The Wall Street Journal
Gold futures edged higher on Tuesday, as calm in European markets weighed on the U.S. dollar and drew buyers to the precious metals, but trading was thin ahead of this week's monetary policy announcement from the Federal Reserve.
The most actively traded contract, for June delivery, rose $11.20, or 0.7%, to settle at $1,643.80 a troy ounce on the Comex division of the New York Mercantile Exchange.
European markets were calm on Tuesday after being rattled Monday by a series of warning signs on the euro-zone's political and financial stability. But relatively well received auctions of Dutch, Spanish and Italian debt helped steady investor sentiment on Tuesday, drawing buyers to growth-sensitive assets and weighing on the U.S. dollar.
Gold tends to benefit from dollar weakness, as it makes the precious metal appear cheaper for buyers using other currencies.
Other investors were cautious about placing large bets in the gold market ahead of Wednesday's policy statement expected from the U.S. Federal Reserve. Gold tends to benefit from the type of accommodative monetary policies deployed by the central bank to support growth, and hints that more on the horizon could spur a rally in the metal.
"If they give any hints or indication that they might do something, I think you'll see gold and silver continue on an upward path," said Bob Haberkorn, senior commodities broker with RJO Futures. "If you don't have any mention, you'll have a letdown," he said, potentially setting prices up for more losses.
Diminished expectations for more Fed action anytime soon were key in pushing gold prices down from this year's highs just below $1,800 a troy ounce.
Mexico, Russia, Turkey, Kazakhstan and Ukraine reported a rise in their gold holdings in March, according to data released on Tuesday by the International Monetary Fund, as emerging-markets central banks continue to boost their holdings of the precious metal.
Mexico's central bank purchased 541,000 ounces during the month. Russia added 532,000 ounces in March, and Turkey bought 369,000 ounces. Kazakhstan's reserves rose by 138,000 ounces.
World central banks through much of the 1990s and 2000s were sellers of the precious metal, but that trend flipped in recent years as some central banks bought gold to keep the metal's share of their ballooning foreign exchange holdings steady. Others bought in an effort to diversify holdings of the world's major reserve currencies.
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A record high gold price above $2,000 an ounce next year could mark the peak of the precious metal's more-than-decade-long bull run as monetary policy in key economies starts to normalize, the chairman of metals consultancy GFMS said on Wednesday.
The market is expected to rise to new highs by early 2013 after struggling this year against a backdrop of softer demand in key physical markets and slackening investment appetite for bullion, GFMS chairman Philip Klapwijk told Reuters.
Gold prices are likely to be driven above $2,000 as concerns over the euro zone debt crisis persist and the prospect of more U.S. monetary easing gains ground, he said.
But that move could be short lived as those factors dissipate, particularly if the prospect of higher U.S. interest rates becomes a reality the following year, he said
"We are expecting still that we are going to see a push above $2,000 in 2013, but it may be that 2013 marks the high water mark for the market," Klapwijk said.
"It depends (on whether) we see some resolution in Europe, enough to really take some of the sting out of that issue... an end to stimulus measures in the United States... and the prospect of a normalization of monetary policy."
Klapwijk said gold was expected to trade in a range of $1,530-1,920 an ounce in 2012, with an average price of $1,731 an ounce. The upper end of that price view is just below last year's record $1,920.30 an ounce, reached in September.
"What we're seeing... is a postponement of the next leg higher in prices," Klapwijk said before the launch of GFMS' Gold 2012 report. "The $2,000 an ounce level being surpassed is probably looking more like a story for the first half of 2013 than something we will see in the second half of this year."
"Lying behind this is what we have seen over the first three months of this year, which is a certain amount of investor fatigue, (and) certain physical markets such as India and China not punching quite as hard as they did last year," he added.
Looking at projections for supply and demand this year, he pointed to a fundamental surplus in the market which in dollar terms could be north of $130 billion.
"That surplus needs to be purchased by central banks or, more likely, private sector investors. This is quite a big ask now."
SUPPLY, DEMAND GAP WIDENS
Some key areas of demand, such as central bank buying, will remain in place, but the company said it does not expect official sector purchases, which last year rose to their highest since the mid 1960s, to increase much this year in ounce terms.
A softer picture has emerged of jewelry buying, the largest single element of gold demand. Gold jewelry fabrication fell 2 percent in 2011 to 1,973 metric tonnes (2,175 tons), GFMS data showed, as off take from major consumer India fell nearly 3 percent to 761 tonnes.
Physical bar investment has since softened a touch after leaping by some 37 percent to a record 1,209 tonnes in 2011.
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In "Money Printing's Biggest Show Of All Time" I looked at some characteristics of the quantitative easing mania beginning to grip our global central bankers. The bull market in creative debt we are witnessing in our day can be studied with fractals the same as other historic bull markets. I've written a series of articles on this, "The 64-Month Bull Market Fractal" and others, as it relates to gold. I can't go over that here, but I recommend you look at these articles to better understand this one. I also show some examples in "The Bull Market In Money Printing" at my blog. I would just like to present here a generic example of the 64-month fractal that is presented by David Nichols, a pioneer in this emerging science of market study. He came across these fractals as it relates to gold. But it is a pattern that is common in a variety of bull markets.
This fractal is basically a repeating growth pattern seen in run-away, historic moves that begins with a sprout point, a change from a sleepy trading action to parabolic growth. The fractal is composed of 3 elements - twin parabolas separated by a downtrend consolidation between them running about 1 year. The fractal runs for about 64 months plus or minus a couple months or so. For example, the housing boom's Toll Brothers (TOL) stock:
Nichols marks out the month count here 1 thru 65 at the top. I have added the 3 elements in orange. This same 64-month run shows up in the Nikkei of the '80s, the Nasdaq of the '90s, the Dow of the '20s, and oil up to the '08 top. It doesn't happen in every bull run, and it doesn't always mean the end of the bull run. It is just a very prevalent fractal growth pattern.
This 64-month or roughly 5 1/2 year scale of the fractal is the most common. But it does occur in other scales. There is a 3-year size and a large scale that usually runs 7-9 years. I show several examples of these other sizes in my articles, most notably the example of gold. In both the '70s bull market and the one we are in now, gold exhibits the large scale, which is marked by the downtrend separator being more developed and running more than a year to more like 2 years in length.
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International Business Times
Rising Eurozone government debt, ultra-low interest rates and geopolitical risks are expected to extend the gold price rally that began at the end of December 2011, a commodities analyst said.
Concerns about government debt in Eurozone countries such as Greece, Portugal, Spain and Italy, along with easing monetary policies by the European Central Bank to stimulate growth, have helped gold rise more than 10 percent this year, James Steel, chief commodities analyst for HSBC, wrote in a report entitled "Gold Outlook -- Sharpening the bull's horns."
The attention the U.S. debt will increasingly receive during the 2012 presidential election could weaken the dollar, which traditionally correlates with a rise in gold prices, Steel wrote in the report, which was released Sunday.
Another factor supporting gold prices this year is the trend of emerging market central banks diversifying their reserves away from the U.S. dollar and toward gold, he wrote.
"The shift in central banks' attitude toward bullion is perhaps the single most important bullish development in the gold market since the creation of gold ETFs; we expect this to continue," Steel wrote.
Another reason for a sustained growth in gold prices this year is volatility in energy and food prices. Steel's report notes that many of the world's largest oil producers are unstable countries, which causes turmoil in the financial markets. He also wrote that gold prices rose in 2008 and 2010 when the U.N. declared a global food crisis.
These facors will result in an average 2012 gold price of around $1,850, Steel wrote, with a range of $1,450 to $2,050 according to a report by James Steel, precious metals analyst with HSBC, with its average price around $1,850. The price of gold on the Comex was $1,720.60 an ounce in mid-morning trading.
Beyond this year, HSBC expects the average price of gold per ounce to be $1,800 in 2013 and $1,750 in 2014. The long-term price of gold is expected to be about $1,500 an ounce.
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The spot market price of buying Gold climbed to $1728 an ounce Monday morning London time – a slight drop from last week's close – while stock markets, commodities and the Euro all fell and government bond prices rose as European leaders met for their latest summit in Brussels.
The cost of buying Silver fell to $33.08 at one point – a 2.6% drop from where it ended last week.
Gold fell as low as $1718 per ounce Monday morning, dropping steadily during Asian trading, though this represented a loss of only 1% on Friday's closing price.
"Everybody seemed to be expecting profit taking out of Shanghai after the two Chinese bourses came back online," said one Hong Kong dealer.
"As far as we can see, there wasn't much of that."
During last week's Lunar New Year holiday, China saw a "gold rush", with consumers spending more on buying gold than during the 2011 festival, according to a China Daily report.
"People seem crazy about gold, snatching it up more like a cheap cabbage than such a precious metal," it quotes Beijing resident Miao Miao.
The value of sales at two of Beijing's top gold retailers, Caibai and Guohua, reportedly hit 600 million Yuan ($95.28 million) – a 49.7% rise on last year's sales, almost 50% increase in purchases!The gold price in Dollars meantime rose around 25% over the same period.
The Yuan also appreciated against the Dollar over that time, gaining around 3.6%, which implies a rise in Chinese domestic gold prices of around 20%.
Despite strike action in Belgium that has brought transport to a halt, European leaders met in Brussels on Monday, where the issues of budget discipline and the Greek debt crisis were expected to dominate discussions.
"Solidarity and reliability are really coming together in this context," German finance minister Wolfgang Schaeuble said last week.
"We are credibly addressing the problems in the affected countries...and in the meantime we have to demonstrate solidarity."
Britain however has already walked away from the new budget treaty currently being drafted.
"To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do," one British official told newswire Reuters.
Denmark, which does not use the Euro, has negotiated a concession that fines imposed on a country that breaches new deficit rules would only go into the Eurozone bailout fund if the fined country were a Eurozone member – otherwise they will go to the European Union's general budget.
Greece meantime has rejected a German proposal that an EU budget commissioner should have power over Greek taxes and spending.
"I think it's wrong that money from the EU's structural development fund is being spent on bicycle stands," German foreign minister Guido Westerwelle said on Friday, arguing that EU funds are being squandered.
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Gold futures advanced Wednesday as the dollar weakened and U.S. stocks traded higher, lifting the tide for gold and other metals.
Gold for April delivery added $9.10, or 0.5%, to settle at $1,749.50 an ounce on the Comex division of the New York Mercantile Exchange.
That was gold’s highest settlement since early December and a second straight day of gains for the metal.
Gold’s been enjoying “a slow and steady advance” in recent sessions, said Frank Lesh, broker and futures analyst with FuturePath Trading in Chicago.
“You don’t want too much, too fast,” he said. “A lot of the trading right now is about risk-on, risk-off, and with equities doing well we see an easier advance for gold.”
U.S. stocks and most markets cheered positive data on Europe’s manufacturing, and, closer to home, a report that showed improvement in private-sector employment for January, contributing to gains for most markets on Wednesday.
Overnight in Asia, data showed a mixed picture of manufacturing activity in China.
Underpinning the support for gold, the ICE dollar index, which tracks the greenback against six rival currencies, declined to 78.881, down from 79.278 late Tuesday.
A weaker greenback is a positive for dollar-denominated commodities as it makes them less expensive to holders of other currencies.
The broader metals complex traded higher, overcoming some weakness seen during Asian trading hours, with platinum leading the way.
Platinum for April added $35.10, or 2.2%, to $1,623.20 an ounce, while March palladium gained $10.35, or 1.5%, to $696.70 an ounce.
March silver rose 55 cents, or 1.6%, to $33.81 an ounce.
March copper advanced 5 cents, or 1.4%, to $3.84 a pound.
HSBC’s Chinese manufacturing survey remained stuck in contraction in January, while the government version indicated the sector is now growing.
Payroll processor Automatic Data Processing Inc. said Wednesday a survey indicated U.S. private-sector payrolls rose 170,000 in January, marking the second year of job gains for the private sector.
Separate data on manufacturing from Germany, the U.K. and the euro zone also came in positive, giving markets another layer of support.
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The Daily Bell
Inside the Fed in 2006: A Coming Crisis, and Banter ... As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers. The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was "rising through the roof." But the officials, meeting every six weeks to discuss the health of the nation's economy, gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast. – New York Times
Dominant Social Theme: The Fed gets it right ... eventually.
Free-Market Analysis: Wow, what an article. At a time when many in the alternative media were shouting out loud about an impending financial crisis, many of the top men at the US Federal Reserve could only make jokes about desperate discounts being given out by house-builders that found themselves saddled with an ever-growing inventory they literally couldn't give away.
And who provides this information? Why, the Fed itself as part of an ongoing "openness" about its deliberations. This is, for the Fed, not a generous move but a desperate one. We've been writing about the trouble that central bankingis in and the moves that will have to be made to try to counteract the growing perception that the Fed in particular is a sinecure of the vastly wealthy.
This is a direct result, in our view, of the Internet Reformation that has made it impossible for the power elite to pretend its dominant social themes are grounded in reality. The Fed didn't used to release a narrative of its deliberations. But over time, the pressure to explain this mysterious mercantilist facility has increased significantly. Tens of millions believe in the fear-based promotions of the elite, but millions do not anymore.
Central banking is a good example of just such a fear-based promotion. Invented in England some 500 years ago, the privilege of printing money for the state has been jealously guarded and incrementally expanded by a tiny pool of "central banking" until it has reached its current perfection.
The idea behind central banking in the modern age is that the world's financial system is fragile and prone to breakdown and needs a central clearinghouse to guarantee solvency. The reality is that central banks – particularly the Fed – have garnered a franchise to print money-from-nothing.
The mechanism of the Fed is presented antiseptically in textbooks but the reality is far from bloodless. The few (Anglosphere) families that control the Fed and other central banks around the world have used the literally hundreds of trillions they control to create what is popularly called a New World Order.
They have fully purchased political, military, educational and media facilities in the West and elsewhere in order to propagate the gospel of globalism. They then manipulate current events up to and including wars in order to realize their aim of global governance.
But even as they have approached their goal of apparent total control of the world's political and military processes, they have received setback after setback from an unforeseen facility: The Internet. While it is true that the US's DARPA created the Internet, it was the unanticipated creation of the personal computer that turned a private military facility into a worldwide phenomenon.
The Internet, like the Gutenberg Press before it, has allowed an unfettered exchange of information about the Way the World Works. The result has been a gradual discovery by the masses of central banking and the essential insanity of a system that gives a handful of people the ability to direct trillions to their friends and colleagues.
The inevitable result of the collision of what we call the Internet Reformation and the memes of the elite – specifically central banking – is the gradual creation of a deep dissatisfaction with the Fed and central banking generally.
The elites rely on public acceptance of its memes to govern behind the scenes. If its main methodology of control – central banking – is foundering on the shoals of public skepticism, then the larger plan to create global governance is in jeopardy as well. Without the limitless money and control that central banking provides, the plans of the Anglosphere elite to run the world are not simply in jeopardy, they are likely ruined.
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Gold traders are the most bullish in a month as Europe’s deepening debt crisis and increasing tensions over Iran drove the metal to its longest winning streak since October.
Ten of 22 surveyed by Bloomberg expect the metal to gain next week and five were neutral, the highest proportion since Dec. 9. The U.S. Mint sold 45,500 ounces of American Eagle gold coins this month, compared with 65,500 ounces in the whole of December and 41,000 in November, data on its website showed.
Britain and France will press the European Union to stop Iranian crude imports at a Jan. 30 meeting, in response to the country’s nuclear program. Iran is threatening to retaliate by blocking the Strait of Hormuz, a key chokepoint for global oil supplies. Greek Prime MinisterLucas Papademos warned his nation may face economic collapse as soon as March. Investors are holding (.GLDTONS) a near-record amount of gold through exchange-traded products after the metal rose for an 11th consecutive year.
“European sovereign-debt risk and the geopolitical risk of the Iranian situation escalating should support gold,” said Mark O’Byrne, executive director of Dublin-based GoldCore Ltd., a brokerage that sells everything from quarter-ounce British Sovereigns to 400-ounce bars. “Gold’s safe-haven attributes will continue to be in demand.”
Bullion rose 10 percent last year, beating the 1.2 percent decline in the Standard & Poor’s GSCI Total Return Index of 24 commodities and the 9.4 percent retreat in the MSCI All-Country World Index of equities. Treasuries returned 9.8 percent last year, a Bank of America Corp. index shows.
The metal, which traded at $1,618.28 an ounce at 5:45 p.m. in London, fell almost 19 percent from its record closing price of $1,900.23 on Sept. 5 through Dec. 29, within 1 percentage point of the common definition of a bear market. Gold rallied 5 percent in five days ended yesterday, the longest run of gains since October.
Traders also anticipate advances in raw sugar, corn and soybeans next week. Copper may decline, the surveys showed.
Holdings in bullion-backed ETPS reached 2,355.3 metric tons on Jan. 4, within 2 percent of the all-time high set Dec. 13, data compiled by Bloomberg show. The hoard, valued at $121.7 billion, exceeds the reserves of all but four central banks.
Hedge funds and other money managers cut bets on higher prices to 111,919 futures and options in the week ended Dec. 27, the lowest since January 2009, U.S. Commodity Futures Trading Commission data show. The drop preceded the rally in prices. The last time the net-long position was that low, prices climbed about 16 percent in the next four weeks.
The U.S. and its allies are tightening restrictions on Iran, accusing it of a covert plan to build nuclear weapons, a charge Iran’s government denies. About one in six barrels of oil traded worldwide flows through the Strait of Hormuz between Iran and Oman, according to the U.S. Department of Energy.
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The Market Oracle
With just a few trading days left in 2011, we can take stock of gold’s performance vis-à-vis other assets.
Gold is 13.7% higher in USD, 12% higher in GBP and 14.4% higher in EUR. Gains were seen in all fiat currencies and even stronger performing fiat currencies such as the CNY (yuan) and JPY (+9% and +8.75% respectively).
G10 and Gold in USD in 2011 (YTD)
Stock markets globally had a torrid year with the S&P500 down 1.3%, the FTSE down 8% and the CAC and DAX down 19% and 15% respectively. Asian stock markets also fell with the Nikkei down 17%, the Hang Seng 20% and the Shanghai SE down 22%.
The MSCI World Index fell 9%.
Thus, gold again acted as a safe haven and protected and preserved wealth over the long term.
While gold reached record nominal highs at $1,915/oz in August, it is important to continually emphasize that gold remains well below the real high, adjusted for inflation, in 1980 of $2,500/oz.
Gold today at $1,625/oz is 18% below the record nominal high of $1915/oz in August 2011. More importantly, gold remains 46% below its real high of $2,500/oz.
Since 2003, we have said that gold would likely reach the real high from 1980 for a variety of important fundamental reasons – such as global debt levels, global demographics and geopolitical, macroeconomic, monetary and systemic risk.
Money Creating Central Banks May Push Gold to New Nominal Record in 2012
Money Creating (Electronic and Printing) Central Banks Push Gold to Nominal Records (2008-2011)
Global money supply continued to rise in 2011 and helped push gold prices to all-time highs on the fear of currency debasement. If accommodative monetary policies continue as the dominant tool for central banks, precious metals will almost certainly continue to benefit.
Were this trend to turn, responsible monetary policy actions could hinder returns. We see no prospect of this in the short term – and little prospect in the medium term.
Central Banks Will Continue To Be Net Buyers of Gold
Gold Diversifying Central Banks Should Support Demand
Central banks have bought about 30 million ounces of gold since March 2009, about 12% of global demand on trailing 10-quarter basis. As central banks focus on stimulating growth, negative real interest rates in developing nations should continue to push diversification of foreign exchange reserves, which may encourage bullion purchases.
Central bank gold reserves are likely to return to the levels seen in the 1970’s and 1980’s due to a significant reappraisal of monetary risk and a recognition of gold’s increasing importance as a monetary asset.
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