Rock, Paper, Scissors

London Gold Market Report
By: Adrian Ash, BullionVault

"...Yes, the numbers of rough. But people choose gold when paper collapses in value..."

RUNNING into YEAR-END 2008 with a hatful of fears, losses, hope and questions?

Here's another puzzler to ponder as the $3 trillion of tax-funded bailouts now promised worldwide slowly roasts every bond-holder's goose over Christmas...

As a proportion of global investable assets, Gold hasn't been this strongly-weighted for the last 15 years.

But seeing how this financial crisis is the ugliest since the Great Depression, World War I or perhaps even earlier (depending on which political hack, wonk or meddler you speak to), it could still double again – if not rise more than ten-fold.

Either that, or the value of paper assets – meaning stocks and bonds – could tumble in half. If not sink by more than nine-tenths.



Am I kidding? No more than anyone else.

Tessa Jowell, a UK minister, reckons this downturn is "deeper than any we have known." Mervyn King, head of the Bank of England, says it's the worst financial crisis since before the Great War.

And given that "when investor stress reaches extreme readings" people Buy Gold – as John Hathaway at Tocqueville Asset Management put it in a 2006 paper – then we should expect the valuation of all the gold-in-the-world to rise accordingly.

People turn to this rock, after all, when paper's too scary to own. Have we reached an "extreme" amid this financial end-of-days...?

First, let's try (if we can) to ignore the $596 trillion-worth of "notional" value outstanding in credit, currency, stock-market and collateralized derivatives.

Let's also put the Western world's real estate markets to one side, as well. The idea that housing is a tradable asset only shows up every generation or so. In between, the slumps and dips just make bricks'n'mortar somewhere to live in – not retire on.

That leaves us, pretty much, with stocks and bonds. And as the good folk of World Financial Exchanges will show in their data just as soon as 2008 croaks out, last year's peak of $90 trillion is set to take a knock. By our reckoning here at BullionVault, in fact (and with thanks to the Bank for International Settlements' latest figures), that gross market capitalization will show a fall of one-quarter and more in global equities and tradable debt.

On the other side of the trade, in contrast, Gold Priced in Dollars actually rose in 2008, notching up its seventh annual gain on the trot. (That's not to say it won't fall next year; for now, the Gold Price in 2009 is not our beef.) And with the total, above-ground-stock of gold now standing around 165,500 tonnes (guess-work courtesy of GFMS, the World Gold Council and ourselves), that puts the notional value of all gold ever mined in the world at some $4.6 trillion.

Yes, that's a very rough guess fashioned without a sharp pair of scissors. And yes, it includes all central-bank gold hoards, jewelry, tooth fillings, mobile-phone chips and Goldschlager flakes...as well as Gold Bullion Bars, coins and exchange-traded holdings.

But comparing all the gold-in-the-world against stocks and bonds shows a far less than "extreme reading" for investor stress. So far, at least.

Back in 1980, for instance – when the Iranian crisis and war in Afghanistan last sent gold to a nominal peak at $850 an ounce – "the $1.6 trillion invested in gold exceeded the market value of $1.4 trillion in US stocks," according to Peter Bernstein in his classic tome, The Power of Gold.

US equities today stand closer to $13 trillion. Every ounce of gold ever mined is worth barely one-third.

Put another way (and yes, the numbers are rough once again), "We calculate the market cap of all above ground gold, including central bank reserves, equals about 1.4% of global financial assets," wrote Tocqueville's John Hathaway almost three years ago.

"In 1934 and 1982, when investor stress reached extreme readings, that percentage was between 20% to 25%."

In short, the mass people choosing to Buy Gold today remains tiny compared to the value which the world still puts on paper. And it's only when paper collapses in value – an event you might expect during the worst post-WWII crisis – that gold is likely to hit its true peak for this investment cycle.

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold in 2009 Still "Unknown" as Global Deflation Panic Sparks Return of ZIRP

London Gold Market Report
By: Adrian Ash, BullionVault

THE SPOT PRICE of gold tumbled in Asia and London on Friday morning, sliding $42 from yesterday's top – and cutting this week's gains by four-fifths to 1.5% – as stock markets also sank despite fresh rate cuts from the world's No.3 central bank.

The Bank of Japan – still pushing on a string after 14 years of trying to fight a deflationary recession with its Zero Interest-Rate Policy (ZIRP) – today reduced its overnight loans rate from 0.3% to 0.1% in the hope of stopping the Yen from surging further on the forex market.

But the Japanese currency only rose again in early trade, cutting one-half off this week's bounce in the Euro vs. the Yen. Priced against Dollars, the Euro meantime slipped to $1.40 – down more than 7¢ from yesterday's 11-week high.

French, German and Italian investors wanting to Buy Gold today saw the price hold just below €600 an ounce – a level first broken in January and 2.5% down for the week.

Looking ahead to the Gold Price in 2009, "How it will perform if the world enters a period of severe deflation is really unknown," says the Virtual Metals consultancy in London in its latest Fortis Metals Monthly.

"The historical precedents are few. During the Great Depression [of the 1930s], the Gold Price was fixed nominally and so naturally rose. The more recent Japanese deflation was by definition regional only."

But "what seems more certain," the report concludes, setting a short-term range of $760-$875, "is that when economies do recover – and need to deal with the legacy of the current monetary easing – gold should perform better as the threat of inflation returns with a vengeance."

As the Bank of Japan voted 7-to-1 to match this week's record-low interest rates from the US Fed, the Tokyo government also moved to buy ¥20 trillion ($223bn) of stock-market shares held by Japanese banks.

"The government's purchase will prevent banks from selling their stockholdings in the market and creating oversupply," reckons Hideo Arimura, manager of $1.9bn at Mizuho Asset Management.

Here in London, new broke that the Royal Bank of Scotland used the tax-funded "special liquidity scheme" to raise £34 billion ($51bn) of new funds, securitizing mortgages and selling them to the Bank of England in lieu of private-sector demand.

The FTSE100 index slid 2.2% meantime. Tokyo's Nikkei closed the day 1% lower.

"Looking ahead," says Steven Barrow from the currency desk at Standard Bank, "we do not see the [Bank of Japan] rate cut undermining the Yen at all. We still look for a move to ¥80 or lower against the Dollar in 2009."

"The stronger Dollar has pushed the precious metals lower," adds today's precious metals note fro Mitsui – also in London – "with support for gold being found this morning at $835.

"If this breaks, the next technical support level could be the 100-day moving average at $805."

But "a dip in Gold Prices will give a good buying opportunity for investors seeking a safe asset amid a global recession," says Tatsuo Kageyama at Kanetsu Asset Management in Tokyo, speaking to Bloomberg by phone.

"Gold is pausing after climbing rapidly on investment demand bolstered by US monetary policy."

While Gold Bullion slipped further ahead of Friday's New York opening, the broad commodity indices sank yet again, dragged lower by crude oil sliding beneath Thursday's new 55-month low of $35 per barrel.

"World crude oil prices are currently driven by barrels of crude in Cushing, Oklahoma," reckons one analyst – referring to the huge US stockpiles that swelled by 21% last week, signaling a glut of supply – "rather than the Opec announcement of a 4 million barrels a day cut to output."

Buoyed by the Deflation Trade once again, government bond prices rose across Asia and Europe on Japan's fresh cuts to interest rates, pushing the yield offered by 6-month UK gilts down to 0.5%.

The British Pound bounced 2¢ against the Euro from yesterday's fresh all-time record low at €1.05.

The Gold Price in Sterling retreated 3% from Thursday's new record high above £574 an ounce.

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold Marks Two Important Milestones

In the past week, gold quietly marked two important milestones.

First, as of Monday the price of gold is now showing a gain for the year. The closing price of gold on December 31, 2007 was $833.75. The price of gold today is $854.60. That makes gold up 2.5% for the year to date. If gold can hang onto this gain into the end of the year, this will also mark the eighth year in a row that gold has had a positive return. For the year and for this decade, gold has humbled its naysayers and rewarded its investors.

Second, on Tuesday the price of gold exceeded the price of platinum. The two metals now trade within a few dollars of each other with gold at $854.60 and platinum at $858. This is a big change from earlier in the year when platinum was trading over $2,200 per ounce, more than double the price of gold. If I’m not mistaken, the price of platinum has been higher than the price of gold for this entire decade. Not since the 1990s has gold been more expensive than platinum. Considering that platinum is thirty times scarcer than gold, this makes a strong statement about the demand for gold.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Gold: "Important News" Remains Interest Rates as Dollar Loses Two-Thirds of Its Bounce Inside 3 Weeks

London Gold Market Report
By: Adrian Ash, BullionVault

SPOT WHOLESALE GOLD PRICES continued to rise early in London on Thursday, recording the best AM Gold Fix in 10 weeks as European stock markets stalled and government bonds leapt yet again, squashing UK gilt yields to new record lows.

Standing more than 2% above Wednesday AM's level against the US currency, the Gold Price in Sterling raced to fresh record highs above £570 an ounce.

Versus the Euro, however, Gold Bullion slipped as the single currency jumped faster still on the forex market.

"I think the important piece of news is the Fed cutting rates to zero," said Adrian Koh, an analyst at Phillip Futures in Singapore, to Reuters this morning.

"Oil is still on a strong downtrend, yet the Dollar also seems to be slipping, so I guess gold is going to be stretched between the two factors.

"But overall, I think you can say sentiment in gold has improved."

Early action on Thursday saw crude oil hold just north of Wednesday's new four-and-a-half year low beneath $40 per barrel.

Asian stock markets rose, apparently buoyed by hopes of zero interest rates on the Yen, due from the Bank of Japan Friday morning.

The US Dollar today recovered ¥1.5 to the Japanese currency, but the Euro – still paying 2.5% per year thanks to the "vigilant" and much-vilified European Central Bank (ECB) – meantime jumped above $1.4700 for the first time since Sept.

The greenback has now given back two-thirds of its record-fast gains vs. the Euro, starting from mid-July, inside 3 weeks.

Back in the Gold Market, meantime, reports out of Hong Kong today suggest "dishoarding" by jewelers and other large gold stockists this week, taking advantage of the gains in dollar-prices and pushing the premiums charged over Spot Gold prices down from $2 an ounce to 50¢.

US and European Gold Coin buyers, in contrast, continue to face premiums of 6%-plus.

"Gold still attracts buying interest" however, says Ronald Leung, head of Lee Cheong Gold Dealers in Hong Kong – also speaking to Reuters.

"People are not happy to put too much money in the bank."

Fears of outright banking collapse may have subsided this autumn, but the Federal Reserve has now slashed official US interest rates to zero.

The Swiss National Bank cut its key rate to 0.5%. Japan's target interest rate has now been at 0.5% or below since 1995. Here in London, Bank of England policy-maker Charlie Bean tells the FT today that UK rates may soon follow – together with a fresh recapitalization, financed by tax and government debt, of London's ailing bank sector.

Minutes from the BoE's latest policy meeting show the committee considered a deeper cut than the eventual 1.0% reduction at its Dec. meeting.

But the Old Lady held back (get this!) for fear that "going further could cause an excessive fall in the [Pound's] exchange rate."

Today the Pound fell below €1.05 to the Euro, a new record low and down by one-fifth in the last 11 weeks.

Over in the retail market for Gold Investment, meantime, "Demand continues, though not on the high levels seen in recent weeks," reports Wolfgang Wrzesniok-Rossbach in his latest Precious Metals Weekly for Heraeus, the German-based refinery giant.

"Since the production of new bars is still running at full blast, delivery periods [now pegged at 6-8 weeks by Heraeus's Swiss competitors] did not grow any further. That could happen though at the beginning of next year as there is a holiday-related production break coming up.

Looking at the wholesale and US Gold Futures market, Wrzesniok-Rossbach goes on to note the recent "backwardation" in gold prices, with the "forward price lower than the spot price.

"This drew in Germany some serious attention. Some commentators read into it a possible upcoming shortage of physical gold if the situation prevails. [But] we would rather rate this as much to do about nothing."

Future prices for gold – as set by forward contracts – "are simply a function of the difference between the gold lease rates and the Dollar interest rate," notes Wrzesniok-Rossbach.

Gold lease rates have risen recently as gold-lending slowed down and the risk-premium rose. Dollar interest rate has meantime been slashed towards zero by the US Fed, erasing the "cost of carry" for gold buyers on the futures market.

"Should gold be discovered as an investment by a larger amount of investors," however, "it could indeed mean that there is then not enough physical metal available," says Wrzesniok-Rossbach, citing the example of German investors.

If they opted to put 5% of their wealth into gold – the "often recommended" proportion –German investors would required 7,500 tonnes, almost as much as the US Federal Reserve, the world's No.1 hoarder, carries on its balance-sheet.

Best estimates put current private-gold holdings in Germany at 1,500 tonnes. That "obviously leaves a huge gap for the moment that the broad public discovers gold as the ultimate safe haven," the Heraeus analyst concludes.

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Fed Says Buy Gold: The Start of a Bullish Pattern

On Tuesday we received direct confirmation from the Fed that the U.S. dollar will continue to be sacrificed to resuscitate ailing credit and asset markets. "Helicopter Ben" is finally living up to his advance billing, as dollars are set to rain down on the economy.

Gold markets got a huge burst of upside energy immediately following this surprisingly forthright Fed statement, and the long-anticipated move up to $875 is well underway. This is of course great news for our long positions, and it looks now like $875 will only be a temporary waypoint on the way back up to the all-time highs.

On a related note, the trading program for the Fractal Gold Report has captured the majority of the move up off the bottom, with our initial long position coming way back at $710. While many hedge funds and money managers have had a disastrous year, the program has not only come through this tough period unscathed, but is well into positive territory, and that includes all fees and commissions. (Past results are not necessarily indicative of future results. There is risk of loss in all trading.) Subscribers to the Fractal Gold Report are eligible for participation in the trading program if they meet the brokerage firm requirements.

As the New Year approaches, this is the perfect time to assess which methods have been successful during this historic market shake-out. As they say, it's easy to be a genius in a bull market. But the real "value-added" is most apparent during the turbulent periods.

My road-map for gold in 2008 called for a top around $1,010 in late March, followed by a lengthy and difficult corrective period which was likely to carry gold all the way back down to $730, which I subsequently adjusted to $675 as the correction was underway.

The actual high was $1,033 in late March. Then after a difficult six month corrective period, gold bottomed out at $681 in late October.

But the most important thing to notice on this monthly chart is how the correction has already accomplished its main job, which was to bring the monthly fractal dimension back over 55. This means that gold is again in position to rocket to the upside. A monthly trend in gold can carry prices up $400 or even $500. These are huge moves. There is still plenty of room to extend higher, even in the short-term.

The 150-minute fractal dimension has dropped quickly with this very strong breakout move, but it's only down to 41, so there should be more than enough energy left to take gold up to $875 on Wednesday.

At this point my plan is to take profits at $875 if the 150-minute fractal dimension is again down in the low 30s or high 20s as gold is stretching up to this target. As we just saw at $810, there is little risk of missing out on further upside in such a scenario, and it can greatly reduce risk, as we can side-step that period of time when gold is highly unlikely to make further upside progress, and is much more likely to correct back down.

But after this expected short-term correction off the $875 energy level, we will be looking to get right back in for the next phase of this very exciting bullish pattern.

As always, I will provide daily updates on gold in the Fractal Gold Report, and subscribers with the annual plan also receive the Fractal Silver Report.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Oil Majors Should Just Buy Real Gold

The current investment climate is riddled with counter-party risk, frauds and broken promises. In an attenuated way probably in violation of the Model Rules of Professional Conduct for attorneys even the SEC is married to Madoff. As the deflationary credit contraction intensifies, holders of capital continue seeking safer and more liquid assets in which to allocate capital. Some neophytes have called this a ‘liquidity crisis’. I suppose they scarcely understand the phrase.

GOLD TO OIL RATIO

The current price of February oil is $46.20 and spot gold is $849.90. The ratio is 18.4 barrels of oil per ounce of gold. The historic averages (click on chart to enlarge) indicate opportunities for buying around 10 and selling around 20. Oil, priced in gold, is getting pretty cheap which is to be expected during a credit contraction environment.

OIL MAJORS ARE CASH COWS

The oil majors generate and hold tremendous amounts of ‘cash’. Unlike the current nomenclature I consider gold cash and fiat currencies such as the Federal Reserve Note Dollar, Euro, Yen, etc. to be ‘like-cash’ which will eventually evaporate just as other ‘like-cash’ assets have such as Auction-Rate Securities, Asset Backed Commercial Paper, etc.

Nevertheless, at the end of 2007 Exxon (XOM) had $86B of current assets and $5.8B change in cash equivalents. Chevron (CVX) had $39B in current assets with $7.4B cash on hand. Total (TOT) had $71B in current assets, $8.8B cash on hand and $5.1B change in cash equivalents. British Petroleum (BP) had $80B in current assets with a measly $1B change in cash equivalents. The runt, ConocoPhillips (COP), still possessed $24.7B in current assets with $1.5B in cash and $639M change in cash equivalents. Combined these five companies had current assets exceeding $300B.

On May 28, 2008 Rex Tillerson, CEO of Exxon Mobil (XOM), speaking at the company’s annual meeting, was quite proud of $7B of share buybacks per quarter for a total of 20% of its total outstanding stock over the last five years. Through either similar buyback programs or mergers the other oil majors have engaged in similar transactions with their monstrous free cash flows.

GOLD IS CHEAP

At all times and in all circumstances, gold remains money and therefore is the most important currency in the world. As required under the International Accounting Standards, gold is a monetary commodity. For example, footnote 14 of the 2007 Annual Report for the Bank for International Settlements states, ‘Gold is considered by the Bank to be a financial instrument.’ Silver, while extremely cheap with a current silver to gold ratio of 78.2, is only a quasi-monetary commodity. Gold is carried in the cash section of the balance sheet.

On May 20, 1999, Alan Greenspan testified before Congress, “Gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.” Additionally, gold has been flirting with backwardation and fiat currency interest rates are now nearing 0%. The COMEX had available for December delivery a puny 2,855,567 ounces and 45.7% has been demanded for delivery.

During the 1990’s Mr. Rubin had devised the gold leasing scheme with the intent being elucidated by Dr. Greenspan’s testimony in 1998, “Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.”

GATA’s alleged central bank gold price suppression scheme may include the COMEX’s participation. Mr. Robert Landis, a graduate of Princeton University, Harvard Law School and member of the New York Bar, has asserted that “Any rational person who continues to dispute the existence of the rig after exposure to the evidence is either in denial or is complicit.” GATA alleges that the central banks have less than half the gold claimed.

The sophistries weaved by the derivative illusion have confused many otherwise extremely intelligent people to erroneously believe that the sun (gold) revolves around the earth (FRN$). Gold is not a portfolio asset; everything else is. For example, the $700B bailout represented approximately 20% of all the gold ever mined in the world. When there is a real liquidity crisis there are no TARPs, TAFs, TALFs and other CRAPs which are intended to confound, confuse, deflect and misdirect. Why have hundreds of pages on the topic of gold leases requested under FOIA by GATA been redacted by the Federal Reserve for reasons including ‘trade secrets’ and ‘privileged or confidential’ memorandums and letters?

Peter Schiff, the extremely accurate Gerald Celente and others have cited forecasts for gold in excess of $2,000 per ounce. Former Federal Reserve Govenor Lyle Gramley has suggested a revaluation of the Federal Reserve’s gold. A revaluation from the current $42 per ounce to Gerald Celente’s suggested $6,000-10,000 is not unreasonable given the condition of the Federal Reserve’s current tumescent balance sheet. This would also bring the DOW towards its twice historic lows of about one ounce of gold.

My assertion is that the downside risk for the oil majors when purchasing real gold is limited while the upside is prodigious. Humanity’s gold lust has been dormant for nearly a century and when it awakens it will be extremely vehement and go viral. Those who own gold know of what I speak. The yellow metal seems to call out to the inner conscience and resonate with our DNA.

BE THE RISK NOT AT RISK

The oil majors, or anyone else for that matter, can purchase gold and put options. Then they can cause the ultimate liquidity crisis by sending their armored trucks to the COMEX, having them loaded up with the supposed gold and hauling it away. Demanding and taking physical delivery is extremely important because there are approximately 140 ounces of ‘paper gold’ for every ounce of physical gold. This is a key reason why the oil majors should truck away their gold instead using problematic ETFs such as GLD or SLV (GLD) (SLV). Someone will be left holding the bag of worthless paper gold.

As a result of all the delivery notifications in December the COMEX currently has 1,304,994 ounces or about $1.1B. The entire eligible COMEX stockpile represents an immaterial 0.36% of the current assets of the five oil majors. The oil majors could drain the COMEX with a rounding error. It would be 14% of what Exxon Mobil was spending per quarter buying back stock. Why buy back stock when oil is so cheap compared to gold? Why not just buy physical gold and truck it away? Is there a potential failure to deliver for the stock?

There is extreme instability in the worldwide monetary and financial system accompanied with the counter-party risk of the banks. The oil majors, or you for that matter, can easily eliminate counter-party, Herstatt and settlement risks with gold clause contracts and by using credible, transparent and reliable digital gold currencies. This turns bullion hoards into a functional currency for ordinary daily transactions either with international parties or domestic employees. Under 31 U.S.C 5,101-5,118 gold clauses are legal and enforceable. As the economic pain from the current system intensifies more rational market participants will seek out alternatives which will only increase the velocity of gold and its perceived value.

CONCLUSION

Because (1) oil is a bargain, (2) shares are plentiful, (3) gold is extremely cheap money in short supply relative to the size of their balance sheets, and (4) to reduce risk therefore the oil majors should just buy and take delivery of physical gold instead of buying back their own shares.

Finally, it appears almost like gross negligence and an extreme breach of fiduciary duty for executives and boards of directors to continue ignoring the risks and perils of the current monetary and banking system when safe alternatives exist. This area may become ripe ground for shareholder derivative suits. For example, Mr. Tillerson’s $13M compensation and $54M of stock is rather low compared to the compensation of other oil and gas executives like Bob Simpson of XTO Energy who earned $72M and has $600M of stock. Lawyers, here are some deep pockets to go after!

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Steer clear of jewellery and diamonds as 'investments'

With the economic slowdown and the consequent fall in jewellery sales, jewellers have recently begun touting the merits of jewellery and diamonds as being 'investments'. This is dangerous nonsense that may lose investors even more of their hard earned savings. Here's why

First, jewellery and diamonds attract VAT at very high levels. On the other hand, investment grade gold bullion (0.9999 or 24 carat), coins, bars or government gold certificates are stamp duty and VAT free due to the EU Gold Directive.

Second, gold bullion coins, bars and certificates can be put in a pension fund, unlike diamonds and jewellery - another reason that they are not 'investments'.

Another important consideration is that the jewellery market is known for having huge mark ups over the actual gold content or intrinsic precious metal value of the jewellery itself. A very large necklace that contains one ounce of pure gold (0.9999 pure or 24 carat) will normally cost well in excess of 250% of the market price for gold. For example, if the price of gold is £550/oz, the necklace may cost well over £1,375. A gold bar which also contains one ounce of pure gold will cost £550, plus a much smaller mark up of some 5% - or £577.50.

This is just when you buy. Selling is just as important to consider. When the owner of a piece of jewellery goes to sell their 'investment' they will be lucky to get 30% of its cost price back. In fact, most jewellers will not even consider buying the piece back. The buyer will be forced to sell it at a massively discounted price in a pawnshop or on Ebay.

This huge instant depreciation is not seen in the market for gold itself. A gold certificate or gold bars can be bought at 2% to 6% over the live market gold price. A day, week, month, year or years later, the same gold certificate or gold bars will automatically be bought back by a bullion broker or government mint at near 100% of the market value – at some 1% below the actual market price, or even slightly above the market price.

The spread between the buy and the sell price for investment-grade gold bullion is in the low single digits - tiny. Whereas the spread between the buy and sell price for rare stones or jewellery is extremely high, making any sort of investment return nigh-on impossible.

There is no local or international marketplace where jewellery or rare stones are traded on an exchange as there is with equities, commodities, bonds, currencies and gold. And so there is no efficient market or price-discovery mechanism. All this means that the price of jewellery and rare stones is subjective, and subject to the whims of individual jewellers and valuers.

Even international experts in the trade do not claim that jewellery or gemstones are investments . Lisa Hubbard, executive director of international jewellery at Sotheby's, notes that " Diamonds tend to go up and down with the value of the stock market."

Unlike jewellery and rare stones, investment grade gold bullion (0.9999 pure) has an inverse correlation to property and equity markets, as was seen in the 1930's and 1970's - and in recent months.

Jewellery and rare stones are not investments. Some quality jewellery pieces and top quality, very rare stones may be stores of value and may retain their value in the event of a continuing and deep recession. However, the vast majority of jewellery pieces and rare stones will fall in value.

In the current unprecedented financial and economic climate there are very few safe havens, but gold bullion remains one. Central bank gold sales and the leasing of gold have artificially suppressed the price in recent years, but with gold lease rates surging and central banks concerned about financial, economic and systemic contagion, this source of supply is set to dwindle in the coming months. Indeed, many central banks are adding to their gold reserves.

The German Bundesbank recently said they view gold as an essential monetary asset. "National gold reserves have a confidence and stability-building function for the single currency in a monetary union." The wise sages in the Bundesbank believe that financial and political uncertainty make their gold reserves even more important than before. The Bundesbank is the world's second-largest holder of gold after the US Federal Reserve. In in the past five years, it has sold just 20 tonnes out of total reserves of over 3,000.

As ever, real diversification is absolutely essential to all investors. Best-of-breed equities, property, commodities, government bonds, cash and gold bullion should be included in all investors' portfolios in order to protect ourselves in 2009.

And so this Christmas, by all means buy jewellery or a diamond as a beautiful gift for a loved one. But do not buy it as an 'investment ' that will protect you from the global economic recession. It won't.

•This article was written by Mark O'Byrne, executive director of Gold and Silver Investments Ltd.

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Three Gold Stocks Set to Rally in 2009

Randgold Resources Ltd. (GOLD), Gold Fields Limited (GFI), Kinross Gold Corporation (KGC) and other gold stocks rallied as investors looked to hedge against inflation. The U.S. dollar weakened against other currencies after the Federal Reserve lowered interest rates to help encourage economic activity, which led to a rally in many commodities including gold.

Investors purchase gold for their portfolios in order to hedge against inflation and a declining dollar while also using it as a safe-haven during times of instability. Prices have also been helped by a fall in mine supply, a slowing of central bank sales, ongoing de-hedging by producers, firm demand from ETFs, and a likely recovery in jewelry demand. Meanwhile, banks taking major short positions on the Comex market in New York may also be forced to cover their positions after the market’s recent rally.

Many analysts are also very bullish on the prospects of gold going forward. Goldman Sachs raised its near-term gold forecast on expectations for a weaker dollar and as interest in the precious metal as a safe-haven from risk continues to keep prices moving higher. The bank raised its three-month forecast to $700 an ounce from $690 while also raising its full-year prices to $795 from $710 an ounce. Studies at the bank have shown that gold moves opposite the dollar 90 percent of the time.

Companies like Randgold Resources, Gold Fields, and Kinross Gold could benefit from the rise in prices as it will both increase the value of its current reserves as well as provide funding for future exploration activity. Of course, higher prices also help increase revenues, drive profits, and improve the balance sheet. Moreover, bigger miners like the companies offer a combination of safety and profitability given the fact that they are well-capitalized and trading at near-record low price to net present value multiples.

So, how can investors leverage their position while taking on less risk? One way may be to purchase long-term options called LEAPS (long-term equity anticipation securities). While not available on all securities, these options enable long-term investors to purchase rights to a stock at a set price and time in the future for a much lower upfront payment than purchasing the underlying stock outright. See “Using LEAPS as a Stock Substitute” for more information.

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GoldTraderAsia.com - Where to Buy and Sell Gold Bullion Bars, Gold Ingots, Gold Coins Collection and Gold Jewellery in Singapore.

To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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Precious Metals ETFs: Should You Follow Conventional or Contrarian Wisdom?

When central banks in a country or region lower their target interest rates, the respective currencies tend to fall in the near-term. And with the globally coordinated (and non-coordinated) rate cuts happening worldwide, conventional wisdom suggests that all currencies would give way to precious metals.

Indeed, we've seen a fair amount of precious metal buying in the ETF world. Although gold via streetTracks Gold Shares (GLD) is still 20% off its high, it is essentially flat on the year. Similarly, the Powershares DB Precious Metals Fund (DBP) is down a mere 10% YTD.

Broader commodity indexes haven't been quite as lucky. The PowerShares Commodity Index Tracking Fund (DBC) and the Dow Jones AIG Commodity Index ETN (DJP) are down 32% and 39% respectively.

The reason for the commodity bust has some roots in the current pressures of deflation. Some people believe that the unprecedented efforts to increase liquidity and consumer spending around the world will ultimately create hyperinflation in an artificial economic rebound. And if that's the case, DBC and DJP should rise precipitously.

However, when oil and "ag" were setting inflation-adjusted records, gold and silver were 50% below the inflation-adjusted highs of the 1980s. Wasn't that akin to hyperinflation... watching oil vault from $75 to $150 in less than one year? Perhaps precious metals are not the answer to hyperinflation. (Or perhaps other "stuff" is!)

It stands to reason that gold and silver, conventional safe havens for inflationary times, seem to be working their best magic here in deflationary times. That seems strangely contrarian.

Looked at another way, however, the deflationary data that we're receiving today may be a lagging indicator. After all, assuming we get our GDP growth both here and abroad, some inflation would inevitably be around the corner. So it may be that investors are simply purchasing precious metals ahead of what's coming down the gold brick road. (Only this time, the rise in commodities will be happening when faith in fiat currencies is faltering.)

Regardless of the reason for price movement, it is indeed worth noting that the Powershares DB Precious Metals Fund (DBP) is up 8.5% over the last 8 weeks. Equally noteworthy, this fund is 5% above its 50-day moving average.

If you'd like to listen to more... if you want to learn about international ETFs, then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast at this link.

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The Fear Bubble: Treasuries and Gold

These days, the only thing I know for sure is that fear is as overbought as ever. This is starting to get ridiculous: 30-year treasuries below 3%; gold up for the year; and risk averse investors paying Uncle Sam for the right to carry his wallet. Before I try to explain my position, let's just say I have a healthy dose of skepticism by all things spewed by insiders, lawmakers, central bankers, and media types.

The two ongoing fear trades are treasuries and gold, and both have had a very good 2008. It's not rocket science to say they should have a very difficult 2009. At some point, people will tire of being afraid. And when......and I mean 'when'...this trade reverses, the pain will be very bad. I understand the central bankers have entered a new paradigm of 0% fed funds, but what are real rates? And real rates are possibly scary high; in fact...maybe...contracting monumentally. What is the Federal Reserve running from? With the proverbial kitchen sink action today, is the Fed fighting a full scale deflation war? Gold looks very vulnerable and deflation is a huge risk to this metal.

Platinum, silver, and copper have all seen the light that is deflation, but gold continues to whistle by the graveyard. Now, treasuries could be the most vulnerable, and I would stay very clear except for a very short hedge. But gold........I can't see where treasuries and gold co-exist as best in show. Somebody owns a worthless ticket, maybe two worthless tickets. All commodities are down 30-60% for the year except for gold. Oh yea....it's a conspiracy. If you believe in 'the small investor is always wrong' then try and buy some gold on your street corner. In fact, I hear gold prospecting is making a new comeback.

I understand the re-inflation trade. Worldwide central banker intervention, government stimulus packages, bailouts upon bailouts, but gold investors have already been paid. That trade is over, we are in recession or depression, and asset values fall unless you own gold. The top in gold is being delivered by the marginal buyer - the fear buyer. And the fear bubble is about to pop! It's time to be long risk and short safety. Gold bugs should know that when the world sees it their way, it must be the wrong way. I'm looking to short gold, but waiting for a technical breakdown. Gold as part of a diversified portfolio is good, but I would prefer SLV over GLD.

Looking to short GLD or buy puts on GLD

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The Safest Ways to Invest in Gold and Silver

I am often asked what is the best or safest way to get exposure to precious metals. To be sure, there is a dizzying array of options from owning and storing the physical metal yourself to buying junior mining stocks. But the current crisis of confidence, brought on by the collapse of institutions that nobody thought could fail and the most recent $50 billion Ponzi scheme, has investors looking at safety and wealth preservation more than ever.

Buying physical gold and silver gives the owner definite possession, but comes with high premiums and the necessity to store and protect the metal. This can be done via a bank safe deposit box, but adds to the cost of owning the metal and doesn’t provide total peace of mind for many investors that have lost trust in the banking system. Others might prefer to store the gold on their property, hiding it in the floorboards or purchasing a safe. But this potentially puts you and your family members in harm’s way and again does not offer 100% security.

For investors that prefer not to hold the physical gold, yet place a high value on the safety of their investment vehicle not to default, I recommend the Central Trust of Canada (CEF) or its all-gold counterpart, the Central Gold Trust (GTU). Unlike the popular ETFs such as GLD and SLV, these funds do not lease out your gold and they always maintain 90% or more of assets in unencumbered, segregated and insured, passive long-term holdings of gold and silver bullion. Trace Mayer of Runtogold.com, recently published an article detailing the risk of investing in GLD and SLV. James Turk and others have also covered the unanswered questions about these ETFs in earlier articles.

Setting itself apart from the competition, the stated investment policy of the Board of Directors requires Central Fund to maintain a minimum of 90% of its net assets in gold and silver bullion of which at least 85% must be in physical form. On July 31, 2008, 97.6% of Central Fund’s net assets were invested in gold and silver bullion. Of this bullion, 99.3% was in physical form and 0.7% was in certificate form.

Central Fund’s bullion is stored on an allocated and fully segregated basis in the underground vaults of the Canadian Imperial Bank of Commerce (CM), one of the major Canadian banks, which insures its safekeeping. Bullion holdings and bank vault security are inspected twice annually by directors and/or officers of Central Fund. On every occasion, inspections are required to be performed in the presence of both Central Fund’s external auditors and bank personnel. Central Fund’s chief executive comments:

Our bullion is stored in separate cages, with the name of the owner printed on the cage, and on top of each pallet of bullion it states Central Fund or Central Gold-Trust. This disables the bank from using the asset from any of their purposes. We also pay Lloyds of London for coverage of any possible loss.

Adding to investor peace of mind, CEF has been around since 1961, is based outside of the U.S. (Calgary, Canada) and is run by a board that is respected in the precious metals community, not a bunch of corrupt Wall Street cronies. Demonstrating transparency that is much needed in today’s investment climate, Central Fund makes regular trips to visit the assets and takes their auditors with them. And you get the sense that you are dealing with honest gold investors and not slick marketing or public relations specialists by taking a quick perusal of the CEF website. While they aren’t going to win any design awards, the website is packed with all of the investor information necessary for due diligence.

On the downside, CEF does come with a hefty premium (currently at 16% to NAV). But this premium is less than the premium you are likely to pay on physical bullion, so it is a non-issue for me. And while it is a greater premium than GLD or SLV, I am willing to pay it since I have about as much faith in those ETFs as I do in the Comex.

Tax implications are another deciding factor. Ian McAvity, founding director and advisor to CEF, said there are definite tax advantages to CEF as opposed to an open-ended ETF. Long term gains in the gold ETFs (and presumably Barclays’ silver ETF) would be taxed as collectibles at 28%, according to the Gold ETF prospectus. As a passive foreign investment company with shares not convertible into bullion, CEF is believed to qualify as a passive foreign investment company [PFIC] to enable the 15% capital gains tax treatment, which can be an important factor for investors with long-term ambitions and taxable accounts, said McAvity.

Lastly, we should consider the performance of the various investment options. Year-to-date CEF underperformed by 3 points versus GLD, but this is largely due to the silver exposure. A more fair comparison would be to use Central Gold Trust. GTU significantly outperformed GLD (14 point gap), which should ease any concerns investors have about a higher premium. CEF and GTU offer not only more peace of mind, but better returns compared to the “trust us, the gold/silver is there” approach from iShares or SPDR. It is also interesting to note that the Gold Miners ETF (GDX) is the worst performer year-to-date. This could change as precious metals prices take off in 2009, but I am inclined to park at least half of my gold/silver investments in a safer place than stocks or funds that can’t prove that they actually have physical gold to back my investment dollars. Year-to-date returns are as follows:

click to enlarge

While GTU has outperformed CEF during 2008, I expect silver to outperform gold during the next upleg and thus I own and favor CEF for 2009. Regardless, both of these funds represent sound investment choices during a time when there are fewer and fewer safe places to park your assets. Peace and prosperity to all.

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Three Gold Stocks Set to Rally in 2009

Randgold Resources Ltd. (GOLD), Gold Fields Limited (GFI), Kinross Gold Corporation (KGC) and other gold stocks rallied as investors looked to hedge against inflation. The U.S. dollar weakened against other currencies after the Federal Reserve lowered interest rates to help encourage economic activity, which led to a rally in many commodities including gold.

Investors purchase gold for their portfolios in order to hedge against inflation and a declining dollar while also using it as a safe-haven during times of instability. Prices have also been helped by a fall in mine supply, a slowing of central bank sales, ongoing de-hedging by producers, firm demand from ETFs, and a likely recovery in jewelry demand. Meanwhile, banks taking major short positions on the Comex market in New York may also be forced to cover their positions after the market’s recent rally.

Many analysts are also very bullish on the prospects of gold going forward. Goldman Sachs raised its near-term gold forecast on expectations for a weaker dollar and as interest in the precious metal as a safe-haven from risk continues to keep prices moving higher. The bank raised its three-month forecast to $700 an ounce from $690 while also raising its full-year prices to $795 from $710 an ounce. Studies at the bank have shown that gold moves opposite the dollar 90 percent of the time.

Companies like Randgold Resources, Gold Fields, and Kinross Gold could benefit from the rise in prices as it will both increase the value of its current reserves as well as provide funding for future exploration activity. Of course, higher prices also help increase revenues, drive profits, and improve the balance sheet. Moreover, bigger miners like the companies offer a combination of safety and profitability given the fact that they are well-capitalized and trading at near-record low price to net present value multiples.

So, how can investors leverage their position while taking on less risk? One way may be to purchase long-term options called LEAPS (long-term equity anticipation securities). While not available on all securities, these options enable long-term investors to purchase rights to a stock at a set price and time in the future for a much lower upfront payment than purchasing the underlying stock outright. See “Using LEAPS as a Stock Substitute” for more information.

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To buy Hallmarked 999.9 Pure Swiss Gold Bars, Gold Bullion, Gold Ingots & 916 Gold Coins in Singapore or convert your 916 Physical Gold to physical 999.9 Pure Swiss Gold Bars, Click on Buy Gold Bullion Bars to find out more. You may Sell Gold Bullion Bars to us too.
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US Rate Cut "Will Support Gold" in 2009 as Inflation Beats Interest for Worst Stretch Since 1975

London Gold Market Report
By: Adrian Ash, BullionVault

THE PRICE OF WHOLESALE GOLD slipped lower early in London on Tuesday, recording the best Gold Fix in two months at $833.50 an ounce but trading 1% below Monday's top in the spot market.

Tokyo stocks ended the day 1% down, while London shares held flat. The US Dollar regained one of yesterday's four-cent losses vs. the Euro.

The Gold Price in Euros held near €608 an ounce.

"We finally saw Gold break out to the upside Monday," says a note from the precious metals team at Mitsui in London. "Stops at $829 were triggered leading to a $10 spike – this level is now acting as the support.

"Silver pushed up through $10.50 but there was no follow through to $11."

Today brings the Federal Reserve's final interest-rate decision of 2008, and the "75 basis points cut which the futures market is now pricing with a probability of 68% should be welcomed by equity markets," says Walter de Wet at South Africa's Standard Bank.

"It should also support precious metals and Gold in particular."

Set to keep the rate of interest-after-inflation below zero for the 12th month running – the longest unbroken stretch of negative real rates since 1975 – the Fed's decision will be preceded by the latest US consumer price inflation data, expected to show a sharp decline thanks to both strength in the Dollar and the decline in oil prices throughout November.

Crude oil today rose back above $45 per barrel after gaining – and then dumping – more than 10% on promises of "big cuts" to output quotas when the Opec oil cartel meets in Algeria tomorrow.

Here in the UK, consumer price inflation fell sharply last month, the official data agency said this morning, down for the second month – but ahead of analyst forecasts – to 4.1% annually.

More than twice the government's target, the news required a fresh letter of apology from Mervyn King, head of the Bank of England, to the UK chancellor. Even so, "the November inflation figures are another step along the path...to the first bout of deflation in the UK economy for almost half a century," reckons Jonathan Loynes at the Capital Economics consultancy.

"Retail price inflation is likely to turn negative as soon as the end of Q1 next year," agrees George Buckley at Deutsche Bank in London, "bottoming out as low as -4% in the autumn."

But the collapse of raw materials priced in Dollars since July has been undone for UK consumers by the sharp fall in Sterling – now down by 25% vs. the US currency.

Food and non-alcoholic drinks for UK consumers rose 11% year-on-year in Nov. Housing and home utilities (water, gas, electricity) rose nearly 15%.

Even stripping out these "volatile" food and fuel prices, so-called "core inflation" also rose, reaching a series record of 2.8% year-on-year. The cost of services – provided domestically within the UK – rose at a near-record clip of 4.5%.

Meantime in China, "Consumer prices are going down and sometimes even faster than we think," said Zhou Xiaochuan, governor of the People's Bank, at a forum in Hong Kong this morning.

Warning that China's double-digit rate growth is cooling quickly, "the beginning of next year is full of interest-rate-cut pressure," he added.

Slashing the 2009 forecast for Chinese growth in half to just 5% yesterday, Dominique Strauss-Kahn – head of the International Monetary Fund (IMF) – told an audience in Madrid that without huge stimulus spending by major governments "it will be difficult to avoid a long-lasting crisis that everyone wants to avoid.

"If we are not able to [get $1.2 trillion, some 2% of global GDP], then social unrest may happen in many countries – including advanced economies."

Over on the forex market today, both the British Pound and the European single currency slipped back from new two-month highs against the Dollar on news of record low activity amongst both service and manufacturing firms.

New car sales sank almost 26% year-on-year in Nov., the ACEA trade body added, the seventh monthly decline on the trot.

"The Eurozone recession is clearly gathering momentum," says Martin Van Vliet at ING bank, "and the trough in economic activity is nowhere in sight."

Back in the Gold Bullion market, meantime, "There's a bit of profit-taking but overall gold is holding up pretty well and looking to be the best-performing metal of the year," said Jonathan Barratt, head of Commodity Broking Services in Sydney, Australia, to Bloomberg today.

"Volatility remains high for Gold as the market nears the end of the year," agrees Hussein Allidina at Morgan Stanley in New York. "[But] we expect gold to perform well in 2009, while silver will remain contained by weak industrial demand."

Adrian Ash
BullionVault

Gold price chart, no delay | Gold investment – simple, safe & efficient

Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – where you can Buy Gold Today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2008

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Gold is One of the Few Assets That's Up for the Year

Don't look now, but the little yellow metal that pays no interest and provides no dividend is one of just a few assets that can make the claim of being in positive territory for the year.

It's only eked out a gain of about one percent - a London PM fix of $833.75 last December 31st versus about $840 as this is written - but, most investors would be happy with any number that doesn't start with a minus sign this year.

Interestingly, if you held the physical metal versus the paper variety, you'd be up somewhere around five percent at the moment.

The next two weeks could also be kind to gold as the second half of December has produced an average gain of about two percent over the last seven years, since the price began rising at the rate of almost 20 percent per year.



Just an average gain between now and New Year's Day would put the price at around $860 an ounce, still down more than 15 percent from the high seen in the spring, but quite a good result, all things considered

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SPDR Gold Trust Inventory Remains in a Very Narrow Range

It's been quiet at the SPDR Gold Shares ETF (NYSEArca:GLD) over the last couple months with inventory moving up and down in a very narrow range. However, that may soon change.



Since peaking at 770 tonnes back on October 10th, the equivalent of seventh place in the World Gold Council's Official Gold Holdings (just ahead of Japan at 765 tonnes), inventory moved down slightly and, in recent weeks, back in the other direction.

But, it is quite unusual for the inventory to move within just a 20 tonne range for such a long period of time - normally, it's moving steadily in one direction or the other even if it ends up at the same place months later.

Actually, this same sort of pattern did occur during the first few months of the year as the gold price began its move from about $800 an ounce to over $1,000.

As shown below, after what appears to be frantic additions and subtractions for most of the last year-and-a-half, it's been just small, steady increases lately with another 3.1 tonnes added yesterday afternoon.



It's not clear whether any of this has any significance - most likely, we'll find out soon enough.

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Counterparty Risk May Lead to Potential Squeeze in Gold Market

Gold rallied sharply last week and was up nearly 9% despite continuing uncertainty and a very mixed performance in stock markets. The US dollar index fell some 4% on the week and it looks increasingly likely that the dollar may have topped out and may soon resume its bear market. For the year, gold is now up by more than 4% in dollar terms and by much larger amounts in euros (+11.7%) and pounds (+40.4%).

Gold rallied sharply on the open in Asia and has remained elevated as oil is stronger (up some 4%) and the dollar remains weak.

The FT reported late Friday on the potential for squeeze in the gold market by year end which would see prices rise materially.

The FT’s Chris Flood reported that:

Traders have been hearing talk that the gold market could face a potential squeeze at the end of this year if market participants with futures position on New York's Comex exchange decide not to roll over their positions, because of concerns about counterparty risk and opt for physical delivery instead.

But dealers dismissed the threat of a squeeze, pointing out that Comex gold stocks stand at 8.5 million ounces, well above the five-year average of almost 6 million ounces. ..."

The 8.5 million ounce figure cited by the FT is actually the total Comex gold inventory which includes gold that belongs to customers who are storing it on the exchange which is not available for delivery. The amount that is registered to dealers, and therefore available for delivery, is only 2.846 million ounces. The delivery notices that have been issued so far in December total 1.26 million ounces, which is 44 percent of the available deliverable gold. There is also the possibility that some of the gold may be encumbered in lending/swap operations.

According to the Gold Anti-Trust Action committee (GATA), the Comex authorities themselves have been alerting various futures firms about the potential of a squeeze on the December contract . The Comex is allegedly advising the $840 December shorts to exit their remaining open positions. There have been 12,636 notices of delivery. The shorts have until December 31 to make delivery. Normally they deliver early to take in cash and earn the interest.

This represents about 43 percent of the gold available at the Comex. Some speculate that concerned futures players could buy the February gold contract and then spread into December, which would shock the shorts and lead to a massive short squeeze sending prices markedly higher in a short period of time.

Former Federal Reserve Governor Says Fed’s Gold is Important Asset

Another bullish development for the gold market was former Federal Reserve Governor, Lyle Gramley reassuring that the Federal Reserve’s solvency was not at risk (due to its rapidly deteriorating balance sheet). Gramley denied such concerns were valid as he said the Fed has significant assets in the form of undervalued government gold certificates.

Interviewed Monday last week on the "Trading Day" program of the Business News Network in Canada, Gramley hinted that a big upward revaluation of gold may figure heavily in the Fed's attempt to rescue the U.S. economy. Gramley, now senior adviser at Stanford Group in Houston, was asked about the seemingly grotesque expansion of the Fed's balance sheet in recent months by the program's guest host, Niall Ferguson, an author and history professor at Harvard.

Ferguson asked:

I've heard it said that the Fed has turned into a government-owned hedge fund, leveraged at 50 to 1. Do you feel nervous about what this might actually do to the Fed's reputation?

Gramley reponse was:

I think you have to reckon with the fact that one of the Fed's assets is gold certificates, which are priced, as I remember, at $42 an ounce, and if we were to price them at market prices, the Fed's leverage would look a lot less than it is now.

More signs that gold is increasingly being viewed as the potential savior of central banks internationally from the global deflation gripping the world. The Federal Reserve is one of the largest holders of gold in the world with most of its foreign currency reserves in gold. A devaluation of the dollar and revaluation of gold may help the U.S. government and the Federal Reserve to protect their solvency and inflate their way out of a Depression.

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Gold Ends At Two-Month High

(RTTNews)

Gold surged to a two-month closing high on Monday, boosted by weakness in the U.S. dollar. February gold moved to $836.50, up $16 an ounce. The metal hit as high as $843.70.

The dollar dropped to a two-month low of 1.3703 versus the euro on Monday ahead of an expected interest rate cut by Federal Reserve. Gold usually moves opposite the dollar because of the precious metal's hedge appeal.

Following the conclusion of a two-day meeting on Tuesday, the Fed is widely expected to cut its key short-term interest rate by 50 basis points to 0.5%.

On the economic front, the New York Fed Index index fell to a negative 25.8 in December from a negative 25.4 in November, with a negative reading indicating a contraction in the sector. Economists had been expecting the index to fall to a reading of negative 27.0.

Separately, a report from the Federal Reserve said that industrial production showed a moderate decrease in the month of November, with a decrease in output from the manufacturing sector more than offsetting increased output from the mining and utilities sectors.

Industrial production fell 0.6 percent in November following a revised 1.5 percent increase in October. With the decrease, industrial production was down 5.5 percent compared to the same month last year.

Last week, gold added $68.30 from the previous Friday's close despite a $6 drop on Friday. The precious metal fell $67 last week, its first weekly decline in five weeks.

by RTT Staff Writer

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Dollar Down, Gold Up

I have been and remain a bear on the dollar. Back in mid-August, I conceded that the gathering momentum in the dollar trade would postpone the weak dollar scenario until 2009. I was wrong on a few of my reasons for expecting continued strength in the dollar, but a stronger dollar is what we have.

I know a lot of dour folks have explained why they expect America's "well-intentioned" borrowing and printing binge to lead to rampant inflation in the future (Peter Schiff is one of many examples). I have also tried to make the case. The main crux of my current opinion is that America will win its fight against deflation, sooner rather than later, and will be too slow to remove the monetary (and fiscal) injections into the economy to stave off the high inflation we will get as our reward.

The first signs of fresh dollar weakness are finally showing up. The chart below (click to enlarge) shows a potential double-top in the dollar. Some technicians may prefer to call it a head-and-shoulders pattern.

It is at these kinds of critical transition points that people who want to cling to the former trend will proclaim the loudest that all is well. Dollar bulls surely believe that the fundamentals of the currency have never been better given the world's belief that the dollar represents a safe place to park in a world of turmoil. Maybe major global governments borrow and print even faster and harder than we are doing. If that happens, I will have to like gold even more since its global supply will not increase nearly as fast as the supply of global money. Regardless, we should all know by now what results when a massive crowd jams into one side of a trade - short-term Treasuries represent the powder keg du jour.

Until recently, it has been difficult to play commodities in anticipation of reflation given prevailing downtrends. Gold has held up better than most but it too is still caught in a downtrend of lower lows and lower highs. The recent weakness in the dollar has perked gold back up, and I am sticking to it as one of my favorite places to be for 2009.

The dollar down, gold up scenario gets delayed again if the dollar manages to make a new high above the recent double-top and gold makes another lower low.

Be careful out there!

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