Investors Have $102 Billion Bet on Gold, Silver Gains
By Nicholas Larkin and Pham-Duy Nguyen - Feb 7, 2011 8:29 AM MT
Bloomberg.com
After the worst January for precious metals in two decades, investors still have a $102 billion bet on higher prices, hoarding more gold than all but four central banks and more silver than the U.S. can mine in almost 12 years.
The five analysts ranked by Bloomberg as the most accurate over two years expect silver to rise as much as 23 percent before the end of 2011 and gold 20 percent, the median of their estimates show. UBS AG predicts the strongest industrial demand for silver since at least 1990 and the second-highest sales of exchange-traded gold products on record.
The decade-long surge in gold attracted fund managers from John Paulson to George Soros and is now spurring central banks to add to their reserves for the first time in a generation. Once written off as demand for photographic film waned, silver found new uses in everything from solar panels to plasma screens, making it the precious metal most used in industry. As stocks rose 9 percent and Treasuries returned 67 percent since the end of 2000, gold surged fivefold and silver sixfold.
“I had to chuckle when I saw reports that it was over for gold,” said Michael Cuggino, who helps manage $10 billion at Permanent Portfolio Funds in San Francisco, and has about 20 percent of his assets in gold. “Some investors have taken money off the table after a significant run-up in 2010. If you look at the macro environment, the instability around the world, the worldwide currency devaluation, these factors all bode well.”
The Standard & Poor’s GSCI Precious Metals Index dropped 6.5 percent in January, the most for the month since 1991. Gold traded in London retreated 6.2 percent and silver 9.3 percent.
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Gold Price Bounces Back Through $1,350
GoldAlert
The gold price oscillated near unchanged Monday morning, trading just above $1,350 per ounce.
Despite modest strength in the U.S. dollar, the price of gold managed to move slightly higher.
In contrast to the gold price, cyclical commodities were mixed, as WTI crude oil futures
dropped nearly 1% to $88.45 per barrel while copper futures posted another record high of $4.63
per pound. Gold’s more volatile sister precious metal, silver, gained $0.15 to $29.29 per
ounce.
Shares of gold producers and explorers followed the gold price higher with the world’s largest
gold miner, Barrick Gold (ABX) rising $0.36 to $48.47 per share. Fourth quarter earnings
reports are set be released next week with record gold prices expected to drive strong cash
flows and earnings.
Stock prices on Wall Street were set to open higher as healthy risk appetites in the global
marketplace has led to asset allocation changes in favor of stocks over bonds. S&P 500 stock
futures rose 3.20 to 1,310.40, following Europe’s benchmark, Stoxx Europe 600 Index, higher.
Treasury prices are lower for the sixth consecutive day with the 10-year yield rising to 3.65%.
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The Cause and Evidence of Inflation
Seeking Alpha
In a heated debate on the February 1st episode of CNBC's "The Kudlow Report", financial
commentator Donald Luskin offered his "textbook" definition of inflation as "an overall rise in
the general price level." I countered with the "dictionary" definition. My 1988 edition of
Webster's Dictionary defines inflation as follows: "An increase in the volume of money and
credit relative to available goods, resulting in a substantial and continuing rise in the
general price level." [Emphasis added.] These differences are not academic and go a long way
toward explaining why economists argue so vociferously.
In an inflationary environment, general prices tend to rise, although particular market
segments tend to do so at uneven rates. This is hardly controversial. The more disputed
question is why prices rise in the first place. As Luskin is well aware, the US Dollar is
backed by nothing but confidence and perception. Its value depends upon our collective belief
in its current and future purchasing power, and the hope that its supply will be restricted.
When its supply is increased, users of the currency lose faith in its buying power and prices
rise.
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Will gold price fall on US dollar rally?
Commodity Online
The US dollar has staged a strong rally for the past two days, particularly against the euro,
and that has some analysts believing the weakness the greenback saw in January and early
February is over for the time being.
But many are being cautious on how much strength the dollar has on its own, considering the
still-shaky outlook for the U.S. economy and the continuation of the Federal Reserve’s second
quantitative easing program. On Friday, the non-farm payrolls data for January showed only
36,000 jobs were created when analysts expected anywhere from 140,000 to 150,000.
Further, there remains suspicion by the investing class about fiat currencies, which is one
reason why market analysts said any rises by the dollar should not cap strength in gold prices.
Usually a rising dollar can limit gains in gold since it is dollar-denominated, but both can
rise at the same time, especially in safe-haven events.
“Dollar deflation is more likely than not (longer term) and that will add fuel to gold,” said
Sterling Smith, commodity trading adviser and market analyst at Country Hedging.
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Gold Is Not The Ultimate Bubble Yet
Forbes
It had to happen sooner or later. Gold prices have stalled the past four months,, going
sideways from $1375 to $1425 to $1350. No reason to panic. Trees don’t grow to the skies.
– Some ecstatic investors took their profits from the 2010 run-up that began at $1060 and ran
up a sweet return of 27%. Then again, the early birds who anticipated gold as “the ultimate
bubble” as George Soros called it, could very well have built positions at $850 an ounce in
2008, when Soros did.
Wise students of the gold market held back in the face of a strengthening dollar. Rule No. 1
about gold is that it moves in the opposite direction of the dollar 70% of the time. So, when
the dollar rallies, gold will ease- and when the dollar is being pounded down– gold skyrockets.
Thems the dynamics, according to Prof. Frank Holmes, CEO of US Global Resources, a luster
after the precious metal.
Other commodities, more required for putting food on the table. heating homes and building
infrastructure have been the hot markets to play these past 4 months. Copper, which is in
short supply is up over 20% and sugar, rice and other agricultural have been acting as if a
bubble might be forming. Let’s hope not.
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