Showing posts with label Gold Analysis. Show all posts
Showing posts with label Gold Analysis. Show all posts

Tuesday, May 26, 2015

Precious metals rally consolidates

 

Precious metals rally consolidates - gold and silver 2015 US

 

Gold and silver rallied strongly last Friday and into Monday’s overnight trading (UK time) before spending the rest of the week drifting lower from initial highs to consolidate above notional support at $1200 and $17 respectively. As of first thing this morning, UK time in US dollars gold is now up 2.2% and silver 10.2% on the year.

From observing price action, there appears to be continuing underlying physical demand, and on Wednesday the Russian Central Bank confirmed that it had taken the opportunity of sub-$1200 prices to add 300,000 ounces of gold to their official reserves last month. It is also reasonable to suggest that in times of increasing economic and systemic tensions in the Eurozone, some central banks will swap euros for gold to rebalance their reserves.

The Fed released April’s Open Market Committee minutes on Wednesday, which on balance was little more than another holding operation on interest rates, not bringing them forward to June or putting them off to next year. Apart from some minor volatility on their release there has been little effect on precious metal prices.

The next chart is of the gold price in the other three major currencies since 31 December 2014

Precious metals rally consolidates - gold price 31 Dec 2014

In terms of gold prices, the best performance has been in weakening euros with gold up 11.4% so far this year. The European central Bank announced it would look to accelerate its bond purchases in the short-term, leading currency markets to conclude that economic conditions in the Eurozone are weaker than expected, and with the deteriorating Greek situation euro weakness should come as no surprise.

Finally, it is worth drawing attention to developments on the Hong Kong Stock Exchange, where first Hanergy Thin Film fell 47% on Wednesday, wiping $18.6bn off its capitalisation before trading was suspended. This was followed yesterday by a similar collapse in share price for Goldin Financial (Hanergy’s broker) and Goldin Properties, together wiping out a further $16.6bn.

These events are typical ahead of a speculative blow-off in markets, and while Hong Kong’s Hang Seng Index appears to have risen broadly in line with major equity markets, other smaller markets in the region reflect excessive speculation. For example, on the Shenzen Market equities are trading at an average of 67 times earnings, having risen by 12% this week alone, and there are instances of new listings rising more than ten or twenty times in less than a month of trading.

Therefore, there is a growing risk that Hong Kong and Chinese equities could become a financially destabilising risk in the region and possibly further afield, adversely affecting other markets and potentially precious metal demand.

Source: GoldMoney

Thursday, December 19, 2013

Gold Market Report - Thurs 19 Dec

 

Fed Tapering Whacks Gold, Spooks China, "Normalization" Challenged by US Earnings

WHOLESALE London gold sank against all currencies Thursday morning, falling 1.9% vs. the Dollar to hit 6-month lows after initially trading flat overnight despite the US Fed finally reducing its $85 billion per month in asset purchases.

Cutting next month's quantitative easing of US mortgage and longer-term government bond rates to $75bn, the Fed pointed to "growing underlying strength in the broader economy."

US stockmarket indices the S&P500 and the Dow surged to new all-time closing highs, while Treasury bonds fell and spot gold fell through this week's previous low at $1230.

Besides the taper, however, the Fed revised its policy on short-term interest rates, saying it will hold the federal funds rate at zero "well past the time" that the US jobless rate falls to 6.5%, its previous line in the sand.

Overnight in Asia, Japanese shares rose but Chinese stocks fell as the People's Bank of China broke its own rules and took to Weibo, the equivalent of Twitter, to announce a "short-term liquidity operation" after Shanghai's interbank lending rate jump above 10%.

The PBoC usually waits a month before reporting such moves, says the Financial Times.

"It's very clear they want to calm down market fears," the FT quotes ANZ analyst Zhou Hao, noting the previous spike in Chinese interest rates in June, when US Fed chairman Ben Bernanke spoke about possible QE tapering.

Shanghai gold today fell 0.8% in Yuan but increased its premium over international prices from $6 to $11 per ounce.

Amongst Western investors, "More sensible minds realise," says a note from David Govett at brokers Marex, "that on the whole [the Fed news] is not a good move for the precious complex.

"With further tapering probably to come over the course of next year, the outlook remains muted. However, I don't subscribe to the theory that it's all over for the bullion market [and] would be a buyer of dips if we do manage to break below $1200."

Bids in London's wholesale market briefly dropped below that level Thursday morning, hitting a 6-month low of $1199.75 per ounce.

Priced in Sterling and Euros, wholesale gold bullion fell to its lowest since spring 2010, down 29% and 31% respectively from the start of 2013.

Silver tracked gold in Dollars, briefly falling below $19.30 per ounce – a "key level" according to technical analysts at one bullion bank.

Fed tapering "highlights the overall positive sentiment towards the macro economy," reckons UBS analyst Joni Teves.

"Equities are in fierce competition with gold for investor dollars, and this year's trend of rotation away from gold into growth assets is expected to continue into 2014."

"This is another sign of increasing normalisation for the world economy," agrees Matthew Turner at Macquarie Bank. "Gold's insurance function is less desirable in that environment."

"But if the economy is accelerating as people think," counters Albert Edwards in his latest Global Strategy Weekly for clients of French investment and London bullion bank Societe Generale, "how come Thomson Reuters has just reported the fastest pace of US earnings downgrades on record?

"If we are set for a profits-driven economic slowdown, then the low rate of core inflation will start to become a key concern. Deflationary forces are in fact stronger than even the latest [official data] suggests."

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Wednesday, February 27, 2013

Gold price drops below $1,600, continues worse monthly losing streak in 16 years

The gold price fell by as much as $25 on Wednesday to touch a low of $1,591 and erasing much of the gains of the previous day.

Ben Bernanke's testimony in front of US Senate members praising the Fed's QE program and suggesting that it should stay in place into 2014 lifted gold yesterday.

But today's positive economic news in the US – better than expected housing data –  had the opposite  effect as it signaled that the Fed's ultra-accomodative monetary policy may end sooner rather than later.

QE, which floods markets with cheap money, increases gold's allure as a hedge against inflation amid currency depreciation.

In late afternoon trade gold for April delivery was off its lows changing hands for $1,594, still down $21 on the day.

Gold is down over 3% in February and is set for its fifth monthly drop in a row.

The last time that happened was in January 1997.

Holdings in gold-backed ETFs dropped to a 5-month low of 2,530 tonnes on Tuesday, data compiled by Bloomberg show, the worst performance since April 2008.

Source: Mining.com

Thursday, February 7, 2013

Gold Market Report 7 February

Gold & Silver "Trapped" in Tight Range, Volatility Near Half-Decade Lows, as PGMs Grab Attention

 

The GOLD PRICE eased $5 per ounce from a 2-day high in London trade Thursday morning, holding above $1676 as Asian stock markets closed lower but Europe held flat.

The Euro currency held onto a half-cent rise as the European Central Bank kept its key lending rate at a record low of 0.75% for the 15th month in a row.

Crude oil rose with other commodities, but silver bullion remained unchanged for the week so far at $31.80 per ounce.

Daily swings in the silver price haven't been as small as this week since spring 2007. Volatility in the US Dollar gold price has only been lower than yesterday on 15 days since mid-2005.

"The story in the precious metals market," says Commerzbank's commodities team, "continues to be the explosion in the price of platinum" – now 13% higher since the start of the year.

Palladium, which is also used primarily in the auto industry, is similarly "in a very bullish trend," they add, while "Gold and silver remain range-bound."

Technical analyst Russell Browne at bullion bank Scotia Mocatta calls the
gold price
"trapped" for the last month.

While the market may be "building a base" from which to rise higher, "We do not expect any speculative buying until the market can break 1695," he adds, "a level which has held since mid-December."

Commodity analysts at the
World Bank forecast
a 4% drop in the gold price by end-December, with a further 3% fall to $1550 over 2014.

"Most risks are on the downside," says the World Bank's latest Commodity Market Outlook, "as the pace of global recovery improves, including further easing of financial tensions in Europe."

The recent "high gold prices have [also] attracted considerable investment in the gold mining industry," the report adds, "not only to replace aging existing mines but also to develop new mines."

China's gold mining output rose in 2012 for the 6th year, Shanghai Securities News said today, confirming its world #1 position with a record 403 tonnes.

Together with
China's gold imports through Hong Kong
of 524 tonnes (net of exports), that figure takes China's domestic demand for last year to at least 926 tonnes.

Imports to India – the world's #1 consumer nation until 2012, but with no domestic mine output – fell one-third by value over the first 9 months of last year, perhaps taking full-year shipments below 650 tonnes.

"[The gold] market is slow these days," Reuters quotes a Mumbai bank dealer, "as overall sentiments are not so good because of [central bank] comments."

After gold import duties were hiked to 6% last month, the Reserve Bank of India on Wednesday proposed strict controls on import quantities, perhaps forcing wholesalers to re-export certain quantities and use recycled domestic metal instead, to try and cut the country's large trade deficit.

"If they come up with quota system," says the dealer quoted by Reuters, "then market will become very ugly."

The Rupee slipped back Thursday against the Dollar, but remained 5% above last month's multi-decade lows.

Sterling meantime whipped violently as first Mark Carney – who takes over as governor at the Bank of England this summer – spoke before lawmakers in London, and then the central bank held UK interest rates at 0.5% for the 48th month in succession.

"[Economic] risks are weighted to the downside..[but] inflation is likely to rise and may remain above the 2% target for the next two years," the Bank said as it also maintained its quantitative easing at £375 billion ($590bn).

It will now start recycling the cash from maturing government bonds, it said, into new purchases of public debt.

"Returns to QE have declined, particularly in the US, as the scale of programme has increased," said Mark Carney, currently head at the Bank of Canada, to the Treasury Select Committee this morning.

But "unquestionably" the UK economy's "considerable slack...will be a situation that merits considerable monetary policy stimulus," when he takes over from Sir Mervyn King in June.

The gold price for UK savers today touched a 10-week high above £1073 per ounce.

It has risen more than 5-fold since King moved from deputy to governor in June 2003. Consumer price inflation has averaged 2.7% per year, against the Bank's official target of 2.0%.

 

Adrian Ash

 

(c) BullionVault 2013

 

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

 

 

Sunday, February 3, 2013

Gold edging closer to upside breakout – Nichols

A number of factors suggest that gold has found a base between $1650 and $1690 and is poised to move up through $1700, form a new base at that level, and from there move onwards and upwards.

Author: Lawrence Williams

As we prepare for this year’s Mining Indaba in Cape Town in South Africa (tough destination but someone’s got to go!) in a country which for years dominated global gold production but which is now rapidly slipping down the list of the world’s producers, it’s a good time to take stock of the gold market and what’s been happening in it.  This time, rather than putting forth my own views I’m drawing on Jeff Nichols’ latest observations for Rosland Capital in the U.S.

As regular readers may have gathered, I consider Nichols’ views as perhaps the most similar to my own of all the gold pundits out there, although he is perhaps marginally more bullish than I.

Nichols feels that gold is edging closer to an upside breakout having built a good base of support in the $1650-$1690 range and he’s convinced that sooner, rather than later, the price will push back through $1700 and create a new floor at that level.

He also feels that one of the bullish indicators is what he sees as “the spate of downward revisions to the price forecasts proffered by many of the major banking firms, dealers, trading houses, and other institutional participants in the gold scene.”

One has to admit that there does seem to be a bit of a herd instinct among these forecasters – they seem to look at short term trends and base their medium and long term forecasts on them and them alone.

At the beginning of last year they were almost unanimous in predicting a $2,000 gold price by the year end – on the basis of Nichols’ observations surely a bearish signal.  This year the forecasts are all being trimmed back and in classic contrarian style perhaps we can expect fireworks in the gold price, although this assumes that some of the strange selling activity on COMEX runs its course.

Indeed Nichols is pretty circumspect on the reasons for this, not being prepared, like many of the strongest of the gold bulls, to attribute any sinister motives to what appear to be regular take-downs in the price each time gold appears to be about to take off again.

He describes these, although not in his latest published commentary, as being institutional speculators and trading desks at the big banks and hedge funds making good money trading the range based on technical trading models and the latest bit of news -- economic or political -- out of Washington.  It’s just that the pattern and timing of the take downs does, to the writer, suggest something rather more concerted than this.

But, back to the indicators. Nichols feels that the man-in-the-street, particularly in the Middle East and Asia, tends to be a far better judge of where the price is actually going, and notes that buying of bullion by individual investors has continued to grow and the gold ETFs, despite some big unloading by some funds, are still running at near-record levels.  Add to this continued central bank buying and he sees the gold moving from weak hands into strong ones which, assuming the buying continues, will ultimately lead to a supply squeeze.

“As a result” Nichols notes in an email, “unbeknownst to most gold analysts and traders, the physical market is becoming increasingly tight with bullion going one way to the Asian markets (as evidenced by the high bar premiums in China) and to a number of central banks.  Put another way, gold is moving into strong hands -- and recent buyers, be they the "man in the street" across Asia or the reserve managers at central banks -- are unlikely to sell anytime soon, even at much higher prices.”

The latest possible game-changer, as Nichols sees it, is the forthcoming launch of two gold ETFs in Shanghai for the Chinese investment market.  While the individual in China may still prefer to hold physical metal, he sees the proposed ETF launch, which has already been approved by the government, as providing yet another opportunity to invest in gold via ETFs, and the Chinese “man in the street”, who has had a huge effect already on the rise in the gold price over recent years, could become even more important to the world gold price going forward.

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years.

Source: Mineweb

Gold Market Report 1 February

"End of an Era" for Gold as S&P 500 Records Best January Since 1997

THE U.S. DOLLAR gold price recovered some of its losses from the previous day Friday, edging higher to $1666 an ounce by the end of the morning in London, while most stock markets also edged higher ahead of US nonfarm payrolls data due out 08.30 Washington, DC time.

A day earlier, gold dropped 1% during Thursday's US session, in what one analyst describes as "a remarkable display of schizophrenic volatility".

A few hours later there was "little buying on the physical side" in Friday's Asian session according to one Hong Kong dealer quoted by newswire Reuters.

"There's some buying from mainland China...but I think gold is a bit tired after it failed to break $1700 an ounce."

European stock markets edged higher this morning, with exceptions in Italy and Spain. Spain's IBEX 35 index extended recent losses and was down 1.4% on the day by lunchtime today, the first day of trading after a ban on short selling dating from last July came to an end yesterday. Spanish stocks have now erased their gains from January.

The S&P 500 by contrast has seen its best start to a year since 1997, rising 5.2% last month.

"Earnings are strong, the economies around the world are bottoming and valuations are attractive," reckons Paul Zemsky, head of asset allocation at ING Investment Management in New York.

BNP Paribas today became the fifth big bank to follow Goldman Sachs and cut its 2013 gold price forecast by up to $100 per ounce. 

The French bank's analysts now believe gold will average $1790 per ounce this year.

Credit Suisse meantime published a note today entitled 'Gold: The Beginning of the End of an Era', arguing that the 2011 gold price peak could prove to have been the high "in this cycle" as the financial crisis grows less acute.

Like gold, silver also edged higher this morning, ticking above $31.40 an ounce, while other commodities were broadly flat.

China's manufacturing sector meantime continued to expand in January, though at a slower rate than the month before, according to official purchasing managers' index data published by Beijing Friday.

China's official manufacturing PMI fell to 50.4 last month, down from 50.6 in December, with a figure above 50 indicating sector expansion.

HSBC's manufacturing PMI by contrast rose to 52.3, up from 51.9 a month earlier, implying an accelerated growth rate. The HSBC PMI is more heavily weighted towards small and medium enterprises than the official PMI, which places greater emphasis on the views of purchasing managers at larger state-owned enterprises.

"Overall, I will put more weight on today's official PMI, largely because the current recovery is still rather narrowly based," says Li-Gang Liu, chief China economist at ANZ.

"We believe the state sector tends to benefit from this round recovery much more than the SME sector, a sector that tends to dominate the HSBC sample. The HSBC PMI also has a pattern of pro-cyclicality. When the markets are optimistic, the HSBC often becomes more so, and vice versa."

Over in Europe, Germany's manufacturing PMI rose from 46.0 in December to 49.8 last month, while for the Eurozone as a whole the manufacturing PMI rose from 46.1 to 47.9.

"Providing there are no further setbacks to the region's debt crisis, these data add to the expectation that the Eurozone is on course to return to growth by mid-2013," says Chris Williamson, chief economist at Markit, which produces the European PMI data.

In the UK meantime, manufacturing PMI fell last month to 50.8, down from 51.2 a month earlier. Similar PMI data for the US are released later today.

The US Senate Thursday approved legislation to extend the federal debt ceiling until May 19. The legislation now needs to be signed into law by President Obama.

The US Mint meantime reported a record monthly volume of silver American Eagle bullion coin sales for January. Just under 7.5 million ounces of the silver coins – which are produced specifically for investment purposes – were sold last month. Sales of gold American Eagle coins were their highest since July 2010 at 150,000 ounces.

Ben Traynor

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Thursday, January 24, 2013

Gold Market Report 24 January

Traders "Bored" by Gold But Long-Term Case "Robust" as Russia Buys, Spanish Sell

 

PRECIOUS METALS prices fell in Asian and London trade Thursday morning, taking gold and silver to 1-week lows as commodity prices also dropped and stock markets stalled.

Shares in Apple Inc. were set to open New York trade 8% lower after the gadget giant reported weak Christmas sales.

 

New purchasing managers' data today showed business activity and sentiment in China rising to a two-year high.

Markit's PMI data also rose faster than expected everywhere in the Eurozone except France.

"The reason we are lower today [in gold and silver] is simple," reckons Marex Spectron's head of precious David Govett in a note.

"The market is long, the market is bored, the market is getting restless."

Longer-term however, "The investment case for gold looks robust," says Blackrock fund manager Evy Hambro, interviewed by
The Telegraph
, "with recent action by governments indicating that real interest rates are likely to remain negative in 2013, and the risk of inflation has increased.

"The behavior of central banks," adds Hambro, "suggests gold purchases look set to continue as diversification of currency exposure remains a key focus."

The US Federal Reserve's policy-making team will meet next Tuesday and Wednesday, and Fed chairman Ben Bernanke "can count on [his colleagues] to endorse the current program" of
quantitative easing
, says Nathan Sheets, Bernanke's senior international economics advisor for four years to 2011.

"Markets overreacted to the [Dec. meeting] minutes," reckons Dean Maki, chief US economist in New York for Barclays. "Nothing in the minutes said the Fed is going to be anything less than supportive of the economy in the coming months."

"[Bernanke] is going to stay the course and engage in QE," agrees Maki's opposite number at Bank of America-Merrill Lynch, Michelle Meyer, also quoted by Bloomberg.

Despite Sterling's 2007-2009 drop of 25%, "yesterday we found out that one UK official, [David] Miles of the [Bank of England], believes that the Pound has not fallen far enough," says Standard Bank's currency strategist Steve Barrow, pointing to Wednesday's release of UK monetary policy minutes.

Furthermore, says Barrow, yesterday's announcement of an "in or out" UK referendum on European Union membership in 2017 "play[s] into the hands of the Sterling bears."

Having sought a "safe haven" during the Eurozone crisis, "Some foreign direct investment and other capital flows into the UK could turn around as the crisis eases and the UK threatens to cut its ties with the EU," Barrow warns.

Meantime at the World Economic Forum of policy-makers and business leaders in Davos, Switzerland, "We are
buying gold
and will continue to pursue this course," said Russia's first deputy chairman Alexei Ulyukayev today.

Despite hitting the 10% target set by President Putin 7 years ago for gold as a proportion of Russia's reserve assets, "This is a course of asset diversification in a situation when investing in securities or deposits remains risky," Ulyukayev said.

Russia's sovereign gold reserves are now the 4th largest in the world, worth some $520 billion.

Exports of physical gold from Spain to the UK have meantime multiplied 10-fold in the last decade to €1.2 billion, a report in yesterday's
Expansion newspaper claimed, with gold pawned by cash-strapped consumers finding its way into large bars for gold investing
.

"The sale of second-hand gold is raising more than a billion Euros a year for Spanish families," the paper quotes one analyst.

Instead of heirloom jewelry, "Families here need the liquidity."

 

Adrian Ash

BullionVault

 

(c) BullionVault 2013

 

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Forget Germany, Check Out Turkey's Central-Bank Gold

Now here's a central bank really putting gold to good use...

 

by Adrian Ash

 

AMID the brouhaha over Germany's gold reserves at the Bundesbank, there's another central bank using gold actively to bolster its currency and financial stability.

The strategy looks the same – sitting on big stockpiles of the stuff. But the aim differs, because gold is much closer to the everyday financial system. The tactics differ too. Because the central bank hasn't bought and paid for this gold. Private citizens have.

"Gold-based deposit accounts [in Turkey] surged 15% this year through the end of July," explained
BusinessWeek
back in October, "three times the increase in standard savings accounts."

"Although much criticised for its use of 'unconventional measures'," the
Financial Times
added in December, "few would argue that the decision last year by Turkey's central bank to allow the country’s banks to buy gold was anything less than a roaring success."

Buying gold isn't quite right. Starting in October 2011, the central bank began allowing commercial banks to hold a portion of their "required reserves" – needed to reassure depositors and other creditors they had plenty of money to hand – in physical gold bullion. Starting at 10%, that proportion was then raised to 30%.

Private citizens were similarly encouraged to hold their gold on deposit with their banks. That gold was thus transferred to the central bank's balancesheet. Et voila! Privately-owned gold now backed the nation's finances. A smart idea, which has coincided with Turkey's currency rising, interest rates falling, huge current-account shrinking, and government bonds regaining "investment grade" status.

Publicly targeting some of Turkey's estimated 2,200 tonnes of "under-the-pillow" gold, currently worth some $119 billion, the CBRT's governor Erdem Basci has meantime been awarded The Banker magazine's prestigious "
Central Banker of the Year 2012
" award. But with everything going so swimmingly, might Turkey risk over-heating?

Well, the CBRT this week cut its key interest rates – and raised the amount of gold which commercial banks choosing to use bullion as required reserves must hold with it. That fine-tuning is a bid to a) deter foreign investors from buying Lira and so pushing it Lira too high, too fast, and b) prevent those inflows boosting the pace of domestic credit growth by giving the banks too much money to play with.

See, with Turkey's mess of the early 2000s now fading from memory (it knocked 6 zeroes off the Lira in 2005), the currency recently neared 12-month highs against both the US Dollar and the Euro. "Amid accelerating capital inflows" from foreign investors, said the central bank in
Tuesday's policy statement, "recent credit growth has been faster than envisaged.

 

"In order to contain the risks on financial stability, the proper policy would be to keep interest rates at low levels while continuing...to implement a measured tightening [of credit] through reserve requirements."

 

Reporting from Istanbul, Reuters notes that the CBRT raised its "reserve option coefficients" for Gold Bullion and non-Lira currencies. In other words, it forced commercial lenders who choose to hold a proportion of their cash reserves in gold or foreign exchange to deposit more with the central bank.

"The measures will transfer as much as $2.9 billion in foreign exchange and gold from lenders to the central bank's reserves," says
Bloomberg
, "as well as withdrawing 300 million Liras from local-currency markets."

Analysts at Goldman Sachs had forecast this move last week, noting after comments from Turkish central bank governor Basci – and also noting last month's rise of 2% in the Lira's exchange rate to the Dollar – that CBRT "has shifted focus towards the financial stability risks posed by accelerating capital inflows."

Using interest rates and other tools, it would "lean against these inflows and their subsequent FX appreciation pressures," said Goldman's analysts. The CBTR this week cut its annualized rate for overnight loans to 8.75%. That compares with the 12% charged 12 months ago, when inflation ran to double-digits and the Lira was still struggling to find its floor, says the Wall Street Journal's
Emerging Europe blog
.

Can you imagine such a policy, let alone such a turnaround. Of course, not all of Turkey's gold policy can be fully guessed by analysts outside, and there are still plenty of risks to Turkey's growth and stability too. Not least its current account deficit...perhaps the 7th worst in 2012 at $59 billion (
IMF forecast
).

Still, that was down from second place – behind the ever-winning United States of course – in 2011. That spot is now taken by the dear old United Kingdom, a nation which all-too famously
sold half its national gold reserves
at multi-decade lows between 1999 and 2002. A decade later our deficit with the rest of the world yawned above $80 billion last year.

The UK could of course play a similar gambit to Turkey. Indeed, Bullion Vault set forth just such
a modest proposal to Parliament early last year.

 

"Make private gold deposited at the Bank of England free of capital gains tax. This would dramatically increase the financial firepower of the bank at a time when our commercial banks need support, as might our currency very soon."

 

Some hope! And in the absence of a central bank, or government, willing or able to tackle stability on your behalf, UK savers might want to note that gold did for Turkish households back when the Lira collapsed – time and again – on the currency market.

 

Adrian Ash

 

(c) BullionVault 2013

 

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Tuesday, January 22, 2013

Traders to lose heavily as India hikes gold import duties to 6%

The hike in gold import duty in India is set to help smugglers push the precious metal and increase the price of gold by $13 per ten gram in the domestic market.

Author: Shivom Seth

In what some fear will be a crippling blow, the Indian government has hiked the import duty on gold and platinum to 6% from 4% with immediate effect, in a move aimed at curbing imports of the precious metals and check the widening current account deficit.

India's passion for the yellow metal could dive by about 25% as a result of the import duty hike, according to the All India Gems and Jewellery Trade Federation's Bachhraj Bamalwa, who addedd the precious metal had put such a strain on finances that the government was left with no option but to hike the duty.

"The decision will boost smuggling and the parallel economy. The Indian government will lose heavily," he said.

On a day when gold climbed toward a one month high in the international market, rising to $1,689.87 an ounce, the Indian government has dealt a body blow to the Indian industry, said retailers.

The yellow metal’s price rose in the global market on hopes of the US announcing further stimulus measures. Silver, too, is expected to gain as it trades near a month’s high in the global market.
The Bombay Bullion Association has predicted that gold imports in the March quarter are expected to slow down to 100 tonnes against the 200 tonnes logged in the December quarter.

"It is not just a question of halving imports for the next quarter. The cost of a kilogram of gold will increase from $2,603.42 (Rs 140,000) to $3,719.17 (Rs 200,000). This will act as an incentive for many people to bring in smuggled gold," said an official.

Prithviraj Kothari of RiddiSiddhi Bullions said there would be a difference of 7% between the domestic and the international price of gold. This, he added, would have Indians bringing in more gold into the country while on their trips abroad.

"The government should harness the existing reserve of gold in our country. It is just targeting imports all the time,'' he added.

While investment demand for the precious metal is expected to fall immediately, gold consumption in the jewellery sector is expected to remain largely unaffected.

SOPS INCLUDED

As if doling out a sop, the Indian government has also decided to link the Gold Exchange Traded Fund (ETF) with the gold deposit scheme, which will enable mutual funds to unlock their physical gold and invest in gold linked schemes offered by banks.

The changes proposed to the gold deposit scheme are expected to make it attractive for individuals to deposit their idle gold with banks. India is the world's largest consumer and importer of gold.

However, outflow of the foreign exchange on gold imports has been impacting the country's current account deficit, which has widened to $38.7 billion or 4.6 per cent of the GDP during the first half of the current fiscal.

Gold imports in 2011-12 amounted to $56.5 billion. In the current financial year, till December, they are estimated at $38 billion. The hike in customs duty is also set to impact overall jewellery demand.

In a note, Geojit BNP Paribas Financial Services said that the country had managed to do away with gold smuggling, but with the higher duty structure, the phenomenon would reoccur and lead to unwarranted illegal activity.

Jewellers has also expressed concern that the duty hike would result in large scale smuggling.

Friday, January 18, 2013

German Gold: 4 Lessons for Private Investors

The Bundesbank's announcement contained little news for the market. But for private investors...?

 

The GERMAN Bundesbank is rightly famed as the world's least stupid central bank.


Capping German inflation at single-digits all through the 1970s sure helped. Everyone else got double digits or worse (the UK and Italy got over 20% each, twice). The Bundesbank boosted its reputation further by not selling any gold at two-decade lows in the late 1990s. Not even the Swiss National Bank managed to sidestep that amateur's mistake. (The SNB then went on to embrace inflation, actively creating Swiss Francs solely to devalue them.)

So where the Bundesbank still controls policy (as a Euro member, Germany has its interest rates set by the European Central Bank), it pays to pay attention. And this week's news on
Bundesbank plans for gold in 2020
offer four clear lessons for anyone buying gold today.

First, the facts – with
BullionVault's analysis based off the Bundesbank's own news release, and the World Gold Council's compilation of the latest data on Germany's gold reserves.


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What with being a fool's paradise and all, plenty of stories on the internet will tell you that Germany is "taking home its gold". But as you can see, it isn't. Fifty per cent will stay overseas. So you might want to look askance at anyone who runs such headlines.

You might then consider what the news does in truth signal...

#1. Hold gold for the long run
Based on the figures in the Bundesbank's announcement, it's clear that the German central bank has no intention of selling gold anytime soon. Its huge gold reserves, the second-largest after the United States', underpinned the Deutsche Mark's famous stability during the Great Inflation of the 1970s. Germany then refused to sell any of its gold reserves when prices were low a decade ago, unlike every other European state except Italy.

Besides very small quantities for commemorative coins, it has steadfastly refused to sell into this rising market either. Short of "the need arising", the Bundesbank has every intention of keeping hold of its gold through 2020, too.

#2. But keep it ready for sale
Despite all the fuss about "taking home its gold", Germany is keeping 50% split between London and New York. It's pulling out of Paris entirely, citing the need for foreign currency in a crisis, which France can't now offer. But the fact is that Paris doesn't offer a deep, liquid market for wholesale bullion. Whereas London, like New York and Zurich, remains a world centre for physical gold bullion. Indeed, London is the heart of global dealing, with wholesale prices worldwide always quoted as the price for London delivery plus a premium for shipping elsewhere.

The Bundesbank makes plain that, if some unspeakable crisis demanded it, being able to sell its gold fast is a prime concern. Hence the 37% staying at the New York Fed, and the 13% staying in London.

#3. And let geography spread your risk
Holding some gold overseas isn't a problem, then. Indeed, it's benefit of gold's deeply liquid international market. Because when asked, central bankers will repeatedly cite the diversifying power of gold as a major reason to own it. (See this French central banker
speaking in 2000, for instance.) Unlike other metals and commodities, gold is not tied to the economic cycle, nor the stock market. It is a natural "hedge" against the US Dollar too. And if you are spreading your investment risk with gold, why not also spread your geographical risk by owning some gold overseas as well?

Historically, the reason that Germany holds gold in the UK, France and US was fear of Soviet invasion. Even with that fear gone, however, geopolitical diversification clearly still makes sense to Frankfurt – starting with a full 37% of its gold being on a separate continent. For private individuals, holding investment-grade gold in secure, professional vaults can cost you just a fraction of a per cent each year. It need cost no more overseas, and that will give you an escape fund if things get really ugly at home.

One last point – the Bundesbank has of course been very reluctant to make this move. It goes against the "gentlemen's agreement" between central bankers – the assumption that each is to be trusted, because they hold themselves and their colleagues as independent from politics and the state. But to be fair, the Bundesbank brought the demands for repatriation and especially for audits of Germany's gold all on its own head. Just in the same way as the US Federal Reserve will surely be forced to
audit the US Treasury's gold at Fort Knox
in due course, too.

There is no need for secrecy. Redacting sections of
the most recent audit of New York-held metal (2011 was the first such visit since the early 1980s) only fuels suspicion where none should be necessary. If you hold physical gold at arm's length – whether in London or in another major centre like New York or Zurich – you'd be sure you get plain proof of your gold's quality and safe delivery inside the vault, with regular checks thereafter. You'd no doubt want to use independent professionals, whose specialism is judging the fineness and market-readiness of physical gold, to conduct the checks and then report back to you.

 

Adrian Ash

 

(c) BullionVault 2013

 

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

 

Sunday, January 6, 2013

Gold sector clean out expected in 2013 – Cook

The Gold Report: Brent, 2012 was difficult for many gold investors, and you paint a pretty bleak picture for certain junior mining companies in 2013 as well.

Brent Cook: We've actually had two pretty tough years on the TSX Venture Exchange. It is off about 30% from its peak in 2012 and around 20% for the year. That comes on top of a 35% decline in 2011. I do think much of the froth is washed out and we will see some opportunities in 2013.

During the most recent boom years, 2009 and 2010, roughly $11 billion ($11B) was raised on the Venture Exchange. Most of that has been spent without much success. Going by John Kaiser's database of about 1,800 Venture Exchange listed companies, there are around 600 that now have less than $200,000 in the bank and a full 62% of the 1,800 companies have a median working capital of only $1.1 million ($1.1M) or less. These companies are trading at less than $0.20/share, which means that unless things improve dramatically in the next year, many of these companies are going out of business or will push excessive dilution on current shareholders just to stay alive. The Venture Exchange will truly be the land of the walking dead.

This coming year will be a cleaning-out process that in the long run is good for the sector.

Tuesday, January 1, 2013

Gold in 2013: climb, consolidate or collapse?

While fundamentals seem to favour much stronger gold and silver prices this year, strange goings-on in the markets, should they continue, could see price rises fall short of expectations.

Author: Lawrence Williams

Yes – its annual stick your neck out time for precious metals commentators as we try and foretell what will happen in the markets over the coming year – and precious metals price forecasting is an invidious business. 

Once you go on record with a prediction it’s there for all to see – and, if you’re unlucky, to refer back to should your crystal ball prove to be wildly incorrect.

So, firstly, what is this writer’s track record in predicting the gold price? Well, in 2012 not great, although far less inaccurate than most. 

My prediction for the year-end gold price was $1875 - well above the final London close for the year of $1664, indeed a little more than $200 (or 12%) out. 

Perhaps not too bad, when one considers that in January, $2,000 was a fairly common year-end target and even the more conservative analysts were mostly predicting better things for the gold price.

For 2011, I was also rather over-optimistic with a year-end price prediction of $1760 against a final London close of $1574, despite gold soaring to well above this predicted level earlier in the year.  Timing is everything in the gold price prediction game.  This was 10.6% above the final figure – and even so, far closer than many were predicting.

Now if we go back to 2010, I managed to come within $34 of the year-end price of $1410 – this time on the conservative side and only 2.4% out.

So, what about 2013? The global economic price drivers which have brought the yellow metal to where it is today are virtually all still in place.

Indeed, some parts of the global economy are remain pretty dire and there’s likely to plenty of bad news still ahead which should drive the gold price higher. 

However, in recent months we have seen some strange market activity which defies normal trading logic. Activity which suggests the gold market (and the silver one too) are open to manipulative abuse through huge amounts of paper metal being dumped instantaneously in what looks to be a concerted effort to keep the price from rising – or indeed to force it lower.

It may just be that some institutions with enormous pockets are using high frequency trading to drive the price down, taking weak holders out of the market to then buy back at lower prices and make vast profits when gold does eventually move to a higher level.  Others attribute more sinister motives to these sales - see Sinclair incandescent - biggest manipulative play in gold ever as an example of one such interpretation of what has been seen as the most recent take-down in the gold price.

While I personally discount the likelihood of a major gold price crash during the current year, there are obviously powerful forces at play which seem to cause the metal price to defy logic.

Virtually all the fundamental indicators suggest that the gold price should increase, and increase strongly in 2013.

On the demand side, Gold and silver coin sales and ETF investment remains at an extremely high level despite the recent gold market shenanigans. Central Banks are continuing to buy gold at significant levels, while Asian markets continue to see a high rate of gold purchases and there is very strong anecdotal suggestion that China, in particular, is substantially increasing its own gold reserves without accounting for the rise yet in its ‘official’ figure.

And this doesn’t even take into account continuing economic turmoil globally with the fear that, at some stage, all the money being pumped into the system by Central Banks will lead to rapidly rising inflation – which tends to be positive for gold, at least in people’s minds.

On the supply side, mined output of gold is at best flat, and will probably be lower this year than last when the final figures are tallied, and insufficient new resources to move the trend in an upwards direction are being found, while scrap supplies appear to be running at lower levels than they have been of late.

Thus, with demand from Asia (including gold purchasing powerhouses India and China) and from Central Banks combined expected to exceed around 2,000 tonnes in 2013 – close to 75% of global mine supply, the supply/demand balance will likely remain tight.

From a chart point of view, the recent consolidation pattern has basically mirrored that of 2008 and 2006 (and perhaps to a lesser extent 2010).  True, the latest consolidation appears to be longer lived, and more extreme, than previous ones, but that is largely a function of the higher price now prevailing.  In each previous case the gold price has seen a 1-2 year uptick from the time the consolidation ended – will 2013 see the same again?

Returning to the possibility of a sustained gold price plunge, any serious reduction in the price will drive marginal mines out of business (and there are an increasing number of these as grades continue to fall and costs rise) and delay, or kill altogether, many new mining projects which need current price levels, or higher, to come to fruition.

Thus if the price should fall further the likelihood is that the resultant supply deficit would see a rapid return to higher prices before long.

So where does that leave the gold price in 2013?

Logically, on fundamentals, it should probably move subtantially higher with the long awaited $2,000 in prospect.  However the interventions in the market may well continue and no big upwards spurt is likely until the ‘illogical’ dumping of high volumes of paper gold either ceases, or is negated by some exterior piece of news which more than counteracts the market manipulation.

This could be a break-up of the Eurozone – which seems increasingly unlikely given Mario Draghi’s stance on this – war in the Middle East, or perhaps even more seriously over the disputed uninhabited islands bringing China and Japan into conflict, something which could escalate dramatically, likely involving the U.S.

Or perhaps China may announce that it has indeed been building its gold reserves and that these now total 2,000 tonnes or some other such figure, the news of which could put a sharp poker under the gold price.

But, perhaps more likely, none of the above will actually happen in 2013.  The manipulators on COMEX could allow the price to rise, not dramatically, as it seems they are in control for the time being.

However, even a modest 10% rise in price will see gold breach what could be a major psychological level of $1800 and if this should happen we could see a rapid rise back to the $1900 level – possibly even a new high developing – but again this could provoke major market intervention bringing the price back sharply as happened in 2011 when the price rise seen then was perhaps more rapid that the markets would accept.

Thus the writer’s personal prediction is for gold to end 2013 at around $1830 – in effect a 10% rise - in keeping with gold’s overall upwards performance year on year.  Not as big an advance as seen in some prior years, but higher than the 4% rise for 2012.

What about silver?

For the moment, silver  price advances are tied fairly closely to gold, tending to rise faster on the upside and fall further on the downside.

The silver market is also more prone to manipulation by entities with big pockets than gold given its much smaller size, which adds another negative factor into the equation.

However, any silver price prediction has to take the gold price into account, and also the gold:silver ratio, which currently sits at 55.  A rising gold price does suggest a falling gold:silver ratio given silver’s gtreater volatility.  On this basis the prediction is for a year-end gold:silver ratio of 52 and a silver price of $35.

Looking longer term though, at some stage some strong gold-boosting event or other will likely occur and the COMEX manipulation may well cease until a little stability returns -  This could well see gold rise to around $2500 and silver to over $50 within the next two to three years – and continue their overall upwards path thereafter. 

When I started writing for, and then managing, Mineweb, onlya little over 6 years ago in September 2006, the gold price was around $600 and predictions of $1,000 gold seemed out of sight and far fetched and were treated by many analysts with scorn.  Silver was at $12 having seen a 30% increase already that year.  Investing in gold and silver at that time would thus have seen great gains. 

Again, if one looks at the chart above the rate of price increase, as shown by the steepness of the graph, has accelerated as the global economy has been seen to deteriorate.  Within the next two to three years $2,000, $2,500 or even higher looks as though it could yet be on the cards.  Thus once the current consolidation is behind us the likelihood would appear to be that the higher rate of increase will return – perhaps not this coming year, but almost certainly through the remainder of the decade.  The gold bull run likely looks to have a way to go yet

Source: Mineweb

Friday, December 28, 2012

Gold Market Report 28 December

"Gold Market Overhang" Poses Risk of Another Price Fall, Fiscal Cliff "Will See Minimal Last Minute Deal"

THE SPOT MARKET gold price fell back to $1660 an ounce Friday morning, close to where it started the week, as stock markets also edged lower, ahead of talks in Washington aimed at avoiding the $600 billion "fiscal cliff" of spending cuts and tax rises due within days.

Gold will break its four-week losing streak today if the spot price ends the week above $1657 an ounce, while spot silver needs to close above $30.03 an ounce to do likewise.

"The weight of the [gold] market still overhangs with resistance seen at $1673, the November low, and $1685, the December support," says the latest technical analysis from bullion bank Scotiabank.

"While the market holds below $1685 the technical risk remains for another leg lower."

"There's some buying but you don't see heavy activity," one physical gold bullion dealer told newswire Reuters this morning.

Silver meantime eased back towards the $30 an ounce mark, while other commodity prices were little changed.

On the currency markets, the Euro fell against the Dollar Friday morning, dropping 0.6% in two hours, with traders blaming thin volumes and stop loss selling.

President Obama is due to hold talks with congressional leaders later today, as part of ongoing negotiations on how best to tackle the US federal deficit. The US economy is due to hit the so-called fiscal cliff next week unless Congress agrees to halt planned spending cuts and extend tax cuts from the Bush administration.

Democrats have proposed maintaining the Bush tax cuts for anyone earning $250,000 a year or less, while Obama has indicated he would consider raising that threshold to $400,000. 

Republican House of Representatives speaker John Boehner meantime has said he would consider allowing the cuts to expire for anyone earning more than $1 million a year, after previously expressing outright opposition to a rise in taxes. Boehner included this proposal in his so-called 'Plan B' last week, but failed to garner enough support from fellow Republicans for it to be put to a House vote.

"The way to avoid the fiscal cliff has been right in the face of Republican leaders for days and days and days," Senate majority leader Harry Reid, a Democrat, told the Senate Thursday, adding that Boehner's unwillingness to agree a deal is motivated by concerns about being re-elected speaker of the Republican-controlled House next week.

"I say to the speaker, take the escape hatch that we've left you. Put the economic fate of the nation ahead of your own fate as Speaker of the House."

"Republicans aren't about to write a blank check for anything Senate Democrats put forward just because we find ourselves at the edge of the cliff," countered Republican Senate minority leader Mitch McConnell.

"That having been said, we'll see what the president has to propose."

"Time is running out for the long-awaited solution in fiscal-cliff negotiations," says Kai Fachinger, portfolio manager at Sustainable Asset Management in Zurich. 

"As the positions of the two parties are just too far off, it's likely to happen in the very last second."

"[We expect a] deal to happen at the last minute," agrees Dominic Schnider at UBS Wealth Management.

"But it will be a minimal deal...I think that should be gold supportive."

Vietnam's central bank meantime will play the role of market maker in the gold market next year in a bid to control the domestic gold price, Vietnamica reports, citing comments from State Bank of Vietnam governor Nguyen Van Binh.

Earlier this year the SBV claimed the exclusive right to manufacture gold bars in Vietnam.

Ben Traynor

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Wednesday, December 26, 2012

Gold Bull Market to Pause in 2013 – Savant

According to CPM Group’s Rohit Savant, all of the positive fundamental drivers of the metal have already been factored into the price.

Many gold analysts are forecasting much higher gold prices in 2013. In this interview with The Gold Report, Rohit Savant, senior commodity analyst at the CPM Group, says he believes all of the positive gold fundamentals, such as global turmoil, are already factored into the gold price. So, in 2013, he sees the trend being flat to down a bit. He also discusses what roles India, China and central banks play in the gold price.

The Gold Report: Rohit, in a recent interview you said gold is "not a guaranteed safe haven." In your view, what are effective ways to preserve capital?

Rohit Savant: If you're talking about preserving capital, it depends a great extent on your timeframe and your risk appetite.

If you're looking at the short term and want no fluctuations in your principal, the best way to preserve it would be either certificates of deposit or T-bills and hope that inflation doesn't rise significantly.

But if you are looking at the longer term and are willing to take some ups and downs in your capital, a better way of preserving or increasing your capital would be investments in equities, real estate and gold. You could reduce the risk a bit by purchasing dividend-paying equities.

TGR: Do you believe gold is an effective way to preserve capital?

RS: Over the long term, it is. In the short term, you are going to see fluctuations in prices.

TGR: What range do you expect gold to trade in through the first half of 2013?

RS: We expect it to stay more or less in the same range that it did this year, probably between $1,550-1,800/ounce (oz) for the first half of 2013.

TGR: Are you seeing a similar path for silver?

RS: In the case of silver, we have a more bearish view. One reason is that silver prices are going to be negatively affected by increases in supply. Today silver prices are significantly higher than the average cash cost for producing silver. So we expect that a lot of fresh supply will come onstream.

Another reason is expected lower investor interest. Silver tends to be more volatile than gold, so you might see sharper declines in prices with lower investment demand.

TGR: Does that mean you prefer gold to silver right now?

RS: At this point, we definitely see gold as a better investment than silver. We don't expect any significant increases in gold prices, but we don't think that gold prices will decline substantially from where they've been this year.

TGR: Is there a possibility that 2013 will be the first year in the last 12 when the gold price finishes the year lower than when it started?

RS: Yes, it will likely be the first year to end in a lower price in over a decade.

TGR: If you met a goldbug who is unabashedly bullish on the gold price and he challenged your price position on gold, how would you respond to that person?

RS: We face this situation quite often because our view on gold has not been as bullish as a lot of other market participants. Our response to them is that we think a lot of the factors that are being cited as reasons for gold prices going up are already factored into the price of gold.

For instance, there are a lot of problems with the global economy. We're not denying that. We are just saying that these are problems that have been known now for several years and have already been factored into the price of gold. So gold prices won't skyrocket. But on the other hand, the global problems are a reason we think that gold prices will not decline sharply either.

TGR: In early December, we saw commodities including gold and silver sold off in response to concerns regarding America's "fiscal cliff." In your view, what are the three biggest downside risks to gold right now?

RS: The biggest risk to gold would be that investors lose interest. But we don't think that investors will lose interest, central banks will stop buying gold, or there will be a sudden increase in the supply of gold. These could all be potential downside risks. That said, we do not expect that any of these risks will materialize in 2013 or the near future.

The biggest risk for us is not so much that prices would go down, but that they won't rise substantially. We don't see a sharp decline in gold prices going forward. We don't see gold going up much. We see a sideways to potentially slightly lower range, but nothing significant.

TGR: What about the fiscal cliff itself? Is that a concern for the gold price?

RS: When the fiscal cliff debate intensifies as we get closer to the deadline, we may see the gold price rise in response. So the fiscal cliff could be positive for gold prices during December. I think the slight softness that we're seeing in gold prices recently is really the market—investors holding off to see if prices could decline further. Gold could potentially go down to around $1,680/oz and get some support at that level. Then you might see some investors coming back, buying gold in response to the fiscal cliff issue. Once in 2013, whatever the outcome of the fiscal cliff, it would result in softening of economic growth, which would weigh on gold prices during the first half of next year.

TGR: The World Gold Council (WGC) reports that the Indian market is showing signs of recovery in gold demand, up 9% to 223.1 tons from 204.8 tons in the third quarter of 2011. The WGC press release reads, "Indians appear to have acclimatized to recent price trends and have been buying into a rising market." What's behind that change in sentiment and do you believe it's likely to continue in 2013?

RS: The buying of gold for Indians is very deeply engrained in the culture. When a festival is coming up, or if it is marriage season, Indians are going to buy gold. It's highly unlikely that they would refrain from buying gold because of higher gold prices.

TGR: But they have cut back purchases in the past.

RS: The increase in demand in the third quarter, in a rising price environment, may have occurred because of pent-up demand. Demand from the first half of the year had been cut back by various factors.

Indians may buy a smaller amount of gold per person if the price goes up. But they're not likely to stop buying gold just because the price has increased. The demand is going to be there.

TGR: China is another culture where gold is much more prevalent in the lives of people than it is in the West. The Wall Street Journal reported this week that China, for the first time ever, will allow interbank gold trading with Shanghai as a major gold trading center. Do you expect that to have any impact on investment demand?

RS: That is something that would increase investment demand, in that China is trying to open up its markets. It's all part of China liberalizing its financial markets.

TGR: Another report says Deutsche Bank is predicting gold will rise above $2,200/oz in 2013. Part of the reason is that it believes China eventually wants the yuan to challenge the U.S. dollar as the world's reserve currency.

To do that the Chinese Central Bank is going to need to buy more gold in a big way. Right now it's currently ranked sixth in total gold reserves, at least the reported gold reserves. Does that strike you as a credible thesis or is that something that you believe is still a long way off?

RS: I'm not sure that China would want its currency to be used as a reserve currency because that would inherently push up the value, which would in turn hurt the country's exports. I don't believe it's going to happen over the next several years. It will take a number of years for any currency to challenge the U.S. dollar.

I believe the gold that China holds right now is about 1.8% or 2% of the total reserves. As for buying gold, the Chinese Central Bank does not release that information quickly. The last time it bought gold, nothing was said about it until a few years later. It could be buying gold right now and we won't know about it until China discloses that information.

I think that central bank buying is price supportive, but I don't believe that it's something that would push gold prices sharply higher. Central banks have been doing pretty much what we expect private investors to do, which is wait for gold prices to soften before they step in as buyers.

We saw that this year in March when gold prices came down. Central banks added on a net basis 2.3 million ounces (Moz) of gold to their holdings. Central banks followed the same logic again in July, when gold prices were moving sideways at the lower end of the range for 2012, adding 2.95 Moz of gold to their holdings on a net basis. This was the largest net purchase of gold by central banks for 2012.

Bottom line, central banks are not buying gold when prices are going up. Therefore, the impact of central bank gold buying is more likely to be price supportive than price positive.

TGR: At investment conferences across North America, senior gold producers are routinely making presentations about why their companies are better investments than gold exchange-traded funds (ETFs). Much of their arguments are based on the idea that gold ETFs own far less gold than they claim. What's your view?

RS: The gold that ETFs own is publicly disclosed and transparent, so I'm not sure how companies can make that claim. As far as talking up investing in their companies, that's their job—they're supposed to get investors interested in owning their stocks.

TGR: Does CPM have any analysis on ETFs versus senior gold producers? Performance-related data comparing those two?

RS: We haven't done any specific analysis. But gold ETFs basically track the gold price, so it's really a question of whether you are invested in physical gold or whether you want to invest in equities.

Equities do have the advantage of performing better for the most part over the long term. But in recent months, we've actually seen gold equities get slammed for various reasons. One of the biggest reasons is that their costs are getting out of hand.

TGR: If the gold price remains range bound near current levels, does that make gold producers more appealing?

RS: Only if gold producers are able to control their costs. If producers can prove to the markets that they can control costs, then equities would be a good investment compared to gold. Also, if gold prices remain range bound, and that prompts miners to shift their focus to higher-grade gold, that could potentially reduce costs and again make them more attractive as an investment. So it depends on how the mining companies deal with it. If they let their costs escalate and the price of gold stays sideways, their margins will get squeezed, so that will make them a bad investment.

TGR: Is there is a particular jurisdiction or jurisdictions that CPM Group sees as being more appealing for gold production?

RS: For gold production, there is a jurisdiction that is not appealing. South Africa is not very appealing at this point. The atmosphere surrounding the mining industry in South Africa at the moment is pretty complicated.

A lot of factors are at play. The country has deep-level mining, which makes it difficult for miners to control costs. You also have additional problems related to labor and infrastructure and government policies. All of those things collectively make South Africa a fairly difficult environment to mine in.

TGR: Is your near-term forecast for other precious metals like platinum, palladium and rhodium more encouraging than it is for gold and certainly for silver?

RS: The PGMs definitely have some promising fundamentals. The supply side is constrained because a lot of supply comes from South Africa. Those mines are facing the same problems as the gold mining industry in that country. So the potential is there for supply to possibly decline.

Then you have the fabrication demand side where there is little substitution for PGMs. For example, in the case of auto catalysts, any other combination of metals used would not reduce emissions at the same level of efficiency as the PGMs do. So you have expectations of heavy fabrication demand and the potential for constraint supplies that are both supportive and positive for the PGMs.

TGR: What advice can you give to precious metals investors in general that they can put to good use in 2013?

RS: It's about doing your homework. When you're looking at equities, you need to look at a number of factors besides metal prices. For example, investors need to look at the management, specific country risk, and within country risk you have government policies, infrastructure. There's also the mining grades of the deposits and the costs to get the metal out of the ground. Costs are especially important to pay attention to in the current environment where mining cash costs almost across the board are rising pretty substantially.

TGR: Are you predicting cash costs among gold miners are going to rise in 2013?

RS: We do think gold mining cash costs will continue to rise. One of the problems is the rising gold price itself. That has been encouraging miners to mine lower-grade ore, which in turn pushes cash costs up. Another problem is mining regions, such as South Africa, where all these other additional factors are pushing cash costs up. So, yes, we do think the costs for gold mining will continue to rise in 2013.

We have data going through the second quarter of this year. What we saw is a peak in the profit margins in mid-2011 when gold prices were high. What we saw in the second half of 2011 and the first half of 2012 is the slight decline in gold prices and a continued increase in the costs. So companies' profit margins got squeezed. We think this will continue if mining companies don't curb their cost increases. This is the biggest problem or threat to the gold mining industry.

TGR: What are the biggest inputs into those rising costs for miners?

RS: The biggest input cost is labor, which represents about 50% of total cash costs for gold mining. We keep hearing of strikes and shut downs and those kind of problems. That is not good for the largest component of costs, labor. Fuel, for instance, only accounts for about 8% to 9% of costs. And about the same amount for utility costs, such as electricity and water.

TGR: Were fuel costs 8% or 9% five years ago or were they a smaller percentage? It's a number in a vacuum otherwise.

RS: Fuel costs were a little bit less than 8% or 9% five years ago. Fuel costs haven't been the biggest issue for cash costs. It's labor costs. The inflation in labor costs is what's pushing up the whole cash cost curve.

TGR: Are there any parting thoughts you have for our readers?

RS: A lot of times our gold outlook comes out sounding bearish when it's not. I just want to say that we do think gold prices will stay high. We just don't think that they're going to skyrocket.

TGR: Where was CPM Group in its forecast for 2012?

RS: We had an annual average of $1,620/oz at the beginning of the year. The average price for gold so far in 2012 is about $1,670/oz. So we were lower than the average. We did do well compared to 85–90% of the other analysts whose price forecasts are way, way higher.

TGR: Thanks for your insights.

Rohit Savant is a senior commodity analyst at CPM Group and joined CPM Group in 2005. Savant is the lead analyst for CPM Group's Precious Metals Long-Term Market Outlooks, Precious Metals Yearbooks and Precious Metals Advisory. These publications include in-depth analysis on gold, silver, platinum, palladium and rhodium markets. Savant provides consulting services for all of the precious metals on an ongoing basis to various hedge funds, individual traders, producers and end users.

This is an edited version of the original and is published here courtesy of The Gold Report

Saturday, December 22, 2012

Gold in Doesn't-Beat-Stocks Shocker!

Gold in 2012 is set to underperform the US stock market for the first time since 2004...


SO the WORLD DIDN'T END on the shortest day of 2012, as forecast by no-one beyond lazy journalists and internet frauds.

But the long bull market gold has choked its last. Or so some soothsayers claim.


Bloomberg: "Gold, [enjoying] its longest winning streak in at least nine decades, is poised to enter a bear market..."

Interactive Investor:
"Is gold's bull market over? Market commentators [are] citing a tumultuous economic environment. Others say it has simply been over-bought, and as with each bull market, inevitably reach[ed] a point of resistance..."

MarketWatch:
"Gold bugs are finally throwing in the towel. Over the last two weeks [they] have become even more discouraged than they were at the end of November. And that’s saying something..."

Okay, we were kidding. These 3 stories in fact came at the end of 2011. But with the big top of summer last year now a distant memory, and with prices this week unwinding all of 2012's gains for Euro and Sterling investors, you could book your path to the
US Treasury, running Italy, or getting a $400,000 annual housing allowance
from the Bank of England by saying gold is spent today.

"Goldman Sachs...are among those calling the end of the gold bull market," reports
Portfolio Adviser
, "having recently trimmed their 2013 forecasts to $1800/oz."

Whatever the reality ahead, gold has certainly done an odd thing in 2012. Odd for the last 13 years at least. Because it failed to beat the US stock market's annual gain – the first such failing since 2004, and only the third time since 1999.

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What to make of this underperformance? Well, if you missed all of that 14.8% capital gain in the S&P500, then a measly 7.9% return on your gold might be scant comfort. But it does continue a broader trend, dating back a whole decade.
 
Gold and the stock market both rose together this year. Only twice has that failed in the last decade, once when stocks sank (2008), and once when they were flat (2011).

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What gives? Isn't gold supposed to rise when stock markets plunge, and vice versa? But really, that's such a 20th century idea!

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Go back 20 years, and flip the price of gold upside down. As US stocks rose, the gold price fell, all through the mid-to-late '90s. It wasn't early 2001 that gold found its floor – shown as the second peak on our inverted chart.

And from there, the Tech Stock Crash came right alongside the start of gold's now 12-year rise...a rise which stocks joined again just as soon as near-zero interest rates were applied in 2003.

Yes, the common link we believe has been cheap money. On the one hand it has driven investors back into stocks (and back again thanks to truly free cash and quantitative easing since 2009). On the other, it has driven a small but growing band of people worldwide to abandon a chunk of their cash, swapping it for a lump of metal instead. And overall, gold has outperformed by not sinking in the middle.

Scarce and incorruptible, unlike common stock, gold has thus acted as a great hedge for stock market bulls, rising both with and despite the action in equities. But being rare and indestructible, gold has yet to find its true calling in the early 21st century we predict, squinting into the future just like ancient Mayans didn't.

We think gold looks good insurance against that other all-rising bull market, the all-inflating credit bubble that is the 32-year non-stop bull market in US and other Western government bonds.

 

Adrian Ash

 

(c) BullionVault 2012

 

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.