By Antonio Perez
NEW YORK—Gold prices reached an all-time high at a little above $1,000 per ounce days after investment bank Bear Stearns collapsed, and it has steadily declined since. These days, gold prices tend to fluctuate between $700 and $800 per ounce.
With the stock market in a tailspin much of the last two months, analysts expected gold prices to take off as stock investors search for a safe haven. But the exact opposite effect manifested, leaving commodities traders and investors searching for answers.
Analysts have different theories about why gold isn’t as high as it should be. But most believe that it is a solid investment nonetheless, amidst a market which isn’t expected to rebound in the immediate future. After all, unlike your local savings bank, gold could never go bankrupt.
The biggest reason for gold’s sluggish growth mentioned by analysts is a sudden strengthening of the U.S. dollar against most other currencies, due to an imminent economic recession in many European and Asian countries. Gold typically is a hedge (protection) against dollar devaluation, and a strengthening dollar kept gold prices in check.
The Gold and Silver Blog (GSB), an online depository of information and analysis for commodity investors, proposed several reasons for gold’s modest valuation, including a collapse of the commodities market and weak demand due to economic woes around the globe.
“Since the summer months, commodities have been on the rapid decline. Oil has fallen by more than half from its peak price of $147,” the report said.
Other precious metals such as silver and nickel have also been hurt. While gold is holding steady, its prospects nevertheless have been dampened by the overall commodities market.
A second reason cited by GSB experts is a weakened demand for gold. Production of jewelry, watches, and other luxury items is the largest non-investment demand for gold. As consumer discretionary spending declines, sales of such luxury items will likewise falter.
Whatever the case may be, some investors are simply sitting on their cash. The stock, bond, currencies, and commodities markets have taken such a hit that some investors may be reluctant to put their money in any type of investment.
But some analysts, such as Francisco Blanch from Merrill Lynch & Co., predict a big comeback for gold, oil, and other commodities. In a research report to clients last week, Blanch wrote that oil could top $150 per barrel, and gold could increase to $1,500 per ounce. He did not provide a timetable for reference.
History seems to support that conclusion. Gold prices typically climb during times of inflation, loose monetary policy, and an increased money supply. The U.S. Federal Reserve’s recent financial bailouts and printing of money seem to suggest that we may be headed toward that direction.
In the end, gold is subject to speculation and market turbulence like all other commodity investments. As experts weigh in with their opinions of investing in gold, investors should take solace in the following: currencies, banks, governments, and even civilizations have come and gone, but gold has always maintained its value—more or less—for the past five thousand years.
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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.
----------------------------------------------------------------------------------------------
Friday, November 7, 2008
Wednesday, November 5, 2008
Why precious metals look set for a winter rally
By Dominic Frisby
Most MoneyWeek readers will be aware by now of the fundamental reasons for owning gold and silver (if not, take a look at my cover story from last year). Today I'd like to take a purely technical look at the monetary metals. I think we are set for a decent run here.
We'll start with the Commitment of Traders (COT) Report. One of the more reliable indicators for the short- to medium-term direction of gold and silver, and indeed any commodity, is to see what position traders are taking on Commodities Futures Exchange (the world's largest exchange) in New York.
Traders are divided into three categories: commercials, large traders and small speculators. The simplified wisdom is that the large traders are the ones who get it wrong, while the commercial traders are the ones who get it right.
The commercials are often hedging miners' future gold production, and will often be short (betting the market will fall), while the large traders tend to be on the long side (betting the market will rise). The trading strategy is as follows: the more open interest – i.e. open positions – the more likely it is we are near a top; the less open interest, the more likely it is we are near a bottom. The more the large traders are long, the more likely the top, the less the commercials are short, the more likely the bottom.
Below is a weekly chart of gold for the last five years with, underneath, the positions taken by traders on the Comex. You can see that at the moment, the commercials have dramatically cut their short positions and the large traders their long positions to levels where significant market bottoms have previously taken place. The arrows I've drawn show previous bottoms and the corresponding positions of the traders.
The set-up for silver is even more bullish. In fact, it's as bullish it's been for five years or more.
Remember the COT Report is just one indicator and, as we have seen over the last few weeks, pretty much anything can happen in markets. The larger trend in silver is very much down from the highs of last spring, but the shorter-term picture for the next few months looks very bullish. I believe a rally to $14 or even $17 is very much on the cards.
We have also seen some very nice moves in some of the silver companies such as Silver Wheaton (NYSE:SLW) and First Majestic (TSE:FR) with some of them up almost 100% from their lows of last week, which bodes well.
It's also the time of year to buy precious metals
Seasonally, October is a time to sell gold and this year was no exception. But late October, early November is a good time to buy back, as you will usually get some kind of rally into the year end and often into Spring. The chart below from Nick Laird at ShareLynx (a site, by the way, which has some superb charts) shows the seasonal tendencies:
Since 2007, gold and silver have outperformed gold and silver stocks. In other words, you'd have been better off owning the metal. But the ratio of the metals to the miners has reached extreme levels. In fact, the most extreme levels since 2000-01, at the very bottom of the market. This extremity suggests we could be entering a period when stocks will outperform the metals.
Keener readers will remember a fortnight ago that I reported that we are close to a sell signal in gold and silver, according to the strategy I outlined here: How to make money from markets you know nothing about. However, often when you get such a signal, it's a good idea to wait for the chart rise back to its 52-week moving average and then review the situation (it doesn't always happen, of course). In this case, this would mean a return to silver at around $15.50 and gold at $870. I'm confident we'll get there before too long.
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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.
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
Friday, October 31, 2008
How the Fed could create a new gold rush
There are only two things gold bulls should worry about from this point forward, now that the general commodity correction is out of the way and the froth has been worked out of the market: deflation in the strict sense of the term (monetary, not asset deflation) or a suddenly brightening economic outlook, both of which, in this writer's opinion, would require a political austerity hardly imaginable these days.
As far as deflation goes, we saw that the Federal Reserve inflated its balance sheet by an astonishing US$600 billion (almost 70%) in September, $170 billion of which ended up as an unsterilised liquidity injection into the financial system - also unprecedented any way it is measured.
It is almost as much as the entire US banking system created in the 12 months ending August 2008. It is about 20% of the cumulative amount of reserves the Fed has directly injected into the banking system since its inception in 1913. In one month, the Bernanke Fed "printed" MORE money than the Greenspan Fed in its entire easing campaign from 2001-03 - on top of which the banking system created $1.5 trillion.
Let me be the first to tell you that this represents a deliberate and abrupt change in monetary policy.
The Fed is no longer sterilising its liquidity injections by selling off assets - probably because it doesn't have any left. No one else seems to have caught on yet. The Fed is now printing with abandon, as literally as that can mean.
However, that isn't enough to convince the deflationists. They point out that banks aren't lending and that credit markets have frozen all over the world.
This is obviously true. However, it does not follow from this that there will be deflation. Let me reiterate that first, whether deflation comes about or not (I think not), the financial crisis is deepening precisely because, up until last month at any rate, the Fed had not created much money, despite the massive rate cuts. This policy was unconventional and deliberate. It was aimed at gold.
It has produced many things that the Austrian business cycle theory would predict from the policy.
The enterprises that are failing today are boom dependent. They have come to depend not only on the artificial stimulus of lower interest rates, but on a continued expansion in credit and money supply.
Indeed, Fed and Treasury officials, the media and Wall Street all talk as if the economy could not grow if the banks were not producing new credit. For them, boom and growth are one and the same thing.
The market is telling you that some operations are uneconomical in the absence of this "stimulus."
If the Fed continued on its austerity program (with respect to the printing press), the dominoes would no doubt continue to fall. This would be a process of returning the economy to equilibrium, if you will.
That is the definition of a bust or recession. It would probably be deflationary.
The Fed wasn't aiming for that. It wanted only to put the squeeze on inflation expectations building in the gold and currency markets without undermining the boom. It was a bold and new move, but naive. But its actions can only suggest that it is realizing this, and is not prepared to do what is right - nothing.
Lending strikes are not new. They are typical at the height of a crisis.
The Fed has published data on reserves only up until the third week of September, so it does not yet reflect the $170 billion net increase in reserves created by the Fed through the entire month, as I had reported last week. However, up to Sept. 24, the Fed created some $84 billion in reserves, while the figure for total reserves increased by $67 billion (from $44 to $111 billion) in the same period.
Excess reserves, meanwhile, increased by about the same amount.
Don't get caught up in the numbers. These facts essentially support the view that banks aren't lending out those new reserves. However, this fact is neither new nor typically long lasting.
US depository institutions are required to have about 10% of their checkable demand deposits at the Fed as reserve. This amount peaked at a little over $60 billion in the mid-'90s, declined to about $40 billion by the end of the century and has hovered around that number ever since, as if inflation did not exist. It pales in comparison with the more than $1.5 trillion in reserves that the Fed has pumped into the banking system in its entire 95-year history or the $4-5 trillion in deposits that the US banking system has created on top of that in the same period (even after accounting for deposits destroyed).
This is leverage, but the Fed, not the stock market, controls the denominator.
The reason that total reserves have been shrinking has to do with reserve requirements. Although savings deposits are often checkable in practice and can be accessed by debit cards, banks are not required to keep reserves against them. Therefore, banks like to sweep (and create) as many of these deposits as possible into the savings categories. That's why there is an upward bias to the underlying trend in the ratio of excess to total reserves. It does not reflect an increasing tendency for bankers to restrict lending voluntarily, but likely understates the inflation in reserves.
But while the figure on total reserves may have become obsolete and lost much of its relevance, big changes in the data are always important and shed light on things.
Today, the Fed is opening new windows through which to transmit policy. It can inject liquidity directly into money markets, and now commercial paper markets. It can lend directly to primary dealers. It can buy mortgages. It can pay interest on deposits, which will have two effects: exposing the hidden reserves (above) and luring money into the Fed. The latter is deflationary, but the interest payments are inflationary, if "unsterilised." At every crisis that is bigger than the last, the deflation argument is always compelling. But it is fundamentally misguided if it is related to the idea of asset deflation or deleveraging. These concepts are not interchangeable with deflation.
Deflation, for instance, hasn't occurred since 1933, but deleveraging and asset deflation have, often - last in the 2000-02 bear market, and even as the Fed and banking system created a bunch of money.
Banks don't make money on the interest differential from lending out other people's deposits. They make money by lending out more than they take in…by "creating" deposits (i.e., inflation).
This is what a fractional reserve banking system does. It will lend again once it is confident that the central bank is making funds easily available and stands ready to bail banks out. By not printing until last month and letting Lehman go, the Fed sent out mixed messages that it is only now clearing up.
Abolishing the Fed would be a great idea. Your freedom would be secure. Recessions would be gone. Governments would not be able to increase spending without immediate retribution. Growth and equality would become synonymous.
Crazy? Not really. It's basic economics. However, it appears somewhat utopian given the public's attitudes about the market and politics.
Most of the world, led by its political leaders, believes that the economic crisis was caused by greed and excess in the private sector, that the market is inherently unstable or that deregulation was the culprit.
Even some Austrian School authors blame the repeal of Glass-Steagall - the New Deal-era legislation that prohibited bank holding companies from owning nonbank financial firms or competing with securities and insurance companies - for the crisis. That's ironic for reasons I won't get into here, but it is a qualified charge - meaning deregulation is a good idea only if the central bank didn't exist. I personally don't agree.
Still, people by and large do NOT see monetary and fiscal policy as interventions causing disequilibrium.
They see them as offsetting and stabilising institutions - safety nets and tools of economic and social management - as they were supposedly envisioned.
For this reason, I posit, central banks and governments do not have the political will it takes to do nothing.
The change in Fed policy last month proves precisely that, which is why gold should soar.
I believe the markets are wrong again to perceive a deflationary outcome. It is an entirely different monetary system than existed in the 1930s, when the Fed could not simply print up reserves.
Deleveraging and asset deflation are not bearish for gold, as they don't necessarily imply a contraction in money supply, and rarely have. They may be bearish for gold stocks, but they are bullish for gold prices, because they are the very factors that motivate the near-certain cries for new credit (or more money) arising from a bad understanding of the true causes of the crisis. They are not new and are ultimately dwarfed by the next crisis.
But maybe the deflationists will be right about the behavior of banks this time. They have been wrong at each point in history when the economy faced a crisis caused by inflation. The thymological (historical) experience is that when the Fed inflates, the banking system does soon after. The Fed has never inflated in one month as much as it did in September. So the odds are against deflationists.
Indeed, the money supply could grow 25-50% in less than a year if that liquidity isn't taken back.
Ultimately, though, both the prior boom and the bust can be explained wholly by the Fed's specific policies. As will the next boom... in gold mining!
• This article was written by Ed Bugos for Whiskey and Gunpowder
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
As far as deflation goes, we saw that the Federal Reserve inflated its balance sheet by an astonishing US$600 billion (almost 70%) in September, $170 billion of which ended up as an unsterilised liquidity injection into the financial system - also unprecedented any way it is measured.
It is almost as much as the entire US banking system created in the 12 months ending August 2008. It is about 20% of the cumulative amount of reserves the Fed has directly injected into the banking system since its inception in 1913. In one month, the Bernanke Fed "printed" MORE money than the Greenspan Fed in its entire easing campaign from 2001-03 - on top of which the banking system created $1.5 trillion.
Let me be the first to tell you that this represents a deliberate and abrupt change in monetary policy.
The Fed is no longer sterilising its liquidity injections by selling off assets - probably because it doesn't have any left. No one else seems to have caught on yet. The Fed is now printing with abandon, as literally as that can mean.
However, that isn't enough to convince the deflationists. They point out that banks aren't lending and that credit markets have frozen all over the world.
This is obviously true. However, it does not follow from this that there will be deflation. Let me reiterate that first, whether deflation comes about or not (I think not), the financial crisis is deepening precisely because, up until last month at any rate, the Fed had not created much money, despite the massive rate cuts. This policy was unconventional and deliberate. It was aimed at gold.
It has produced many things that the Austrian business cycle theory would predict from the policy.
The enterprises that are failing today are boom dependent. They have come to depend not only on the artificial stimulus of lower interest rates, but on a continued expansion in credit and money supply.
Indeed, Fed and Treasury officials, the media and Wall Street all talk as if the economy could not grow if the banks were not producing new credit. For them, boom and growth are one and the same thing.
The market is telling you that some operations are uneconomical in the absence of this "stimulus."
If the Fed continued on its austerity program (with respect to the printing press), the dominoes would no doubt continue to fall. This would be a process of returning the economy to equilibrium, if you will.
That is the definition of a bust or recession. It would probably be deflationary.
The Fed wasn't aiming for that. It wanted only to put the squeeze on inflation expectations building in the gold and currency markets without undermining the boom. It was a bold and new move, but naive. But its actions can only suggest that it is realizing this, and is not prepared to do what is right - nothing.
Lending strikes are not new. They are typical at the height of a crisis.
The Fed has published data on reserves only up until the third week of September, so it does not yet reflect the $170 billion net increase in reserves created by the Fed through the entire month, as I had reported last week. However, up to Sept. 24, the Fed created some $84 billion in reserves, while the figure for total reserves increased by $67 billion (from $44 to $111 billion) in the same period.
Excess reserves, meanwhile, increased by about the same amount.
Don't get caught up in the numbers. These facts essentially support the view that banks aren't lending out those new reserves. However, this fact is neither new nor typically long lasting.
US depository institutions are required to have about 10% of their checkable demand deposits at the Fed as reserve. This amount peaked at a little over $60 billion in the mid-'90s, declined to about $40 billion by the end of the century and has hovered around that number ever since, as if inflation did not exist. It pales in comparison with the more than $1.5 trillion in reserves that the Fed has pumped into the banking system in its entire 95-year history or the $4-5 trillion in deposits that the US banking system has created on top of that in the same period (even after accounting for deposits destroyed).
This is leverage, but the Fed, not the stock market, controls the denominator.
The reason that total reserves have been shrinking has to do with reserve requirements. Although savings deposits are often checkable in practice and can be accessed by debit cards, banks are not required to keep reserves against them. Therefore, banks like to sweep (and create) as many of these deposits as possible into the savings categories. That's why there is an upward bias to the underlying trend in the ratio of excess to total reserves. It does not reflect an increasing tendency for bankers to restrict lending voluntarily, but likely understates the inflation in reserves.
But while the figure on total reserves may have become obsolete and lost much of its relevance, big changes in the data are always important and shed light on things.
Today, the Fed is opening new windows through which to transmit policy. It can inject liquidity directly into money markets, and now commercial paper markets. It can lend directly to primary dealers. It can buy mortgages. It can pay interest on deposits, which will have two effects: exposing the hidden reserves (above) and luring money into the Fed. The latter is deflationary, but the interest payments are inflationary, if "unsterilised." At every crisis that is bigger than the last, the deflation argument is always compelling. But it is fundamentally misguided if it is related to the idea of asset deflation or deleveraging. These concepts are not interchangeable with deflation.
Deflation, for instance, hasn't occurred since 1933, but deleveraging and asset deflation have, often - last in the 2000-02 bear market, and even as the Fed and banking system created a bunch of money.
Banks don't make money on the interest differential from lending out other people's deposits. They make money by lending out more than they take in…by "creating" deposits (i.e., inflation).
This is what a fractional reserve banking system does. It will lend again once it is confident that the central bank is making funds easily available and stands ready to bail banks out. By not printing until last month and letting Lehman go, the Fed sent out mixed messages that it is only now clearing up.
Abolishing the Fed would be a great idea. Your freedom would be secure. Recessions would be gone. Governments would not be able to increase spending without immediate retribution. Growth and equality would become synonymous.
Crazy? Not really. It's basic economics. However, it appears somewhat utopian given the public's attitudes about the market and politics.
Most of the world, led by its political leaders, believes that the economic crisis was caused by greed and excess in the private sector, that the market is inherently unstable or that deregulation was the culprit.
Even some Austrian School authors blame the repeal of Glass-Steagall - the New Deal-era legislation that prohibited bank holding companies from owning nonbank financial firms or competing with securities and insurance companies - for the crisis. That's ironic for reasons I won't get into here, but it is a qualified charge - meaning deregulation is a good idea only if the central bank didn't exist. I personally don't agree.
Still, people by and large do NOT see monetary and fiscal policy as interventions causing disequilibrium.
They see them as offsetting and stabilising institutions - safety nets and tools of economic and social management - as they were supposedly envisioned.
For this reason, I posit, central banks and governments do not have the political will it takes to do nothing.
The change in Fed policy last month proves precisely that, which is why gold should soar.
I believe the markets are wrong again to perceive a deflationary outcome. It is an entirely different monetary system than existed in the 1930s, when the Fed could not simply print up reserves.
Deleveraging and asset deflation are not bearish for gold, as they don't necessarily imply a contraction in money supply, and rarely have. They may be bearish for gold stocks, but they are bullish for gold prices, because they are the very factors that motivate the near-certain cries for new credit (or more money) arising from a bad understanding of the true causes of the crisis. They are not new and are ultimately dwarfed by the next crisis.
But maybe the deflationists will be right about the behavior of banks this time. They have been wrong at each point in history when the economy faced a crisis caused by inflation. The thymological (historical) experience is that when the Fed inflates, the banking system does soon after. The Fed has never inflated in one month as much as it did in September. So the odds are against deflationists.
Indeed, the money supply could grow 25-50% in less than a year if that liquidity isn't taken back.
Ultimately, though, both the prior boom and the bust can be explained wholly by the Fed's specific policies. As will the next boom... in gold mining!
• This article was written by Ed Bugos for Whiskey and Gunpowder
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
Should we still be betting on gold?
When the world's financial system appeared on the verge of meltdown following the collapse of Lehman Brothers last month, gold soared, gaining 22% to $911 an ounce by mid-October. But more recently, the ultimate safe haven "has not proved quite so safe", says Javier Blas in the FT. Last week it slid to its lowest level in over a year before regaining the $700 mark; it has lost around a fifth of its dollar value in four weeks.
Physical demand has been strong, with Fidelitrade, one of the largest gold coin dealers, last week quoting the popular South African krugerrand one-ounce gold coin at a $75 premium to the spot price. But other, stronger forces are at work. Gold has benefited from the rising oil price over the past few years as it has stoked demand for a hedge against inflation, so the reversal in this market has put downward pressure on gold. The recovery in the dollar, up 5% last week alone against a basket of six trading partners' currencies, isn't helping either.
The greenback's rally is a reflection of global deleveraging and the flight to quality, which has caused a rush into Treasuries, says Christopher Laird of Prudentsquirrel.com. The trend is also prompting investors to ditch commodities as fears of a severe recession mount, which means they are selling out of benchmark raw materials indices that contain gold. Many investors desperate to meet margin calls are also selling gold as it is highly liquid. So while gold still benefits from a flight to safety, "it's being overwhelmed" by stock and commodity deleveraging, says Laird. Solid physical demand is not enough to stem the tide.
Nonetheless, as Chris Weber points out in Daily Wealth, this hardly looks like the end of the gold bull. In dollar terms it's down by less than 10% on a year ago, and even a slide to about $615 would mirror the downswing within the longer-term bull run of the 1970s. What's more, thanks to the dollar's recovery of late, measured in other currencies – notably sterling and the euro – gold is near all-time highs. And there is scope for further gains. The "long-term fundamentals remain tight, with little sign" of a significant jump in supply as mines are struggling to boost production and recent exploration has been unsuccessful, says Graham Birch of BlackRock.
Moreover, while the main near-term danger to the world economy is a period of deflation, inflation could well make a comeback over the next few years, as we noted in our cover story a fortnight ago. Governments will find that the only way to pay for all the stakebuilding in banks, the private debt they are accumulating, and the state spending sprees to prop up economies, is to print more money, says Jeff Nichols of American Precious Metals advisers. Gold may look weak now, notes Weber, but in time, as inflation returns, it will rise.
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
Physical demand has been strong, with Fidelitrade, one of the largest gold coin dealers, last week quoting the popular South African krugerrand one-ounce gold coin at a $75 premium to the spot price. But other, stronger forces are at work. Gold has benefited from the rising oil price over the past few years as it has stoked demand for a hedge against inflation, so the reversal in this market has put downward pressure on gold. The recovery in the dollar, up 5% last week alone against a basket of six trading partners' currencies, isn't helping either.
The greenback's rally is a reflection of global deleveraging and the flight to quality, which has caused a rush into Treasuries, says Christopher Laird of Prudentsquirrel.com. The trend is also prompting investors to ditch commodities as fears of a severe recession mount, which means they are selling out of benchmark raw materials indices that contain gold. Many investors desperate to meet margin calls are also selling gold as it is highly liquid. So while gold still benefits from a flight to safety, "it's being overwhelmed" by stock and commodity deleveraging, says Laird. Solid physical demand is not enough to stem the tide.
Nonetheless, as Chris Weber points out in Daily Wealth, this hardly looks like the end of the gold bull. In dollar terms it's down by less than 10% on a year ago, and even a slide to about $615 would mirror the downswing within the longer-term bull run of the 1970s. What's more, thanks to the dollar's recovery of late, measured in other currencies – notably sterling and the euro – gold is near all-time highs. And there is scope for further gains. The "long-term fundamentals remain tight, with little sign" of a significant jump in supply as mines are struggling to boost production and recent exploration has been unsuccessful, says Graham Birch of BlackRock.
Moreover, while the main near-term danger to the world economy is a period of deflation, inflation could well make a comeback over the next few years, as we noted in our cover story a fortnight ago. Governments will find that the only way to pay for all the stakebuilding in banks, the private debt they are accumulating, and the state spending sprees to prop up economies, is to print more money, says Jeff Nichols of American Precious Metals advisers. Gold may look weak now, notes Weber, but in time, as inflation returns, it will rise.
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
Friday, October 24, 2008
Why the gold standard could make a comeback
Over the last few weeks, three people have told me they refuse to buy gold.
My dad told me gold is only worth what someone else is willing to pay for it. That it only has theoretical value. That he'd much rather own something useful, like copper.
Then the Thai politician I met in Bangkok told us he couldn't own gold because he didn't understand it or know how to value it.
Then one of my friends in England told me gold is a fraud and if it ever lost its appeal as jewellery, its price would plummet.
I've heard all these arguments many times. They almost always come from people who've worked in the financial industry. The truth is, gold is an incredibly useful commodity. Like any other commodity, supply and demand determine its price.
First off, gold has applications in technology and communication. Gold is the most malleable and ductile material known to man. Second, gold is eye-catching. Humans use gold for jewellery. That's never going to change.
But the third reason is by far the most important. This reason is the one that's going to send gold prices to the moon.
Money is essential to humans. We need it to trade. The material you make money out of must be portable, divisible, homogeneous, durable, and valuable. Without each of these five qualities, it's useless.
Gold and paper are the only two basic materials on Earth that can serve as money. (Silver and platinum might be good complements to a gold system.)
Right now, we're using a paper-money system. So gold isn't really important to anyone (except a few fringe investors on the Internet). It's why so many people don't understand gold, especially those who work in finance.
The flaw with paper money is, it's portable, durable, homogeneous, and divisible... but it's not valuable. It's only paper. So there's always a temptation to print money out of thin air. And that's what always happens. Paper-money systems always end up collapsing.
That's what's happening now. We're coming to the end of the largest paper-money experiment the world has ever seen. It may take a few years, but when it ends, whoever is in charge will implement a gold standard. Gold is the perfect foundation of a currency system. It's the only material we have that meets all five essential characteristics of money. It's the only available alternative.
But how high would you have to price gold to use it as a foundation of the world's monetary system? The money supplies of Japan, China, the United States, and Europe add up to around $50 trillion. There are 5 billion above-ground ounces of gold. You'd need to value each ounce of gold at $10,000 to back these four currencies in gold.
According to consulting firm McKinsey, the value of all the world's financial assets – stocks, bonds, and bank accounts – is $167 trillion. These assets are also denominated in paper currency. To back them with gold as well, gold would have to rise over $40,000 an ounce.
I'm not suggesting gold will ever trade at $40,000 an ounce. But it shows you how, unlike paper money, gold is a useful commodity and has intrinsic value. I do think gold is easily worth over $2,113 per ounce. That's the level gold set in January 1980 – $850 per ounce – stated in today's money.
To invest in gold, I recommend you buy physical gold and keep it hidden on your property. Pick up the yellow pages and look for gold brokers or coin dealers. Ask them what price they charge on gold bullion coins. Buy from the broker with the lowest price and the longest history of doing business in your town.
One more thing, don't buy it right now. Physical gold is in short supply and prices are at rip-off levels. I called two dealers yesterday and both said they were out of stock. They told me they could get gold bullion for me, but I'd have to pay a large premium over the gold price to buy it... as much as 13%.
I recommend you wait for the panic to die down in the market and start accumulating gold when there's more gold bullion in the market.
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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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My dad told me gold is only worth what someone else is willing to pay for it. That it only has theoretical value. That he'd much rather own something useful, like copper.
Then the Thai politician I met in Bangkok told us he couldn't own gold because he didn't understand it or know how to value it.
Then one of my friends in England told me gold is a fraud and if it ever lost its appeal as jewellery, its price would plummet.
I've heard all these arguments many times. They almost always come from people who've worked in the financial industry. The truth is, gold is an incredibly useful commodity. Like any other commodity, supply and demand determine its price.
First off, gold has applications in technology and communication. Gold is the most malleable and ductile material known to man. Second, gold is eye-catching. Humans use gold for jewellery. That's never going to change.
But the third reason is by far the most important. This reason is the one that's going to send gold prices to the moon.
Money is essential to humans. We need it to trade. The material you make money out of must be portable, divisible, homogeneous, durable, and valuable. Without each of these five qualities, it's useless.
Gold and paper are the only two basic materials on Earth that can serve as money. (Silver and platinum might be good complements to a gold system.)
Right now, we're using a paper-money system. So gold isn't really important to anyone (except a few fringe investors on the Internet). It's why so many people don't understand gold, especially those who work in finance.
The flaw with paper money is, it's portable, durable, homogeneous, and divisible... but it's not valuable. It's only paper. So there's always a temptation to print money out of thin air. And that's what always happens. Paper-money systems always end up collapsing.
That's what's happening now. We're coming to the end of the largest paper-money experiment the world has ever seen. It may take a few years, but when it ends, whoever is in charge will implement a gold standard. Gold is the perfect foundation of a currency system. It's the only material we have that meets all five essential characteristics of money. It's the only available alternative.
But how high would you have to price gold to use it as a foundation of the world's monetary system? The money supplies of Japan, China, the United States, and Europe add up to around $50 trillion. There are 5 billion above-ground ounces of gold. You'd need to value each ounce of gold at $10,000 to back these four currencies in gold.
According to consulting firm McKinsey, the value of all the world's financial assets – stocks, bonds, and bank accounts – is $167 trillion. These assets are also denominated in paper currency. To back them with gold as well, gold would have to rise over $40,000 an ounce.
I'm not suggesting gold will ever trade at $40,000 an ounce. But it shows you how, unlike paper money, gold is a useful commodity and has intrinsic value. I do think gold is easily worth over $2,113 per ounce. That's the level gold set in January 1980 – $850 per ounce – stated in today's money.
To invest in gold, I recommend you buy physical gold and keep it hidden on your property. Pick up the yellow pages and look for gold brokers or coin dealers. Ask them what price they charge on gold bullion coins. Buy from the broker with the lowest price and the longest history of doing business in your town.
One more thing, don't buy it right now. Physical gold is in short supply and prices are at rip-off levels. I called two dealers yesterday and both said they were out of stock. They told me they could get gold bullion for me, but I'd have to pay a large premium over the gold price to buy it... as much as 13%.
I recommend you wait for the panic to die down in the market and start accumulating gold when there's more gold bullion in the market.
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
Tuesday, October 14, 2008
Investors look to physical gold as safe haven
By Rachel Kelly, Channel NewsAsia
SINGAPORE : Gold continues to glitter as an investment option while global equity markets face continued volatility and turmoil.
The price of gold is holding steady at the US$850-per-ounce mark, but experts said it could rise to as much as US$1,200 in the next six months.
The precious metal has long been regarded as a safe haven investment compared to options such as shares or currencies. And investors are seeking out physical gold instead of shares in bank-owned gold.
William Kwan, bullion director, Gold Capital Management, said: "In the first place, there is a divergence between the physical gold market and the paper gold market. A lot of consumers are already converting their unallocated holdings from paper gold to physical gold allocated, because they find that it is safer for them to hold physical that is more tangible.
"That is why recently there is a short supply of gold coins around the world. A lot of consumers are queuing up outside of bullion dealer shops to buy gold coins and gold bars."
Industry players have noted a two to three-year low in gold paper trading. And for those investors looking to get their hands on some physical gold, such coins cost in the region of S$1,500 per ounce.
United Overseas Bank (UOB) in Singapore is one lender that trades in gold coins, and has noted a significant increase in demand for physical gold, gold bars and coins.
However, UOB also said that high gold prices have deterred jewellers and goldsmiths from buying gold bars.
That said, while there has been interest by investors, it is costly to invest in physical gold as GST and gold holding fees will be incurred.
UOB expects the demand for physical gold to subside over time when there is more stability in the global financial markets.
Jewellers in Singapore have also noticed an increase in demand for gold for investment.
Charles Ho, president, Singapore Jewellers Association, said: "In the past one to two weeks, there (has been) an increase of 15 to 20 per cent in enquiries, in particularly gold bars. If (they are buying gold) purely (for) investment, then most of the customers will look for gold bars...but gold bars are not wearable, so the best choice may be to buy some gold jewellery where you can touch it and feel it everyday."
Experts also recommend stocking up on gold with higher carat values as these make better investments. - CNA/ms
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
SINGAPORE : Gold continues to glitter as an investment option while global equity markets face continued volatility and turmoil.
The price of gold is holding steady at the US$850-per-ounce mark, but experts said it could rise to as much as US$1,200 in the next six months.
The precious metal has long been regarded as a safe haven investment compared to options such as shares or currencies. And investors are seeking out physical gold instead of shares in bank-owned gold.
William Kwan, bullion director, Gold Capital Management, said: "In the first place, there is a divergence between the physical gold market and the paper gold market. A lot of consumers are already converting their unallocated holdings from paper gold to physical gold allocated, because they find that it is safer for them to hold physical that is more tangible.
"That is why recently there is a short supply of gold coins around the world. A lot of consumers are queuing up outside of bullion dealer shops to buy gold coins and gold bars."
Industry players have noted a two to three-year low in gold paper trading. And for those investors looking to get their hands on some physical gold, such coins cost in the region of S$1,500 per ounce.
United Overseas Bank (UOB) in Singapore is one lender that trades in gold coins, and has noted a significant increase in demand for physical gold, gold bars and coins.
However, UOB also said that high gold prices have deterred jewellers and goldsmiths from buying gold bars.
That said, while there has been interest by investors, it is costly to invest in physical gold as GST and gold holding fees will be incurred.
UOB expects the demand for physical gold to subside over time when there is more stability in the global financial markets.
Jewellers in Singapore have also noticed an increase in demand for gold for investment.
Charles Ho, president, Singapore Jewellers Association, said: "In the past one to two weeks, there (has been) an increase of 15 to 20 per cent in enquiries, in particularly gold bars. If (they are buying gold) purely (for) investment, then most of the customers will look for gold bars...but gold bars are not wearable, so the best choice may be to buy some gold jewellery where you can touch it and feel it everyday."
Experts also recommend stocking up on gold with higher carat values as these make better investments. - CNA/ms
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
Wednesday, October 1, 2008
Why you should buy some physical gold
By Dominic Frisby
Refineries are struggling to make enough gold to satisfy demand
As I sat in front of my screen on Monday and watched the historic action of the stock market, I was glad I owned some physical gold.
I know it's a cliché and I know it'll get me accused of fear-mongering, but we really do seem to be teetering on the edge of some kind of financial meltdown. Every day, a new set of rumours flood the market about another bank facing collapse.
So it's little wonder that demand for a real, solid, wealth-preserving asset that you can hold in your hand is going through the roof…
Owning physical gold is the best way to protect what you have
There are plenty of other ways to play gold, but none offer the same sheer reassurance that physical gold does. Junior mining companies are, for the most part, a form of speculation. They are not something you invest in to protect your savings. They are something you put money in to, hopefully, make more money. The same goes for futures and options. Exchange-traded funds (ETFs) are a handy means of getting exposure to the price of the underlying commodity, but they are not the same as owning the commodity itself.
Similarly, when you hold cash in a bank you are taking on individual company risk – that's why you are paid interest to compensate. You are also taking on government risk, as all cash is a promise from and a belief in the government (and why hold significant savings in sterling with this lot in charge?).
Indeed, as this chart shows, measured in sterling, gold is touching all-time highs:
But physical gold in your hand or stored somewhere safe carries no such risk. It is not something you buy to speculate in or to make you rich, but to protect what you already have. And if you have it stored safely, no amount of derivative meltdown, naked short-selling, banking failure, government incompetence, stock-market-collapse, state-sponsored inflation or whatever threat to our wealth we face tomorrow can take it from you.
There is so much risk out there at the moment everywhere. Surely it's worth owning some bullion. And if it goes down in value, who cares? It means everything else you own will be going up.
The demand for bullion is going through the roof
Certainly, plenty of people agree with me. There seems to be a massive rush to physical gold, as I noted in a recent MoneyWeek cover story (if you're not already a subscriber, sign up for a 3-week FREE trial). This week we had the London Bullion Market Annual Precious Metals Conference in Kyoto, Japan. Sure, they have a vested interest in promoting this, but they say that demand for bullion is "unprecedented".
Jeremy Charles, chairman of the LBMA says, "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career. The gold refineries cannot produce enough bars." Other executives report that the move into physical gold was unseen, and driven by the very rich.
Johan Botha, a spokesman for the Rand Refinery in South Africa, which manufactures the Krugerrand, the world's most popular gold coin, said the plant was now running at full capacity seven days a week. "Even so, now and then we have shortages," he said.
The Austrian mint, which manufactures the Vienna Philharmonic, a popular gold coin in Europe, said it had extended work to the weekends to accommodate soaring demand. While the US mint suspended sales of the American Buffalo coin last week as it ran out of stock.
If you don't already hold some physical gold, I'd suggest you get hold of some.
----------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------
Refineries are struggling to make enough gold to satisfy demand
As I sat in front of my screen on Monday and watched the historic action of the stock market, I was glad I owned some physical gold.
I know it's a cliché and I know it'll get me accused of fear-mongering, but we really do seem to be teetering on the edge of some kind of financial meltdown. Every day, a new set of rumours flood the market about another bank facing collapse.
So it's little wonder that demand for a real, solid, wealth-preserving asset that you can hold in your hand is going through the roof…
Owning physical gold is the best way to protect what you have
There are plenty of other ways to play gold, but none offer the same sheer reassurance that physical gold does. Junior mining companies are, for the most part, a form of speculation. They are not something you invest in to protect your savings. They are something you put money in to, hopefully, make more money. The same goes for futures and options. Exchange-traded funds (ETFs) are a handy means of getting exposure to the price of the underlying commodity, but they are not the same as owning the commodity itself.
Similarly, when you hold cash in a bank you are taking on individual company risk – that's why you are paid interest to compensate. You are also taking on government risk, as all cash is a promise from and a belief in the government (and why hold significant savings in sterling with this lot in charge?).
Indeed, as this chart shows, measured in sterling, gold is touching all-time highs:
But physical gold in your hand or stored somewhere safe carries no such risk. It is not something you buy to speculate in or to make you rich, but to protect what you already have. And if you have it stored safely, no amount of derivative meltdown, naked short-selling, banking failure, government incompetence, stock-market-collapse, state-sponsored inflation or whatever threat to our wealth we face tomorrow can take it from you.
There is so much risk out there at the moment everywhere. Surely it's worth owning some bullion. And if it goes down in value, who cares? It means everything else you own will be going up.
The demand for bullion is going through the roof
Certainly, plenty of people agree with me. There seems to be a massive rush to physical gold, as I noted in a recent MoneyWeek cover story (if you're not already a subscriber, sign up for a 3-week FREE trial). This week we had the London Bullion Market Annual Precious Metals Conference in Kyoto, Japan. Sure, they have a vested interest in promoting this, but they say that demand for bullion is "unprecedented".
Jeremy Charles, chairman of the LBMA says, "There is an enormous pick-up in investment demand. I have never seen a market like this in my 33-year career. The gold refineries cannot produce enough bars." Other executives report that the move into physical gold was unseen, and driven by the very rich.
Johan Botha, a spokesman for the Rand Refinery in South Africa, which manufactures the Krugerrand, the world's most popular gold coin, said the plant was now running at full capacity seven days a week. "Even so, now and then we have shortages," he said.
The Austrian mint, which manufactures the Vienna Philharmonic, a popular gold coin in Europe, said it had extended work to the weekends to accommodate soaring demand. While the US mint suspended sales of the American Buffalo coin last week as it ran out of stock.
If you don't already hold some physical gold, I'd suggest you get hold of some.
----------------------------------------------------------------------------------------------
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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