Gold rose on Thursday, after a drop to seven-week lows the previous day, with a rising euro and prospects of further monetary stimulus lending support to prices.

Spot gold was up 0.8 percent at $1,714.34 an ounce at 1451 GMT, bouncing off Wednesday's seven-week low of $1,698.39. U.S. gold futures for December delivery were up $13.70 an ounce at $1,715.30.

Bullion rallied steadily to an 11-month peak above $1,795 an ounce in early October, with the U.S. Federal Reserve's latest program of purchasing mortgage-backed debt fuelling investment in the metal.

First-Strike

But momentum has stalled since then, leaving prices vulnerable to swings in wider markets, with weak European economic data and poor corporate earnings helping send prices below $1,700.

However, the Fed's repeated promise on Wednesday to keep rates near zero until mid-2015 and pledge to support growth while the recovery strengthens has underpinned the bedrock supportive factor of a low interest rate backdrop for gold.

"The Fed is accommodating a monetary easing that is supportive of the gold price," HSBC analyst Howard Wen said. "We see gold prices higher by the end of this year.

"We think dollar weakness will contribute to the higher price of gold," he added.

Also speculation is growing that the Bank of Japan will unveil further monetary stimulus at its policy meeting on October 30 to help the export-focused economy through a global slowdown.

Ultra-low interest rates increase the appeal of gold, as it carries no yield and investors rely on a rise in the underlying price for a return on their investment.

Commerzbank said in a note to clients that bullion remained vulnerable to losses, given the steep falls seen, adding that short term market players might sell more of their positions.

"However, we envisage a renewed rally over the coming weeks, given the central bank's ultra-expansionary monetary policies and the likely post-election problems in the U.S. with the looming fiscal cliff and the debt ceiling."

The lower prices were also drawing in new buyers, with dealers anticipating a pickup in demand from India before the festive season peaks next month with Diwali.

Weddings also take place during this period, with gold jewellery an essential part of bridal dowriesfrom Indian parents. The second half of November is an auspicious period for weddings in India.

Afshin Nabavi, head of trading at MKS Finance, said Indian demand for gold as Diwali approached was likely to be less sensitive to factors such as the rupee-dollar exchange rate, because of the strength of the seasonal buying tradition.

"As we get closer to Diwali, the relative price of gold becomes less important," Nabavi said.

CENTRAL BANK SALES

On central bank activity, IMF data showed Venezuela and Russia cut holdings, taking advantage of the historically high price of gold.

Venezuela cut its gold holdings by 3.733 metric tonnes in August, data from the International Monetary Fund showed on Thursday, bringing its bullion reserves to 362.053 tonnes.

The IMF's monthly statistics report also showed that Russia reduced its reserves by 2.177 tonnes in September to 934.557 tonnes.

"It is an indication that at these levels central banks are trying to take a bit of profit on their holdings," Tuxen said.

From a technical perspective, analysts who study past price patterns for clues on the next direction of trade flag up support at the psychological level of $1,700 an ounce, despite the dip below that on Wednesday.

"For a short period, the brief dip below $1,700 on Wednesday is not really important," said Andreas Daniel of Heraeus, adding that prices were likely to hold for now.

Silver was up 1.3 percent at $32.07 an ounce, while spot platinum was up 1.1 percent at $1,571.99 an ounce and palladium was up 2.4 percent at $603.50 an ounce.

Published in Gold Investing
Wednesday, 24 October 2012

Gold Falls Again, Stays Above $1,700

Gold fell again today but managed to stay above the $1,700 per ounce price mark. This is the second day in a row that the yellow metal has fallen, as investors look toward the Feds for hints on whether or not they should buy and trade in precious metals right now.

Ever since the Feds announced another round of quantitative easing the yellow metal has been doing a number on investors. For the first 4 or 5 weeks gold skyrocketed up and investors were reaping the rewards. Over the last few days we have seen the yellow metal plummet, as a corrective pullback (also known as a positive pullback). The yellow metal still remains over $1,700 per ounce, but chances are it could slip under that for a spell before heading back up toward $1,800 and beyond in 2013.

First-Strike

Gold futures for December delivery dropped by $7.80, or 0.5%, to come in at $1,701.60 an ounce on the Comex division of the New York Mercantile Exchange. Gold tapped a session low of $1,698.90 and marked its lowest settlement since early September. It ended up settling back above $17,00 to finish the day.

“Gold was caught up in the indiscriminate liquidation of risk assets yesterday, and the market remains nervous today,” said Brien Lundin, editor of Gold Newsletter. Gold prices ended 1% lower Tuesday. “Simply put, gold speculators are awaiting some impact from [the third round of quantitative easing] in the U.S., a resolution in the U.S. elections, and some precipitating news on the economic front that would signal more QE to come.”

Gold traders and investors all waitedtensely for the outcome of the Federal Open Market Committee meeting Wednesday, which is due after regular trading on Comex ends today. We will have more details and results of this soon, when we know what the meeting minutes contained.

“The market is beginning to think about if and when there will be a change in monetary policy — and if and when the Fed will start mopping up some of the liquidity it has generated,” said Vedant Mimani, lead portfolio manager of the Atyant Capital Global Opportunities Fund.

“These thoughts have come to the forefront because of the Presidential election and [concerns over whether] that will result in a change of monetary policy as a consequence of 1) a Governor [Mitt] Romney win and/or 2) [Fed] Chairman [Ben] Bernanke staying for a third term or not,” he said.

The election is less than two-weeks away, so a lot of people in the precious metal sectors are looking to see who will be elected President, as this will have a lot to do with how the market initially responds.

Published in Gold Investing

Gold trimmed gains Wednesday after early bargain hunting tapered off and worries about the global economy resurfaced, but festive demand from top consumer India could help shore up prices.

Positive Chinese manufacturing data initially lifted prices but gold was on track to decline in October for the first month in five after it failed to break the psychological level of $1,800 an ounce, prompting investors to turn to the safety of
the U.S. dollar.

First-Strike

Gold hit a high around $1,714 an ounce and was steady at $1,708.20 by 0617 GMT, not far above the previous session's low of around $1,703 which was its weakest since September 7. Prices are also well below an 11-month peak of $1,795.69 marked in early October. "Of course, towards $1,700 you can see some support over there. I think the most important thing is the U.S. election," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"Investors are buying a little bit. They are not that aggressive," said Leung, who quoted premiums for gold bars  little changed at between 50 to 90 U.S. cents to spot London prices.

Investors are waiting for the U.S. Federal Reserve's policy statement at the end of a two-day meeting, but most economists expect no new policy initiatives ahead of the Nov.6 presidential election, after the Fed just last month embarked on a third round of major bond purchases.

The central bank's latest programme of purchasing mortgage-backed debt had given gold its latest boost, but the metal was nowhere near the record high of around $1,920 hit in September last year.

U.S. gold for December was little changed at $1,709.20 an ounce.
  

An HSBC survey of Chinese manufacturers suggesting growth was recovering in the world's second largest economy helped trim declines in Asian shares, though investors remained wary due to weak corporate earnings worldwide and enduring worries over a global slowdown.

The China HSBC Flash Manufacturing Purchasing Managers Index (PMI) rose to a three-month high of 49.1 in October, also registering the most robust order books since April, signalling a strengthening recovery.

The physical sector expected buyers from top consumer India to return to the market during the festive season, during which traditional Hindu weddings also take place. "It's a bit slow this morning, but India will still be rushing to buy ahead of Diwali. They are watching prices very closely and some still think gold is a bit bearish at the moment," said a physical dealer in Singapore.

"They have to buy gold. We've also seen physical inquiries from Indonesia. They have been pretty quiet recently."

The festive season in India will peak next month with Diwali. Weddings also take place during this period, and gold jewellery is an essential part of the dowry Indian parents give to their daughters.

Published in Gold Investing

Commodities declined, erasing this year’s advance, on speculation that demand for energy, industrial metals and some agricultural products will slump because of the sluggish global economy.

The Standard & Poor’s GSCI Spot Index (MXWD) of 24 raw materials fell 1.4 percent to settle at 639.3 at 4 p.m. New York time. Earlier, the gauge touched 635.1, the lowest since Aug. 3. The measure also erased 2012 gains in May and July. The last annual drop was in 2008.

The International Monetary Fund cut its 2012 global-growth forecast to 3.3 percent on Oct. 9 from a July prediction of 3.5 percent and said the euro area will contract 0.4 percent. The economy in China, the biggest user of everything from copper to cotton, has slowed for seven straight quarters.

First-Strike

“The commodity complex is very sensitive to the demand destruction that is happening because of the global slowdown,” said Stanley Crouch, who helps oversee $2 billion of assets as chief investment officer at New York-based Aegis Capital Corp. “We are due for a big sell-off in the risk assets, and so commodities will not do well as the macro concerns remain.”

Cotton futures fell the most in 10 weeks, and crude oil dropped to the lowest since mid-July. Gasoline declined for the ninth straight session, the longest slump since at least October 2005. Copper dropped to the lowest since Sept. 7.

European leaders have struggled to contain the region’s debt crisis that prompted Greece, Ireland and Portugal to get bailouts.
‘Collateral Damage’

“People are still worried about demand from Europe and the collateral damage from Europe itself,” said Dan Denbow, a portfolio manager of the $2.1 billion USAA Precious Metals & Minerals Fund in San Antonio. “If Europe continues to slide and if it slides further into recession, does that tip the Chinese soft landing into something worse and therefore hurts commodity demand even more?”

Spain’s economy contracted for a fifth quarter, adding pressure on Premier Mariano Rajoy to seek more European aid. Chinese factories are losing pricing power in the worst wholesale-cost deflation since 2009, signaling company earnings may deteriorate further.

“For a while, global growth is off the table,” said John Stephenson, who helps manage $2.7 billion at First Asset Investment Management Inc. in Toronto. “You’ve got Europe clearly in the middle of a crisis. Commodities go lower and investors should adopt the fetal position.”
Stocks, Bonds

The MSCI All-Country World Index of equities has gained 9.8 percent this year. Treasuries returned 1.5 percent, a Bank of America Corp. index shows, and the dollar declined 0.3 percent against a basket of major currencies.

Coffee, cotton and sugar have posted the biggest declines among GSCI components this year. Wheat in Chicago has gained the most, while corn and soybeans have reached record highs this year, as the most-severe U.S. Midwest drought in five decades scorched crops.

Hedge funds reduced net-long positions across 18 U.S. commodities futures and options by 4.4 percent to 1.18 million contracts in the week ended Oct. 16, the lowest since July 24, government data showed on Oct. 19.

“The problem we have ultimately is that it’s hard to find where the growth story comes from,” Jeffrey Sherman, who helps manage more than $45 billion of assets for DoubleLine Capital in Los Angeles, said in a telephone interview. “What you’re having is a retracement of risk markets.”

The GSCI index gained 6.8 percent in the first quarter, tumbled 13 percent in the second and jumped 11 percent in the third. The gauge posted an annual decline only twice since 1999.

Published in United States Economy

Gold futures fell to a six-week low as the dollar’s advance curbed demand for the metal as an alternative investment. Palladium tumbled the most since March.

The greenback rose for the fourth straight session, the longest rally in five months. The euro dropped as Spain’s economy contracted for the fifth straight quarter and French industrial confidence fell to the lowest in more than three years. Gold has declined 4.1 percent this month.

“Spain continues to drive the direction of the market, and people are moving toward the dollar and staying away from riskier assets,” Fain Shaffer, the president of Infinity Trading Corp. in Medford, Oregon, said in a telephone interview.

First-Strike

Gold futures for December delivery fell 1 percent to settle at $1,709.40 an ounce at 1:48 p.m. on the Comex in New York. Earlier, the price touched $1,705.10, the lowest for a most- active contract since Sept. 7.

On the New York Mercantile Exchange, palladium futures for December delivery plunged 4.6 percent to $593.85 an ounce, the biggest drop since March 22. Earlier, the metal touched $590.40, the lowest since Aug. 17.

Platinum futures for January delivery fell 2.3 percent to $1,575.60 an ounce. The price dropped as low as $1,573.70, the cheapest since Sept. 7.

Silver futures for December delivery slid 1.4 percent to $31.793 an ounce on the Comex. The price touched $31.65, the lowest since Sept. 4.

In 2012, silver has climbed 14 percent. Platinum has gained 12 percent, and gold has advanced 9.1 percent. Palladium has dropped 9.5 percent.

Today, the Standard & Poor’s GSCI Spot Index of 24 raw materials, which includes gold and silver, erased this year’s gain.

Published in Gold Investing

One day after gold managed to climb up some it was back down to a six-week low, as a stronger dollar helped to curb investor interest in trading the yellow metal today. While the yellow metal still sits over the $1,700 price mark, it is concerning that it is beginning to drop again. This may also have a lot to do with the fact that it is an election year.

The U.S. Dollar Index managed to climb to a one-week high against a basket of currencies after Moody’s Investors Service cut the credit ratings of five Spanish regions and the nation’s gross domestic product shrank for a fifth quarter. French industrial confidence also fell to the lowest that it has been in more than three years.

First-Strike

Gold has declined around 4 percent over the last month, which basically means that the yellow metal has given back almost all the gains it made after the Feds announced another round of debt buying. As I have stated time and time again, sometimes these money injections and debt crisis maneuvers only work in the short term, and right now this looks to be the case. The Feds conclude another meeting tomorrow, so we will have to wait and see what comes from that.

“Spain continues to drive the direction of the market, and people are moving towards the dollar and staying away from riskier assets,” Fain Shaffer, the president of Infinity Trading Corp. in Medford, Oregon, said in a telephone interview. “Some investors are also waiting to hear from the Fed tomorrow.”

Gold futures for December delivery fell 0.9 percent to come in at $1,711.10 an ounce earlier today on the Comex in New York, after slipping to $1,705.10,  which was the lowest for a most-active contract since Sept. 7. As you can see, the yellow metal is still strong, but all the momentum it has gained over the past sex-weeks seems to be slipping some.

Gold should be able to pull through this situation fairly quickly. If you are a gold investor you already understand that the yellow metal in volatile, and price drops like this are just part of the game. Don’t let the recent price drops scare you away from purchasing gold, as it is still arguably the very best investment you can possibly make.

We will see if anything new comes out of the Fed meetings when they conclude tomorrow.

Published in Gold Investing

While many at Casey Research don't like making price predictions, and certainly ones accompanied by a specific date, it's hard to ignore the correlation between the US monetary base and the gold price.

That correlation says we'll see $2,300 gold by January 2014.

There are plenty of long-term charts that show a connection between gold and various other forms of money (and credit). Most show that one outperforms until the other catches up. But let's zero in on our current circumstances, namely the expansion of the US monetary base since the financial crisis hit in 2008.

You can see the trends are very similar. In fact, the correlation coefficient is an incredible +0.94.

Since the Fed has declared "QEternity," it's logical to conclude that this expansion of the monetary base will continue. If it grows at the same pace through January 2014, there is a high likelihood the gold price will reach $2,300 at that point. That's roughly a 30% rise within 15 months.

And by year-end 2014, gold could easily be averaging $2,500 an ounce. That's 41% above current prices.

Some may argue that there's no law saying this correlation must continue. That's true. And maybe the Fed doesn't print till 2014. That's possible.

But it's not just the US central bank that's printing money…

  • European Central Bank (ECB) President Mario Draghi has declared that it will buy unlimited quantities of European sovereign debt.
  • Japan's central bank is expanding its current purchase program by around 10 trillion yen ($126 billion) to 80 trillion yen.
  • The Chinese, British, and Swiss are all adding to their balance sheets.

The largest economies of the world are all grossly devaluing their currencies. This will not be consequence-free. Gold and silver will be direct beneficiaries –along with mining companies– starting with rising prices.

There are other consequences, both good and bad, of gold hitting $2,000 and not stopping there. We think investors should be prepared for the following:

  • Tight supply. As the price climbs and attracts more investors, getting your hands on bullion may become increasingly difficult. Delivery delays may become commonplace. Those who haven't purchased a sufficient amount will have to wait in line, either figuratively or literally.
  • Rising premiums. A natural consequence of tight supply is higher commissions. They won't stay at current levels indefinitely. Premiums doubled and more in early 2009, and mark-ups for silver Eagles and Maple Leafs neared a whopping 100%.
  • Swelling profits for the producers. If margins on gold production average $1,000 per ounce now, what will earnings be like when they average $1,500? At $2,000? Gold can rise much faster than operating costs, so this could happen. Imagine what this could do to dividend payouts, especially those tied to the gold price and/or earnings.
  • Tipping point for a mania. There will be an inflection point where the masses enter this market. The average investor won't want to be left behind. Will that happen when gold hits $2,000? $2,500?

The message from these likely outcomes is to continue accumulating gold – or to start without delay. Waiting will have consequences of its own.

People say that there's nothing certain in life except death and taxes. In my view, $2,300 gold is a close second.

Published in Gold Investing

Gold edged up today to start the week, as the yellow metal will now try to continue to recoup some of its recent losses. The outcome of a Federal Reserve meeting on U.S. monetary policy will have a lot to do regarding whether or not gold can continue to gain in price again or not.

The yellow metal briefly touched a high above $1,730, gold for December delivery GCZ2 +0.16%  lately advanced to $4.10, or 0.2%, to come in at $1,728.10 on ounce on the Comex division of the New York Mercantile Exchange. While no where near the $1,780 price that the yellow metal was hovering around recently, gold is still trying to make its way back up into that range before the end of the year.

First-Strike

“Gold is hanging in a trading range with a slight upward slant with bargain hunters buying ahead of a two-day [Federal Open Market Committee] meeting this week,” said Jeffrey Wright, managing director at Global Hunter Securities.

The Fed’s policy-setting arm will begin its meeting on Tuesday, with a formal statement set for release on Wednesday. As stated above, this will determine a lot as far as the price of gold is concerned. Either way though, whatever the result of the Feds meeting is, gold will more than likely continue to remain a strong commodity. This can be backed up by recent statements from David Beahm, vice president at precious-metals investment firm Blanchard & Co.

“It is hard to find anyone who does not think that gold is going higher and will remain strong for some time,” he wrote in an email.

“There are a lot of factors that are favorable for gold: central banks’ monetary policies, fiscal cliffs, Middle East uncertainty and the economic problems Europe is facing,” Beahm said. “Each of these factors alone have the ability to move the price of gold upwards, but pairing them all together will push gold toward $1,850 by the end of the year and likely $2,000 by mid-2013.”

These statements are on par with what myself, as well as most other precious metal analysts have been saying. Gold will more than likely find these prices, but not until next year. Also, the timetable could also be off, simply because gold is such a volatile metal and no one can really predict the yellow metal’s behavior to perfection.

Published in Gold Investing
Friday, 19 October 2012

Gold Drops for Day, and for Week

Gold sustained a pretty big drop today (Friday) and with that drop lost overall for the day, as well as for the week. The yellow metal fell more than $20 per ounce today, as several pieces of news , including news from the European Summit, drove the dollar bill way up. Gold was not able to sustain its price against such a strong dollar today, and therefor paid the price.

Gold for December delivery GCZ2 -1.32% dropped by $20.70, or 1.2%, to come in at $1,724 an ounce on the Comex division of the New York Mercantile Exchange. That was the lowest settlement for futures prices since early September, according to FactSet. The drop in price (over $20) was definitely an eye opener, but the dollar boil alone was not the cause. Disappointment over recent corporate earnings, U.S. economic data and the latest European summit news (as stated above) were all factors in the price drop of the yellow metal.

First-Strike

“Fear of the future in the U.S. and in the euro-zone (fiscal cliff and debt crisis) is an undercurrent in all markets, including precious metals” for now, said Julian Phillips, South Africa-based founder and writer at GoldForecaster.com. “Gold may slip below $1,700 for a brief time, before rebounding.”

Julian may be on track with what he is saying, but the yellow metal really shouldn’t dip under that $1,700 mark unless there is some sort of drastic news that comes out and totally shoots the yellow metal down. Gold has been going very strong over the last couple of months, so there is no reason to think the yellow metal won’t rebound. We all understand that gold is very volatile, so this is expected every now and then.

“Gold remains defensive going into the weekend after a catalyst to drive the yellow metal above important resistance at $1,800/$1,802.89 failed to materialize,” said Peter Grant, chief market analyst at USAGOLD.

“Disappointing U.S. earnings are adding additional weight to equities, which is resulting in some deleveraging pressures,” he said. “Such pressures tend to support the dollar, and at least initially, suppress gold.”

Most studies and polls still show that investors and analysts think that the yellow metal will once again go up next week, and I myself agree that this will be the case. While we may not see $1,800 before the end of the year, gold will be fine, as it always has been.

Published in Gold Investing

Long term gold price targets get more and more optimistic with some respected analysts seeing $10,000 gold ahead - this may seem unlikely but only a few years ago $1,000 gold seemed out of sight!

A remark on another website by Mark O'Byrne caught my eye - "Longer term, respected analysts are calling for gold prices above $5,000/oz and much higher forecasted prices such as between $5,000 and $10,000 per ounce are not raising eyebrows as much as they have in the past." Indeed with even many of the ultra-conservative bank and fund analysts suggesting that gold will reach $2,000 or even higher within the next year, or even the next few months, certainly $5,000 or even $10,000 should not seem out of sight in some unspecified timeframe."

First-Strike

If one tracks the price of gold during its current bull run it has risen around 600 percent in 13 years - at the same pace of increase it could thus reach $12,250 in another 13 years - or by some time in 2025! Thus is it ridiculous to suggest that this huge valuation on an ounce of gold is achievable? Never say never! When I started managing and writing for Mineweb back in 2006 even $1,000 looked completely out of sight and people like Rob McEwen who then were predicting that level were perhaps considered at the extreme end of the spectrum. Yet within 3 years the $1,000 level was achieved and now it is a further 75% higher than that a further three years on. Nowadays, McEwen is predicting $5,000 gold - should that still be considered over extreme?

The big question obviously is how long the bull run will continue. There are those who reckon that gold is in a bubble - perhaps it is. But bubbles can increase enormously in size before they pop and gold could still be in the early stages of this, and unlike a bubble it is never seriously likely to return to the starting point of its huge rise. The gold price has expanded in a direct relationship with money supply growth (which suggests that it is, in reality, only moving counter to the decline in currency values caused by currency printing.

Take Ben Bernake's famous quote of 2002 "Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation."

Even though he may have seemed to have been against it at the time, that is precisely what Bernanke has done. He has effectively devalued the dollar through QEs 1-3 so it cannot be seen as surprising to anyone that the gold price has risen against the dollar - or conversely that the dollar has fallen in value against gold. Bernanke is a good economist and he sees the only way of getting the U.S. out of its enormous debt crisis, and ward off deflation, is ultimately to inflate its way out of the problem in a controlled manner - however long it takes and regardless of any unintended consequences - or unknown unknowns as Donald Rumsfeld would have called them. The real question is can he continue to manage the downgrading of the dollar without the U.S. economy descending into hyperinflation, while at the same time pretending he isn't doing that to try and preserve some semblance of value for the greenback vis a vis the other major currencies?

Perhaps luckily for Bernanke, those Central Banks controlling most of the currencies against which the dollar is valued on the markets have followed suit and are doing precisely the same thing. So the dollar index is not falling against its peers, but the dollar has been falling against gold, perhaps the one monetary unit out there which can show the true picture (in theory as long as the gold price in dollars is itself not being manipulated to make things look better than they actually are).

Governments don't like gold because it shows up their economic policies for what they are and defines the devaluations of their currencies in a way no other measure can. There are those who believe that governments, central banks (however independent they may be in theory) and their banking allies combine to suppress the gold price to muddy the waters in this respect - and, as we have pointed out here given that governments manipulate currency parities to suit their economies (note the Chinese, Swiss and Japanese among others), if gold is viewed as a currency then there's no reason why this should not be manipulated to the presumed advantage of the Central Banks too.

But there's only so much governments can do - hence the seemingly inexorable rise in the gold price over the past decade - a rise that is likely to continue in the years ahead - so again $10,000 gold has to remain a possibility however unlikely this may seem at the moment - not in the next few years perhaps - but at some time in the future.  Never say never.

Published in Gold Investing