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Spot
gold and silver fell 6% and 9% respectively in January. The January price
fall looks very much like another price correction and consolidation and is
to be expected after the 30% rise in dollar terms seen in 2010. Absolutely
nothing has changed with regard to the fundamentals of the gold and silver
market and investors should use this sell off as another opportunity to
diversify into the precious metals.
Correction:
Yesterday our market update said that gold bar premiums in Hong Kong were at
17-year highs. They are in fact at 7-year highs, their highest level since
2004.
Gold in USD – 1 Year (Daily)
Gold’s
150 day moving average is at $1,310/oz and as can be seen in the chart above
this has provided strong support in recent months. Interestingly, gold fell
some 1.5% in January 2010 and continued to fall in February before bottoming
after the first week in February (08/02/10). Gold then rose slightly in
February, consolidated in March and rose strongly in April, May and June.
July saw another correction prior the strong gains seen from August to
December.
 
Gold in USD and British Sovereigns in USD – 30 Day (Daily)
– Sovereign Premiums Rise
Nothing has changed regarding tight supply and robust demand and indeed, the
geopolitical events in Tunisia, Yemen and Egypt and tensions in the Middle
East provide another important catalyst for higher gold prices in 2011. With
all the attention on Egypt, the risk of war between Iran and Israel and
possibly the U.S. has been forgotten about – for now.
There
is a concern that we could see geopolitical contagion and the crisis
spreading to the undemocratic oil rich states of United Arab Emirates, Kuwait
and Saudi Arabia. This could lead to an oil crisis and at the very least it
will likely lead to higher oil prices and most likely a sustained period of
higher oil prices. This will lead to even higher trade deficits and inflation
in oil importing countries - especially the U.S. which is one of the most oil
dependent countries in the world.
The
Middle East remains very unstable with real tensions between Israel and its
Arab neighbours and Iran. The IMF's Managing Director, Strauss-Kahn, warned
in Singapore overnight that "as tensions within countries increase, we
could see rising social and political instability within nations -- even
war."
Gold in USD – 1971-2011 (Weekly)
The two oil shocks of the 1970s saw gold prices rise by more than 24 fold
(2,300%) in just 9 years - from $35/oz to $850/oz see chart above).
To put
that in perspective, today gold's rise has been far more gradual and it has
risen some 5 fold (430%) in 11 years - from $250/oz to $1,330/oz. In this
regard it resembles gold’s rise from $35/oz in 1971 to nearly $200/oz
in late 1974 – a six fold increase.
Given
the significant macroeconomic, systemic, monetary and geopolitical risks of
today gold is likely to perform again as it did in the 1970s. A 20 fold
increase from trough in 1999 to peak sometime in the coming years would see
gold rising to over $5000/oz .
This
may seem outlandish to those unaware of gold's fundamentals but the very
small supply of gold internationally, increasing demand (particularly from
investors and central banks), the sovereign debt crisis in the EU (soon to
spread to the U.S.) and the debasement of the dollar, the euro and other
currencies internationally makes this increasingly possible.
Those
who buy this price dip in gold and silver will likely be rewarded again. As
ever rather than trying to predict the future price movement of any asset
class investors and savers today need to diversify and protect themselves
from the significant macroeconomic, systemic, monetary and geopolitical risk
in the world today.
Gold
Gold
is trading at $1,337.48/oz, €972.64/oz and £830.48/oz.
Silver
Silver
is trading at $28.27/oz, €20.55/oz and £17.55/oz.
Platinum
Group Metals
Platinum
is trading at $1,804.85/oz, palladium at $819/oz and rhodium at $2,450/oz.
News
(Wall
Street Journal) --Barrick CFO: Central Banks May Shift More Reserves Into
Gold
The world's
biggest gold producer expects central banks will likely shift more of their
monetary reserves into gold this year, as they worry about soaring stockpiles
of U.S. dollars. Jamie Sokalsky, chief financial officer of Canada's Barrick
Gold Corp., said there has been a "sea change'' in the past year, with
central banks that had stocked up on U.S. dollars starting to buy more gold
to diversify their holdings. Many forecasters say that trend will continue
this year, since global currency reserves are approaching the $10 trillion
mark—the bulk of it in U.S. dollars— even as a faltering economy
and climbing debt load look set to depress the value of those dollars, said
Mr. Sokalsky, in an interview with The Wall Street Journal.
(Bloomberg)
-- Rand Refinery to Upgrade Refining to Boost Coins, Bus. Day Says
Rand Refinery
Ltd. of South Africa will spend 500 million rand ($70 million) over the next
five years to upgrade its gold and silver processes, Business Day reported,
citing Managing Director Howard Craig.
The
company will work with commercial banks to encourage retail buying of gold
coins, the Johannesburg-based newspaper cited Craig as saying. The
smelter’s capacity will double to 8,000 metric tons a year and
production of refined silver will increase fourfold, it said.
(Bloomberg)
-- Gold Gains as Inflation Concern, Egyptian Protests Boost Demand
Spot gold
climbed, rebounding from the biggest monthly drop since 2009, on speculation
that rising food and oil prices will increase the metal’s appeal as a
hedge against inflation. Protests in Egypt also boosted haven demand.
(Bloomberg)
-- Commodities Overtake Stocks, Bonds After Two-Day Gain on Egypt
The biggest
two-day rally in commodities since December pushed raw materials past stocks,
bonds and the dollar for a second month, after Egyptian riots drove oil,
wheat and rice higher.
The
S&P GSCI Total Return Index of 24 raw materials gained 3.1 percent in
January and rose for a fifth month, the longest streak since 2004, according
to data compiled by Bloomberg. The MSCI All-Country World Index of equities
climbed 1.6 percent including dividends. The U.S. Dollar Index, a gauge of
the currency against six counterparts, fell 1.6 percent. The Global Broad
Market Index for corporate and government bonds lost 0.2 percent as of Jan.
28, Bank of America Merrill Lynch data show.
Commodities
have beaten stocks for three months, the longest stretch since June 2008,
after the Federal Reserve pledged to buy $600 billion of Treasuries and
demand for clothes and food lifted cotton, cocoa and copper. Equities were
poised to break the streak until Jan. 28, when concern Egyptian President
Hosni Mubarak will be ousted sent the MSCI gauge to its biggest retreat since
November and boosted food and fuel.
(Bloomberg)
-- Gold’s Biggest Gain in 12 Weeks Is ‘Capitulation’ End
(Update1)
The
“capitulation” in gold that drove the metal to its worst January
in 14 years may be ending as escalating violence in northern Africa spurs
demand for a haven and after a key technical indicator held.
Futures
traded on the Comex exchange in New York jumped 1.7 percent on Jan. 28, the
most since Nov. 4, as thousands of people took to the streets of Egyptian
cities to protest the 30- year rule of President Hosni Mubarak. Gold earlier
rebounded off its 150-day moving average, an indication the metal may surge
21 percent to a record by the end of June, according to technical analysis by
the Hightower Report.
(Bloomberg)
-- Mexico Gold Output Rose in November, Silver Declined (Update1)
Gold
production in Mexico rose 3.3 percent in November to 5,264 kilograms from
5,095 kilograms in the year-ago period, the National Statistics Agency, known
as Inegi, said today in a statement on its website.
Silver
production declined 3.3 percent to 256,767 kilograms compared with 265,536
kilograms in 2009, Inegi said.
Copper
production rose 4.6 percent to 19,291 tons in November compared with 18,449
tons in the same month a year ago, the national statistics agency said.
Overall,
mining production in November rose 1.1 percent, Inegi said.
(Reuters)
-- Policymakers see dollar losing reserve currency allure
The U.S.
dollar's role as a reserve currency will diminish in the coming years as
Asian economies like China grow and countries seek to diversify their
monetary holdings, policymakers said on Friday.
The
U.S. Federal Reserve's policy of quantitative easing -- essentially printing
money -- and a call by France to look at ways to wean the world off the
dollar as the sole reserve money have put the U.S. currency in the spotlight
Mark O’Byrne
Goldcore
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