Precious metals

Has gold gone manic?

The NYT article makes a case for a global gold frenzy.

Inside the Global Gold Frenzy

HERE, in a corner of Switzerland where Italian is spoken and roughly one-third
of the world’s gold is refined into bars and ingots, business is booming. Every
day, bangles, bracelets and necklaces arrive in plastic bags — from souks in the
Middle East, from pawn shops in Asia and from corner jewelers in Europe and
North America.

“It could be your grandmother’s gold or the gift of an ex-boyfriend,” said Erhard
Oberli, the chief executive of Argor-Heraeus, a major refiner here that processes
roughly 400 tons of gold a year. “Gold doesn’t disappear.”

Amid a global frenzy fed by multibillion-dollar hedge funds, wealthy speculators
and governments all rushing to stock up on the precious yellow metal, the price
of gold briefly surpassed $1,100 an ounce on Friday, a record high.

Long considered the ultimate refuge for nervous investors, gold has climbed
as the dollar has steadily weakened, budget deficits have expanded in the
United States and Europe, and central banks have continued to pump trillions
of dollars into weak economies, creating fears of another asset bubble that
will ultimately pop.

“It’s not that gold has changed, but gold buyers have changed,” said Suki
Cooper, a precious-metals strategist for Barclays Capital. “It’s a structural
shift we’re seeing on the investing side, from Asian central banks right down
to individual investors buying ingots and coins.”

……………………………………….

You only need to look at gold supply and demand statistics from World Gold Council
to discover a lie. As you can see, bar hoarding has been roughly equal to buying
gold ETF, which for the most part is GLD. The net assets in GLD are just 35 billion,
much lower than a single large cap stock in the US stock market – say, Apple or
Google, let alone an ASSET CLASS, and that’s accumulated demand since GLD started
to trade, not just 1 year. Given that GLD is rougly equal to bar hoarding, the total
investment demand in gold for the past decade is of the order of 70 billion, or about 0.1% of the
World GDP or global stock market cap. Sure, gold can drop, but it is nowhere
near manic. See ya at $20,000 per Oz!

Gold demand from WGC

Gold demand from WGC

Sunday, November 15th, 2009 Precious metals No Comments

There are Central Bank takers for the IMF gold

IMF Sells Gold to India, First Sale in Nine Years

By Sandrine Rastello and Kim Kyoungwha

Nov. 3 (Bloomberg) — The International Monetary Fund sold 200 metric tons of gold to the
Reserve Bank of India for about $6.7 billion, its first such sale in nine years.

The transaction, equivalent to 8 percent of global annual mine production, involved daily
sales from Oct. 19-30 at market prices and is in the process of being settled, the IMF said
in a statement yesterday. The average price to India, the biggest consumer, was about
$1,045 an ounce, an IMF official said on a conference call. Gold for immediate delivery gained
0.2 percent.

“The fall in the U.S. dollar seems to be pushing all the central banks to strengthen their
portfolio with gold,” said N.R. Bhanumurthy, professor at the National Institute of Public
Finance and Policy in New Delhi. “Gold is a safe store of value compared to the U.S. dollar.”

The IMF sale accounts for almost half the 403.3 tons that the Washington-based lender in
September agreed to sell as part of a plan to shore up its finances and lend at reduced rates
to low-income countries. Asian nations, which have amassed stockpiles of foreign currency
reserves since the 1998 financial crisis, have shown increased interest in diversifying out of
U.S. assets as the dollar loses value against other currencies.

Gold for immediate delivery gained to $1,061.60 an ounce at 3:42 p.m. in Singapore and was
about $9 below its record $1,070.80 an ounce reached Oct. 14.

Concession Lending

“The most important thing is that people want gold even at these prices,” said Ghee Peh,
head of mining research, with UBS AG in Hong Kong. “There’s good support for prices for now”
from the IMF’s disposal of bullion, he said.

Proceeds from the sales and other IMF resources as well as individual contributors would help
pay for discounted interest rates on loans to low-income countries, the IMF said in July. It
plans to grant as much as $17 billion in extra loans to poor nations through 2014. The 403.3
tons the IMF agreed to sell amount to one-eighth of its stockpile.

“This transaction is an important step toward achieving the objectives of the IMF’s limited
gold sales program, which are to help put the fund’s finances on a sound long-term footing
and enable us to step up much-needed concession lending to the poorest countries,” IMF
Managing Director Dominique Strauss- Kahn said in an e-mailed statement.

Reserve Management

The gold purchase was done as part of Reserve Bank’s foreign exchange reserves
management operations, the central bank said in a statement on its Web site today.

India’s foreign-exchange reserves advanced $684 million to $285.5 billion in the week
ended Oct. 23, the central bank said Oct. 30. That included foreign-currency assets
of $268.3 billion, gold reserves of $10.3 billion and the special drawing rights with the IMF.

“There seems to be consensus among the central banks that it’s better to cut down on
currency holdings and diversify into assets like gold, which has upside potential,” Krishna
Reddy, a precious metal analyst at Way2Wealth Commodities Pvt. said in Mumbai. “The
Reserve Bank of India gold purchase is a clear reflection of this belief.”

China, the world’s biggest gold producer, has increased reserves of the metal by 76 percent
to 1,054 tons since 2003 and has the fifth-biggest holdings by country, Hu Xiaolian, head
of the State Administration of Foreign Exchange, said in April.

The nation may purchase some of the 403.3 tons of gold being offered by the IMF, Market
News International reported in September, citing two unidentified government officials.

More Sales

The lender has said it is ready to sell directly to central banks and later make transactions
on the open market if necessary. The IMF official declined to say yesterday whether other
central banks have expressed interest in purchases.

The IMF, which helped shore up economies from Pakistan to Iceland over the past year,
has sold gold on several occasions. The last transaction was authorized in December
1999 and took place off-market between then and April 2000.

“Gold production has been declining for the past seven years, while demand, particularly
the investment demand has been growing steadily,” Way2Wealth’s Reddy said. “Central
banks and even ordinary investors want to own more gold.”

Sunday, November 15th, 2009 Precious metals No Comments

The next bubble – precious metals

Gold is now the only market that reached new highs. It is a quiet bull.

The gold bull

The gold bull

Every major bull market has 3 phases. The first phase of a bull market is the
accumulation phase. It’s an early phase when informed investors accumulate
the item because it is underpriced. The second phase of a bull market,
usually the longest phase, involves the funds, the pro-s, and smart money to
take positions. This phase is characterized by many abrupt reactions and corrections
that cause the public to dump. The third phase of a bull market is the speculative
mania phase, when we see sharply rising volume as the public enters the market and
Wall Street “experts” start hyping gold. Gold had the manic phase in 1977-1980.
I believe we are currently in the second phase of the gold bull, about to enter the
third phase. Expect gold to perform like technology stocks in 1999.

Sunday, November 15th, 2009 Precious metals No Comments