
dollar also signalled the metal could rise further, dealers said.
Spot
gold was at $1,087.25 per ounce at 2:20 p.m. EST (7:20 p.m. British
time), up 2.6 percent from $1,059.15 quoted late in New York on Monday.
Earlier, gold hit an all-time high of $1,087.45.
U.S. December gold futures settled up $30.90, or 2.9 percent, at $1,084.90 an ounce on the COMEX division of NYMEX.
The
IMF said on Monday it had sold 200 tonnes of gold to India for $6.7
billion. The sale lifted some uncertainty from the market by helping
soak up potential supply.
"It all generates from the fact that
the IMF sold 200 tonnes to the Reserve Bank of India. That is very
bullish as it takes 200 tonnes away from the direct market," said Bill
O'Neill, partner at New Jersey-based LOGIC Advisors.
"That shows that future IMF sale will be conducted in a similar manner," O'Neill said.
The
IMF sale, part of an agreement to sell about an eighth of the Fund's
stock, fuelled speculation that other governments -- including Beijing
-- may be ready to diversify their reserves even at near record prices.
Some
traders noted that selling pressure was limited during Tuesday's sudden
rally as major dealers were away from the trading desks attending the
London Bullion Market Association's annual conference in Edinburgh.
NEXT STOP, $1,100?
The
dollar hit a one-month high against a basket of currencies on Tuesday
as investors retreated from risk assets, before paring those gains. The
greenback later pared gains.
A strong dollar makes gold and other commodities priced in the U.S. unit less attractive for non-U.S. investors.
Gold's sharp rally in spite of a dollar rise showed that strong demand will continue support the metal.
"Gold
is rallying regardless of currency actions," said Adam Klopfenstein,
senior market strategist at futures broker Lind-Waldock.
Stephen Briggs, commodity strategist at RBS, said gold has clearly broken away from the relationship with the dollar.
"We wouldn't be surprised to see $1,100. It's gone up $25 in the space of half an hour, so how can one say?"
U.S.
traders also said the gold market was finding support from potential
for accelerated producer buybacks in as miners are keen to back gold
they had previously sold forward.
Miners Anglogold Ashanti
<ANGJ.J> and Barrick gold <ABX.TO> both told Reuters on
Monday that closure of their hedgebooks might happen ahead of schedule.
Looking ahead, the U.S. Federal Reserve begins a two-day policy-setting meeting later this session.
While
the bank is expected to keep benchmark interest rates unchanged near
zero, there is speculation it might alter its pledge to keep rates low
for an "extended period."
Other precious metals rallied in gold's
wake, with silver adding 5.2 percent to $17.28 an ounce, against $16.43
an ounce late on Monday.
Less-liquid silver tends to be more volatile and often outperforms gold in a metals rally.
Platinum
rose to $1,356 an ounce compared with $1,334.00, while palladium was at
$324.00 against its previous session late quote of $321.50.
(Additional reporting by Michael Taylor and Maytaal Angel in London)
By John Jameson on November 3, 2009 9:42 AM
|Permalink
IMF sells India 200 tonnes of Gold for $6.7bn
Published:2009/11/03 01:08:49 PM
The International Monetary Fund has sold 200 tonnes of gold to the
Reserve Bank of India for $6.7 billion, quietly executing half of a
long-planned bullion sale that has threatened to slow gold’s ascent.
The deal, which surprised traders who expected China to be the most
likely buyer, will relieve the gold market of some uncertainty over how
and when the IMF would sell 403.3 tonnes of gold, about one-eighth of
its total stock. The deal will increase India’s gold holdings to the
tenth largest among central banks.
It
also fuelled speculation that other governments — including Beijing —
may be ready to diversify their reserves even at near-record gold
prices, helping soak up IMF supply that the fund may otherwise be
forced to sell on the open market.
“Central banks in India and China will be happy to accumulate gold at
these levels. I will not be surprised to see even some Southeast Asian
banks buying gold,” Aaron Smith, Asia head of the $1,65 billion
technical trading fund Superfund, told Reuters.
For graphics on the world’s top gold reserve holders:
Spot gold prices earlier rose by nearly one%, but later reversed those gains to trade little changed at around
$1058
an ounce on Tuesday, within striking distance of last month’s $1070,40
record despite a rallying dollar. Traders said the IMF news could add
to the market’s upward momentum.
“Its
potentially bullish from several points of view,” said Commerzbank
analyst Eugen Weinberg. “Gold was kept off the market and sold directly
to cental banks so potential sales on market are limited by this.”
“Secondly, it showed large buyers are ready to accept the current price
levels. Thirdly, the central banks are increasing their gold reserves.
Last but not least the central bank gold agreement sales of 400 tonnes
... is half empty already.”
The Reserve Bank of India said the purchase was an official sector off-market transaction and was executed during Oct.
19-30 at market-based prices.
An IMF official said the sale was concluded at an average price of
about $1045 an ounce and that the transaction would be paid in hard
currency and not in IMF Special Drawing Rights.
SURPRISE BUYER
Although the IMF’s plan to sell a share of its gold holdings in order
to increase low-cost lending to poor countries had been flagged for a
year before it was formally approved in September, the speed, scale and
identity of the buyer were a surprise.
“It was always thought that some of it would be sold off market but it
was a bit of a surprise that as much as 200 tonnes had been sold off
market,” said Simon Weeks, director of precious metal sales at Bank of
Nova Scotia.
Although India is the
world’s biggest consumer of gold, primarily in the form of jewellery
and investment among its billion-plus people, its central bank had
given few signs of seeking to diversify its reserves pool into bullion.
The proportion of gold as part of its total foreign reserves has fallen from over 20% in 1994 to just under 4%.
India’s foreign exchange reserves held at the central bank totalled
$285,5 billion on Oct. 23, of which gold comprised just over $10
billion. The latest purchase will lift its share of gold holdings from
near 4% to about 6%, much less than most of the developed world but
four times China’s share.
The RBI
does not officially talk about its diversification strategy. On
Tuesday, the RBI said the purchase of IMF’s gold was done as part of
its foreign exchange reserve management.
For a graphic on the share of gold in central bank reserves:
But there may also be a geopolitical motive behind the deal: India,
like China, is also seeking closer ties with the IMF to assert its
authority on the global economic stage.
“This transaction is an important step toward achieving the objectives
of the IMF’s limited gold sales program, which are to help put the
fund’s finances on a sound long-term footing and enable us to step up
much-needed concessional lending to the poorest countries,” the IMF’s
managing director, Dominique Strauss-Kahn, said in a statement on
Monday.
NO MARKET DISRUPTION
A senior IMF official, speaking on condition of anonymity, declined to
say whether other central banks have expressed interest in buying the
remaining gold for sale.
He said if
no other central banks came forward, the IMF would proceed as planned
to sell the gold in the market, but reiterated that the fund would
publicize its intentions before doing so to avoid disrupting the market.
Still, the threat of further open-market sales remains a source of
concern for gold traders, mindful of the five-year pact among European
central banks to sell down a maximum 400 tonnes a year of their
holdings, an agreement that was renewed in August and includes the IMF
volume.
The market’s focus has now
shifted to China, which has reportedly been in talks with the IMF about
buying some of the fund’s bullion as Beijing seeks to shift some of its
more than
$2 trillion in foreign exchange reserves away from the US
dollar.
“Now people may think China will buy the other half,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.
Already the world’s top producer of gold and rivalling India as a
consumer, China revealed this year that it had quietly lifted its own
government holdings of gold stocks to 1054 tonnes from 600 tonnes when
it last reported its holdings in 2003.
It is the first time since 2000 that the IMF has sold gold to a central
bank. Between December 1999 and April 2000 in separate transactions,
the IMF sold a total of 12,9 million ounces of gold to member countries
Brazil and Mexico.
![[BADBANK]](http://s.wsj.net/public/resources/images/MI-BA056_BADBAN_DV_20091129223141.jpg)
Associated Press
