BERLIN, Aug 22 (Reuters) - Germany's Bundesbank on Friday rejected calls that it should sell some of its gold reserves to help boost the slowing German economy, telling Reuters financial and political uncertainty make the reserves even more important than before.

"Gold sales are not a suitable way to sustainably consolidate the public accounts," the Bundesbank said after a query about trade union proposals that it sell gold to fund some of a 25 billion euro ($37 billion) economic stimulus package.

"National gold reserves have a confidence and stability-building function for the single currency in a monetary union. This function has become even more important given the geopolitical situation and the risks present in financial market developments."

The Bundesbank is the world's second-largest holder of gold after the U.S. Federal Reserve, and has sold just 20 tonnes out of total reserves of over 3,000 tonnes in the past five years. [photo below is 1 tonne of gold]

These sales were to allow the German finance ministry to mint gold coins, unlike the much more active sales programmes of other central banks which wanted to shift their portfolios from gold to a more diverse array of assets.

To reduce volatility in the price of gold <XAU=>, 15 European central banks agreed in 2004 to limit gold sales to 500 tonnes a year over the next five years.

The Bundesbank is expected to make a formal statement about any gold sale plans around September, when the final year of the Central Bank Gold Agreement starts.

"The Bundesbank reaches decisions about the nature and size of reserves autonomously. The board of the Bundesbank decides every year afresh about changes in the level of its gold holdings," the central bank said.  

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Are we at the end of the commodity bull market or does this battered sector offer an attractive buying opportunity?

That’s the question on the minds of everyone trying to navigate one of the most complex and volatile markets we’ve seen in years. The continuing economic slowdown (particularly at home and in other G-7 countries), combined with more than a year of bleak news from the financial sector, has left investors dazed and desperate.

The liquidity crisis has forced leveraged investors and companies to unload assets across the board to comply with new accounting rules like FAS 157 and FAS 140, and this has created a domino effect as investors panic. An estimated $15 billion was pulled out of U.S. stock funds in July, about four times more than in June. For the first seven months of 2008, those outflows totaled $52.4 billion, an all-time high.

July was also a very tough month for commodities and commodity stocks. The S&P Natural Resources Index fell off 15 percent, the worst monthly sell-off in the sector since August 1998, when the Russian currency crisis triggered the implosion of the hedge fund Long-Term Capital Management. Prices for the underlying commodities also suffered in July, with the Jefferies/CRB Index down 10.1 percent. This was just short of the worst monthly performance for this index since 1970.

The fundamentals for gold have not changed, and with negative real interest rates in the U.S., this is a good time to maintain exposure to gold investments. As you can clearly see from the chart below, July and August generally mark a low time for gold before prices climb with the arrival of the fall buying season, which is another reason to consider gold now.

The world is different from a decade ago. Back then, the world was experiencing a global currency crisis that started in Asia in 1997 and peaked in 1998 with Russia defaulting on its sovereign debt. This was the final blow that doomed Long-Term Capital Management.

China and other emerging economies have massive U.S. dollar surpluses, and these countries are committed to infrastructure spending. This week China’s government announced that it will focus more on sustainable growth than worry about inflation. This is significant.

Last month’s tumble for resources can be traced back to the latest troubles in the financial sector that started more than a year ago with the subprime mortgage collapse and were accelerated by the new accounting rules in late 2007. The intermarket relationship of assets get bundled together with a liquidity event, and the icing on the cake was the March 2008 collapse of the auction-rate securities market, which basically froze $300 billion in retail investor cash. This issue has yet to be resolved, and lawsuits are flying everywhere.

The market is now seeking liquidity in response to the recent moves by Merrill Lynch and others to sell mortgage-related assets at huge losses and the persistent rumors that more Bear Stearns-like failures are yet to come.

The regulatory actions in July to stop shorting of 19 financial stocks, including Merrill Lynch, was well-timed. These stocks have rallied 50 percent off their lows, and more importantly for Merrill, it was able to refinance its losses. Had the SEC not stepped in, packs of illegal short-sellers could have crushed Merrill’s stock, just as they did Bear Stearns.

While energy and resources felt the impact of July’s turmoil, it’s important to keep in mind that this performance did not reflect the sector’s solid fundamentals. Historically, oil dips in July before rallying from August through October, as illustrated in the seasonal chart below.

As the chart above illustrates, in July energy stocks (represented by the S&P 500 Energy Index) moved from two standard deviations above the mean to two standard deviations below the mean in just 20 trading days. We think this extreme pullback offers patient investors a window of opportunity.

Many market pundits have predicted the demise of high crude oil prices after a peak near $150 a barrel, but with numerous energy stocks already trading at levels not seen since crude was under $100, we maintain that much of this forecasted price adjustment is already reflected in energy stock valuations. It appears, based on valuation metrics, that oil stocks are priced as if oil were selling at $70 a barrel.

Moreover, unlike other bull markets where equities traded at challenging valuations, energy and resource stocks are historically cheap. Price-to-earnings ratios are well below the broader market, and these companies have tangible assets that are unaffected by mortgage write-downs.

Looking at crude oil fundamentals, we remain constructive given that despite very high prices for oil, OPEC production has been unable to eclipse peak production levels and spare capacity remains critically low relative to prior decades. Outside the OPEC cartel, countries such as Russia and Mexico have struggled to keep up with demand and are experiencing significant production declines. Meanwhile, costs continue to escalate as marginal supply is typically located in geopolitically sensitive areas or extracted from expensive unconventional resources.

A similar fundamental story holds for the metals and mining sector, where new discoveries and production are not adequate to keep up with strong global demand.

Lehman Brothers published an interesting research piece today on resource sector corrections between mid-2006 and early 2008. During that time, there were five significant corrections in the Dow Jones STOXX Basic Resource Index (SXPP) averaging 22 percent, and these corrections were followed by rallies averaging 29 percent. That trend appears to be holding for last month’s correction as well – after bottoming out on July 23, the SXPP rose 10 percent by month-end.

by Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors, Inc.

*****

Frank Holmes is CEO and chief investment officer at  U.S. Global Investors, a Texas-based investment adviser that specializes in natural resources, emerging markets and global infrastructure. 

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Gold rises 1 pct as investors take advantage of low prices

By Jan Harvey

LONDON, Aug 6 (Reuters) - Gold rose 1 percent in Europe on Wednesday as investors took advantage of a three-day fall in prices to buy below the key $900 an ounce support level.

Platinum also recovered after a sharp dip, which saw the white metal shed more than 10 percent in three sessions, as Xstrata's $10 billion bid for Lonmin boosted confidence in the market and a strike began in major producer South Africa.

Gold rose to $883.80/884.80 an ounce at 1014 GMT from $876.35/877.95 late in New York on Tuesday.

"Clearly there is some opportunistic buying going on at the moment," said Daniel Hynes, metals strategist at Merrill Lynch.

"We have seen numerous times over the past six months that $900 an ounce is a key support level, and whenever gold has fallen below that it has recovered relatively quickly."

The dollar retreated from seven-week highs against the euro after the Federal Reserve intimated, after leaving interest rates on hold at 2 percent late Tuesday, that it is in no hurry to hike rates. [ID:nL6200473]

A softer dollar will ease downward pressure on gold, which is often bought as a hedge against weakness in the currency.

Gold slipped more than $20 an ounce on Wednesday as part of a broader sell-off of commodities, led by crude oil. There are signs that investment demand may be softening.

The largest gold-backed exchange traded fund, New York's SPDR Gold Trust GLD, said its gold holdings fell 15 tonnes or 2.3 percent on Tuesday to a one-month low of 659.31 tonnes.

The fund's gold holdings are now nearly 7 percent below their all-time peak above 700 tonnes on July 21.

PLATINUM REBOUNDS

Platinum prices rebounded, helped by Anglo-Swiss miner Xstrata's $10 billion bid for the world's third biggest platinum producer, Lonmin.

Platinum rose more than 3 percent, and palladium 5 percent, as traders saw the bid as a vote of confidence in the future of the platinum market.

"Platinum has been buoyed by interest in the sector (linked to) Xstrata's bid for Lonmin," said Commerzbank trader Rory McVeigh. "It shows a more positive view of the platinum situation in South Africa."

Meanwhile a one-day strike started in South Africa, source of four out of five ounces of the world's platinum.

Anglo Platinum, the world's top producer of the precious metal, said some of its mines and a smelter had been affected by the strike. 

Gold producers Harmony, Anglogold Ashanti and Gold Fields all said their production had been hit.

Daniel Hynes said the disruptions would normally have been much more supportive for platinum, but that the negative demand outlook from the automotive sector was capping any gains.

He added, however: "The strike, and Xstrata's bid for Lonmin this morning, does suggest that there are still a lot of people who think the platinum market has a lot better times ahead."

Spot platinum hit a high of $1,615.50 ounce before easing to trade at $1,611.00/1,631.00 against $1,563.00/1,583.00 late in New York on Tuesday.

Spot palladium rose to a session high of $371.00/385.00 an ounce from $346.00/354.00 in New York.

Silver climbed to $16.64/16.70 an ounce from $16.45/16.53 late in New York.

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Gold Rallies as Dollar Decline Boosts Investor Demand for Metal

By Millie Munshi

July 31 (Bloomberg) -- Gold gained the most in three weeks after a report showed weaker-than-expected U.S. growth during the second quarter, sending the dollar tumbling and boosting the appeal of the metal as an alternative investment. Silver rose.

The economy grew at a 1.9 percent annualized rate, the Commerce Department said today, sending the dollar down as much as 0.8 percent against the euro. Gold, sometimes used as a safe- haven investment, rose to a record in March as the U.S. currency headed for record lows and the economic outlook dimmed.

The rise in the precious metal is ``certainly coming off the dollar after the GDP report,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold looks very strong right now.''

Gold futures for December delivery rose $13.70, or 1.5 percent, to $926 an ounce at 10:48 a.m. on the Comex division of the New York Mercantile Exchange. A close at that price would be the biggest gain for a most-active contract since July 11.

Economists were expecting the U.S. to grow at a 2.3 percent rate, according to the median of 79 estimates in a Bloomberg News survey. The dollar dropped to as low as $1.5688 per euro.

Gold, priced in dollars, generally moves in the opposite direction of the U.S. currency. The metal reached a record $1,033.90 an ounce in March as the dollar headed to an all-time low of $1.6038 per euro on July 15.

Haven Asset

The precious metal may be insulated from a slowing global economy as investors turn to gold as an alternative to the dollar and as a haven asset, Evan Smith, who helps manage $1.5 billion at U.S. Global Investors Inc. in San Antonio, said yesterday.

Prices may rally later this year, according to Barrick Gold Corp., the world's largest gold producer.

``Inflationary pressures'' will continue to drive gold higher, Barrick Chief Financial Officer Jamie Sokalsky said today on a conference call with investors. ``The outlook for gold continues to be very positive.''

Prices will be boosted by rising geopolitical tensions, continued concerns about the financial and credit crisis, and constraints on gold supply, Barrick said.

The surging cost of gold, which has more than doubled since 2003, has boosted profit for mining companies. Barrick said today second-quarter profit increased 22 percent amid soaring prices for bullion.

Silver Gains

Silver also advanced after China said it will remove an export rebate on the precious metal.

``It is likely that the abolition of the rebate will depress exports'' from the Asian country, analysts at Barclays said in a report today.

Silver futures for September delivery added 29.5 cents, or 1.7 percent, to $17.76 an ounce on the Comex. Silver has gained 17 percent this year before today.

China is the worlds' third-largest silver producer, according to Barclays. The country also removed an export rebate on zinc. The move comes as China steps up efforts to cut a record trade surplus.

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07.24.08, 10:31 PM ET

SINGAPORE (Reuters)

"A Reuters poll showed average gold prices will rise more than 30 percent this year and hold onto gains in 2009, as safe-haven buying fueled by ongoing financial risks will boost investor interest."

WORST PERFORMING STOCKS OF THE LAST DECADE
6/30/98 - 6/30/08
Name				Symbol		10 Year Return
Fannie Mae				FNM		-68%
KeyCorp				KEY		-69%
Gannett Co.				GCI		-70%
Interpublic Group				IPG		-72%
Dillard’s, Inc.				DDS		-72%
Goodyear Tire & Rubber				GY		-72%
Tenet Healthcare				THC		-73%
Xerox Corporation				XRX		-73%
Wachovia Corporation				WB		-73%
Fifth Third Bancorp				FITB		-76%
First Horizon (Bank)				FHN		-76%
Huntington Bancshares Inc.				HBAN		-77%
Qwest Communications, Int’l.				Q		-77%
General Motors				GM		-79%
Eastman Kodak				EK		-80%
JDS Uniphase				JDSU		-82%
Washington Mutual				WM		-83%
Ford Motor Company				F		-85%
Unisys Corporation				UIS		-86%
National City Corporation				NCC		-87%
Tellabs, Inc.				TLAB		-87%
MGIC Investment Corp.				MGIC		-89%
Ciena Corporation				CIEN		-90%
MBIA Inc.				MBIA		-91%
Ambac Financial				ABK		-97%

Commentary:  ETF's add to global gold demand and allow investors to participate in the commodities market, but do not provide the safety and preservation of physical gold assets, nor do they add the additional portfolio diversification of a hard asset allocation in physical gold.

The Hong Kong Securities and Futures Commission has approved the city`s first gold ETF

The Hong Kong Securities and Futures Commission has approved the city`s first gold exchange-traded fund to meet investors` demand after bullion prices climbed.

State Street Global Advisors, the money-management unit of the world`s second-largest manager of exchange-traded funds, and the World Gold Council will give details on July 24, according to a media invitation sent by Hill & Knowlton Asia Ltd.

Hong Kong wants to bolster its position as an Asian financial center as rivals Tokyo and Singapore offer commodities trading. Gold for immediate delivery has jumped 39% in the past 12 months as investors seek an inflation hedge and alternative assets as global equities declined.

"Gold-related investment products are expected to be well received when inflation remains high as investors are seeking ways to preserve their wealth," Kenny Tang, associate director at Tung Tai Securities, said in Hong Kong. "An ETF makes investment in gold easier and more accessible for public investors. What they need is only a stock-trading account."

The listing in Hong Kong comes after a similar fund started trading in Japan this year and in Singapore in 2006. Hong Kong is also planning to start a commodities exchange in the first quarter of 2009 and will offer dollar-denominated fuel oil contracts for delivery into China.

"We have seen growing investor interest in the commodities market and have been working with industry participants to enable the introduction of different commodities products," the regulator said on July 24 in a statement on its Web site.

The SPDR Gold Trust was approved on July 21, the regulator said. It didn`t say when the fund will start trading.

Hong Kong Exchanges & Clearing Ltd., the operator of Asia`s third-largest stock market, is trying to reduce its reliance on stocks by venturing into commodities. The bourse will start trading gold futures in October.

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Gold Futures Climb to two-and-a-half-month High

Gold revs its engine and squeals down the track

Prices were stuck in a $50 trading range until the Fed sent the dollar reeling

By Myra P. Saefong, MarketWatch

June 27, 2008

 

SAN FRANCISCO (MarketWatch) -- The U.S. Federal Reserve gave gold the fuel it needed to restart its engine and the precious metal has already driven through the trading range barrier it's been stuck in for the past month. 

Gold futures had been trapped in a $50 trading range between $860 and $910 an ounce on the New York Mercantile Exchange since May 28. It climbed past $920 in electronic trading Thursday evening as the U.S. dollar slumped in reaction to the Fed's failure to signal urgency to raise rates to curb inflation.

On Wednesday, the Fed decided to hold short-term interest rates steady at 2%, but sharpened its focus on inflation, saying that the risks posed to the economy by upward pressure on prices have increased.

 

"Gold broke decisively out of the trading range that had constrained it as investors came to realize that the Federal Reserve won't be able to begin a rate-hike campaign until 2009," said Brien Lundin, editor of Gold Newsletter.

 

The Fed's policy statement essentially acknowledged the "trick box" the central bank is in -- "facing growing inflationary pressures, but unable to raise rates while economic conditions are so weak and with a national election so near," he said.

 

That combined with growing expectations that the European central bank will begin its own rate hikes well before the Fed can act to create a bearish environment for the U.S. dollar which in turn, provided a very bullish outlook for gold, he said.

 

"People are finally coming out of the fog and realizing that we're in a world of hurt and people are plain scared," said Dale Doelling, chief market technician at Trends In Commodities.

 

"Stocks are in the toilet, the dollar is getting hammered, oil is going through the roof, food commodities are in the stratosphere [so] there's only one solution," he said. "Buy gold! Buy silver! Buy them because they're the only defense against what's happening in all the other markets."

 

Fed Muck

 

The Fed's in quite a predicament as it tries to help improve the economy and most scenarios point to higher prices for gold, analysts said.

James Steel of HSBC says that record-high crude oil and dollar weakness are boosting gold prices. (June 27)

Fed Chairman Ben Bernanke is "caught between wilting growth and rising inflation," said Julian Phillips, an analyst at GoldForecaster.com. "With such toothless words against inflation, their rate-holding action told [everyone] that they can expect no interest rate support for the dollar in the foreseeable future." "This is positive for precious metals," he said.

Gold's value as a hedge against inflation -- especially as it pertains to a weakening dollar and rising oil prices -- helped lift prices for the metal to nearly $1,034 an ounce in mid-March, the highest futures price level ever recorded. 

And with ongoing concerns about inflation and a slowing economy, gold may be poised to return to record territory, analysts said.

"Inflation is a lot like toothpaste -- once it is out, it is very hard to get back into the tube," said David Beahm, a vice president at coin and precious metals retailer. And gold is a "tremendous hedge to both protect wealth during these inflationary periods and also generate positive investment returns when other asset classes decline in value."

The Fed's policy statement noted "two situations weighing on the economy: tight credit and the housing contraction -- that could be best addressed by an accommodative monetary stance," said Lundin. But at the same time, it noted just one, high energy prices that could be combated by a tighter monetary policy.

Crude prices climbed near a record $140 a barrel earlier this month and U.S. retail prices for regular gasoline stand near an all-time high above $4 a gallon.

"In short, they're damned if they do and damned if they don't," said Lundin. The Fed can only talk inflation down and talk the dollar up for now. "It won't be able to take any real, substantive action until after the fall elections."

Dollar Doom is Gold's Boom

Of course, at the root of the issue for gold is the dollar, Lundin said.

"Whatever developments drive the greenback will send gold in the opposite direction," he said.

The Fed can protect the U.S. dollar by sharply increasing rates, but that would sink the economy and make servicing our huge debt loads unmanageable, said Peter Spina, an analyst at GoldSeek.com. So the Fed "must keep rates low and keep liquidity in the system, which will ultimately lead to further debasement of the dollar's value," he said.

Protection for the dollar can really only come in the form of confidence or perception and then capital controls, he said.

Spina said he senses "increasing desperation" on the Fed's part and if the economy hasn't recovered as we enter 2009, "the confidence game could unwind quickly."

The Fed is "in a corner and the U.S. dollar is going to be a victim of their policies," Spina said. "It already has been punished harshly."  . . .

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Proof of 2008 U.S. Recession

Why the Fed isn't finished cutting rates

By Ian Cooper
Saturday, April 5th, 2008

 

It's tough to discount a recession when:

• Record numbers of Americans are receiving food stamps, which could reach an all-time high of 28 million by year end.
• The average number of Americans filing for unemployment benefits hit a two-year high of 2.824 million.
• Construction spending fell for the fifth month.
• Manufacturing activity dropped 0.3% in February, reflecting weakness in home building and non-residential activity.
• Consumer spending ticked up a scant 0.1%. Remove inflation and the numbers were flat.
• Payrolls put in a third month of negative jobs growth.
• The Chicago Fed National Activity Index sank to -1.04 in February. January and December were revised lower. Says Merrill Lynch, "The three-month moving average, which is a better gauge for national activity, is now below the -0.70 threshold that indicates a recession for two months in a row. This supports our view that the recession began sometime late last year to early this year."

Listen, I'd love to sit here and be economically positive, but that'd be a stretch.

The economy just shed 80,000 more jobs in March, sending the unemployment rate to 5.1% -- its worst read since September 2005. And the March 2008 figure doesn't account for the latest jump in jobless claims.

Worse, according to Merrill Lynch North American Chief Economist David Rosenberg, per the Merrill Lynch "The Market Economist":

"We also have this little matter on our hands called the early stages of recession. We are amazed that everyone quibbles about whether real GDP growth will be fractionally positive or negative this quarter. The population is growing in a 1.0-1.5% band annually, so anything less than that on real GDP means that real per capita income is contracting. That is the way any country's standard-of-living is determined. And as we saw in the final 4Q revision, real GDP growth may have stayed at +0.6% at an annual rate, but the domestic segments of the economy - strip out foreign trade - actually declined at a 0.4% annual rate. This is roughly the same modestly negative trend in what is referred to as gross domestic purchases that occurred in the first quarter of recession back in 1Q2001 and 3Q1990."

That means we're already in a recession.

Worse: "If not for the ongoing support from foreign-derived earnings, US profit growth would be even further in the red. US corporate profits derived from domestic demand sources sagged 30% annualized in the fourth quarter - the fourth decline in the last five quarters, and the year-over-year trend at -6.5% is the worst since the economy was knee-deep in recession back in 3Q2001. Reduced corporate cash flow, in turn, is now causing capital spending plans to falter, underscored in this week's durable goods report which showed that shipments fell 2.8% in February and orders by 1.7%. In fact, as a sign of how the housing recession has now morphed into corporate fatigue, core capital goods orders shown no growth at all since last March."

Yet, there are still economists that believe we can avoid a recession. But what do they know?

Three months into the last recession, not one economist accurately predicted a recession in a survey. Unfortunately for their credibility, later evidence pointed out that a recession had begun at the time of the survey.

The Oracle of Omaha thinks we're in a recession. The CEO of Caterpillar thinks we may be in one. George Soros believes this is the "worst market crisis in 60 years."

JP Morgan chairman and CEO Jamie Dimon thinks America's in a recession... as do 71% of the 51 respondents in a Wall Street Journal poll. Poll respondents also felt there was a 48% chance "that the 2008 downturn could be worse than what was felt in the early 1990s and in 2001."

Even Well Fargo CEO John Stumpf says, "It is now clear that the U.S. and global financial markets are experiencing their worst financial crisis since the Great Depression."

 

Waiting on the Experts

We may have to wait six months for the "experts" to make the official announcement, but truth is we're already there.

Unfortunately, there are those who believe the U.S. is not in a recession, including President Bush. Economic times may be tough, but "America is not in a recession," said President Bush recently. If you want me to say we're in a tough patch, having a tough time, it's bad -- times are rough -- I'll say all those three, because that's the truth," he said.

But he stopped short of declaring a recession, "because there's a definition for the ‘R' word, and we haven't reached the definition."

Okay, sure, the classic definition is two consecutive quarters of GDP declines. But if you go back to the 2001 recession, there was only one negative quarter of GDP. And we may not see one negative quarter in this recession.

Truth Is, America Is In a Recession now...

According to Warren Buffett and numerous heavy-hitting CFOs, the recession has already started. Like I said, it may take the "experts" a few more months to catch on and admit it, but we're there.

Fifty-four percent of the CFOs that offered a prognosis in a Duke University/CFO Magazine survey of 475 CFOs said the U.S. is already in a recession. Another 24% said there's a high likelihood of a recession later this year. About 75% of them said they were "more pessimistic this quarter than in the prior quarter about the U.S. economy, reflecting concerns about consumer spending, turmoil in credit and housing markets, and high energy prices."

Fed chief Ben Bernanke can tell us "a recession is possible" all he wants, but we're there.

Sadly, his thinking only mirrors that of past recession ignorance from the Fed. According to "Booms, Busts, and the Role of the Federal Reserve":

When the recession started in April 1960, we heard:

"By and large, however, the economy seems quite solid."
Federal Open Market Committee, May 1960

"[Chairman Martin] was by no means convinced that the situation was serious."
Federal Open Market Committee, July 1960

"The Chairman reiterated his views ... There was a declining picture, ... but the economy was not going over a precipice by any means."
Federal Open Market Committee, October 1960

When the recession started in July 1990, we heard:

"In the very near term there's little evidence that I can see to suggest the economy is tilting over [into recession]."
Chairman Greenspan, July 1990

"...those who argue that we are already in a recession I think are reasonably certain to be wrong."
Greenspan, August 1990

"... the economy has not yet slipped into recession."
Greenspan, October 1990

Do yourself a favor. Stay in the safe havens of gold positions. No one can accurately predict how long this recession will last.

The latest jobs number could force the Fed to cut rates again... aggressively. And as we've seen in the past, that means a weaker dollar, which leads to higher oil and good, which leads to a decrease in consumer buying while spiking gold prices.

Wash... rinse... repeat.

 

Capital Gold Group, Gold group, gold, gold prices, current gold prices, gold bullion, gold IRA, IRA gold, gold demand

  

GOLD-BUG fever is spreading.

From China to the Middle East, new ways to invest in gold are rapidly popping up in developing countries.

It's transforming the market for one of mankind's most venerable ways to sock away wealth.

The door is opening to a new class of investors who previously wouldn't have had access to gold futures and other tools.

Their rush to invest has helped fuel soaring prices - gold crossed $US900 an ounce for a time in the past week, and there are some calls for $US1000 - while adding volatile new dynamics to the market.

On January 9, thousands of Chinese investors jumped into the bullion market when the country's first gold futures contract were launched. Futures are agreements to buy or sell something at an agreed upon price in the future, and are traditionally the domain of the pros, not individuals.

So far, it's been a bumpy road: the most active June contract soared 6.3 per cent on its debut day, then tumbled 3.7 per cent on day two.

A slew of other new investments like these are planned in markets from Dubai to Mumbai.

In India, the top lender, State Bank of India, plans this year to launch an exchange traded fund that focuses on gold - enabling investors to trade gold much like a regular stock.

The World Gold Council, a London-based gold-mining industry group, says it is seeking to roll out its first gold ETF in Dubai this year, pending regulatory approval.

Last August, the Osaka Securities Exchange in Japan rolled out a gold-linked bond aimed at smaller investors.

In one of the largest recent scandals, a Shanghai trading firm, Liantai Gold Products, managed to find a way to trade gold futures contracts overseas - circumventing Chinese law - only to lose millions of dollars of its clients' money in the process.

Liantai's total trading volume once reached a remarkable 11.9 billion yuan ($1.86 billion), according to court documents.

The case is pending.

Until recently, most buying and selling of gold in China required lugging the metal between brokers and haggling over prices.

As recently as a decade or so ago, when Chinese tourists were first permitted to travel to Hong Kong in significant numbers, they often descended first on gold shops in the former British colony to stock up.

Only in 2002 did investors in China get the ability to trade physical gold on the Shanghai Gold Exchange, though individuals couldn't invest in actual bullion until 2005.

Even then, the opening was limited.

Today, however, some of the new products emerging in China and elsewhere can be traded over the internet like stocks.

The Shanghai Futures Exchange has warned that the product is primarily meant for big trading firms or gold consumers and producers, such as the nation's expanding gold-mining and electronics industries.

Yuan Lianbo, who heads the gold trading desk at Shandong Gold Group, one of the country's biggest gold miners, says his company has already started trading the Shanghai futures contract to hedge its price risks.

Just before trading began, the exchange tried to limit speculation by individuals by more than tripling the size of a single futures contract to one kilogram of gold from 300 grams.

It also increased the amount of margin, or collateral, that investors must post, to 9 per cent from 7 per cent of the value of the contract.

Still, while those moves lifted the minimum investment to about $US2700, analysts say gold futures are still affordable to many Chinese investors.

Among those clients signing up to trade the gold contract through brokerage China International Futures, "about 90 per cent are individual investors, most of whom were moving assets from stocks after turning bearish on the stock markets", says Lei Hongjun, deputy manager of the firm's Ningbo branch. China's stock market shot up 97 per cent in 2007, but recently has tumbled 13 per cent from its peak in October.

Of course, the new ability to trade gold in China won't automatically result in higher prices, analysts say.

But the new contract's movement will give the rest of the world a better idea of China's appetite for gold, which will be a key factor for gold prices.

Since 2003, Western investors have poured billions of dollars into a related investment, the gold exchange-traded fund.

Gold ETFs are pegged to the price of gold, but trade like stocks.

The most active gold ETF, a Big Board-listed fund called Street Tracks Gold Shares, now holds more of the precious metal than the European Central Bank or China's central bank. (ETF shares typically represent a chunk of physical gold.)

Similar funds have been launched in Australia, Britian, the US, South Africa, Mexico, Singapore and various European countries.

Gold, often in the form of jewellery, holds a special place in many Asian and Middle Eastern investors' portfolios.

Increased wealth in these regions means more people can afford to buy on impulse.

Chinese officials have suggested their country's growing demand for commodities is a reason that its three commodity futures exchanges should play a greater role in global pricing.

Sun Zhaoxue, chairman of China Gold Association, is quoted on the Shanghai Futures Exchange's website as saying the new gold contract will "improve China's influence on the global metals market and pave the way for China to set the prices in the market".

Already, a copper-cathode contract traded at the Shanghai Futures Exchange since 1999 rivals the importance of the main copper benchmark on the 130-year-old London Metal Exchange.

However, commodity benchmarks are tough to create from scratch.

The Wall Street Journal

Gold Group, Capital Gold Group, gold, gold prices, gold bullion, gold demand, spot gold, Shanghai Gold Exchange, Shanghai Futures Exchange, World Gold Council, gold futures, global markets

By Pham-Duy Nguyen

April 2 (Bloomberg) -- Gold rose in New York for the first time in a week on speculation the dollar's rally against the euro will stall. Silver also gained.

The dollar was little changed against the euro after gaining 1.1 percent yesterday. The U.S. currency fell 7.6 percent in the first quarter, touching an all-time low against the euro, as gold gained 10 percent, reaching a record $1,033.90 an ounce on March 17.

``Gold depends on the direction of the dollar,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago. ``Everyone is wondering if this is the end of the dollar rebound.''

Gold futures for June delivery rose $6.20, or 0.7 percent, to $894 an ounce at 11:06 a.m. on the Comex division of the New York Mercantile Exchange.

Silver futures for May delivery rose 19.5 cents, or 1.2 percent, to $17.085 an ounce on the Comex. The price rallied 16 percent in the first quarter.

Federal Reserve Chairman Ben S. Bernanke today told Congress the economy may contract in the first half. The Fed has cut interest rates six times since September as a housing slump and a credit crisis threatened to push the economy into a recession.

``If the economy looks weaker than expected, then we're going back up with these commodities,'' Lesh said.

The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials has dropped 8.4 percent from a record on Feb. 29.

Gold has climbed for seven straight years as rising commodity costs and a weaker dollar boosted demand for the precious metal as a hedge against inflation.

Inflation Accelerates

Gold rose 31 percent last year as consumer prices climbed the most since 1990 and the dollar fell 9.5 percent against the euro.

Still, the metal has tumbled 14 percent from the highest ever. Investment demand in the StreetTracks Gold Trust, the biggest exchange-traded fund backed by bullion, has fallen 3.3 percent to 642 metric tons from a record 663.8 tons on March 17.

``The bulls may attempt a push back to higher levels as the week closes out,'' said Jon Nadler, a senior analyst at Kitco Minerals & Metals Inc. in Montreal. ``There are no guarantees, however. Sentiment has been shaken and stirred across the board in commodities.''

Gold Group, Capital Gold Group, gold, gold prices, gold demand, gold bull market, U.S. Dollar, weak dollar, gold bullion, spot gold, exchange-traded fund, silver, gold futures

by Polya Lesova
Last update: 2:49 p.m. EDT March 31, 2008

NEW YORK (MarketWatch) -- Pressured by a firmer dollar, gold futures finished down sharply on Monday and for the month of March, but the precious metal advanced 10.3% during the first quarter.

Dollar's temporary "come-back" creates strong buying opportunity in gold.

Crude-oil futures also dropped sharply.

U.S. Shares in Longest Funk Since 1970s; Credit Crunch Could Prolong Weakness

by E.S. Browning

Over the past 200 years, the stock market's steady upward march occasionally has been disrupted for long stretches, most recently during the Great Depression and the inflation-plagued 1970s. The current market turmoil suggests that we may be in another lost decade.

The stock market is trading right where it was nine years ago. Stocks, long touted as the best investment for the long term, have been one of the worst investments over the nine-year period, trounced even by lowly Treasury bonds.

A look at stocks during downturns

The Standard & Poor's 500-stock index, the basis for about half of the $1 trillion invested in U.S. index funds, finished at 1352.99 on Tuesday, below the 1362.80 it hit in April 1999. When dividends and inflation are factored into returns, the S&P 500 has risen an average of just 1.3% a year over the past 10 years, well below the historical norm, according to Morningstar Inc. For the past nine years, it has fallen 0.37% a year, and for the past eight, it is off 1.4% a year. In light of the current wobbly market, some economists and market analysts worry that the era of disappointing returns may not be over.

Until last fall, many investors had viewed the bursting of the tech-stock bubble as a nasty but short-term setback. The market had resumed its upward march, reaching new highs in October.

Then the credit crisis began weighing on stocks, as did the possibility of a recession. By March 10, the S&P 500 was down 18.6% from its Oct. 9 record close, nearing the 20% decline that signals a bear market. It has rebounded since then amid the Federal Reserve's efforts to stabilize the financial system, but it remains 13.3% below its October record.

Conventional stock-market wisdom holds that if investors buy a broad range of stocks and hold them, they will do better than they would in other investments. But that rule hasn't held up for stocks bought in the late 1990s or 2000.

Over the past nine years, the S&P 500 is the worst-performing of nine different investment vehicles tracked by Morningstar, including commodities, real-estate investment trusts, gold and foreign stocks. Big U.S. stocks were outrun even by Treasury bonds, which historically perform much less well than stocks. Adjusted for inflation, Treasurys are up 4.7% a year over the past nine years, and up 5.8% a year since the March 2000 stock peak. An index of commodities has shown about twice the annual gains of bonds, as have real-estate investment trusts.

Stocks also underperformed other investments during the 1930s and the 1970s. During both of those periods, stocks would rally strongly, only to fade. It took well over a decade in each case for stocks to move lastingly upward.

Righting the Ship

So far, the current decade hasn't featured the high inflation of the 1970s or the high unemployment of the 1930s. That makes some analysts and economists hopeful that the stock troubles won't be as bad or last as long as they did back then, despite the housing crisis and the breakdown in parts of the mortgage and lending businesses. Many of them hope that the Federal Reserve will do a better job of righting the ship than it did in those prior decades.

Finance professor Jeremy Siegel at the University of Pennsylvania's Wharton School has written about stock behavior back into the 19th century. During the past decade, he points out, the worst years were from 2000 through 2002, when stocks fell sharply. Although the S&P 500 has been inconsistent since then -- rising strongly in 2003, then registering single-digit gains in 2004, 2005 and 2007 -- he considers the bad times largely past. Other optimists agree.

The Pessimistic View

But Yale economist Robert Shiller, who predicted the market trouble in his 2000 book "Irrational Exuberance," warns that the market still hasn't shaken off its excesses. He and some other analysts think the latest volatility is a symptom of more trouble to come.

"I have to say that this isn't a great time to be in the stock market," says Prof. Shiller. "The housing crisis that we are going through is going to put a damper on the economy that is longer than a recession. I don't see the stock troubles ending as quickly as many people are imagining."

Historically, stocks rise about two years out of every three, for an average gain of 7% a year when controlled for inflation, according to Prof. Siegel. Stocks have shown gains for almost every 10-year period since 1925 -- 98.6% of the time, according to Ned Davis Research.

But when stock investing becomes a mania, as it did in the 1920s, the 1960s and the 1990s, it leads to prolonged periods of subpar performance, according to financial historian Richard Sylla of New York University's Stern School of Business.

Prof. Sylla has examined stock booms and busts back to 1800. He found periods of exceptional strength in the late 1810s and early 1820s, the 1840s, the 1860s and the early 1900s. Those periods were followed by lengthy weakness in the 1830s, the 1850s, the 1870s and before 1920. In a 2001 paper, he forecast a 10-year period of stock weakness.

"When you have extraordinary returns, as we did from 1982 through 1999, then usually the next 10 years aren't very good," says Prof. Sylla. His research suggests that exceptional booms steal gains from the future. When the booms end, returns become subpar, so that average returns over the longer term fall back to the 7% norm. Economists call this "reversion to the mean," the idea that exceptional performance can't last forever.

Bullish investors believed that the bad days were over late in 2002, when stocks rebounded following the technology-stock wreck, the Sept. 11 terrorist attacks and the collapse of Enron Corp.

The S&P 500 rose 26% in 2003, amid hopes for a quick victory in Iraq. In 2004, the S&P 500 rose only 9%. It was up 3% in 2005, 14% in 2006 and 3.5% in 2007. The index is down 7.9% so far this year. Those numbers are not adjusted for inflation, which would lower annual returns by a few percentage points.

The Dow Jones Industrial Average, which had fewer technology stocks than the S&P 500 and suffered less in the bear market from 2000 to 2002, has held up better, but not a lot better. It has risen less than 1% a year since January 2000.

Role of Individuals

Prof. Sylla expects to see stocks turn more lastingly upward some time in the next two years. The market's direction will depend partly on the individual investor. The 1990s stock bubble and the bear market that followed came at a time when more individuals were managing their own retirement savings through 401(k) accounts, individual retirement accounts and the like.

Individual investors helped create bubbles in the markets for technology stocks and for real estate. In recent years, investors have been putting far less money into U.S. stocks than they did during the stock-investing boom. In 2000, at the height of that boom, Americans added $260 billion to U.S.-stock mutual funds, according to the Investment Company Institute, a trade group. Last year, investors took more money out of those funds than they put in -- a net outflow of $46.4 billion.

America's shift toward self-managed retirement could soften some of the stock-market volatility. People appear to be much less likely to move money around in retirement accounts than in other investment accounts, according to economist John Ameriks at mutual-fund company Vanguard Group.

Many 401(k) participants leave their allocations alone for long periods of time, says Mr. Ameriks. If they set up their accounts to send money into stocks each month, those accounts tend to keep doing so through bull and bear markets alike. That may provide some support to stocks.

Some investment advisers say passive contributions like that actually make some sense. People whose retirement accounts have bought stocks each month, year in and year out, haven't done nearly as badly as those who bought in the late 1990s and stopped buying, Prof. Sylla says. While the S&P 500 is down since 1999, it is up since mid-2001, meaning that most stock purchased since then by retirement accounts shows a gain.

Stock Fundamentals

A big problem for the market right now is what analysts call stock fundamentals. Strong corporate-profit gains and low inflation have supported stocks since 2002, but they are becoming harder to sustain.

In a typical year, Prof. Sylla says, corporate profits run at about 5% or 6% of total economic output, after tax. In 2006, that number was 9%, a record. Historically, this number tends to revert to the mean, suggesting that profits now could weaken. "Profits may fall to 3% or 4%" of economic output, Prof. Sylla says.

Spending by ordinary people could have an effect on those profits. Consumer borrowing and spending kept the economy afloat after the stock bubble popped in 2000. Emboldened by high home values, people borrowed at levels rarely seen, pushing down the national savings rate to zero.

That's what worries Prof. Shiller. After studying the housing market, he sees home values continuing to weaken for years. He expects consumers to borrow and spend less, and to rebuild their savings.

A consumer pullback would hold back economic growth and corporate profits, putting a damper on U.S. stock gains and giving investors an incentive to continue putting money into commodities or stocks in Brazil, Russia, India and China. Baby boomers concerned about retirement income could look for safer investments with guaranteed returns, such as Treasury bonds and bond-like products offered by mutual-fund companies.

On the Horizon

"We have to accept that this is no longer a nation of 4% real economic growth. This is a mature nation that no longer has a strong manufacturing base," says Steve Leuthold, chairman of Leuthold Weeden Research in Minneapolis. He believes that another bull market is on the horizon, perhaps following some additional stock declines. But that future bull market, he contends, could be followed by another bear market that could bring stocks back close to where they are today.

Before another lengthy bull run can begin, stocks need to overcome two problems: the hangover from the high prices of the late 1990s, and the continuing effects of the exceptionally low interest rates instituted by the Federal Reserve in 2001 and again today. Those low interest rates helped push corporate profits higher, but also fueled borrowing excesses that led to today's economic problems.

To some analysts, stock prices still look inflated. Prof. Shiller calculates that the S&P 500 traded in the late 1990s at more than 40 times its component companies' profits -- far above the historical norm of 16. (To avoid distortions, he uses average profits over a 10-year period.) Today, the S&P 500 still trades at more than 20 times profits -- still far above average.

"The S&P 500 never got back down to its long-term trend line" after the 1990s, says Jeremy Grantham of Boston money-management firm Grantham, Mayo, Van Otterloo & Co. Mr. Grantham, who has long warned of a prolonged period of subpar stock performance, says exceptionally low interest rates temporarily propped up the indexes.

There are reasons to hope that things won't be as ugly this time as they were either in the 1970s or in the 1990s in Japan, which went into a prolonged slump after bubbles in its housing and stock markets.

For one thing, although inflation has been running above 4% this year, it remains well below the double-digit rates of the 1970s. That's made it easier for the Fed to stimulate the economy without worrying about sparking runaway inflation.

One big question is how much worse investor confidence will get. The bearish Mr. Grantham expects investors to become gloomier, but not as pessimistic as they were during past bad stretches.

"I think the global economy will stay, on balance, not so bad," he says. "There is no reason for people to become as pessimistic as they did even in Japan, and certainly not as pessimistic as in the Depression."

Capital Gold Group, gold, gold prices, gold demand, S&P 500, housing bubble, inflation hedge, Federal Reserve, recession, bull run, precious metals bull run, Standard & Poors

By Atul Prakash and Bate Felix

LONDON (Reuters) - Gold fell more than 2 percent in a broad commodities sell-off on Friday, with a rise in the dollar and softer oil prices dampening the metal's allure as an alternative investment.

Other key precious metals, base metals and major soft commodities traded lower, with investors pocketing profits before the end of the quarter.

Gold fell to $926.50 before rising to $933.30/934.20 an ounce at 11:40 a.m. EDT, against $951.80/952.60 in New York late on Thursday. Last week, it hit a record high of $1,030.80 an ounce before tumbling to a one-month low of $904.70.

"The market is really correcting itself, but it's a general move out of commodities. It's not just gold," said Jeremy East, head of metals trading at Standard Chartered Bank.

The market witnessed a heavy sell-off last week before rebounding on technical buying. Now it was witnessing a continuation of the downward trend, with people liquidating their positions and running for cash, East said.

"But I don't think the bullish trend is over. There is still buying interest, but in the short term the market has probably overdone on the upside. We are in a consolidation phase and gold may break back down below $900 again."

The dollar edged higher but hovered not far from record lows against the euro after U.S. data showed inflation pressures were tame in February, affirming expectations of further interest rate cuts by the Federal Reserve to boost a weakening economy.

A firmer dollar makes gold costlier for other currency holders and often lowers demand. Lower oil prices reduce the metal's appeal as a hedge against inflation.

Oil fell more than $2 to near $105 a barrel as crude flows through Iraq's pipeline system were restored after disruption by a bomb attack on Thursday.

"I would expect gold to continue bouncing around in the range of about $955 on the upside and down to about $915," said Tom Kendall, metals strategist at Mitsubishi Corporation.

"It's going to take until the second half of the next week before the market is going to be ready to make a more convincing push upward again."

U.S. gold futures for April delivery fell $16.6 an ounce to $932.20 -- off last week's record of $1,033.90.

LONG-TERM POSITIVE

Analysts were positive on the metal's outlook in the medium to long term.

"The sudden price pull-back across the precious metal complex during March has raised concerns that the bull run in this sector has drawn to a close. We disagree," said Michael Lewis, global head of commodities research at Deutsche Bank.

"We believe weakness in the U.S. dollar has not been exhausted and with U.S. real interest rates expected to move deeper into negative territory, we are maintaining our bullish outlook towards gold and silver prices," he said in a report.

In other metals, spot platinum rose to a one-week high of $2,040 an ounce before falling to a low of $1,980. It was last at $2,010/2,020, versus $2,023/2,033 in New York. It struck a record high of $2,290 on March 4 on supply fears driven by mining disruptions in top producer South Africa.

Platinum gained around 50 percent in 2008 after a power crisis in South Africa forced gold and platinum mines to shut down for five days in January, driving platinum prices.

But the metal, mainly used in jewelry and auto catalysts to clean exhaust fumes, tumbled to a six-week low at $1,805 an ounce last week.

Silver fell to $17.93/17.98 from $18.50/18.55 an ounce -- off a 27-year high of $21.24 hit on March 17. Palladium dipped to $439/446 an ounce from $445/450.

(Reporting by Atul Prakash; editing by Chris Johnson)

Capital Gold Group, gold, gold prices, gold demand, spot gold, platinum, spot platinum, platinum prices, silver, spot silver, silver prices, precious metals, Federal Reserve, alternative investment, safe-haven, safe investment, inflation hedge

03.27.08, 9:48 AM ET

LONDON (Thomson Financial) - Gold extended earlier losses as the dollar gained ground against the major currencies on relief that the revised US GDP reading for the fourth quarter did not yield any nasty surprises.

The Commerce Department said earlier the US economy grew at a 0.6 pct annualised pace in the fourth quarter, the same rate as reported in the previous estimate.

The reading was in line with analysts' estimates, leading the dollar to extend an earlier rebound from sharp losses yesterday, and leading gold lower in turn.

Gold usually moves in the opposite direction to the dollar as it is seen as an alternative asset to the US currency. Also, a stronger dollar makes dollar-priced gold more expensive for holders of other currencies.

At 1.27 pm, spot gold was trading at 946.45 usd an ounce against 949.00 usd in late New York trade yesterday.

In other data releases, the number of first time jobless claims filed in the week ending March 22 dropped unexpectedly, falling by 9,000 to 366,000. Economists were expecting new jobless claims to total up to 370,000.

'Spot gold was quoted down 10.00 usd at 944.00 usd bid per ounce as participants deemed the US data to be dollar-positive,' said Kitco analyst Jon Nadler.

He added the 0.6 pct growth reported for the US economy in the fourth quarter was giving some participants another excuse to sell on fears that a US recession will crimp commodities demand going forward.

Commodities declined sharply last week as these fears were temporarily re-ignited. They have recovered some of their losses this week however, as funds dip back into oil, metals and gold.

Most analysts expect the recovery to continue, with gold the best placed amongst all the metals to benefit from the view that it is a safe haven asset that holds its value in times of economic turmoil.

'Given the renewed pressure on the dollar and inflationary pressures created by rising oil prices we expect gold to continue its recovery,' said TheBullionDesk.com analyst James Moore.

He added that given the likelihood of further rate cuts by the Federal Reserve, and given the ongoing financial market turmoil, he sees gold eventually establishing fresh highs above the recent record of 1,032 usd.

Elsewhere, platinum dipped to 1,992 usd an ounce against 1,994 usd, silver was down at 18.14 usd an ounce against 18.33 usd, while palladium fell to 440 usd against 454 usd.

Capital Gold Group, gold, gold prices, spot gold, jobless claims, platinum, Federal Reserve, palladium, silver, Federal Reserve rate cuts,  weak dollar, falling dollar, dollar weakness, U.S. Recession, market turmoil, safe-haven, safe investment, gold demand

GoldSeek - 2/8/08

Gold was up $5.90 to $906.40 per ounce in trading in New York yesterday and silver was up 23 cents to $16.74 per ounce. Gold continued to rally in Asia and surged in early trading in Europe and is up to $915 per ounce. Silver has also surged and is up to $17.02 per ounce.

Gold again rose in the other major currencies and surged to new near record highs in euro and sterling. The London AM Fix at 1030 GMT this morning was at $914 (up from $908.25 yesterday). Gold fixed at £468.96 (up from £465.53 yesterday) and €631.17 (up from €620.516 yesterday). (See table of record highs in various currencies below.)

Gold looks set to challenge last week’s $936.80 record high and once again confound the skeptics. Gold is surging in all major currencies as it seems likely that major Central banks are set to cut interest rates in order to prevent a global recession. Even the ECB, the most hawkish and inflation conscious of all the central banks, is faltering in its resolve to target and fight inflation which is negative for the euro and indeed for all fiat currencies and indeed the asset classes denominated in those currencies.

Capital Gold Group, gold, gold prices, gold demand, euro v. dollar, fiat currencies, gold record high, gold currency, Central Banks, hard asset class, global recession, U.S. recession, inflation, silver