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MineWeb reports
about surging gold investment demand.
(emphasis mine) [my comment]
GOLD'S BIPOLAR DISORDER
Surging
gold investment demand but high price volatility likely
Gold commentator Jeffrey Nichols reckons the yellow metal is suffering
from a form of bipolar disorder and he and others look to a significantly
higher price, but movements likely to be volatile.
Author:
Lawrence Williams
Posted: Thursday , 05 Feb 2009
LONDON -
With totally contrasting factors in play the gold market seems to be in a
state where investors don't know whether to buy or sell [answer=buy]. ETF
holdings continue to rise with the SPDR Gold Trust - the world's largest gold
ETF - again reporting record levels on the positive side, while on the
negative side there is a firm, but perhaps vulnerable, dollar and a total
collapse in demand from the world's largest gold consumer, India.
U.S. gold commentator, Jeffrey Nichols, describes this as gold's bipolar
disorder (see www.nicholsongold.com ). "With the price of gold lurching
first one way then the other" says Nichols, "it looks like the
market has been suffering from bipolar disorder. I expect this
split-personality behavior, characterized by extreme price volatility, to
continue for some time to come with big swings up and down -- but,
importantly, around a rising trend with support levels moving up step-wise
over time."
Overall Nichols feels that gold is heading "much higher, but not without
more struggle and occasional disappointment for those looking for a speedy
ascent. Further out -- over the next year or two -- I have no doubt that gold
will move to new historic highs well above the $1030 level touched a year ago
March." he reckons.
Nichols is not the only one who is bullish overall on gold though. Obviously
the traditional gold bulls are predicting huge increases in the medium to
long term, if not in the near term, but also some of those relatively
impartial analysts are looking to significantly higher gold prices. Notably
Goldman Sachs has just come up with a forecast that gold could reach $1000 an
ounce again within the next three months. This is a huge lift from its
earlier forecast of only $700 an ounce. It is unusual for an organization of
this type to make such a drastic change in its published market assessment!
According to Reuters Goldman says in its report "The gold
price rally has been driven by surging demand for gold in all forms: physical
gold, exchange-traded funds, and futures contracts as investors seek 'a safe
store of value' amid the financial distress and inflation risks." The
report also noted that a strong relationship between the price of gold in
U.S. dollars and the exchange rate of the dollar against other currencies has
begun to break down.
This latter point would seem to be quite significant in that for the most
part a strong dollar means a weak gold price, but recently gold has moved up
significantly despite the dollar remaining strong against most other major
currencies. Indeed gold has seen recent record highs in terms of many,
if not most, other currencies.
In a report out today, RBC Capital Markets is also looking to a strong gold
price during the year, but with volatile price movements. Its analysts expect
the gold price to remain firm through the first quarter, buoyed by a
seasonally strong period for physical demand and continued investment demand
due to ongoing financial market concerns. It also expects the gold price to
exhibit volatility in 2009, which should result in potentially attractive
buying opportunities on pullbacks into periods of weak demand in the second
and third quarters, mirroring gold's performance in 2006 and 2007. It
suggests that there is risk of a significant June-July period of weakness for
gold demand and the potential for rising emerging market scrap sales in an
extended global recession. It then expects gold to return to the $1000/oz
level later in 2009 or early 2010.
We have just reported here too that Peter Grandich, publisher of the Grandich
Letter and a well respected gold analyst who is not always bullish on the
metal, feels positive towards gold as an investment. "I believe the best
investment right now is gold. Not because I think the world's coming to an
end; quite frankly it won't matter if you have gold if there's truly an
end-of-the-world scenario." says Grandich. (Gold, oil and Canadian banks
plus selected junior miners favored buys - Grandich)
But, with analysts almost falling over themselves to predict a big leap in
the gold price we still need to be wary. Gold can be a very contrary animal
and investors have often had their fingers burnt quite severely in the past
by either going long or short in the precious metal. As Nichols notes in his
latest assessment "Despite expectations of much higher gold prices this
year and beyond, it would be wise to remember that gold remains volatile and
vulnerable. We are in an unprecedented environment with daily evidence of a
deteriorating U.S. and global economy, where policy makers are employing
powerful, yet untested, tools to repair a broken economy, and politicians
cannot be trusted to do all the right things. In this environment, we
could still get a quick sell-off that would bring us back to support levels
well below recent prices." [Unlikely. For there to be a “quick
selloff”, investors would need another safe place to store their money.
Where would this be?]
As noted above, the Indian demand factor - which is also being mirrored in
some other key markets like the Middle East - is potentially a very limiting
factor on the continuing rise in the gold price. While there is a
feeling that the demand fall-off in these areas has perhaps been overdone and
as the market gets to accept a rerating of the gold price upwards, demand may
well pick up, nevertheless this still leaves a short term increase in supply
for the investment sector to pick up without exerting any significant
shortages in gold availability. This is likely to limit the immediate upside
in gold.
But there are other factors in play too. Central Bank gold sales have
been significantly lower, and evidence suggests they are likely to remain so
for the moment. World mine production continues to decline - a decline
which will be made even worse by the virtual unavailability of credit at
reasonable terms for many small and midsized miners/explorers. Certainly
exploration has been decimated by the credit crunch which suggests even
bigger production falls in the long term.
Key may be currency movements. Continued upwards movement of the dollar
may be a limiting factor for gold, but with virtually every economist
predicting that the huge increases in money supply in the US will eventually
lead to major inflation, and perhaps a sharp fallback in dollar parities,
then this should be extremely positive for the metal. Most observers
feel this scenario is inevitable - but when? [in the next few weeks]
Markets have been defying logic and may well continue to do so. Investment
advance is so dependent on perception and for the moment that is still not as
gold oriented as many analysts believe should be the case. But there does
seem to be a general consensus that this is changing - borne out by the
rising ETF holding scenario.
On the downside though, this massive ETF holding represents a huge market
overhang and if the perception moves against gold for any reason, then this
could start coming back on the market with a potentially devastating effect
on the gold price. [Again, where would the money go? Before a selloff in gold
is possible, there would have to be a more attractive investment elsewhere.
Right now, there is nothing more attractive than gold] While the global
financial situation remains in turmoil, which it looks as if it will for at
least another year or more, then gold will probably remain in demand as the
ultimate investment insurance policy, but if other markets really start to
recover this could be bad news for the gold price. [Wrong, the only way other
markets could start to recover would be for inflation to pick up and the
dollar to fall. These developments would also be bullish for gold]
So where do we go from here? To a relatively impartial observer gold would
seem to have enough going for it to keep building for the next year or so. If
the momentum remains sufficiently strong, which would probably require a
return to higher demand from the traditional gold-buying areas like India,
then we could see a rerating of gold at a much higher level of over $1000 an
ounce and this level might be able to be held. However if the gold price just
stays at or around current levels then there could be a major fallback if,
and when, the world is seen as coming out of financial crisis. [Impossible.
Recovery can’t occur without inflation, and inflation would push gold
higher.] This may well be some way in the future though.
MineWeb reports
that ETFs absorb more than $3 billion of gold
so far this year.
RENEWED BELIEF
ETFs
absorb more than $3 billion of gold so far this year
With the gold price reaching records in a number of important consuming
nations, jewellery demand is stagnant - but ETFs are soaring; are they
establishing themselves as the west's answer to small bars?
Author:
Rhona O'Connell
Posted: Thursday , 05 Feb 2009
LONDON -
The markets' renewed belief since the start of this year in gold's role as
a risk hedge has been made abundantly clear and nowhere more so than in the
figures released for the Exchange Traded Funds. These have been
breaking records and making headlines on an almost daily basis and it is
perfectly possible that this publicity has also aided gold's cause with a
degree of self-fulfilling momentum. In the whole of last year the total net
dollar inflow into the major ETFs was $16.4 billion, while in the year to
date, just 24 trading days, the major ETFs have taken up some $3.1 billion in
the absorption of 111 tonnes of gold. There has been only one day of
net redemptions since the year began, and since the start of the year the
amount of gold in these funds' vaults has increased from 1,121 tonnes to 1,231
tonnes.
It is worth putting this into some perspective. An uptake of 111 tonnes in
just over one month compares with 316 tonnes in the whole of 2008, 250 tonnes
in 2007 and 257 tonnes in 2006. These funds tend to be dominated by
retail investors and pension funds (they are particularly attractive to those
pension funds whose charters do not allow them direct exposure to
commodities) and these investors tend to be long term holders. There is
also an element of exposure from the hedge fund fraternity, and this latter
would have been responsible for some, although by no means all, of the
redemptions last year, which came in short bursts.
Retail investors, especially in the United States, also have an affinity
for coins and some western investors have been expressing a specific
preference for coins even over the allocated metal in an ETF because they are
concerned about counter party risk. The fact that, as a holder of an ETF the
investor has an investment in allocated gold and is therefore effectively a
secured creditor of the holding bank is carrying little water with some
frightened investors and they have been choosing coins or small bars as their
referred means of investment. The US Mint has so far sold Gold Eagles
containing 94,500 ounces of gold (2.9 tonnes), of which 92,000 ounces were
sold in January. This may seem to be relatively small beer, but sales in
January 2008 were just 26,000 ounces or 800 kilos, so US coin sales so far
this year are running at 3.5 times as much as twelve months ago.
On the speculative side of the market, the net speculative long position
on COMEX, which does not involve physical gold, but which measures
speculative sentiment, has increased from 444 tonnes at the end of last year
to 493 tonnes in late January, a gain of 49 tonnes. This has comprised net
purchases of 88 tonnes of longs, partially offset by 40 tonnes of fresh
shorts. [I wonder who these shorts are]
Figures from the World Gold Council (compiled by GFMS Ltd) show that
investment bar demand in the first quarter of 2008 was 79 tonnes, and was as
much as 232 tonnes in the third quarter of the year (full year figures are
not yet available). Jewellery is obviously a much larger market and in the
first quarter of last year, world jewellery demand was 444 tonnes, rising to
624 tonnes in the third quarter of the year. The start of this year is a
much less encouraging picture, however. With gold at record highs in both
rupees and Turkish lira, and with a worrying economic and financial
environment, the gold jewellery market in these and other regions is
suffering badly, and a lot of the demand this year, such as it is, has so far
been furnished by recycled metal.
While it is unlikely, even with jewellery struggling, that ETFs would ever
compete with the jewellery market (different sizes, different investment
rationale), this year's lively level of ETF demand is clearly competitive in
tonnage terms with investment bars. The question that arises is, will these
funds reach critical mass or will they continue to attract investment from -
inter alia - western individuals in the same way that kilo bars are
consistently bought in the Middle East and Asia? If ETFs start to be
regarded in the west in the same way that small bars are regarded in Asia
then there is every chance of more substantial inflows, quite apart from the
activity from the pension funds. This would be grist to the bulls' mill - but
there are two sides of every coin and bears would be able to argue that the
holdings in these funds might represent an all-too visible overhang once the
financial and economic environment changes. [The real overhang is the
mountain of cash (dollars) sitting on the sidelines right now]
Reuters reports
that Capital Mint sees sharp rise in sales.
Capital
Mint sees sharp rise in sales
Fri
Jan 30, 2009 3:48pm GMT
By
Jan Harvey
LONDON, Jan 28 (Reuters) - Bullion dealer Capital Mint expects sales of
its gold bars to rise sharply from February as investors seek out bullion as
a safe store of value amid suspicion over the stability of other assets.
The company's founder, Renwick Haddow, told Reuters in an interview he expects
sales to grow to around 1,500 ounces a month from February onwards.
The company, which is owned by AIM-listed Capital Ideas (CAPT.L), has sold
some 1,000 ounces of gold since its launch on Dec 12 via bars in five sizes
of up to 500 grams.
"I can see this market being quite buoyant for the next 12 to 18
months," said Haddow.
Rising volatility in the price of other assets such as property or equities
is boosting the appeal of physical gold assets such as coins and bars, he
said.
"People prefer (to hold) a real commodity, either in their hands or
where they can get hold of it at any time," Haddow said. "They
are mainly private investors who have spare cash."
Capital Mint typically sells to individual investors, who spend an average
5,000-10,000 pounds ($7,141-$14,280) per transaction, he said. Its most
popular product is the one-ounce gold bar, which currently sells for 849
pounds.
In addition, the company has seen interest from independent financial
advisers, Haddow said, who are looking into new products for their clients.
In addition to its perceived safety, Haddow said, falling interest rates
on savings are also reducing the opportunity cost of holding gold, a
non-interest bearing asset.
"People prefer to have their money safe in gold than sitting in a
bank earning less than 1 percent interest," Haddow said.
Gold has been one of the few assets to hold its value over the last three
months, even as other commodities, particularly industrial metals, have
fallen.
Spot gold was quoted at $886.90/885.50 an ounce at midmorning on Wednesday,
up some $150 an ounce from Oct 27 last year. In contrast, copper has fallen
17 percent and aluminium by a third in the same period.
Gold priced in
sterling hit an all-time high of 701.55 pounds on Jan 26.
Investment in physical gold products, such as coins and bars, and physically
backed exchange-traded funds has been strong as investors seek a haven from
risk.
Interest was so strong that dealers reported a shortage of some products
such as Krugerrands, or one-ounce bullion coins, late last year as smelters
failed to keep up with demand.
My reaction: That
was a lot of gold related info! Here is a quick summery of all the notable
points mentioned in the articles above:
1) Many gold commentators expect extreme gold price volatility to continue
for some time around a rising trend with support levels moving up step-wise
over time.
2) The strong relationship between the price of gold in U.S. dollars and the
exchange rate of the dollar against other currencies has begun to break down.
In the past, a strong dollar has meant a weak gold price, but recently gold
has moved up significantly despite the dollar remaining strong against most
other major currencies. As a result, gold has seen record highs in terms
of many, if not most, other currencies.
3) The Indian demand factor (mirrored in some other key markets like the
Middle East) is a potentially limiting factor on gold prices. This fall in
demand is due to gold being at record highs around the world and is unlikely
to last (once consumers realize gold prices aren’t going to fall, they
will start buying again).
4) Central Bank gold sales have been significantly lower.
5) World mine production continues to decline (which will be made even worse
by the virtual unavailability of credit at reasonable terms for many small
and midsized miners/explorers).
6) Exploration has been decimated by the credit crunch which suggests even
bigger production falls in the long term.
7) Virtually every economist is predicting that the huge increases in money
supply in the US will eventually lead to major inflation and a sharp fallback
in dollar parities. This would be extremely bullish for gold.
8) The figures released for the Exchange Traded Funds have
been breaking records and making headlines on an almost daily basis. In the
whole of last year the total net dollar inflow into the major ETFs was $16.4
billion, while in the year to date, just 24 trading days, the major ETFs have
taken up some $3.1 billion (an absorption of 111 tonnes of gold). There has
been only one day of net redemptions since the year began, and the amount of
gold in these funds' vaults has increased from 1,121 tonnes to 1,231 tonnes.
9) An uptake of 111 tonnes in just over one month compares with 316 tonnes in
the whole of 2008, 250 tonnes in 2007 and 257 tonnes in 2006.
10) Investors in gold ETFs are mainly retail investors and pension funds, who
tend to be long term holders.
11) The net speculative long position on COMEX increased
from 444 tonnes at the end of last year to 493 tonnes in late January, a gain
of 49 tonnes. (remember to stay away from gold futures, they are not safe)
12) With gold at record highs in both rupees and Turkish lira, and with a
worrying economic and financial environment, the gold jewellery market is
suffering (this represents the fall in India demand mentioned above). The
fall in demand for gold jewellery will reverse once inflation picks up.
13) A lot of the demand for jewellery this year has been furnished by
recycled metal (recycled metal = old gold jewellery melted down).
14) If gold ETFs start to be regarded in the west in the same way that small
bars are regarded in Asia, then more substantial inflows are likely.
15) Bullion dealers like Capital Mint expects sales of its gold bars to rise
sharply.
16) Bullion dealers’ most popular product is the one-ounce gold bar,
which currently sells for 849 pounds.
17) Capital Mint has seen interest from independent financial advisers who
are looking into new products for their clients.
18) Falling interest rates are reducing the opportunity cost of holding gold,
a non-interest bearing asset. Renwick Haddow, Capital Mint’s founder,
explains, "People prefer to have their money safe in gold than sitting
in a bank earning less than 1 percent interest,"
Conclusion: Gold remains the most attractive long term investment,
with food commodities and agriculture stocks being a close second.
Eric
de Carbonnel
Market Skeptics
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