Gold Prices Cap an 11th Straight Annual Advance
Bloomberg
Gold rose the most this month, capping an 11th straight annual advance, on speculation that demand will climb from jewelers and investors.
Gold fell 4.7 percent in the previous six sessions to the lowest since July 7 as the dollar gained against the euro, curbing demand for the metal as an alternative investment. That may boost seasonal purchases, said Marc Ground, a commodities strategist at Standard Bank Plc. In the first quarter of 2011, jewelry demand jumped 12 percent from a year earlier in India, the world’s biggest buyer, according to World Gold Council data.
“While we haven’t seen physical demand pick up yet, maybe people are anticipating it for next year,” Ground said in a telephone interview from Johannesburg. “January and February are usually good months in India, and a lower gold price might attract some buyers.”
Gold futures for February delivery climbed 1.7 percent to settle at $1,566.80 an ounce at 1:35 p.m. on the Comex in New York, ending a six-session slump that was the longest since March 2009.
While bullion gained 10 percent this year, prices have plunged as much as 21 percent since touching a record $1,923.70 on Sept. 6.
Dennis Gartman, the economist and editor of the Gartman Letter, said he is “about to become bullish” after being neutral since mid-November.
“We did not expect to see gold hold as well as it has or did in the past 24 hours,” Gartman wrote in his letter e-mailed today.
read more on this article here
Gold Futures Rebound to Score 10% Gain in 2011
MarketWatch
Gold futures closed higher Friday, rebounding after dropping nearly 5% over the past six sessions to end a tumultuous year with a gain of 10%.
The February gold futures contract rose $25.90, or 1.7%, to settle at $1,566.80 an ounce on the Comex division of the New York Mercantile Exchange.
Futures prices had lost 4.7% in a six-session losing streak, but they gained $145.40, or 10%, for the year after closing out last year at $1,421.40.
For the quarter, gold lost 3.4%.
“Given the ongoing debt problems facing many economies and record low interest rates, we still expect the bull-run in gold to continue with the metal to rebound across 2012,” said James Moore, an analyst at TheBullionDesk.com, in a note.
Analysts blamed the recent losses in gold on year-end book squaring but on Friday, the lower gold prices offered investors a chance to buy back into the market against a backdrop on continued uncertainty over global economic growth and the euro-zone debt crisis.
“Gold investors in 2012 should watch two things above all others — zero rates and the risk of a China crash,” said Adrian Ash, head of research at BullionVault.
“We know the first is nailed on, for bank deposits at least, if not for weaker euro-zone debt,” he said in emailed comments. “That’s slowly driving people to seek out a more reliable, tightly-supplied store of wealth.”
But in China, “deregulation of gold only began a decade ago,” he said. “No one knows what happens to the world’s second-heaviest consumer when household incomes reverse.”
The metals market saw broad gains to track gold higher Friday, but still finished the year with significant losses.
March contract for silver climbed 2.2%, or 60 cents, to end at $27.92 an ounce. Futures prices ended the year 9.8% lower.
“Silver, like gold, has beaten all retail investment funds here in London hands down since the crisis broke in 2007,” said Ash. “But it’s so volatile, it’s struggling to capture people’s attention as a store of value.”
Indian and Chinese silver demand is growing, “but the industrial outlook threatens to weaken further, because high prices are forcing substitution and better efficiency,” especially in the solar market, he said.
read more on this article here
Gold Alone Shines in 2011
Business Standard
Other assets suffered badly, experts feel that the yellow metal and debt will continue good show.
The year 2011 ended on a bad note for most asset classes. Only returns from gold and silver were in the green. So, an investor who put money in gold at the beginning of 2011 earned higher returns than those who focused on bonds, stocks, commodities, silver and real estate.
If one adjusts the returns with inflation, only gold gave positive returns. The yellow metal rose 32 per cent in rupee terms, while it returned 11 per cent in dollar terms.
| PERFORMANCE SHEET | ||
| Name | 30-Dec | % Chg |
| PRECIOUS METALS | ||
| Gold Rs/10 G | 27,100.00 | 31.65 |
| Gold $/OZ | 1,572.30 | 10.66 |
| Silver Rs/1KG | 50,965.00 | 8.37 |
| Silver Spot $/OZ | 28.17 | -8.89 |
| EQUITY INDICES | ||
| BSE Metal Index | 9,293.17 | -47.19 |
| Sensex | 15,454.92 | -24.64 |
| Nifty | 4,624.30 | -24.62 |
| Hang Seng | 18,434.39 | -19.97 |
| Nikkie 225 | 8,455.35 | -17.34 |
| FTSE 100 (IST 1700 Hrs) | 5,551.81 | -5.90 |
| Jakarat Comp | 3,821.99 | 3.20 |
| Dow Jones (Dec 29) | 12,287.04 | 6.13 |
| COMMODITY INDICES | ||
| S&P GSCI Ind Metal Spot | 364.52 | -22.46 |
| ThomReuters/JefferiesCRB | 304.55 | -8.49 |
| Rupee | 53.07 | -18.70 |
| Source: Bloomberg | ||
The value of stocks and commodities, on the other hand, declined over 20 per cent each. Commodities would have suffered more, but a depreciating rupee arrested the fall. The rupee depreciated 18.7 per cent against the US dollar. Bonds and debt funds fetched six-nine per cent.
Silver, the biggest outperformer in 2009 and 2010, looked like heading in the same direction in the first few months. However, a significant correction in the last eight months wiped out most of the gains. The white metal ended the year eight per cent higher in the Indian market. Globally, it was down nine per cent. Again, the rupee came to the rescue.
Cash in hand, which rose 12.5 per cent (a 35 per cent rise over the last two years) to Rs 9,88,658 crore as on December 16, according to Reserve Bank of India data, would have also returned positive. And, with savings deposit rates hikes by some banks, returns on idle cash in banks would be more impressive.
Waning liquidity, loss of appetite and failure of big players in the commodity segment of MF Global hurt the overall sentiment. This led to a fall of 20 per cent in this segment, globally.
Growth-oriented equity funds, a retail investors’ best friend for long-term wealth creation, were hurt because of an almost 25 per cent fall in the Sensex. Interestingly, while Asian and European markets suffered throughout the year, the US benchmark Dow Jones Industrial Average was the only one to turn in positive returns of six per cent. And, this was despite the troubles the US economy faced throughout the year.
With gloom and doom continuing to haunt the financial markets, experts do not see much hope from equities in the near future. “In the current scenario, investors’ first choice should be putting money in debt. Of the debt portion, investments should be in tax-free bonds, which will help maximise tax-free returns. If you have gold, stay invested, increase its share in the total portfolio to 10-15 per cent, as this is the time to buy gold, though gradually,” said Rajesh Iyer, head - products and research, Kotak Wealth Management.
For equities, Iyer felt though valuations might be looking cheaper, headwinds were still stronger. For commodities, the general outlook is not that attractive, but prices are seen to be near the bottom.
Ajit Dayal, director at Quantum Asset Management, advises those who have appetite for equities: “Investors should seek shelter in companies with low or zero debt and in fixed deposits with safe companies, preferably public sector banks.”
read more on this article here
Gold Confiscation, a Reality?
GoldSeek
Many of the leading fund managers in the U.S. and elsewhere are expecting that governments will confiscate their citizen’s gold. This will not be for the same reasons used in 1933. It will be to facilitate loans, swaps lower interest rates, and shore up international confidence in the turbulent, stressed paper-currency world in which we live. Each nation issues paper as money, dependent on the trust that nation can engender at home and abroad. But is this going to be sufficient, moving into an ever more turbulent 2012?
Traditional Use of Gold in Reserves
When gold was deemed money in the world under the Gold Standard, money was issued against the stock of gold a nation had –this formed the basis of the money supply. In 1933 as the Depression wreaked damage to the U.S. economy, the government needed to expand the supply of money to the economy, dramatically. The first step was to confiscate their citizen’s gold at a price of $20 per ounce. Two years later in 1935, the U.S. government devalued the dollar by 75% to $35 an ounce. This expanded the U.S. money supply by far more than 75% because of the additional gold in government vaults.
As U.S. influence spread abroad after the war, the need for a vast increase in global money supply and, in particular, the number of dollars outside of the U.S. (then limited to the amount of gold in U.S. coffers) the restraint on money supply was unbearable on the U.S., so it eliminated gold from its active role in the money system and replaced it with the USD, tied as it was to the oil price.
Thereafter, gold was relegated to the vaults as an important but passive, reserve asset. Now, we’re led to believe that central bankers feel that the amount of gold they should carry is either 3-months’ worth of international trade, or between 10 and 15% of total foreign exchange reserves –as though this is all it would take to resolve a crisis. Such formulae test credibility to the limit.
Uses of Gold in the Last Couple of Years in the Monetary System
But in 2011, the use of gold to fund a Eurozone bail-out implied was raised. A draft of the European Commission study on joint Eurobonds is the suggestion that gold could be used as collateral for them. It did not receive more than token recognition; the issue, however, was at least addressed in theory. Its use was not related to the expansion of the money supply –the suggestion did not imply any mobility as money at all. A new role for gold in official uses was starting to get recognition.
In 2010, gold was used by the Bank of International Settlements in currency swaps, giving little-to-no information as to the identity of their clients. Over 500 tonnes of gold was used in the currency / gold swaps. These did not relate to practical money raising, but to gold being used as collateral to facilitate cheaper and larger loans to the banks to provide liquidity where it was drying up. The stories came that gold was being used by commercial banks –who don’t hold gold on their balance sheets—but the only place they could get gold from was from central banks. So was it a dire need by commercial banks for liquidity or was it an attempt by central banks to cap the gold price? We might never know...But in 2011 these swaps were reversed, and the gold left the B.I.S. in the second half of the year [2011] gold lease rates dropped heavily into negative territory, telling us that central banks were lending gold again to banks at incredibly cheap rates –this coincided with the fall in the gold price from over $1,900 to current levels.
read more on this article here
China’s Central Bank Clamps Down On Gold, The Only Safe-Haven Left
Forbes
The People’s Bank of China (PBoC) continues to strengthen its hold of the local gold market, banning the establishment of gold trading platforms and channeling everything through the Shanghai exchanges, according to an official notice released Tuesday. At the same time, a senior PBoC official urged his peers to favor further gold buying saying “no asset is safe now, the only choice to hedge risks is to hold hard currency – gold.”
Gold investors in the U.S. may still doubt whether fundamentals are in place for the yellow metal to continue its decade-long rally; Chinese authorities definitely aren’t. On Tuesday, the PBoC decided to ban local regions, institutions, and individuals from setting up gold exchanges, while prohibiting other exchanges from establishing any gold trading platforms.
“Since 2001, […] China’s gold market has developed very rapidly, formed [by] a combination of cash and derivatives, institutions and individuals [through] a multi-level structure,” read the release. At the same time, illegal means of investing in gold have sprung across China, from exchanges to gold trading platforms, according to the PBoC.
Thus, all gold trading will be channeled through the Shanghai Gold Exchange and the Shanghai Futures Exchange. The measures are designed to “safeguard economic and financial security and social stability,” given that gold “is an important component of [the PBoC’s] international reserves.”
Chinese gold demand, both retail and financial, has surged as of late. China’s gold consumption doubled to about 20% of global supply in the last decade, while its reserves have climbed to 1,054 tons, or about 1.8% of its foreign exchange reserves.
Senior officials at the PBoC have been pushing to increase the country’s official gold holdings. Zhang Jianhua has been among the most outspoken. On Tuesday, head of the PBoC’s research bureau, said:
The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation.
No asset is safe now. The only choice to hedge risks is to hold hard currency – gold.
Interest in Chinese gold has drawn some heavy hitters. Billionaire George Soros and Alibaba Chairman (and Yahoo’s partner) Jack Ma have placed their bets on Chinese retail demand for gold via the IPO of jeweler Chow Tai Fook. Interest for gold in general has exploded over the last decade, with physically-backed ETF GLD becoming the second largest ETF by assets.
Gold prices have taken a big hit of late, though. The yellow metal is down more than 16% from its August highs, while gold mining stocks like Goldcorp, Newmont, and Barrick Gold have been mixed.
read more on this article here
Gold Still a Safe-Haven Investment
Gulf News
Amid the economic slowdown, a lack of trading in the stock market and property values eroding, gold remains a major investment option for investors, experts say.
A Dubai-based spot trader of gold and silver bullion, Gold Arab Emirate, said it has achieved over $500 million (Dh1.84 billion) in transactions in 2011, mainly from Dubai, Turkey, Kuwait and Switzerland branches.
Gold trade in the first half of 2011 reached 580 tonnes (average price $1,455), with exports down from 225 to 214 tonnes, reflecting greater local consumption, according to the Dubai Multi Commodities Centre (DMCC) Authority.
"Dubai, in particular, has generated substantial trade volume driven by the continuing surge in local demand, as local imports have reached up to three tonnes of gold each year, reaffirming the emirate's growing status as the ‘City of Gold'," the company said in a statement.
A Gold Arab Emirate spokesperson said he expects volumes to continue increasing as gold remains the best investment.
The UAE has traditionally been a major gold trading hub. A Ministry of Foreign Trade study shows the country to be among the world's top five gold traders from 2005 to 2009, ranking second globally in gold imports in 2009 alone with $14.5 billion worth of gold imported which is equivalent to 16.6 per cent of global imports. In the same period, the UAE ranked third globally in gold exports with a 10 per cent share of global exports worth $10.5 billion.
"Gold fell in light holiday trade on Tuesday as technical weakness, options-related selling and a lack of fresh economic news failed to stimulate buying interest in the final week of the year. Gold is on track for a 9 per cent fall for December," according to an American Petroleum Institute trading update on Tuesday.
Technical support
"Prices earlier in the month plunged below key technical support they had held for nearly three years, fuelling fears that bullion was close to ending a more than decade-long bull run. Spot gold fell to a one-week low of $1,588.89 earlier in the session. It was down 0.8 per cent at $1,592.80 an ounce. This year to date, gold is up 12 per cent, one of the few investment assets that posted sizable gains in a rather difficult 2011 largely plagued by US double-dip recession fears and Europe's debt crisis."
Mohammad Abu Al Haj, vice-chairman and CEO of Abu Al Haj Holding Limited and Chairman of Gold Arab Emirate, said: "Gold is the only safe-haven investment for 2012 and everyone should have at least 20 per cent of their portfolio in physical gold. In this regard, Gold Arab Emirate therefore serves as a gateway for investors by offering a wide range of alternative solutions for gold investments." Al Haj believes the price of gold will exceed $2,500 an ounce by the end of 2012.
"Nobody can deny that inflation and possibly hyper-inflation will take place in 2012, and the only thing that can protect an individual's net worth from such inflation is gold," he said.
Keeping value
"Money can be printed, gold cannot. For that reason gold always keeps its value. Moreover, I believe that Dubai will be the main gold hub in the world since it has the best logistics and investors' supply/demand satisfaction."
read more on this article here
Bill for Basket of Essentials Soars 43 Perent in Ten Years
Mail Online
Ordinary families have been crippled by the rocketing cost of essential goods over the past decade, a report has found.
The price of basic purchases, such as food and fuel, soared by 43 per cent over the decade from 2000.
These rising costs – far above general inflation – have already wiped out most of the gains in living standards made by families on low and modest incomes in the early 2000s, before the downturn began, according to research.
The analysis, commissioned by the Resolution Foundation think-tank, revealed the squeeze on living standards for ordinary households has been more severe than previously thought.
It found 30 per cent of working-age households now have incomes too low to afford the essential basket of goods.
It also showed that Labour’s stewardship of the economy may not have benefited ordinary families as much as the party had claimed.
Some household costs increased even more dramatically than the 43 per cent average, according to the study.
Household fuel more than doubled in price during the 2000s and water bills increased by 63 per cent, it said.
Report author Donald Hirsch, from the Centre for Research in Social Policy at Loughborough University, said: ‘This research shows the dramatic impact recent price increases have had on the ability of households to afford a minimum standard of living.
‘Of course, global pressures on prices are largely beyond our control.
‘But that makes it all the more important that we do all we can to reduce pressures in areas where we can make a difference, such as transport costs, council tax and energy prices.’
The analysis is based on the commonly accepted essential basket of goods, which includes food, fuel, public transport and very occasional treats for families with children.
The official inflation measure, the Consumer Price Index, takes into account a wider basket of goods. Over the decade to 2010, CPI was 27 per cent.
Gavin Kelly, chief executive of the Resolution Foundation, said: ‘The fact that the rising cost of essential goods and services has outstripped official measures of inflation helps explain the disconnect many hard-pressed households have long felt between their own stagnating living standards and the growing affluence they see around them.’
Meanwhile, it has emerged that demand for frozen meals has rocketed among cash-strapped Britons desperate to cut their grocery bills and produce popular family meals for less.
Read more on this article here
Gold Might Have Already Hit Rock Bottom
GoldSeek
If you’re looking for a post-Christmas read, take a look at a book called “The Great Stagnation” by Tyler Cowen of George Mason University whose theme is laid out in its subtitle: “How America ate all the low-hanging fruit of modern history, got sick and will (eventually) feel better.”
The interesting aspect of this book is Prof Cowen’s explanation on how the US got into its predicament.
“The American economy has enjoyed ... low-hanging fruit since at least the 17th century, whether it be free land, ... immigrant labor, or powerful new technologies. Yet during the last 40 years, that low-hanging fruit started disappearing, and we started pretending it was still there. We have failed to recognize that we are at a technological plateau and the trees are more bare than we would like to think. That’s it. That is what has gone wrong.”
Sustained economic growth requires new ideas and unfortunately, rates of invention and innovation have slowed. The high point, according to Cowen, was the late 19th and early 20th centuries, which produced: modern chemicals and so artificial fertilizers; electricity and so the electric motor, light, refrigerator, vacuum cleaner, air conditioner, radio, phonograph and television; the internal combustion engine and so the automobile; the airplane; pharmaceuticals; and mass production. These are inventions that transformed lives and caused paradigm shifts.
“Today, in contrast”, argues Cowen, “apart from the seemingly magical Internet, life in broad material terms isn’t so different from what it was in 1953.”
He concludes that “politics is very difficult in an America without much low-hanging fruit”. Also he says in explaining the financial crisis that “we thought we were richer than we were.” Americans have made demands, both collectively and individually, that they could not afford, borrowing too much and resisting both higher taxes and lower spending.
Let's begin the technical part with the analysis of currencies. We will start with the euro chart (charts courtesy by http://stockcharts.com.)
We begin with a look at the long-term Euro Index chart. We see that the index has moved lower past the level of the previous low and slightly below the 61.8% Fibonacci retracement level. The uncertainty in Europe is undoubtedly contributing to the lack of clear focus here.
However, the breakdown has not been verified yet. The index moved back above this support level and is now right at it. This means that the outlook is considerably less bearish than when it was below its final retracement level. If the index rallies and the breakdown is indeed invalidated, a significant move to the upside could very well follow.
At this time, it seems that the odds favor a rally in the Euro Index. The situation has improved in Europe and although it is still not good, it is better. The outlook for the euro therefore has improved, and the very negative publicity which has been handed out by the popular media outlets is no longer current.
Concerning the very long-term USD Index chart, we would like to stress that the dollar has not truly broken above the declining long-term resistance line, and it has not moved above the 2011 high. Consequently, one should not be overly bullish on the USD Index just yet.
read more on this article here
China Should Buy More Gold – Central Bank
International Business Times
News of falling gold prices may bad news for most, but not for China.
Now is the most opportune time for China to buy more gold assets when prices of the yellow metal are dropping, to ensure the country maintains and protects a well-diversified foreign-exchange portfolio, Zhang Jianhua, research bureau director at the People's Bank of China, said in the Financial News, a newspaper published by the Chinese central bank.
"The Chinese government... needs to further optimise China's foreign exchange asset portfolio and seek relatively low entry points to buy gold assets," Mr Zhang wrote, noting government should remain cautious of possible inflationary pressures rising.
Other assets such as government bonds and property are slowly losing value. "Gold remains the only safe haven for risk-averse investors," he said.
China should increase its gold acquisition, more aggressively when prices drop, Mr Zhang said.
He did not, however, specify as to how much of the country's $3.2 trillion forex reserve should be allocated to gold investments.
Figures from China's central bank showed the world's second-largest economy currently holds 33.89 million ounces of gold in its reserves, unchanged since April 2009.
Gold purchases of central banks from China, Russia, Thailand and Mexico in the third quarter of 2011 showed a hike of more than six times to 148.4 tons compared to a year ago. Figures from the Gold Demand Trends report for Q3 2011 by the World Gold Council said central banks have been aggressively buying the yellow metal to increase their total reserve allocation, a move to diversify investments away from U.S. dollars.
Central bank purchases have more than doubled by 114 per cent over the previous quarter, in what could be the highest level of central bank buying since at least 1970.
read more on this article here
Interest Rates in a Gold Coin Standard
GoldSeek
Americans are living in a world of central bank profligacy. This has been true ever since 1914, when the Federal Reserve System opened for business. But the most recent bank-created economic crisis, which began in December 2007, has received more attention than ever before. This is mainly the result of Ron Paul's 2007 candidacy for the Republican nomination for President. He warned that this crisis would happen. He also spelled out the reasons: Federal Reserve policy. Then the crisis hit.
The Federal Reserve lost its immunity from criticism in 2008-9. It will never get it back. It also lost its invisibility. The general public now has some limited awareness of the FED. The FED gets a lot of negative publicity. This to a positive development.
This has also created a problem. Some of the critics of the Federal Reserve System propose a solution worse than the FED itself: the creation of a fiat-money based central bank that creates money out of nothing to pay for government-funded projects. These critics argue that this government-run bank will be able to offer interest-free loans to the public, which will keep the economy running at full capacity.
This is what John Maynard Keynes taught in "The General Theory of Employment, Interest, and Money" (1936). Keynes praised several economically unsophisticated predecessors who proposed schemes for government-created zero-interest money, including the founder of Social Credit, Major C. H. Douglas, and the farmer and former economist for the week-long Bavarian Soviet Republic of 1919, Silvio Gesell. He referred to them as part of the economic underground, as indeed they were. I have given a lecture on this.
THE GREENBACKERS
In the United States, the largest and oldest component of the economic underground promoting government-issued fiat money has been the Greenback movement, named in honor of the Union's Civil War currency, unbacked by gold and printed with green ink. The Greenbackers have been a separate ideological movement ever since the 1870s. They are influential on the extreme fringes of both Left-wing and Right-wing circles – a unique achievement.
I have been writing about these people for over 45 years. I am the only person in the Austrian School who has published critiques of their position. The first one I wrote in 1965 as a privately circulated essay. I published it in my book, "An Introduction to Christian Economics" (1973). I revised it to bring it up to date as a mini-book published by the Mises Institute: Gertrude Coogan's Bluff.
Miss Coogan was the main theoretician of the Greenback movement in the 1930s. Her books are still in print. More recently, she has been replaced by a lawyer, Ellen Brown. I have dissected her book, The Web of Debt (2007).
The Greenbackers hate the idea of the gold standard, just as Keynes did. They claim that fiat money will keep depressions from happening, just as Keynes did. They claim that capital – the tools of production – can be obtained free of charge at a rate of zero percent per annum, just as Keynes did.
The odd thing is this: most of the adherents of the Greenback position think of themselves as conservatives. They think of themselves as defenders of the free market. Yet they see all privately owned banking as an economic evil. They trust Congress to set up a government-owned bank with the legal right to print however much fiat money that the government-protected, monopolistic bankers decide.
read more on this article here