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By Nicholas Larkin
March 2, 2010 (Bloomberg) -- Gold rose to the highest price in almost six weeks in New York as concern about Greece’s debt increased demand for bullion as an alternative to holding currency.
The Greek government said it will announce new deficit cuts tomorrow. Greek government workers called a 24-hour strike on March 16 as Prime Minister George Papandreou prepares to meet German Chancellor Angela Merkel on March 5. European finance ministers the past few weeks put more pressure on Greece to rein in its budget deficit.
Gold is “security against any financial turmoil in any country,” said Wallace Ng, Hong Kong-based executive director of commodity derivatives at Fortis Nederland. “People are worried about national debt of the European countries, that’s why they sell euro and sell sterling. But if they are worried about the situation, they shouldn’t sell gold.”
Gold futures for April delivery added $16.60, or 1.5 percent, to $1,134.90 an ounce on the New York Mercantile Exchange’s Comex unit at 11:37 a.m. local time and earlier today gained to $1,135.40, the highest price since Jan. 20. Gold for immediate delivery in London was 1.4 percent higher at $1,134.53.
The metal increased to $1,126.50 an ounce in the afternoon “fixing” in London, used by some mining companies to sell production, from $1,116 at this morning’s fixing. Spot prices reached a record 836.63 euros today, while the metal climbed to an all-time high of 759.94 pounds.
The dollar has jumped 5.7 percent this year against the euro as concern about Greece’s ability to reduce its debt cut demand for assets denominated in the single European currency. The greenback was little changed today, paring earlier gains of as much as 0.9 percent. Gold futures reached a record $1,227.50 an ounce on Dec. 3 and are up 3.4 percent this year.
Austerity Plan
A spokesman for Greece’s government said the nation will await reaction to the cuts before selling any bonds. European Union Monetary Affairs Commissioner Olli Rehn yesterday said Greece must reveal new measures “in the coming days” to allay officials’ concerns that the current austerity plan falls short.
“Gold is holding up well in a strong-dollar environment, supported by sovereign-debt worries,” analysts including Filip Petersson at Swedish bank SEB AB’s commodity unit said in a report. “Continued high liquidity, low interest rates, sovereign-debt and exit-strategy uncertainties as well as longer-term dollar skepticism are all likely to fuel demand and limit downside risk for gold prices.”
Bullion climbed to a record in pounds as the currency fell against the dollar amid concern Britons may fail to elect a government with a large enough majority to cut the country’s deficit. Sterling-denominated gold prices have advanced 12 percent this year, while the slide in the euro has pushed euro- priced bullion up 9 percent.
Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by the metal, were unchanged for a fourth day yesterday at 1,106.99 metric tons, according to the company’s Web site.
Silver for May delivery in New York climbed as much as 2.6 percent to $16.895 an ounce, the highest price since Feb. 3, and was last at $16.865. Platinum for April delivery rose to a one- month high of $1,570.70 an ounce, and was last up 1.7 percent at $1,570.70. Palladium for June delivery added 1.4 percent to $444.15 an ounce.
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by Myra P. Saefong
Friday, February 26, 2010
Precious metal and U.S. dollar start to trade in tandem, but for how long?
Gold's been quite the rebel lately -- and investors are giving it much more than a passing glance.
The precious metal recently broke from its usual inverse relationship with the U.S. dollar to move more in sync with the climb in the greenback, showing off its prowess as a resilient world favorite.
"Gold moving up with the dollar is a sign of tremendous strength in gold," said Sam Kirtley, chief executive officer of SK Options Trading.
Gold futures prices are up nearly 5% from this month's low of $1,050 an ounce in New York. The U.S. dollar index, which measures the U.S. unit against a trade-weighted basket of six major currencies, has also climbed, gaining more than 2% from its low in February.
"Both gold and the dollar have been trending upward since early this month," said Brien Lundin, editor of Gold Newsletter. "If gold and the dollar can decouple, [that would] hold important implications for the metal going forward."
And those implications are likely to be good for gold. A decoupling in the relationship would mean that "investors are not only buying gold as a U.S. dollar hedge but as a safe-haven asset too, and buying for this reason is so heavy it is outweighing the selling from U.S. dollar strength," said Kirtley.
But the direction of the precious metal and dollar are destined to diverge again -- and when they do, gold may or may not come out a winner.
The global markets are currently focusing on Europe's troubles, feeding a rally in the dollar, yet gold is still trading at around $1,100, said Kirtley. "So if gold can make gains, or even just tread water whilst the U.S. dollar rallies, it will soar if the greenback was to begin to drop."
On the other hand, "even though gold prices have been moving up with gold over the last month, if the U.S. dollar continues rallying, this will eventually flow through to have a negative impact on gold," he said. "In that case, "the biggest possible risk for gold at present is a strong, sustained rally in the U.S. dollar."
Eyes on the Metal
For now, however, the gold market's apparently changing relationship with the dollar deserves a closer look because it can offer hints for gold's next direction.
After all, "we are so used to looking at gold rising when the dollar falls that the concept of gold rising when the dollar rises seems to break the rules," Julian Phillips and Peter Spina, editors at GoldForecaster.com, said in a weekly newsletter sent Tuesday.
In most eyes, it has.
Most daily commentaries blame the inverse relationship between the gold and the dollar as the main reason for gold's moves, said Phillips and Spina.
And that "normal linkage" has been decoupled because of "worries over fiat currencies," leading traders to establish gold positions as protection against an unraveling of fiat currencies, said Charles Nedoss, a metals analyst at Olympus Futures. "This can be referred to as the 'fear trade'."
What's happening now is truly putting gold's durability on display.
"Gold's ability to rise in most major currencies is suggesting people are choosing it as an alternative to paper currencies," said Peter Grandich, a metals writer at Agoracom.com. And people are choosing the precious metal "because of the huge amount of debt the western world has piled up and the belief the only way out from under it is to reflate."
Consider, as well, that around the world, central banks have recently become net buyers of gold. That's likely just the "first inning" of these purchases, said Patrick Kerr, a managing director at Amerifutures Commodities & Options.
The central banks can buy gold now at these price levels or they can do it "later at higher prices, perhaps much higher prices," he said. The "smart" countries looking to buy gold are taking immediate action since "each day that goes by without as much gold as they can get reduces their national wealth as the fiat currencies are devalued."
There are "definitely changes brewing worldwide" and "gold is in transition right now," said Kerr.
"In a world where governments are openly devaluing their fiat currencies in an attempt to ease increasing stimulus debts and increase exports, central banks are figuring out the best way to preserve their wealth: the U.S. dollar and gold. Look for them to trade up together," he said.
However, gold may have an advantage.
Gijsbert Groenewegen, a managing partner at Silver Arrow Capital Management, points out that the dollar, which he said is likely to go higher purely for technical reasons covering the carry trade, "will not transform from a funding currency to an investment currency."
Carry trades involve borrowing funds in lower-yielding currencies, such as the dollar, and investing them in assets denominated in higher-yielding currencies. Carry trades are less attractive to investors as their appetite for risk wanes, and they liquidate their positions to avoid losses.
When investors unwinding those dollar-carry trades and are left holding the greenback, they will question why they're holding the currency when the U.S. economy is "in shambles," he said. "At that stage, investors will massively buy gold and silver."
Currency Fix
For now, investors are still interested in the dollar.
"Capital is fleeing from troubled currencies," said Phillips and Spina. "They turn to the dollar because it is the world's prime currency and one, at the moment, less in danger because of this role."
However, the fundamentals for the greenback are pointing to "trouble," Phillips and Spina warned. "When the crises really hit the dollar, all currencies ... of the monetary system [except China's yuan] will become volatile," he said.
As shown by the weakness in the euro, there are "structural dangers facing the paper currency system itself," they said. "The attempt by the eurozone to integrate so many of these politically, economically, culturally separate sovereign states was bound to suffer structural damage when a rough storm hit."
Now that the structural problems of the eurozone are exposed, "it is clear that both [the euro and dollar] face problems that should cause the gold price to rise," Phillips said in emailed comments.
Given that, "it is now in most nations' national interests to hold the gold they have in the face of the worst storm the currency system will ever see," Phillips and Spina said. "As a matter of prudence, gold is being acquired quietly, but in volume."
Warning Signs
Still, some may even argue that the dollar and gold haven't really decoupled at all.
"I don't think gold is moving up with the dollar, though there are individual days when this does occur," said Mark Leibovit, chief market strategist for VRTrader.com.
Right now, he thinks gold is following a "cyclical pattern for weakness into possibly mid-March." Afterwards, he expects prices to stage a strong rally that may take gold to new highs this summer.
Ned Schmidt, editor of the Value View Gold Report, wasn't quite so optimistic. "In a world where U.S. dollars are becoming relatively rare, little reason exists for the value of the dollar to fall against other currencies," he said, emphasizing that he doesn't see any decoupling between the dollar and gold.
"No inflation in the U.S. and lack of money supply growth means no inflation will arise," so the dollar will not crash and gold "will have one more rally before hitting lows in the coming summer," he said.
Then again, it may be good idea for investors to buy, if gold hits those lows between now and summer.
"Lack of money supply growth in the U.S. will force the Federal Reserve to take action by fall," Schmidt said. "That will send gold to new highs."
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The report by the International Atomic Energy Agency appeared to put the U.N. nuclear monitor on the side of Germany, France, Britain, and Israel. These nations and other U.S. allies have disputed the conclusions of a U.S. intelligence assessment published three years ago that said Tehran appeared to have suspended such work in 2003.
The U.S. assessment itself may be revised and is being looked at again by American intelligence agencies. While U.S. officials continue to say the 2007 conclusion was valid at the time, they have not ruled out the possibility that Tehran resumed such work some time after that.
Iran denies any interest in developing nuclear arms. But the confidential report, made available to the Associated Press, said Iran's resistance to agency attempts to probe for signs of a nuclear coverup "give rise to concerns about possible military dimensions to Iran's nuclear program."
Ali Asghar Soltanieh, Iran's envoy to the IAEA, told the official IRNA news agency that the report "verified the peaceful, nonmilitary nature of Iran's nuclear activities."
But in Washington, U.S. State Department spokesman P.J. Crowley said the findings were consistent with what Secretary of State Hillary Rodham Clinton has been saying "on our ongoing concerns about Iran's activities."
The language of the report — the first written by Yukiya Amano, who became IAEA head in December — appeared to be more directly critical of Iran's refusal to cooperate with the IAEA than most of those compiled by his predecessor, Mohamed ElBaradei.
It strongly suggested that intelligence supplied by the U.S., Israel and other IAEA member states on Iran's attempts to use the cover of a civilian nuclear program to move toward a weapons program was compelling.
"The information available to the agency ... is broadly consistent and credible in terms of the technical detail, the timeframe in which the activities were conducted and the people and organizations involved," said the report, prepared for next month's IAEA board meeting.
"Altogether, this raises concerns about the possible existence in Iran of past or current undisclosed activities related to the development of a nuclear payload for a missile," said the report, which was also sent to the U.N. Security Council.
Iran is weathering three sets of Security Cuoncil sanctions meant to punish its refusal to freeze its uranium enrichment program. It's recent rejection of a plan meant to strip it of most of its enriched stockpile plus its belated acknowledgment that it had been secretly building a new enrichment facility has increased sentiment for a fourth set.
The U.S., Britain and France support such a measure, with Russia undecided and fellow permanent Security Council member China — which depends an Iran for much of its energy needs — opposed.
Listing suspect activities known to it, the agency said it sought information on high-precision detonator and other explosives experiments; studies on setting off explosions high in the atmosphere; "whether the engineering design and computer modeling studies aimed at producing a new design for the payload chamber of a missile were for a nuclear payload," and other nuclear activities with a possible military link.
"Addressing these issues is important for clarifying the agency's concerns about these activities ... which seem to have continued beyond 2004," said the report.
The allegations build on material provided to the IAEA by U.S. intelligence from a laptop computer that reportedly was smuggled out of Iran. In 2005, U.S. intelligence assessed that information as indicating that Tehran had been working on details of nuclear weapons, including missile trajectories and ideal altitudes for exploding warheads.
Thursday's 10-page IAEA report did not go into specifics, and it many of the alleged activities listed had appeared in previous reports. But a senior international official familiar with the IAEA probe of Iran told the Associated Press on condition of anonymity that the agency continued to receive new intelligence from agency member nations on activities allegedly linked to attempts to build nuclear arms.
Among the newer pieces of information being weighed by the agency and U.S. intelligence agencies is the significance of a technical document, which appears to describe a work plan for developing a neutron initiator, used to detonate a nuclear bomb.
A government official recently told the AP that document had been known to American intelligence for more than a year and had already been factored into current analysis of Iran's nuclear program.
The report also confirmed Iranian claims of being able to enrich uranium to near 20%.
The senior official said the amount enriched to 19.8% in two days of operation last week was minute. Still, it was an important development that moved Tehran closer to the ability to make weapons grade uranium, should it opt to do so.
While enriching Iran's present stockpile of low enriched uranium to 20% would take about one year, using up to 2,000 centrifuges at Tehran's underground Natanz facility, any next step — moving from 20 to 90% — would take only half a year and between 500-1,000 centrifuges.
Iran has already amassed about 2 tons of low-enriched uranium — more than enough for further enrichment into material for one warhead. An IAEA-endorsed plan foresees taking 70% of that material to Russia for 20-percent enrichment and then to France for processing into fuel rods for Tehran's research reactor.
The proposal was endorsed by world powers because it would ensure a continued supply of medical isotopes from the reactor for Iranian cancer patients while at the same time delaying Iran's ability to further enrich to weapons grade uranium by stripping it of most of its low-enriched stockpile.
But the Islamic Republic rejected the plan and said it would make the reactor fuel on its own — a technical feat that world powers assert Iran is incapable of.
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Ali Akbar Salehi, who is also Iran's vice president, said Tehran intends to use its more advanced centrifuges at the new sites, a decision that could add to growing concerns in the West over Tehran's program because the technology would allow Iran to accelerate the pace of its program.
In November, Iran approved plans to build 10 industrial scale uranium enrichment facilities, a dramatic expansion of the program in defiance of U.N. demands it halt enrichment.
"Hopefully, we may begin construction of two new enrichment sites in the next Iranian year as ordered by the president," the semiofficial ISNA quoted Salehi as saying Monday. The Iranian calendar year begins March 21.
"As of now, our enrichment sites ... will be built inside mountains," Salehi added, according to ISNA.
The decision appears to be aimed at shielding the facilities from possible attack. Israel considers Iran a strategic threat because of its nuclear program, and has hinted at the possibility of a military strike against Iran if world pressure does not halt Tehran's nuclear efforts.
Iran's enrichment of uranium is the central concern of the United States and other nations negotiating with the country over its disputed nuclear program. The technology can be used to generate fuel for power plants and isotopes for medical purposes, but it can also be used to make weapons-grade uranium for atomic bombs.
Tehran insists its enrichment work is only meant for peaceful purposes, but Washington and its allies are suspicious of Iran's intentions and worry the program masks efforts to build a nuclear weapon.
Tehran has already said it may install its more advanced centrifuges at its small enrichment site near the holy city of Qom, which was made public last September. The new centrifuges are more advanced than the decades-old P-1 type centrifuges in use at the country's main enrichment facility at Natanz, in central Iran.
Centrifuges are machines used to enrich uranium — a technology that can produce fuel for power plants or materials for a nuclear weapon. Uranium enriched to a low level is used to produce fuel, but further enrichment makes it suitable for use in building nuclear arms.
The new models will be able to enrich uranium much faster than the old ones — which means Iran could amass more material in a shorter space of time that could be turned into the fissile core of missiles, should Tehran choose to do so.
Tehran produced its first batch of uranium enriched to a higher level earlier this month, prompting the U.S. and its allies to seek new U.N. Security Council sanctions.
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Author: Maria Sutt
Posted: Thursday , 11 Feb 2010
A confluence of technical factors suggest gold price support between $1,019/oz and $1,025/oz as outlook remains bearish, but CIC's purchase of SPDR Gold Trust shares may represent the start of a more long term strategy.
China's sovereign wealth fund, the China Investment Corporation has taken a $155 million stake in the SPDR Gold Trust. This underlines China's voracious appetite for commodities and a desire to diversify its vast holdings of foreign exchange reserves which consist primarily of US dollars . This has led it to make its first investments in commodity-related exchange-traded funds and in the SPDR Gold Trust, the largest gold ETF. The stake of 1.45m shares is worth about $155.6m, or 0.4 per cent of the SPDR's assets. It is a small investment considering the massive size of the Chinese sovereign wealth fund of some $300 billion but may represent the start of a more long term strategy to diversify into gold.
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