London: Gold hit a 28-year high yesterday as a weak dollar made the metal more attractive to investors, while platinum approached an all-time peak on heavy speculative buying.
Spot gold rallied to $746.30 an ounce, its highest level since January 1980, before easing to $744.90/$745.60, still higher from $742.40/$743.20 late in New York on Friday. The metal has hit new highs four times in less than two weeks. "Gold is feeling a bit heavy at the moment. I think we are likely to see a correction from here unless something else comes into the market to trigger another leg lower in the dollar," said Tom Kendall, metals strategist at Mitsubishi Corporation.
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"But overall, gold is still pretty bullish and I don't think we are likely to come back below $700 in the near term. The more headlines about gold appear in the mainstream media, the more overall sentiment keeps on going," he said.
The dollar edged up from earlier record lows against the euro, as investors awaited a batch of US data for confirmation that more rate cuts were on the cards. The Institute for Supply Management's manufacturing index is due later in the session.
A weaker dollar makes gold cheaper for other currency holders and often lifts bullion demand.
"With no signs of the dollar ending its slide against major currencies, bullishness is ample. But this does not exclude the market from a near-term pull back," said Pradeep Unni, analyst at Vision Commodity Services in Dubai.
In other bullion markets, August 2008 futures in Tokyo ended 28 yen per gram higher at 2,786 yen - its loftiest level since 1985. US futures also added gains, with December contract hitting a 28-year high at $753.60 an ounce.
Central bank reserves
High prices have lifted gold's share in the total reserves of central banks. Taiwan said its forex reserves, the world's fourth largest, included $10.1 billion in gold and helped boost the value of the island's assets.
In other news, the Bank of England said some of its gold reserves had surface cracks, a result of how they were cast 50 years ago in New York, but it stressed that the purity of the bullion was not affected.
Anglo American said it planned to sell 61 million ordinary shares in AngloGold Ashanti in a major step to cut its stake in the gold miner.
Spot platinum hit an intraday high of $1,391 an ounce, within sight of last November's record high of $1,395, before dipping to $1,378/$1,382, versus New York's $1,385/$1,390.
Monday, October 1, 2007
Fate of world economy lies with US housing - Greenspan
London: The fate of the world economy hinges on what happens to house prices in America and that may not be a good thing, former Federal Reserve chairman Alan Greenspan said yesterday.
Speaking at the Reuters headquarters in London, the former Fed chair delivered a gloomy prognosis on the state of the global economy - US house prices are likely to fall further and they could drag the rest of the world with them.
"A weakened US economy, especially weakened consumer markets, still has the capacity to impact on our trading partners," Greenspan said.
"To date the financial and economic spill-over is most visible in Europe ... But only marginally so in developing Asia."
He added that Japan had taken a hit in the form of sales of its equities as sub-prime investors needed to raise cash.
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Greenspan maintained the global economy was just as linked as ever, disagreeing that there had been a decoupling between the fate of the US economy and that of the rest of the world.
"The critical variable in this judgement is the price of homes in the United States," said Greenspan, who ran the US central bank for more than 18 years until he stepped down in 2006.
Outlook
"I would expect home price declines to continue until the rate of inventory liquidation reaches its peak," Greenspan said, on stage with British Prime Minister Gordon Brown and finance minister Alistair Darling.
Financial markets everywhere are already reeling from the fallout from US sub-prime lending - loans to people with such bad credit history, they would not normally be eligible for a home loan.
As defaults have risen, a credit crunch has taken hold of global markets as banks worry about just how much bad debt each other is carrying following increasingly complex methods to package the dodgy mortgage debt over the last few years.
Yesterday, US banking giant Citigroup said it expected a 60 per cent decline in net income in the third quarter because of weak performance in fixed-income credit market activities, write-downs in leveraged loan commitments and increases in consumer credit costs.
Comment: Market correction is significant - Trichet
European Central Bank President Jean-Claude Trichet said yesterday that financial markets are undergoing a significant correction and reassessment of risk pricing.
Trichet also said he was proud that the ECB had acted quickly and decisively to address money markets' needs for extra funds.
"We are currently witnessing a significant market correction with a reappraisal of risk, and episodes of high volatility and turbulences on various markets having threatened in particular the normal functioning of the money market," he told a conference on Malta's adoption of the euro.
Trichet said he was making no comment on current economic and monetary conditions as the ECB meets to decide interest rates on Thursday. Policymakers are expected to leave the benchmark rate at 4.0 per cent, but Trichet said the ECB was helping to stabilise inflation expectations. "We are also reaping the benefits of a highly credible monetary policy strategy that is anchoring long term inflation expectations at low levels," he said.
Speaking at the Reuters headquarters in London, the former Fed chair delivered a gloomy prognosis on the state of the global economy - US house prices are likely to fall further and they could drag the rest of the world with them.
"A weakened US economy, especially weakened consumer markets, still has the capacity to impact on our trading partners," Greenspan said.
"To date the financial and economic spill-over is most visible in Europe ... But only marginally so in developing Asia."
He added that Japan had taken a hit in the form of sales of its equities as sub-prime investors needed to raise cash.
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Greenspan maintained the global economy was just as linked as ever, disagreeing that there had been a decoupling between the fate of the US economy and that of the rest of the world.
"The critical variable in this judgement is the price of homes in the United States," said Greenspan, who ran the US central bank for more than 18 years until he stepped down in 2006.
Outlook
"I would expect home price declines to continue until the rate of inventory liquidation reaches its peak," Greenspan said, on stage with British Prime Minister Gordon Brown and finance minister Alistair Darling.
Financial markets everywhere are already reeling from the fallout from US sub-prime lending - loans to people with such bad credit history, they would not normally be eligible for a home loan.
As defaults have risen, a credit crunch has taken hold of global markets as banks worry about just how much bad debt each other is carrying following increasingly complex methods to package the dodgy mortgage debt over the last few years.
Yesterday, US banking giant Citigroup said it expected a 60 per cent decline in net income in the third quarter because of weak performance in fixed-income credit market activities, write-downs in leveraged loan commitments and increases in consumer credit costs.
Comment: Market correction is significant - Trichet
European Central Bank President Jean-Claude Trichet said yesterday that financial markets are undergoing a significant correction and reassessment of risk pricing.
Trichet also said he was proud that the ECB had acted quickly and decisively to address money markets' needs for extra funds.
"We are currently witnessing a significant market correction with a reappraisal of risk, and episodes of high volatility and turbulences on various markets having threatened in particular the normal functioning of the money market," he told a conference on Malta's adoption of the euro.
Trichet said he was making no comment on current economic and monetary conditions as the ECB meets to decide interest rates on Thursday. Policymakers are expected to leave the benchmark rate at 4.0 per cent, but Trichet said the ECB was helping to stabilise inflation expectations. "We are also reaping the benefits of a highly credible monetary policy strategy that is anchoring long term inflation expectations at low levels," he said.
Gold hits fresh 28-year high
Gold prices hit a near 28-year high on Monday, just shy of $750 an ounce amid renewed US dollar weakness.
Spot gold in London rose to $747.65 an ounce – its highest sincethe record $850 an ounce in January 1980 – after the dollar fell to an all-time low of $1.4281 against the euro.
Spot gold in London later traded at $746.90 an ounce, up $2.90 on the day.
A gold price surge of almost $75 an ounce in September has triggered a new wave of investment in exchange-traded funds, such as Street Tracks Gold Shares.
The fund’s bullion investment has soared 24 per cent this quarter to a record of 578.03 tonnes.
Spot silver in London moved in parallel to gold and rose to $13.78 an ounce, its highest level in sixth months.
Platinum prices fell slightly after Mazda, the car company, announced a process to cut precious metal consumption in autocatalysts. The global automotive sector absorbs about 54 per cent of platinum demand.
John Reade, head of metals strategy at UBS in London, said the announcement was part of a long-term trend.
“This sort of technological advance has been made repeatedly over the past 25 years and will serve to prevent demand for platinum and palladium in autocatalysts from overwhelming the market,” he said.
In London, spot platinum dropped about 0.5 per cent to $1,377 an ounce.
Platinum reached a 10-month high of $1,391 an ounce earlier in the day and still trades within striking distance of its all-time high of $1,395 an ounce reached last November.
Crude oil prices consolidated above $80 a barrel with profit-taking eroding some of the recent gains.
Nymex November West Texas Intermediate moved $1.42 lower to settle at $80.24 a barrel. ICE November Brent lost $1.53 to close at $77.64 a barrel.
Base metals prices rose with the exception of nickel.
In late afternoon on the London Metal Exchange, aluminium rose 0.2 per cent to $2,519 a tonne while copper rose 1 per cent to $8,109 a tonne.
Zinc rose 1.6 per cent to $3,095 a tonne and tin moved 0.7 per cent higher to $15,500 a tonne.
Spot gold in London rose to $747.65 an ounce – its highest sincethe record $850 an ounce in January 1980 – after the dollar fell to an all-time low of $1.4281 against the euro.
Spot gold in London later traded at $746.90 an ounce, up $2.90 on the day.
A gold price surge of almost $75 an ounce in September has triggered a new wave of investment in exchange-traded funds, such as Street Tracks Gold Shares.
The fund’s bullion investment has soared 24 per cent this quarter to a record of 578.03 tonnes.
Spot silver in London moved in parallel to gold and rose to $13.78 an ounce, its highest level in sixth months.
Platinum prices fell slightly after Mazda, the car company, announced a process to cut precious metal consumption in autocatalysts. The global automotive sector absorbs about 54 per cent of platinum demand.
John Reade, head of metals strategy at UBS in London, said the announcement was part of a long-term trend.
“This sort of technological advance has been made repeatedly over the past 25 years and will serve to prevent demand for platinum and palladium in autocatalysts from overwhelming the market,” he said.
In London, spot platinum dropped about 0.5 per cent to $1,377 an ounce.
Platinum reached a 10-month high of $1,391 an ounce earlier in the day and still trades within striking distance of its all-time high of $1,395 an ounce reached last November.
Crude oil prices consolidated above $80 a barrel with profit-taking eroding some of the recent gains.
Nymex November West Texas Intermediate moved $1.42 lower to settle at $80.24 a barrel. ICE November Brent lost $1.53 to close at $77.64 a barrel.
Base metals prices rose with the exception of nickel.
In late afternoon on the London Metal Exchange, aluminium rose 0.2 per cent to $2,519 a tonne while copper rose 1 per cent to $8,109 a tonne.
Zinc rose 1.6 per cent to $3,095 a tonne and tin moved 0.7 per cent higher to $15,500 a tonne.
PRECIOUS METALS: Technical Strength Continues In Comex Gold
Gold futures finished higher as technical momentum continued Monday, with the most-active contract hitting its most muscular level in nearly 17 months and the nearby futures hitting a 27-year high, analysts and traders reported.
Speculative buying occurred, as was the case with gains in the platinum group metals, which shook off bearish news from Mazda. Platinum hit contract and record highs and palladium hit its strongest level in 1 1/2 months.
The laggard was silver due to profit-taking.
December gold rose $4.10 to $754.10 an ounce on the Comex division of the New York Mercantile Exchange. As pit trade was closing, the December contract at the Chicago Board of Trade was up $4.20 to $754.
December gold hit a peak of $755.70 electronically, its most muscular level since May 2006. October peaked at $747.40, the most muscular level for a nearby Comex futures contract since January 1980.
Gold eased early in the day, which traders at the time blamed on profit-taking. But it later turned higher again, even though the dollar bounced from its early lows and crude oil was down more than $1.50 as barrel at the final bell for gold.
"There's a little follow-through on the charts," said Scott Meyers, senior trading analyst with Pioneer Futures. "You had a real solid day on Friday. And today, you've got more rally power.
"The charts look great. The fundamentals are there. The whole package looks great for this market right now."
He cited "solid" all-around buying that includes funds and locals, and a floor contact also cited some trade buying.
One trader commented that the threat of a strike in Peru also was supportive. The country's National Federation of Mining, Metallurgy and Steel Workers plans to hold a nationwide mining strike in November in an effort to force the government into improving conditions for miners.
During the course of the day, several observers suggested there is potential for a correction lower in gold, since the December futures have gained more than $100 an ounce from their mid-August low and the large non-commercials - better known as the funds - held a record net long position of 189,498 lots for futures and options combined as of last Tuesday, according to late-Friday data from the Commodity Futures Trading Commission.
Speculative buying occurred, as was the case with gains in the platinum group metals, which shook off bearish news from Mazda. Platinum hit contract and record highs and palladium hit its strongest level in 1 1/2 months.
The laggard was silver due to profit-taking.
December gold rose $4.10 to $754.10 an ounce on the Comex division of the New York Mercantile Exchange. As pit trade was closing, the December contract at the Chicago Board of Trade was up $4.20 to $754.
December gold hit a peak of $755.70 electronically, its most muscular level since May 2006. October peaked at $747.40, the most muscular level for a nearby Comex futures contract since January 1980.
Gold eased early in the day, which traders at the time blamed on profit-taking. But it later turned higher again, even though the dollar bounced from its early lows and crude oil was down more than $1.50 as barrel at the final bell for gold.
"There's a little follow-through on the charts," said Scott Meyers, senior trading analyst with Pioneer Futures. "You had a real solid day on Friday. And today, you've got more rally power.
"The charts look great. The fundamentals are there. The whole package looks great for this market right now."
He cited "solid" all-around buying that includes funds and locals, and a floor contact also cited some trade buying.
One trader commented that the threat of a strike in Peru also was supportive. The country's National Federation of Mining, Metallurgy and Steel Workers plans to hold a nationwide mining strike in November in an effort to force the government into improving conditions for miners.
During the course of the day, several observers suggested there is potential for a correction lower in gold, since the December futures have gained more than $100 an ounce from their mid-August low and the large non-commercials - better known as the funds - held a record net long position of 189,498 lots for futures and options combined as of last Tuesday, according to late-Friday data from the Commodity Futures Trading Commission.
Gold Gains on Outlook for U.S. Interest Rates; Silver Declines
Gold rose, extending gains to a 27- year high, on speculation a slowing economy may force the Federal Reserve to cut interest rates further, boosting the appeal of the metal as an alternative investment to U.S. assets. Silver fell.
Gold has rallied 4.2 percent since the Fed lowered its benchmark rate by 0.5 percentage point to 4.75 percent on Sept. 18, the first cut in four years. The dollar fell to a record against the euro for the eighth straight session before rebounding. The metal is up 18 percent this year.
``There's potential for inflation out there because the Fed will have to lower rates to stoke the economy,'' said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Gold is being bought because people are still thinking the dollar is going lower,''
Gold futures for December delivery rose $4.10, or 0.5 percent, to $754.10 an ounce on the Comex division of the New York Mercantile Exchange. The metal earlier climbed to $755.70, the highest for a most-active contract since Jan. 22, 1980, the day after the price reached a record $873.
Economic Slowdown
The economy will grow 2 percent this year, the least since 2002, according to a Bloomberg survey of economists taken the first week of September. Economists had projected a 2.5 percent expansion at the start of the year.
Housing construction fell 12 percent in the second quarter, a sixth quarter of declines, the government reported last week.
``The Fed seems to be far more concerned at this point with keeping the economy going and avoiding a recession than fighting any elevated inflationary pressures,'' said Matt Zeman, a metals trader at LaSalle Futures Inc. in Chicago. ``All of these factors point to a weaker dollar and stronger gold prices.''
Still, historical charts show gold is poised for a decline. The 14-day relative strength index reached 81 today and has been above 70 since Sept. 6. The RSI for the euro has been above 70 since Sept. 20. A reading above 70 signals the price is headed lower.
``If the dollar quits making lows, that would set gold up for some selling,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago.
Silver futures for December delivery dropped 6.5 cents, or 0.5 percent, to $13.855 an ounce. The metal, which has wider industrial applications, has trailed gold this year, gaining 7.1 percent. Last year, silver rose 46 percent and gold gained 23 percent.
Gold has rallied 4.2 percent since the Fed lowered its benchmark rate by 0.5 percentage point to 4.75 percent on Sept. 18, the first cut in four years. The dollar fell to a record against the euro for the eighth straight session before rebounding. The metal is up 18 percent this year.
``There's potential for inflation out there because the Fed will have to lower rates to stoke the economy,'' said Ron Goodis, futures trading director at Equidex Brokerage Group Inc. in Closter, New Jersey. ``Gold is being bought because people are still thinking the dollar is going lower,''
Gold futures for December delivery rose $4.10, or 0.5 percent, to $754.10 an ounce on the Comex division of the New York Mercantile Exchange. The metal earlier climbed to $755.70, the highest for a most-active contract since Jan. 22, 1980, the day after the price reached a record $873.
Economic Slowdown
The economy will grow 2 percent this year, the least since 2002, according to a Bloomberg survey of economists taken the first week of September. Economists had projected a 2.5 percent expansion at the start of the year.
Housing construction fell 12 percent in the second quarter, a sixth quarter of declines, the government reported last week.
``The Fed seems to be far more concerned at this point with keeping the economy going and avoiding a recession than fighting any elevated inflationary pressures,'' said Matt Zeman, a metals trader at LaSalle Futures Inc. in Chicago. ``All of these factors point to a weaker dollar and stronger gold prices.''
Still, historical charts show gold is poised for a decline. The 14-day relative strength index reached 81 today and has been above 70 since Sept. 6. The RSI for the euro has been above 70 since Sept. 20. A reading above 70 signals the price is headed lower.
``If the dollar quits making lows, that would set gold up for some selling,'' said Frank Lesh, a trader at FuturePath Trading LLC in Chicago.
Silver futures for December delivery dropped 6.5 cents, or 0.5 percent, to $13.855 an ounce. The metal, which has wider industrial applications, has trailed gold this year, gaining 7.1 percent. Last year, silver rose 46 percent and gold gained 23 percent.
Soaring Gold Makes Mining Stocks a Risk
Gold prices rocketed to a 28-year high last week as Severstal tightened the screws in its battle for gold miner Celtic Resources.
On Friday, Severstal upped its bid for Celtic, prompting feverish activity on the London-listed company's stock. The steel firm's march on Celtic comes amid a week of bullish forecasts on the gold front.
Goldman Sachs raised its six-month forecast on gold to $800 per ounce earlier in the week, as the plunging dollar sent investors into gold as the next best thing.
"Here you have a choice between a paper currency that's depreciating and a tangible asset," said Erik DePoy, strategist at Alfa Bank. "The question is how much resistance we will see on the part of central banks.
"There is the view that central banks have been managing the gold price," DePoy said. "They sell their reserves to keep prices down [and to] dampen inflationary expectations. They are playing a psychological game."
On Friday, gold was trading up at about $739 per ounce.
But it wasn't making a lot of difference to Russian gold stocks. Polyus Gold has been one of the poorest performers among the gold plays. Michael Kavanagh, a metals analyst at UralSib, said the gold price had little bearing on the company's stock price, given that most of its growth is long-term. It is not expected to show an increase in production until 2009 or 2010.
On Friday, Severstal upped its bid for Celtic, prompting feverish activity on the London-listed company's stock. The steel firm's march on Celtic comes amid a week of bullish forecasts on the gold front.
Goldman Sachs raised its six-month forecast on gold to $800 per ounce earlier in the week, as the plunging dollar sent investors into gold as the next best thing.
"Here you have a choice between a paper currency that's depreciating and a tangible asset," said Erik DePoy, strategist at Alfa Bank. "The question is how much resistance we will see on the part of central banks.
"There is the view that central banks have been managing the gold price," DePoy said. "They sell their reserves to keep prices down [and to] dampen inflationary expectations. They are playing a psychological game."
On Friday, gold was trading up at about $739 per ounce.
But it wasn't making a lot of difference to Russian gold stocks. Polyus Gold has been one of the poorest performers among the gold plays. Michael Kavanagh, a metals analyst at UralSib, said the gold price had little bearing on the company's stock price, given that most of its growth is long-term. It is not expected to show an increase in production until 2009 or 2010.
Gold Price Could Rise on Volume Disparity From Paper Money
John Hathaway, the manager of the Tocqueville Gold Fund (TGLDX) had a take in Barron's on why gold can move higher that I don't recall hearing before.
He said: "the disparity between the amount of paper that has been created since 1980 and the amount of gold that has been produced since then is just enormous." So we have had a much larger increase in the supply of money compared to the supply of gold. For what it's worth, Hathaway thinks gold can go quite a bit higher.
I have been writing about having gold exposure one way or another since I started my site, (three years ago yesterday, by the way). The idea that it can zig when stocks zag has been tested a little bit of late. I own several things in the mix that I think/hope provide offset to domestic stocks. When the market is roaring, I would expect gold to lag - but sometimes, like the month just ended, gold does even better than stocks.
Maybe a way to think of it is that gold may not a great hedge for market events, but could offer a lot more protection against an external shock like a terror attack. If that line of thought makes sense to you then it may be possible that there will be long periods of time where it does very little, as was the case from February of this year until August. Personally, I do not think this is a bad thing, but some folks will not be patient enough to endure sideways action for that long.
I am no gold bug, but I do believe that a diversified portfolio needs to include exposure to something that gets mined or to a company that does mining. The theme has been a huge contributor to gains in the last few years and I think will continue to be very important for the next several years.
He said: "the disparity between the amount of paper that has been created since 1980 and the amount of gold that has been produced since then is just enormous." So we have had a much larger increase in the supply of money compared to the supply of gold. For what it's worth, Hathaway thinks gold can go quite a bit higher.
I have been writing about having gold exposure one way or another since I started my site, (three years ago yesterday, by the way). The idea that it can zig when stocks zag has been tested a little bit of late. I own several things in the mix that I think/hope provide offset to domestic stocks. When the market is roaring, I would expect gold to lag - but sometimes, like the month just ended, gold does even better than stocks.
Maybe a way to think of it is that gold may not a great hedge for market events, but could offer a lot more protection against an external shock like a terror attack. If that line of thought makes sense to you then it may be possible that there will be long periods of time where it does very little, as was the case from February of this year until August. Personally, I do not think this is a bad thing, but some folks will not be patient enough to endure sideways action for that long.
I am no gold bug, but I do believe that a diversified portfolio needs to include exposure to something that gets mined or to a company that does mining. The theme has been a huge contributor to gains in the last few years and I think will continue to be very important for the next several years.
Platinum Rises to Record as Demand Climbs; Palladium Gains
Platinum rose to a record, extending the longest rally ever, on speculation global demand bolstered by China will outpace production. Palladium also rose.
Societe Generale SA, France's second-biggest bank, forecast a platinum shortfall of about 180,000 ounces this year, following a surplus last year. Chinese platinum-jewelry demand will probably increase this year from 800,000 ounces in 2006, the bank said in a report. The price of platinum has climbed for 11 sessions in a row, a record.
``Chinese demand has been soaring,'' Societe Generale analyst Stephen Briggs said in the report. ``Market tightness is becoming highly visible.''
Platinum futures for January delivery rose $3, or 0.2 percent, to $1,401.20 an ounce on the New York Mercantile Exchange. The price earlier reached $1,402, the highest ever. The metal has climbed 22 percent this year.
Platinum is also used to make pollution-control devices.
Strikes in South Africa, the world's biggest producer, disrupted supplies this year, and investor demand for the precious metal climbed because of inflation concerns.
Palladium futures for December delivery rose $10.55, or 3 percent, to $362.50 an ounce. They have climbed 7.1 percent this year.
Societe Generale SA, France's second-biggest bank, forecast a platinum shortfall of about 180,000 ounces this year, following a surplus last year. Chinese platinum-jewelry demand will probably increase this year from 800,000 ounces in 2006, the bank said in a report. The price of platinum has climbed for 11 sessions in a row, a record.
``Chinese demand has been soaring,'' Societe Generale analyst Stephen Briggs said in the report. ``Market tightness is becoming highly visible.''
Platinum futures for January delivery rose $3, or 0.2 percent, to $1,401.20 an ounce on the New York Mercantile Exchange. The price earlier reached $1,402, the highest ever. The metal has climbed 22 percent this year.
Platinum is also used to make pollution-control devices.
Strikes in South Africa, the world's biggest producer, disrupted supplies this year, and investor demand for the precious metal climbed because of inflation concerns.
Palladium futures for December delivery rose $10.55, or 3 percent, to $362.50 an ounce. They have climbed 7.1 percent this year.
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