PRECIOUS METALS: Gold Futures Extend Record, Contract Highs
By Allen Sykora
Of DOW JONES NEWSWIRES
Gold futures hit record and life-of-contract highs Monday on the same factors that have been sending it to repeated fresh historical peaks since the start of the year - Federal Reserve rate-cut expectations, dollar weakness, inflation worries, global tensions and investment and momentum-based buying.
Platinum likewise hit record highs, while silver touched life-of-contract highs.
February gold rose $5.70 to $903.40 an ounce on the Comex division of the New York Mercantile Exchange. Around the time that Comex pit trade was closing, the all-electronic February contract at the Chicago Board of Trade was up $7.30 to $904.10.
Comex and CBOT February gold peaked overnight at contract highs of 915.90 and $916.10, respectively. The lightly traded Comex January futures got as high as $907.30, a Comex record for a spot-month contract.
Meanwhile, March silver rose 5.5 cents to $16.425. Shortly after it closed, CBOT March silver was up 4.3 cents to $16.417. Comex and CBOT silver peaked at overnight contract highs of $16.715 and $16.703, respectively.
Johnson Person, president of NationalFutures.com, listed a host of factors combining at the same time to propel gold sharply higher.
"There is dollar weakness and follow-through buying in gold with a technical breakout," he said. "There is strong momentum and a strong trend intact.
Fears of inflation persist. There are fear of a recession and economic meltdown as the Fed lowers interest rates, which is perceived to devalue the dollar even further and is causing investors to flee to the precious-metals arena."
The euro rose to $1.4913 early in the day, its strongest level since hitting a record high of $1.4966 on Nov. 23.
Charles Nedoss, senior account manager and metals analyst with Peak Trading Group, said the dollar index took out its previous low for the young year of 75.429 on Jan. 4, in turn its weakest level since late November. The index bottomed at 75.361.
"You had crude oil higher," said Nedoss. "And you've got stuff going on in Iran. And you have momentum."
Shortly before the gold pit closed, February crude oil was $1.31 a barrel higher at $94. U.S.-Iran tensions have been brewing for some time due to concerns about Iran's nuclear intentions, and most recently a confrontation in the strategic Strait of Hormuz between Iranian speedboats and U.S. warships.
Funds have been good buyers, reported Nedoss.
"At this point in time, it (gold) seems to be the best place to park money as we continue with uncertainty in the equity markets," Person added.
Person described a "stag-flation" environment in which gold potentially could add another 2% to 5% in the next 30 to 60 days and retain its value, whether equities hold around current levels or extend recent weakness. AS for inflation, not only do energy prices remain firm, but the most recent U.S. Department of Agriculture supply/demand report was supportive for a number of agricultural commodities, sending grains sharply higher, he said.
Spot gold had been consolidating slightly below its previous record 1980 high around $850 from November into late December, before breaking to a fresh record on the first trading day of the New Year. The record was extended to $914.40 Monday, according to one price vendor.
Analysts in late December called for the metal to test $900, but it subsequently broke above this "a lot faster" than many were looking for, said Nedoss.
"I was looking for mid-year about $925," he said, listing a target only $9.10 above the session high for the February futures.
Gold and silver did back down from their peaks.
"You're seeing a little profit-taking there," said Nedoss. "Also, the dollar did bounce off its bottom."
Now, said Nedoss, many traders are looking for gold futures to next target the area around $950, then $1,000. However, Person said he anticipates gold first could run into some profit-taking pressure around the $920 to $940 area.
Several observers said the key for short-term direction in gold could hinge on a heavy slate of U.S. economic data this week. Collective readings hinting at further economic weakness may be seen as a sign for even more Federal Reserve rate-cut easing and ensuing dollar weakness, which in turn would further support gold, and vice-versa, observers said. Already, the February federal-funds futures are factoring in a 100% probability of a 50-basis-point rate cut at the end of January.
"A raft of U.S. data this week will show how the economy is faring, including retail sales, industrial production, housing and consumer prices," said a daily research note from MKS Finance. "The U.S. dollar is likely to remain under pressure as the outlook on the U.S. economy is in doubt and lead to fears of a global slowdown. All eyes now are on quarterly results which will be released by Merrill and Citigroup, among the hardest hit by the U.S. subprime mortgage defaults and the resulting crisis."
Meanwhile, April platinum rose $14.60 to $1,584 an ounce, while March palladium gained $6.15 to $387.45.
"It's all dollar-related," said a desk trader, also noting the strength in gold.
He cited mainly speculative buying in the platinum group metals. "I don't think it has much to do with industrial buying these days," he added.
The nearby January platinum futures hit a peak of $1,586 that is a record for a spot-month contract. The most heavily traded April futures hit a life-of-contract peak that was even higher - $1,597.40. Most-active-March palladium hit a two-month high of $388.
Monday, January 14, 2008
Mixed trading in Dollar; marginally up against Euro
Dollar recovered slightly against the euro on Friday, but remained vulnerable against the major currencies.
The greenback had fell sharply on Thursday, as the expectation of investors for further interest rate cuts in the US was boosted by remarks from the Chairman of US Federal Reserve Mr. Ben Bernanke.
Meanwhile, the US trade deficit shot up unexpectedly in November. According to the Commerce Department release on Friday, the US trade gap in November increased by $5.4 billion or 9.3 percent, to $63.1 billion.
The Fed chairman had signalled on Thursday the willingness of the central bank to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks, taking into consideration the increasingly gloomy economic data.
The European Central Bank held rates steady at 4% for the seventh month in a row. The Bank of England also decided to hold its key interest rate unchanged at 5.5%.
Recent data from different sectors indicated weakness in the US economy.
According to the release by US Labor Department on Thursday, the four-week average of continuing claims increased 17,000 to 2.7 million, the highest level since Nov 2005. But first-time claims for state unemployment benefits fell 15,000 to 322,000 during the week ending Jan 5; while continuing claims fell 52,000 to 2.7 million.
The National Association of Realtors’ pending home sales index fell 2.6 percent in November. Economists’ consensus expectation was for a drop of 0.7 percent.
The unemployment rate in US shot up to 5% in December, from 4.7% according to the Labor Department.
Medium Term Outlook
Active trading above 1.4510 is the sign of weakness in dollar. Supports are 1.4630, 1.4755, 1.4788, 1.4966 and 1.5052. Resistances are 1.4450, 1.4320 and 1.4277. More weakness can be expected above 1.4968
In spot trading, dollar closed at 1.4766 (1.4805) against the euro, after trading in the range 1.4760 – 1.4819.
Last day, DEUR March traded in the range 148.12 – 147.60 and closed at 147.81.
Intra-day trading ranges; supports are 146.70, 145.90. Resistances are 148.40, 149.07.
The greenback had fell sharply on Thursday, as the expectation of investors for further interest rate cuts in the US was boosted by remarks from the Chairman of US Federal Reserve Mr. Ben Bernanke.
Meanwhile, the US trade deficit shot up unexpectedly in November. According to the Commerce Department release on Friday, the US trade gap in November increased by $5.4 billion or 9.3 percent, to $63.1 billion.
The Fed chairman had signalled on Thursday the willingness of the central bank to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks, taking into consideration the increasingly gloomy economic data.
The European Central Bank held rates steady at 4% for the seventh month in a row. The Bank of England also decided to hold its key interest rate unchanged at 5.5%.
Recent data from different sectors indicated weakness in the US economy.
According to the release by US Labor Department on Thursday, the four-week average of continuing claims increased 17,000 to 2.7 million, the highest level since Nov 2005. But first-time claims for state unemployment benefits fell 15,000 to 322,000 during the week ending Jan 5; while continuing claims fell 52,000 to 2.7 million.
The National Association of Realtors’ pending home sales index fell 2.6 percent in November. Economists’ consensus expectation was for a drop of 0.7 percent.
The unemployment rate in US shot up to 5% in December, from 4.7% according to the Labor Department.
Medium Term Outlook
Active trading above 1.4510 is the sign of weakness in dollar. Supports are 1.4630, 1.4755, 1.4788, 1.4966 and 1.5052. Resistances are 1.4450, 1.4320 and 1.4277. More weakness can be expected above 1.4968
In spot trading, dollar closed at 1.4766 (1.4805) against the euro, after trading in the range 1.4760 – 1.4819.
Last day, DEUR March traded in the range 148.12 – 147.60 and closed at 147.81.
Intra-day trading ranges; supports are 146.70, 145.90. Resistances are 148.40, 149.07.
'Gold price is going up and will continue to go up'
St. LOUIS (ResourceInvestor.com): Resource Investor speaks with George Milling-Stanley of the World Gold Council about the driving forces behind these surging gold prices.
RESOURCE INVESTOR: This is Jon Nones, Deputy Editor of Resource Investor here today speaking with George Milling-Stanley, Manager of Investment and Market Intelligence at the World Gold Council, a non-for-profit association formed by the world’s leading gold producers. Welcome to Resource Investor Podcasts, George.
GEORGE MILLING-STANLEY: Thank you for inviting me on, Jon.
RESOURCE INVESTOR: It’s been quite a year so far for gold. First the all-time high of $850 is broken after 28 long years. Now gold is trading at about $25 above that. What has caused this incredible rally of late?
GEORGE MILLING-STANLEY: Well, I guess I would date the current bull market a little bit longer than just a couple of months ago. Gold was on a down-turn from 1980 to 1999; it took it all the way down to about $250 an ounce. It bounced around that kind of level for a couple of years. This bull market began in April of 2001 when the price was down at $255. So we’ve increased somewhat more than three-fold.
I think there are five main reasons why we’ve been going up the last few years and, for what it’s worth, all of these are still with us and looking stronger than before.
The first would be with any commodity market, you look at the internal market dynamics, the balance between supply and demand. The supply is not going up. If anything, it’s declining. The demand seems to be increasing even in the face of higher prices. That’s been the story of the last 6, 7 years. We hope that that will continue and it’s happening in all prices. So that’s got to be one good point.
The second thing is that around about the time the bull market began back in 2001, the dollar went into long-term secular decline. Most authoritative commentators believe it will continue to decline. That’s been good for gold and will continue to be.
Inflation, related to the weakening dollar, but nevertheless, important enough to be considered as a separate element. Traditionally, inflation has been good for gold. Investors are worried about inflation and they’re getting more worried all the time. That’s also been good.
Equities have spent 6, 7 years getting back to where they were. They managed to get back up to those levels of 2000 last year, but then along came the sub-prime mortgage crisis and knocked some of the steam out of equities.
And finally, geopolitical tensions are worse now than they were in the early months of 2001 and continuing to get worse. So all the reasons why gold’s been in the bull market for 6, 7 years are still with us, and they’re all looking stronger than they did before, Jon.
RESOURCE INVESTOR: Now, back to geopolitical concerns. What impact do you think the assassination of Pakistan’s Benazir Bhutto have on the price?
GEORGE MILLING-STANLEY: I think it was one element in what was already a pretty nasty looking picture. When I talk about political tensions and date back to 2001, I’m not just thinking of 9/11 and the awful things that happened in the United States. I’m thinking of the fact that there seem to be intractable problems in many different countries of the world, not least in Pakistan. That’s really just one extra problem. We don’t seem to know what the problems are, let alone identifying and implementing the solutions. And until we do, that’s liable to be beneficial to gold prices.
RESOURCE INVESTOR: So, do you think the tensions in Iran and Iraq, for that matter, have contributed somewhat to the upswing?
GEORGE MILLING-STANLEY: I think they’ve been part of an extremely favourable mix for gold prices, yes, that’s absolutely true. I think geopolitical tensions, as I say, the economic problems, the dollar, inflation and so forth, all of this has been extremely favourable for gold. Some people talk about a perfect storm. I might be prepared to accept that as a thesis when we get to a new all-time high in real terms, which will be somewhere above $2,200 an ounce. But I don’t know when that’s going to be.
RESOURCE INVESTOR: Now gold had a very impressive year last year, up 31.5%. Now, do you foresee 2008 continuing this trend? Do you see possibly just as good returns this year?
GEORGE MILLING-STANLEY: Look, I can’t give you a specific price forecast. I’m an employee of a, what is essentially a, trade association. The anti-trust authorities would be upset with me if I did. But all of the gold market analysts that I respect tell me that the price is going up this year, and will probably continue to go up. I look at a market that is based on five pretty strong fundamental pillars over the last few years, and, as I say, all of those are still very strong, looking stronger. So, I’m pretty confident that most of my friends in the analyst community will not be disappointed with their forecasts.
RESOURCE INVESTOR: Great. Now onto the StreetTracks Gold Shares ETF [NYSE:GLD], brought about by the World Gold Council. The exchange trade of funds surged 39% last year to a record 628 tonnes. Now the eighth largest holder of gold bullion behind number seven, Japan. Do you foresee this type of demand strength continuing?
GEORGE MILLING-STANLEY: Look, we’ve obviously been very encouraged by the response to GLD since we launched it just three-and-a-bit years ago. I think we’re now up to 639 tonnes, with more creates last night. It’s quite clear that providing investors with easier access to the gold market has been something they wanted. It’s what they told us we wanted when we surveyed them before we brought this product to market. And quite clearly they’ve responded by buying it to the tune of somewhere over $17 billion dollars in just three years and change. But we’re not yet; I don’t think we’re encountering the problem of tail wagging the dog.
If you look at gold demand in total in the three years since we brought GLD to market, in November of ’04, all of the gold ETFs in the world have accounted for something under 10% of each average year’s end consumption. So, it’s important in the gold context, yes. It’s a useful addition to what’s been going on in the gold world, but gold is still primarily consumed in the form of jewellery. Gold used in industrial applications is still an important end use, and of course other investment in gold through bars and coins and the other traditional ways is also still important. We’re just one part of a mix there.
RESOURCE INVESTOR: So some have speculated that gold ETFs have taken away investment demand in mining shares. Do you see any truth in this?
GEORGE MILLING-STANLEY: I was concerned in the period when we were developing the gold ETF. I was concerned that this might the case, and our members said to us, “Look, we will be, we will take responsibility for what happens to our share prices. You take care of developing a new gold ETF and you go ahead and don’t worry about any possible cannibalization.” I’m not hearing reports of any cannibalization at all. There may well have been some, either from gold mining equities or from the traditional bars and coins, in this country at any rate. But I’m not hearing stories of this happening in a big way.
Basically what, when we were trying to put this product together we talked to people who did not invest in gold at all. They have no exposure to the gold price. And we asked them why. They said it was complicated; it was costly; it was cumbersome. So we took the friction out of that by developing the gold ETF. We focused all of our marketing and so did State Street, our marketing agent. We focused all of our marketing on people who had no exposure to gold and I think that they have been the principle buyers. I don’t believe that the share prices of gold mining companies have suffered and I don’t believe that there has been much in the way of suffering from the traditional forms of investing in gold in bars and coins, either.
RESOURCE INVESTOR: Now, gold shares from companies haven’t quite caught up to the surge that gold price has had recently. Do you foresee this maybe catching up - foresee shares catching up possibly in 2008?
GEORGE MILLING-STANLEY: You know what? When the bull market started back in April of 2001, all the talk was the fact that the gold mining equities were outperforming the increase in the gold bullion price. Now, all of a sudden, people are saying, “Well, you know gold bullion is outperforming the equities.” Basically, these things do not run in tandem one to one. One is generally outstripping the other. One is generally lagging the other. At the moment, it looks to me as if gold mining equities’ share performance is lagging a little bit behind the bullion and therefore behind the ETF, which has a 1:1 relationship. But I don’t know what’s going to be happening in the future.
Typically, gold mining equities will lead a rally in the whole gold complex. They certainly did that in 2001 and 2002, they are no longer leading. We just have to wait and see what happens. But it’s not a case that you shouldn’t just focus on the last year or so, you should look at the whole bull market all the way back to 2001.
RESOURCE INVESTOR: Sure. Well, I thank you for your time. That’s all the questions I have for you today. Once again, we’re speaking with George Milling-Stanley of the World Gold Council. Have a great day, George. Thanks a lot for talking to me.
GEORGE MILLING-STANLEY: Thank you, Jon, and thanks to Resource Investor for the chance to talk to you people.
Courtesy: www.resourceinvestor.com
RESOURCE INVESTOR: This is Jon Nones, Deputy Editor of Resource Investor here today speaking with George Milling-Stanley, Manager of Investment and Market Intelligence at the World Gold Council, a non-for-profit association formed by the world’s leading gold producers. Welcome to Resource Investor Podcasts, George.
GEORGE MILLING-STANLEY: Thank you for inviting me on, Jon.
RESOURCE INVESTOR: It’s been quite a year so far for gold. First the all-time high of $850 is broken after 28 long years. Now gold is trading at about $25 above that. What has caused this incredible rally of late?
GEORGE MILLING-STANLEY: Well, I guess I would date the current bull market a little bit longer than just a couple of months ago. Gold was on a down-turn from 1980 to 1999; it took it all the way down to about $250 an ounce. It bounced around that kind of level for a couple of years. This bull market began in April of 2001 when the price was down at $255. So we’ve increased somewhat more than three-fold.
I think there are five main reasons why we’ve been going up the last few years and, for what it’s worth, all of these are still with us and looking stronger than before.
The first would be with any commodity market, you look at the internal market dynamics, the balance between supply and demand. The supply is not going up. If anything, it’s declining. The demand seems to be increasing even in the face of higher prices. That’s been the story of the last 6, 7 years. We hope that that will continue and it’s happening in all prices. So that’s got to be one good point.
The second thing is that around about the time the bull market began back in 2001, the dollar went into long-term secular decline. Most authoritative commentators believe it will continue to decline. That’s been good for gold and will continue to be.
Inflation, related to the weakening dollar, but nevertheless, important enough to be considered as a separate element. Traditionally, inflation has been good for gold. Investors are worried about inflation and they’re getting more worried all the time. That’s also been good.
Equities have spent 6, 7 years getting back to where they were. They managed to get back up to those levels of 2000 last year, but then along came the sub-prime mortgage crisis and knocked some of the steam out of equities.
And finally, geopolitical tensions are worse now than they were in the early months of 2001 and continuing to get worse. So all the reasons why gold’s been in the bull market for 6, 7 years are still with us, and they’re all looking stronger than they did before, Jon.
RESOURCE INVESTOR: Now, back to geopolitical concerns. What impact do you think the assassination of Pakistan’s Benazir Bhutto have on the price?
GEORGE MILLING-STANLEY: I think it was one element in what was already a pretty nasty looking picture. When I talk about political tensions and date back to 2001, I’m not just thinking of 9/11 and the awful things that happened in the United States. I’m thinking of the fact that there seem to be intractable problems in many different countries of the world, not least in Pakistan. That’s really just one extra problem. We don’t seem to know what the problems are, let alone identifying and implementing the solutions. And until we do, that’s liable to be beneficial to gold prices.
RESOURCE INVESTOR: So, do you think the tensions in Iran and Iraq, for that matter, have contributed somewhat to the upswing?
GEORGE MILLING-STANLEY: I think they’ve been part of an extremely favourable mix for gold prices, yes, that’s absolutely true. I think geopolitical tensions, as I say, the economic problems, the dollar, inflation and so forth, all of this has been extremely favourable for gold. Some people talk about a perfect storm. I might be prepared to accept that as a thesis when we get to a new all-time high in real terms, which will be somewhere above $2,200 an ounce. But I don’t know when that’s going to be.
RESOURCE INVESTOR: Now gold had a very impressive year last year, up 31.5%. Now, do you foresee 2008 continuing this trend? Do you see possibly just as good returns this year?
GEORGE MILLING-STANLEY: Look, I can’t give you a specific price forecast. I’m an employee of a, what is essentially a, trade association. The anti-trust authorities would be upset with me if I did. But all of the gold market analysts that I respect tell me that the price is going up this year, and will probably continue to go up. I look at a market that is based on five pretty strong fundamental pillars over the last few years, and, as I say, all of those are still very strong, looking stronger. So, I’m pretty confident that most of my friends in the analyst community will not be disappointed with their forecasts.
RESOURCE INVESTOR: Great. Now onto the StreetTracks Gold Shares ETF [NYSE:GLD], brought about by the World Gold Council. The exchange trade of funds surged 39% last year to a record 628 tonnes. Now the eighth largest holder of gold bullion behind number seven, Japan. Do you foresee this type of demand strength continuing?
GEORGE MILLING-STANLEY: Look, we’ve obviously been very encouraged by the response to GLD since we launched it just three-and-a-bit years ago. I think we’re now up to 639 tonnes, with more creates last night. It’s quite clear that providing investors with easier access to the gold market has been something they wanted. It’s what they told us we wanted when we surveyed them before we brought this product to market. And quite clearly they’ve responded by buying it to the tune of somewhere over $17 billion dollars in just three years and change. But we’re not yet; I don’t think we’re encountering the problem of tail wagging the dog.
If you look at gold demand in total in the three years since we brought GLD to market, in November of ’04, all of the gold ETFs in the world have accounted for something under 10% of each average year’s end consumption. So, it’s important in the gold context, yes. It’s a useful addition to what’s been going on in the gold world, but gold is still primarily consumed in the form of jewellery. Gold used in industrial applications is still an important end use, and of course other investment in gold through bars and coins and the other traditional ways is also still important. We’re just one part of a mix there.
RESOURCE INVESTOR: So some have speculated that gold ETFs have taken away investment demand in mining shares. Do you see any truth in this?
GEORGE MILLING-STANLEY: I was concerned in the period when we were developing the gold ETF. I was concerned that this might the case, and our members said to us, “Look, we will be, we will take responsibility for what happens to our share prices. You take care of developing a new gold ETF and you go ahead and don’t worry about any possible cannibalization.” I’m not hearing reports of any cannibalization at all. There may well have been some, either from gold mining equities or from the traditional bars and coins, in this country at any rate. But I’m not hearing stories of this happening in a big way.
Basically what, when we were trying to put this product together we talked to people who did not invest in gold at all. They have no exposure to the gold price. And we asked them why. They said it was complicated; it was costly; it was cumbersome. So we took the friction out of that by developing the gold ETF. We focused all of our marketing and so did State Street, our marketing agent. We focused all of our marketing on people who had no exposure to gold and I think that they have been the principle buyers. I don’t believe that the share prices of gold mining companies have suffered and I don’t believe that there has been much in the way of suffering from the traditional forms of investing in gold in bars and coins, either.
RESOURCE INVESTOR: Now, gold shares from companies haven’t quite caught up to the surge that gold price has had recently. Do you foresee this maybe catching up - foresee shares catching up possibly in 2008?
GEORGE MILLING-STANLEY: You know what? When the bull market started back in April of 2001, all the talk was the fact that the gold mining equities were outperforming the increase in the gold bullion price. Now, all of a sudden, people are saying, “Well, you know gold bullion is outperforming the equities.” Basically, these things do not run in tandem one to one. One is generally outstripping the other. One is generally lagging the other. At the moment, it looks to me as if gold mining equities’ share performance is lagging a little bit behind the bullion and therefore behind the ETF, which has a 1:1 relationship. But I don’t know what’s going to be happening in the future.
Typically, gold mining equities will lead a rally in the whole gold complex. They certainly did that in 2001 and 2002, they are no longer leading. We just have to wait and see what happens. But it’s not a case that you shouldn’t just focus on the last year or so, you should look at the whole bull market all the way back to 2001.
RESOURCE INVESTOR: Sure. Well, I thank you for your time. That’s all the questions I have for you today. Once again, we’re speaking with George Milling-Stanley of the World Gold Council. Have a great day, George. Thanks a lot for talking to me.
GEORGE MILLING-STANLEY: Thank you, Jon, and thanks to Resource Investor for the chance to talk to you people.
Courtesy: www.resourceinvestor.com
Why prices of Precious Metals continue to rise
By Nick Barisheff
In January 2005, I wrote an article that began: "It's January, the beginning of a new year, and the time when economists, analysts and even astrologers like to prognosticate about what lies in store for the next 12 months. With respect to gold, opinions on the price vary from $400 to $500 dollars per ounce for 2005. These opinions presume that current conditions will remain relatively stable, and if they do the $400 - $500 range is reasonable."
And ended:
"In 2005, whether the price of gold will be $400 or $500 does not really matter. Would it have mattered whether you bought the NASDAQ at 400 or 500 in the mid-1980s? It is only important that you did not buy at 5,000."
Today, price forecasts for gold in 2008 range from $725 to $1,100 per ounce, but it still does not really matter. Over the long term, prices of precious metals - gold, silver and platinum - will rise to much higher levels, in all currencies. This is because the underlying factors causing the increases will not only continue, but will likely accelerate.
Although precious metals and all other commodities are currently priced in US dollars, it is important to note that since the summer of 2005 gold has increased in every major currency. It has climbed by 101% in US dollars, 93% in British pounds, 82% in euros, 93% in Swiss francs, 111% in Japanese yen and 78% in Russian rubles.
Canadian dollar price increases have been a more modest 65%, because the Canadian dollar has increased in value from US$0.82 to approximately US$0.99.
While gold receives little media attention, its counterparts receive even less. Since August 2005:
1. Silver has increased from $6.35 per ounce to $15.24, up 140%.
2. Platinum has increased from $843.12 per ounce to $1531.00, up 81%.
To date, the rising gold price and its implications have been largely ignored by mainstream investors and the media, even though precious metals have been one of the best-performing asset classes. It will come as a surprise to most that gold prices have already exceeded their 1980 peaks. While in 1980 the daily peak was $850, the gold price only surpassed $800 on two trading days, and $700 on six trading days. By comparison, in 2007 gold surpassed $800 on 21 days, and $700 on 78 days. The peak monthly average of $675 in January 1980 was surpassed in each of five months in 2007. The peak annual average of $612 in 1980 was surpassed by the $695 average in 2007.
This rise in prices and its implications are widely misunderstood. Many investors believe that gold is merely a commodity like copper or lead, with limited industrial uses. As one investment manager said, "I have no use for gold. You can't eat it and you can't put it in your gas tank."
Often price increases are attributed to jewellery demand from China and India. While this is an important demand factor, in South East Asia jewellery is not regarded as just an adornment, as in western countries. It is held as a monetary asset that is used to preserve wealth from generation to generation.
Even though a bullish case for precious metals can be made based on simple supply-demand fundamentals (falling mine production, mining companies dehedging, demand rising), the price rise is not due to simple commodity fundamentals. To fully understand the rise in gold prices, it is essential to understand gold's monetary role.
Gold and silver have been used as money for over 3,000 years, and platinum for several hundred years. Today, they are still used by the world's richest families as a store of wealth and an inflation hedge. Most central banks hold gold as part of their currency reserves. Although there is considerable controversy over central banks' leasing of gold, they report current gold holdings of about 928 million ounces, down just 160 million ounces from the 1980 peak of 1,080 million ounces. While western central banks have reduced their holdings and may have leased substantial quantities of their bullion holdings, developing countries have been adding to their reserves. Today, a number of central banks have openly discussed diversifying out of US dollars and increasing their gold holdings.
The fact that most banks and brokerages trade gold at their currency desks rather than their commodities desks also attests to gold's monetary role. The net daily turnover of about $15 billion in physical bullion by members of the London Bullion Marketing Association also confirms gold's current monetary role. Although the daily volume is unpublished, it is estimated at $100 billion to $150 billion per day.
Clearly, this is not a result of jewellery demand, but a result of gold trading as a currency.
If we understand gold's monetary role, what does its rising price indicate?
Analysis of economic statistics can lead to a variety of conclusions. Some economists say the global economy is headed for a recession, while others believe the worst is over and 2008 will be a good year for financial assets. However, a rising gold price is essentially a vote of non-confidence in paper currencies and a leading indicator of future inflation.
Many global investors are concerned about counterparty risk problems, and what may turn out to be the worst financial crisis the credit markets have ever seen. In addition, the explosive growth in derivatives, new highs in the oil price, unsustainable US consumer debt, and a possible unwinding of the yen carry trade provide plenty to be concerned about.
While investors are concerned about these vulnerabilities in the midst of the worst financial crisis the credit markets have ever seen, the major cause of gold's price increases can be attributed to unprecedented increases in global money supply and the inflationary implications. Contrary to the common belief that inflation is an increase in the Consumer Price Index (CPI), the classical definition of inflation is an increase in the money supply, which results in price increases.
Money supply has increased by:
a. 42% in Russia
b. 21% in India
c. 18% in China
d. 12% in UK
e. 8% in Canada
Although the US Federal Reserve discontinued reporting M3 in March 2006, several sources have reconstructed the data and determined that the US money supply is now growing at an unprecedented annualized rate of 16%. Since 2005 the US money supply has increased from $10 trillion to $13 trillion.
Increases in money supply will likely accelerate, since central banks have announced they are prepared to provide liquidity in unlimited amounts in order to maintain bank solvency and prevent a systemic financial crisis. The inflationary implications of this policy should be obvious.
Gold's role in predicting inflation has been documented by several sources. Recent studies by Ibbotson Associates and Wainwright Economics confirm that gold does provide a hedge against inflation over the long term, and that price increases are leading indicators of future inflation. Most recently, the Bank of Canada published a paper entitled "Gold Prices and Inflation", which concluded that gold prices contain significant information about future inflation.
Wainwright Economics has conducted studies that show gold, silver and platinum are the best leading indicators of inflation over all other commodities, with platinum taking top honours. Given that gold increased by 26% in 2007 and that platinum increased by 32% (and has now surpassed its 1980 all-time high by nearly 43%), the future outlook for real inflation indicates dramatic increases.
It's not only precious metals, however, that are pointing to much higher inflation rates.
Financial media generally use the Core Consumer Price Index (CCPI) as a measure of inflation, although it is only useful for people that don't eat, or use energy.
The full CPI has been relatively benign until lately, rising from an annualized rate of 2.5% percent early in 2007 to 4.3% in November. Even with this recent increase, the CPI understates and lags real inflation.
It is important to understand that the methodology used to calculate the CPI was changed, in the early 1990s, by the Clinton administration. Many adjusting factors, such as substitution and hedonic adjustments, were introduced. Recreation of the CPI using the original pre-Clinton formula shows that it is currently increasing at an astounding 8%.
Finally, the Producer Price Index (PPI) has increased by 7%, commodities prices by 17%, and oil by 57% in 2007.
In establishing asset allocations for the coming years, a realistic view of inflation is crucial. Real wealth management must take into account real inflation. If real inflation is already at 8%, then long-term bonds are not really a safe investment, but rather a guaranteed loss of purchasing power. And while the equity indexes may make new highs in nominal terms, they will likely experience losses in real terms.
A clearer picture unfolds if investment performance is measured in gold ounces. The Dow:gold ratio is an accurate long-term trend indicator. It peaked at 43:1 in 2000, and had fallen to 24:1 in 2005. It now stands at 16:1. This means that if you purchased a unit of the Dow with 24 ounces of gold in 2005, you would now get back only 16 ounces - a loss of 36%, even though the Dow made new nominal highs in 2007.
As we begin 2008, one thing is undeniable: the gold price has been steadily rising in all currencies since the summer of 2005, and that rise is now accelerating. Since climbing precious metals prices are an accurate indicator of future inflation and other economic vulnerabilities, investors would be prudent to structure their portfolios to minimize the effects of rising real inflation, and protect their wealth from systemic financial risks.
According to studies by Ibbotson Associates, precious metals are the most positively correlated asset class to inflation. From a strategic point of view, Ibbotson determined that portfolios could reduce risks and improve returns with a 7-15% allocation to precious metals bullion, without any consideration to rising inflation or the impact of any financial vulnerabilities or imbalances.
Wainwright Economics determined that, in the current rising inflationary environment, bond portfolios need an 18% allocation to precious metals bullion and equity portfolios need 47% just to immunize them against inflation.
In order to profit from current market conditions, portfolios should have much higher allocations.
While we can debate appropriate percentage allocations, the fact remains that even though precious metals have posted impressive increases since mid-2005, most investment portfolios have no allocation to precious metals whatsoever. As a result, they are not protected from inflation or other systemic vulnerabilities, and are neither balanced nor diversified.
While mining stocks and precious metals proxies and derivatives may provide some exposure and trading opportunities, long-term wealth preservation requires fully allocated, segregated and insured bullion. As we have recently seen, the counterparties to Collateralized Debt Obligations (CDOs) and mortgages may default. The counterparty risk in many derivatives, which Warren Buffett calls "financial weapons of mass destruction", is unknown. Since bullion is not dependent on anyone's promise, representation or ability to perform, and is not someone else's liability, only it can provide protection against both systemic events and inflation while incurring low levels of risk.
As the prices of gold, silver and platinum continue to rise, mainstream investors and institutions alike will begin to reallocate a portion of their resources, which exceed $187 trillion, to precious metals. Since aboveground supplies of precious metals represent less than $4 trillion in total, and only $600 billion in privately held gold bullion, substantially higher price are indicated. If global investors decide to allocate even a modest 10% of their assets to gold, $18 trillion in financial assets will attempt to move into this tiny $4-trillion market and higher prices will be the inevitable result.
When that reallocation begins, gold at $1,100 per ounce will look like a bargain.
Courtesy: http://www.bmsinc.ca/
In January 2005, I wrote an article that began: "It's January, the beginning of a new year, and the time when economists, analysts and even astrologers like to prognosticate about what lies in store for the next 12 months. With respect to gold, opinions on the price vary from $400 to $500 dollars per ounce for 2005. These opinions presume that current conditions will remain relatively stable, and if they do the $400 - $500 range is reasonable."
And ended:
"In 2005, whether the price of gold will be $400 or $500 does not really matter. Would it have mattered whether you bought the NASDAQ at 400 or 500 in the mid-1980s? It is only important that you did not buy at 5,000."
Today, price forecasts for gold in 2008 range from $725 to $1,100 per ounce, but it still does not really matter. Over the long term, prices of precious metals - gold, silver and platinum - will rise to much higher levels, in all currencies. This is because the underlying factors causing the increases will not only continue, but will likely accelerate.
Although precious metals and all other commodities are currently priced in US dollars, it is important to note that since the summer of 2005 gold has increased in every major currency. It has climbed by 101% in US dollars, 93% in British pounds, 82% in euros, 93% in Swiss francs, 111% in Japanese yen and 78% in Russian rubles.
Canadian dollar price increases have been a more modest 65%, because the Canadian dollar has increased in value from US$0.82 to approximately US$0.99.
While gold receives little media attention, its counterparts receive even less. Since August 2005:
1. Silver has increased from $6.35 per ounce to $15.24, up 140%.
2. Platinum has increased from $843.12 per ounce to $1531.00, up 81%.
To date, the rising gold price and its implications have been largely ignored by mainstream investors and the media, even though precious metals have been one of the best-performing asset classes. It will come as a surprise to most that gold prices have already exceeded their 1980 peaks. While in 1980 the daily peak was $850, the gold price only surpassed $800 on two trading days, and $700 on six trading days. By comparison, in 2007 gold surpassed $800 on 21 days, and $700 on 78 days. The peak monthly average of $675 in January 1980 was surpassed in each of five months in 2007. The peak annual average of $612 in 1980 was surpassed by the $695 average in 2007.
This rise in prices and its implications are widely misunderstood. Many investors believe that gold is merely a commodity like copper or lead, with limited industrial uses. As one investment manager said, "I have no use for gold. You can't eat it and you can't put it in your gas tank."
Often price increases are attributed to jewellery demand from China and India. While this is an important demand factor, in South East Asia jewellery is not regarded as just an adornment, as in western countries. It is held as a monetary asset that is used to preserve wealth from generation to generation.
Even though a bullish case for precious metals can be made based on simple supply-demand fundamentals (falling mine production, mining companies dehedging, demand rising), the price rise is not due to simple commodity fundamentals. To fully understand the rise in gold prices, it is essential to understand gold's monetary role.
Gold and silver have been used as money for over 3,000 years, and platinum for several hundred years. Today, they are still used by the world's richest families as a store of wealth and an inflation hedge. Most central banks hold gold as part of their currency reserves. Although there is considerable controversy over central banks' leasing of gold, they report current gold holdings of about 928 million ounces, down just 160 million ounces from the 1980 peak of 1,080 million ounces. While western central banks have reduced their holdings and may have leased substantial quantities of their bullion holdings, developing countries have been adding to their reserves. Today, a number of central banks have openly discussed diversifying out of US dollars and increasing their gold holdings.
The fact that most banks and brokerages trade gold at their currency desks rather than their commodities desks also attests to gold's monetary role. The net daily turnover of about $15 billion in physical bullion by members of the London Bullion Marketing Association also confirms gold's current monetary role. Although the daily volume is unpublished, it is estimated at $100 billion to $150 billion per day.
Clearly, this is not a result of jewellery demand, but a result of gold trading as a currency.
If we understand gold's monetary role, what does its rising price indicate?
Analysis of economic statistics can lead to a variety of conclusions. Some economists say the global economy is headed for a recession, while others believe the worst is over and 2008 will be a good year for financial assets. However, a rising gold price is essentially a vote of non-confidence in paper currencies and a leading indicator of future inflation.
Many global investors are concerned about counterparty risk problems, and what may turn out to be the worst financial crisis the credit markets have ever seen. In addition, the explosive growth in derivatives, new highs in the oil price, unsustainable US consumer debt, and a possible unwinding of the yen carry trade provide plenty to be concerned about.
While investors are concerned about these vulnerabilities in the midst of the worst financial crisis the credit markets have ever seen, the major cause of gold's price increases can be attributed to unprecedented increases in global money supply and the inflationary implications. Contrary to the common belief that inflation is an increase in the Consumer Price Index (CPI), the classical definition of inflation is an increase in the money supply, which results in price increases.
Money supply has increased by:
a. 42% in Russia
b. 21% in India
c. 18% in China
d. 12% in UK
e. 8% in Canada
Although the US Federal Reserve discontinued reporting M3 in March 2006, several sources have reconstructed the data and determined that the US money supply is now growing at an unprecedented annualized rate of 16%. Since 2005 the US money supply has increased from $10 trillion to $13 trillion.
Increases in money supply will likely accelerate, since central banks have announced they are prepared to provide liquidity in unlimited amounts in order to maintain bank solvency and prevent a systemic financial crisis. The inflationary implications of this policy should be obvious.
Gold's role in predicting inflation has been documented by several sources. Recent studies by Ibbotson Associates and Wainwright Economics confirm that gold does provide a hedge against inflation over the long term, and that price increases are leading indicators of future inflation. Most recently, the Bank of Canada published a paper entitled "Gold Prices and Inflation", which concluded that gold prices contain significant information about future inflation.
Wainwright Economics has conducted studies that show gold, silver and platinum are the best leading indicators of inflation over all other commodities, with platinum taking top honours. Given that gold increased by 26% in 2007 and that platinum increased by 32% (and has now surpassed its 1980 all-time high by nearly 43%), the future outlook for real inflation indicates dramatic increases.
It's not only precious metals, however, that are pointing to much higher inflation rates.
Financial media generally use the Core Consumer Price Index (CCPI) as a measure of inflation, although it is only useful for people that don't eat, or use energy.
The full CPI has been relatively benign until lately, rising from an annualized rate of 2.5% percent early in 2007 to 4.3% in November. Even with this recent increase, the CPI understates and lags real inflation.
It is important to understand that the methodology used to calculate the CPI was changed, in the early 1990s, by the Clinton administration. Many adjusting factors, such as substitution and hedonic adjustments, were introduced. Recreation of the CPI using the original pre-Clinton formula shows that it is currently increasing at an astounding 8%.
Finally, the Producer Price Index (PPI) has increased by 7%, commodities prices by 17%, and oil by 57% in 2007.
In establishing asset allocations for the coming years, a realistic view of inflation is crucial. Real wealth management must take into account real inflation. If real inflation is already at 8%, then long-term bonds are not really a safe investment, but rather a guaranteed loss of purchasing power. And while the equity indexes may make new highs in nominal terms, they will likely experience losses in real terms.
A clearer picture unfolds if investment performance is measured in gold ounces. The Dow:gold ratio is an accurate long-term trend indicator. It peaked at 43:1 in 2000, and had fallen to 24:1 in 2005. It now stands at 16:1. This means that if you purchased a unit of the Dow with 24 ounces of gold in 2005, you would now get back only 16 ounces - a loss of 36%, even though the Dow made new nominal highs in 2007.
As we begin 2008, one thing is undeniable: the gold price has been steadily rising in all currencies since the summer of 2005, and that rise is now accelerating. Since climbing precious metals prices are an accurate indicator of future inflation and other economic vulnerabilities, investors would be prudent to structure their portfolios to minimize the effects of rising real inflation, and protect their wealth from systemic financial risks.
According to studies by Ibbotson Associates, precious metals are the most positively correlated asset class to inflation. From a strategic point of view, Ibbotson determined that portfolios could reduce risks and improve returns with a 7-15% allocation to precious metals bullion, without any consideration to rising inflation or the impact of any financial vulnerabilities or imbalances.
Wainwright Economics determined that, in the current rising inflationary environment, bond portfolios need an 18% allocation to precious metals bullion and equity portfolios need 47% just to immunize them against inflation.
In order to profit from current market conditions, portfolios should have much higher allocations.
While we can debate appropriate percentage allocations, the fact remains that even though precious metals have posted impressive increases since mid-2005, most investment portfolios have no allocation to precious metals whatsoever. As a result, they are not protected from inflation or other systemic vulnerabilities, and are neither balanced nor diversified.
While mining stocks and precious metals proxies and derivatives may provide some exposure and trading opportunities, long-term wealth preservation requires fully allocated, segregated and insured bullion. As we have recently seen, the counterparties to Collateralized Debt Obligations (CDOs) and mortgages may default. The counterparty risk in many derivatives, which Warren Buffett calls "financial weapons of mass destruction", is unknown. Since bullion is not dependent on anyone's promise, representation or ability to perform, and is not someone else's liability, only it can provide protection against both systemic events and inflation while incurring low levels of risk.
As the prices of gold, silver and platinum continue to rise, mainstream investors and institutions alike will begin to reallocate a portion of their resources, which exceed $187 trillion, to precious metals. Since aboveground supplies of precious metals represent less than $4 trillion in total, and only $600 billion in privately held gold bullion, substantially higher price are indicated. If global investors decide to allocate even a modest 10% of their assets to gold, $18 trillion in financial assets will attempt to move into this tiny $4-trillion market and higher prices will be the inevitable result.
When that reallocation begins, gold at $1,100 per ounce will look like a bargain.
Courtesy: http://www.bmsinc.ca/
Invest in Gold funds, not jewellery
As we head into 2008, it is with even greater worries about global instability - both political and financial. Iran's potential nuclear arsenal, a near certain US recession, continued fallout from the sub-prime crisis, all point to one direction as far as your investment portfolio is concerned - load up on gold.
Touching new highs. Other than a small blip in the first quarter of next year, gold prices are expected to continue on their bullish path. Currently, gold is trading in the range of $785-795 per ounce.
T Gnanasekar, director, Commtrendz says: "Typically, when the dollar weakens, gold prices go up, and vice-versa. At the moment, the dollar is strengthening and is expected to strengthen further in the first quarter. This will result in falling prices of gold. So, gold prices could come down to $745, even $700 per ounce, in the first quarter of the year. Subsequently, however, our target price for gold in 2008 is $900 per ounce."
Gold prices hit a 28-year high of $845 on November 7, 2007, when the dollar fell to record lows against major currencies and oil prices rose to all-time record levels. But the metal has lost nearly 6 per cent of its value since then as the dollar rebounds, oil prices trend off record highs and players square positions at beginning of 2008.
Invest in a gold fund, not jewellery. Week to week trends notwithstanding, gold continues to remain a solid bet for the future. In fact, with more and more asset management companies offering gold exchange traded funds, a good way to invest in the yellow metal is in the form of paper, that is, through gold funds.
These funds can easily be bought and sold and there would be no problems in liquidating your gold investments. Also, as the underlying gold of your fund is in the form of bullion, there are no losses in terms of design and making charges.
Traditionally, especially in India, investments in gold are in the form of jewellery and you face a significant loss of value when you sell your gold as a lot of your purchase price goes towards design and making charges.
"People are buying gold anyway in India, and buying this in the form of a fund is a far wiser investment than buying jewellery," says Sanjiv Shah, executive director, Benchmark Mutual Fund. Asset allocation is critical, and given the correlation of returns from other assets, it is appropriate that an investor hedges by investing in gold, feels Shah. "Returns on the metal have been fantastic in the last five years.
Ideally, 5-10 per cent of your portfolio must be diversified and gold is a good option," he says. If you are buying gold purely as an investment, then the storage argument is a strong one to prefer a gold ETF over buying the metal in its physical form.
Bars and coins are also good options. The other popular way of investing in gold is by buying gold bars. Earlier, gold bars were only available in jewellery shops, but now they are available at banks.
Though private players such as ICICI Bank [Get Quote] and HDFC Bank [Get Quote] were the first to begin retailing gold, now even public sector giants have got on the gold bandwagon. State Bank of India [Get Quote] recently started selling gold, and currently offers this facility in 100 of its branches. It will see a significant expansion in the next two years.
However, do remember that if you buy gold bars from banks, they can only be sold at jewellery shops. The Reserve Bank of India does not allow banks to buy gold back from its customers.
A little gold in your portfolio can go a long way in keeping your investments buoyant. And now, with multiple ways of buying our favourite metal, there's no stopping the shimmer and the shine this New Year.
Touching new highs. Other than a small blip in the first quarter of next year, gold prices are expected to continue on their bullish path. Currently, gold is trading in the range of $785-795 per ounce.
T Gnanasekar, director, Commtrendz says: "Typically, when the dollar weakens, gold prices go up, and vice-versa. At the moment, the dollar is strengthening and is expected to strengthen further in the first quarter. This will result in falling prices of gold. So, gold prices could come down to $745, even $700 per ounce, in the first quarter of the year. Subsequently, however, our target price for gold in 2008 is $900 per ounce."
Gold prices hit a 28-year high of $845 on November 7, 2007, when the dollar fell to record lows against major currencies and oil prices rose to all-time record levels. But the metal has lost nearly 6 per cent of its value since then as the dollar rebounds, oil prices trend off record highs and players square positions at beginning of 2008.
Invest in a gold fund, not jewellery. Week to week trends notwithstanding, gold continues to remain a solid bet for the future. In fact, with more and more asset management companies offering gold exchange traded funds, a good way to invest in the yellow metal is in the form of paper, that is, through gold funds.
These funds can easily be bought and sold and there would be no problems in liquidating your gold investments. Also, as the underlying gold of your fund is in the form of bullion, there are no losses in terms of design and making charges.
Traditionally, especially in India, investments in gold are in the form of jewellery and you face a significant loss of value when you sell your gold as a lot of your purchase price goes towards design and making charges.
"People are buying gold anyway in India, and buying this in the form of a fund is a far wiser investment than buying jewellery," says Sanjiv Shah, executive director, Benchmark Mutual Fund. Asset allocation is critical, and given the correlation of returns from other assets, it is appropriate that an investor hedges by investing in gold, feels Shah. "Returns on the metal have been fantastic in the last five years.
Ideally, 5-10 per cent of your portfolio must be diversified and gold is a good option," he says. If you are buying gold purely as an investment, then the storage argument is a strong one to prefer a gold ETF over buying the metal in its physical form.
Bars and coins are also good options. The other popular way of investing in gold is by buying gold bars. Earlier, gold bars were only available in jewellery shops, but now they are available at banks.
Though private players such as ICICI Bank [Get Quote] and HDFC Bank [Get Quote] were the first to begin retailing gold, now even public sector giants have got on the gold bandwagon. State Bank of India [Get Quote] recently started selling gold, and currently offers this facility in 100 of its branches. It will see a significant expansion in the next two years.
However, do remember that if you buy gold bars from banks, they can only be sold at jewellery shops. The Reserve Bank of India does not allow banks to buy gold back from its customers.
A little gold in your portfolio can go a long way in keeping your investments buoyant. And now, with multiple ways of buying our favourite metal, there's no stopping the shimmer and the shine this New Year.
India shares fall on heavy selloff
Reuters -
Bangalore: Indian shares fell 0.48 per cent on Monday, surrendering early gains as investors freed up cash to invest in large share sales, with losses led by telecom firm Bharti Airtel Ltd and lender ICICI Bank Ltd.
Market sentiment was also dented by falls in foreign markets on growing fears of a recession in the United States. Asian stocks remained pinned at more than three-week lows, while European shares also dipped in early trade.
ICICI Bank, India's second-largest bank, fell 2.2 per cent to Rs1,408.50, having risen to a record of Rs1,465 in early deals, as investors booked gains after the stock had risen more than 12 per cent last week on its plans to list a number of its units.
Leading mobile operator Bharti fell 6.1 per cent to Rs907.30, its lowest close since December 19, after second-ranked Reliance Communications got additional spectrum to start GSM services in 14 of India's telecom zones.
Reliance Communications, which mainly runs on the rival CDMA platform but also has services on dominant GSM technology, ended up 1.5 per cent at Rs805.15.
The benchmark 30-share BSE stock index ended down 99.40 points at 20,728.05, with 19 components losing ground. It had risen as much as 0.63 per cent in the early trade.
The index hit a record 21,206.77 last Thursday.
"We are seeing only sector-specific action on hopes of good quarterly results. You will see momentum picking up after the Reliance Power IPO process gets completed," said Anuj Anandwala, research analyst with KJMC Capital Market Services Ltd.
Traders said there could be a temporary shortage of cash to buy stocks as investors free up funds for Reliance Power's initial public offer to raise up to $3 billion, which opens today.
"When such large issues hit the market, people tend to book profit to invest in the IPO," said DD Sharma, vice-president at Anand Rathi Securities.
"With global cues also not supportive, I expect the market to remain weak in the short term."
Bangalore: Indian shares fell 0.48 per cent on Monday, surrendering early gains as investors freed up cash to invest in large share sales, with losses led by telecom firm Bharti Airtel Ltd and lender ICICI Bank Ltd.
Market sentiment was also dented by falls in foreign markets on growing fears of a recession in the United States. Asian stocks remained pinned at more than three-week lows, while European shares also dipped in early trade.
ICICI Bank, India's second-largest bank, fell 2.2 per cent to Rs1,408.50, having risen to a record of Rs1,465 in early deals, as investors booked gains after the stock had risen more than 12 per cent last week on its plans to list a number of its units.
Leading mobile operator Bharti fell 6.1 per cent to Rs907.30, its lowest close since December 19, after second-ranked Reliance Communications got additional spectrum to start GSM services in 14 of India's telecom zones.
Reliance Communications, which mainly runs on the rival CDMA platform but also has services on dominant GSM technology, ended up 1.5 per cent at Rs805.15.
The benchmark 30-share BSE stock index ended down 99.40 points at 20,728.05, with 19 components losing ground. It had risen as much as 0.63 per cent in the early trade.
The index hit a record 21,206.77 last Thursday.
"We are seeing only sector-specific action on hopes of good quarterly results. You will see momentum picking up after the Reliance Power IPO process gets completed," said Anuj Anandwala, research analyst with KJMC Capital Market Services Ltd.
Traders said there could be a temporary shortage of cash to buy stocks as investors free up funds for Reliance Power's initial public offer to raise up to $3 billion, which opens today.
"When such large issues hit the market, people tend to book profit to invest in the IPO," said DD Sharma, vice-president at Anand Rathi Securities.
"With global cues also not supportive, I expect the market to remain weak in the short term."
Goldman slashes Asia growth forecasts amid US slowdown
Singapore: Goldman Sachs Group reduced its growth forecasts for Asia on concern an expected recession in the US will erode demand for the region's exports.
Asia excluding Japan will expand 8.3 per cent in 2008, down from an earlier estimate of 8.6 per cent, Hong Kong-based economist Michael Buchanan said in a report on Monday. The investment bank last week cut its forecasts for US and Japan.
Goldman, which last year had said Asian growth was decoupling from US, is now forecasting a recession in the world's largest economy that may hit shipments to the region's biggest export destination.
South Korea and Taiwan have already warned easing demand for semiconductors, mobile phones and computers portends weaker growth in 2008. -- Bloomberg
Asia excluding Japan will expand 8.3 per cent in 2008, down from an earlier estimate of 8.6 per cent, Hong Kong-based economist Michael Buchanan said in a report on Monday. The investment bank last week cut its forecasts for US and Japan.
Goldman, which last year had said Asian growth was decoupling from US, is now forecasting a recession in the world's largest economy that may hit shipments to the region's biggest export destination.
South Korea and Taiwan have already warned easing demand for semiconductors, mobile phones and computers portends weaker growth in 2008. -- Bloomberg
US banks eye Gulf for more bailouts
Kuwait City, New York: The sovereign funds of Kuwait and other Gulf states were in the spotlight on Monday as Citigroup sought extra emergency funding and its fellow US bank Merrill Lynch was said to want more cash too.
The moves came as one newspaper report raised questions over whether previously agreed Chinese funding for Citigroup may fall through.
Citigroup, the largest US bank by assets, is looking for more funds to help it through losses from the subprime crisis after securing $7.5 billion from the Abu Dhabi Investment Authority in November, a source familiar with the situation told Reuters in New York.
Merrill is seeking about $4 billion from the Kuwait Investment Authority and others as it faces as much as $15 billion in credit market losses, the Financial Times newspaper reported.
In December, Merrill shored up its capital base by as much as $7.5 billion after selling a stake to Singapore state fund Temasek and asset manager Davis Selected Advisers.
Citi, which said it could write down about $11 billion of repackaged debt, was seeking as much as $14 billion from investors including its largest individual shareholder Saudi Prince Al Waleed bin Talal, the KIA and China Development Bank, newspapers reported.
In a separate development yesterday, the Wall Street Journal reported that Citi's plan to sell a $2 billion stake to state-owned China Development Bank may be in jeopardy because of Chinese government opposition.
Gulf investors flush with cash from oil prices near $100 a barrel, have said they are looking to invest in the US to take advantage of cheaper asset prices as the dust settles on a crisis triggered by mortgage defaults.
The moves came as one newspaper report raised questions over whether previously agreed Chinese funding for Citigroup may fall through.
Citigroup, the largest US bank by assets, is looking for more funds to help it through losses from the subprime crisis after securing $7.5 billion from the Abu Dhabi Investment Authority in November, a source familiar with the situation told Reuters in New York.
Merrill is seeking about $4 billion from the Kuwait Investment Authority and others as it faces as much as $15 billion in credit market losses, the Financial Times newspaper reported.
In December, Merrill shored up its capital base by as much as $7.5 billion after selling a stake to Singapore state fund Temasek and asset manager Davis Selected Advisers.
Citi, which said it could write down about $11 billion of repackaged debt, was seeking as much as $14 billion from investors including its largest individual shareholder Saudi Prince Al Waleed bin Talal, the KIA and China Development Bank, newspapers reported.
In a separate development yesterday, the Wall Street Journal reported that Citi's plan to sell a $2 billion stake to state-owned China Development Bank may be in jeopardy because of Chinese government opposition.
Gulf investors flush with cash from oil prices near $100 a barrel, have said they are looking to invest in the US to take advantage of cheaper asset prices as the dust settles on a crisis triggered by mortgage defaults.
Gold soars on economy woes
LONDON - Gold soared to record highs above
$910 an ounce today as equities struggled for gains and the dollar fell.
Wall Street looked set for a moderately positive start with investors looking down the road to the start of fourth quarter earnings seasons for US companies later in the week.
Earnings from S&P 500 companies are expected by analysts to have fallen more than 8%, according to Reuters Estimates. But worries about the slowing global economy and the chances of recession in the US were the main focus with investors eyeing a likely interest rate cut from the US Federal Reserve before the month is out.
The Fed is widely expected to cut rates by 50 basis points to 3,75% on January 30, although some analysts have been suggesting an emergency meeting could come earlier.
Poor economic data and lingering worries about inflation, meanwhile, were driving investors into gold and other precious metals. Spot gold hit a record high of $914 an ounce.
Safe-haven buying also pushed platinum to a record high of $1,590 an ounce and silver rallied to its highest in 27 years at $16,58 an ounce.
On equity markets, the mood was mixed. MSCI’s main world stock index was up 0,4% but its emerging market gauge was flat. European equities were slightly higher after losing ground for six sessions in a row on persistent concerns over the prospect of a US recession.
The FTSEurofirst 300 index of top European shares was up 0,1%. But it has lost 5% so far this year, easily wiping out all of last year’s gains. Japan’s stock markets were closed for a holiday.
$910 an ounce today as equities struggled for gains and the dollar fell.
Wall Street looked set for a moderately positive start with investors looking down the road to the start of fourth quarter earnings seasons for US companies later in the week.
Earnings from S&P 500 companies are expected by analysts to have fallen more than 8%, according to Reuters Estimates. But worries about the slowing global economy and the chances of recession in the US were the main focus with investors eyeing a likely interest rate cut from the US Federal Reserve before the month is out.
The Fed is widely expected to cut rates by 50 basis points to 3,75% on January 30, although some analysts have been suggesting an emergency meeting could come earlier.
Poor economic data and lingering worries about inflation, meanwhile, were driving investors into gold and other precious metals. Spot gold hit a record high of $914 an ounce.
Safe-haven buying also pushed platinum to a record high of $1,590 an ounce and silver rallied to its highest in 27 years at $16,58 an ounce.
On equity markets, the mood was mixed. MSCI’s main world stock index was up 0,4% but its emerging market gauge was flat. European equities were slightly higher after losing ground for six sessions in a row on persistent concerns over the prospect of a US recession.
The FTSEurofirst 300 index of top European shares was up 0,1%. But it has lost 5% so far this year, easily wiping out all of last year’s gains. Japan’s stock markets were closed for a holiday.
Gold's rally accelerates as dollar weakens
The price of gold continued its stunning start to 2008, rising to a new record of $914 an ounce, as traders betted the US Federal Reserve will slash interest rates, weakening the dollar and boosting the investment appeal of the precious metal.
Contracts for February delivery of gold traded at a record $913.80 on the New York Mercantile Exchange as economists revised their interest rate forecasts.
Meanwhile, the dollar weakened to almost $1.49 against the euro, was off against sterling and fell against a range of other currencies.
Gold has had a stunning start to the year
James Moore, an analyst with TheBullionDesk.Com in London, said: "The market is still extremely bullish.
"With the US potentially cutting interest rates, while those in Europe stay firm, the dollar looks set to add additional upside momentum."
HSBC and Morgan Stanley both now believe the Federal Reserve will cut rates by 50 basis points to 3.75pc this month after its chairman, Ben Bernanke, suggested that cuts were necessary to guard against an economic slowdown.
According to a survey of 29 analysts by Bloomberg, 23 advise buying the yellow metal this week, with just five selling and one holding at current prices.
Gold has already gained 9pc this year. However, adjusted for inflation, gold its still below its all-time high.
Silver prices rose to the highest in 27 years, and platinum jumped to a record $1,589.25 an ounce.
Contracts for February delivery of gold traded at a record $913.80 on the New York Mercantile Exchange as economists revised their interest rate forecasts.
Meanwhile, the dollar weakened to almost $1.49 against the euro, was off against sterling and fell against a range of other currencies.
Gold has had a stunning start to the year
James Moore, an analyst with TheBullionDesk.Com in London, said: "The market is still extremely bullish.
"With the US potentially cutting interest rates, while those in Europe stay firm, the dollar looks set to add additional upside momentum."
HSBC and Morgan Stanley both now believe the Federal Reserve will cut rates by 50 basis points to 3.75pc this month after its chairman, Ben Bernanke, suggested that cuts were necessary to guard against an economic slowdown.
According to a survey of 29 analysts by Bloomberg, 23 advise buying the yellow metal this week, with just five selling and one holding at current prices.
Gold has already gained 9pc this year. However, adjusted for inflation, gold its still below its all-time high.
Silver prices rose to the highest in 27 years, and platinum jumped to a record $1,589.25 an ounce.
New record highs for gold; is it too good to be true?
LONDON -
On January 21, 1980, gold recorded its then record high fix of $850, as a result of the Hunt Brothers' attempted corner of the silver market, plus the second oil crisis, the invasion of Afghanistan and the hostage crisis in Iran.
Any of this sound familiar?
This time we are lacking the silver market manipulation, but we have renewed bearishness for the dollar, not only due to tensions in the financial sector that are resulting in increased risk aversion, but also for the more basic fundamental reasons with respect to interest rate differentials; German 10-year rates are currently 20 basis points above those in the U.S. The differential has been as high as 37 basis points and it looks as if the gap will continue to widen.
Inflationary concerns are less important this time than they were in 1980 - 28 years ago the US CPI peaked in March at just less than 15% - but the dreaded word "stagflation" has been on the lips of a number of economists and this, too, supports the investment case for gold.
But should we perhaps be a little cautious here?
There is a degree of euphoria among some of the market observations, certainly in the lay press and this is often something of a warning signal. While there is little doubt that all the conditions remain in place for a further increase in the price of gold in the medium term, the latest move has developed in relatively thin market conditions and the market is looking overbought. Physical demand is waning and there is plentiful stream of scrap supply coming through in India.
A correction in price would be a welcome development of the overall stability of the market, as the majority of the buying has come from the professional sector. The physical market is, for the longer term, a strong one, but the recent volatility in price will certainly deter buyers for a while yet.
In the first 10 days of trading in January, gold has traded in a range between $834 and $898 (on an intra-day basis), or almost 8%. The increase since the latest leg of the rally got underway, which was in the week before Christmas, is $105 or just over 13%, in only three weeks. While the dollar has obviously been a key driver in the move, the price in euro terms has risen over the same period by almost 10%. This looks worryingly like too much, too quickly.
The physical market in January tends to be dominated by the onset of the Indian Wedding Season, along with the Chinese New Year. The former is due in the middle of January and the latter falls on 7th February, and between them they form an important part of the physical market. There is no specific trend that can be displayed in the quarterly figures for physical demand as they are clearly responsive to price, but from 2003 to 2007, inclusive Greater China and the Indian Subcontinent have between them accounted for an average of 37% of worldwide jewellery and investment bars.
The first quarter of the year, worldwide, is not typically the strongest quarter of the year; that position is held by the fourth quarter, which includes a number of Indian and Middle Eastern festivals plus the Christmas season. With European demand usually falling sharply in the first quarter, the demand for jewellery and investment bars has, on average from 2003-2007 inclusive, dropped by 189 tonnes between the fourth quarter of one year and the first quarter of the next.
The recent volatility in price suggests that physical demand for gold for the imminent Wedding Season and New Year will struggle to reach the levels enjoyed in 2007. The quarterly demand for jewellery and investment bars during that period was 643 tonnes, compared with 611 tonnes in the first quarter of 2006.
In simple monetary terms (i.e. working just on the basis of the quarterly average and the tonnage of contained gold), the value of the gold bought in Q1 2007 amounted to $134.5 billion, a 24% increase in the dollar expenditure in the first quarter of 2006. With the dollar price of gold currently 43% higher than at this time last year, the [Chinese] renminbi price up by 31% and the [Indian] rupee price by 25%, the prospects for a strong revival in physical demand look slender.
Recent trading patterns on COMEX show that at the end of December, the latest date for which full data are available, the combined speculative positions on COMEX were 1,014 tonnes, compared with total open interest of 1,685 tonnes, or 60% of total. The net speculative long on COMEX was 742 tonnes, just shy of the record level of 747 tonnes on 6th November, when the sector was scoring intermediate highs. Obviously COMEX is centrally-cleared and for every long there is a short, but the speculative length in the market is worrying and it is in the gift of industrial users to stand away form the market when liquidation develops and wait for prices to be offered down.
There is little doubt that the fundamentals are in place for further medium term strength, but a pullback really would be most welcome if these higher levels are to be sustained and underpinned.
On January 21, 1980, gold recorded its then record high fix of $850, as a result of the Hunt Brothers' attempted corner of the silver market, plus the second oil crisis, the invasion of Afghanistan and the hostage crisis in Iran.
Any of this sound familiar?
This time we are lacking the silver market manipulation, but we have renewed bearishness for the dollar, not only due to tensions in the financial sector that are resulting in increased risk aversion, but also for the more basic fundamental reasons with respect to interest rate differentials; German 10-year rates are currently 20 basis points above those in the U.S. The differential has been as high as 37 basis points and it looks as if the gap will continue to widen.
Inflationary concerns are less important this time than they were in 1980 - 28 years ago the US CPI peaked in March at just less than 15% - but the dreaded word "stagflation" has been on the lips of a number of economists and this, too, supports the investment case for gold.
But should we perhaps be a little cautious here?
There is a degree of euphoria among some of the market observations, certainly in the lay press and this is often something of a warning signal. While there is little doubt that all the conditions remain in place for a further increase in the price of gold in the medium term, the latest move has developed in relatively thin market conditions and the market is looking overbought. Physical demand is waning and there is plentiful stream of scrap supply coming through in India.
A correction in price would be a welcome development of the overall stability of the market, as the majority of the buying has come from the professional sector. The physical market is, for the longer term, a strong one, but the recent volatility in price will certainly deter buyers for a while yet.
In the first 10 days of trading in January, gold has traded in a range between $834 and $898 (on an intra-day basis), or almost 8%. The increase since the latest leg of the rally got underway, which was in the week before Christmas, is $105 or just over 13%, in only three weeks. While the dollar has obviously been a key driver in the move, the price in euro terms has risen over the same period by almost 10%. This looks worryingly like too much, too quickly.
The physical market in January tends to be dominated by the onset of the Indian Wedding Season, along with the Chinese New Year. The former is due in the middle of January and the latter falls on 7th February, and between them they form an important part of the physical market. There is no specific trend that can be displayed in the quarterly figures for physical demand as they are clearly responsive to price, but from 2003 to 2007, inclusive Greater China and the Indian Subcontinent have between them accounted for an average of 37% of worldwide jewellery and investment bars.
The first quarter of the year, worldwide, is not typically the strongest quarter of the year; that position is held by the fourth quarter, which includes a number of Indian and Middle Eastern festivals plus the Christmas season. With European demand usually falling sharply in the first quarter, the demand for jewellery and investment bars has, on average from 2003-2007 inclusive, dropped by 189 tonnes between the fourth quarter of one year and the first quarter of the next.
The recent volatility in price suggests that physical demand for gold for the imminent Wedding Season and New Year will struggle to reach the levels enjoyed in 2007. The quarterly demand for jewellery and investment bars during that period was 643 tonnes, compared with 611 tonnes in the first quarter of 2006.
In simple monetary terms (i.e. working just on the basis of the quarterly average and the tonnage of contained gold), the value of the gold bought in Q1 2007 amounted to $134.5 billion, a 24% increase in the dollar expenditure in the first quarter of 2006. With the dollar price of gold currently 43% higher than at this time last year, the [Chinese] renminbi price up by 31% and the [Indian] rupee price by 25%, the prospects for a strong revival in physical demand look slender.
Recent trading patterns on COMEX show that at the end of December, the latest date for which full data are available, the combined speculative positions on COMEX were 1,014 tonnes, compared with total open interest of 1,685 tonnes, or 60% of total. The net speculative long on COMEX was 742 tonnes, just shy of the record level of 747 tonnes on 6th November, when the sector was scoring intermediate highs. Obviously COMEX is centrally-cleared and for every long there is a short, but the speculative length in the market is worrying and it is in the gift of industrial users to stand away form the market when liquidation develops and wait for prices to be offered down.
There is little doubt that the fundamentals are in place for further medium term strength, but a pullback really would be most welcome if these higher levels are to be sustained and underpinned.
Oil Is Little Changed as Dollar Nears Record Low Against Euro
(Bloomberg) -- Crude oil was little changed in New York after rising for the first time in four days as the dollar fell to within a cent of its record low against the euro, prompting investors to buy commodities as an inflation hedge.
The dollar dropped on speculation that the Federal Reserve will lower interest rates this month, sending gold and platinum futures to records. Crude prices also increased on expectations that fuel consumption will surge this week as colder weather moves across the U.S.
``What we are seeing in the oil market is part of an overall commodity rally,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``Gold has already surged to another record and all of the other metals and energy markets are following.''
Crude oil for February delivery was unchanged at $94.20 a barrel on the New York Mercantile Exchange at 10:12 a.m. in Sydney. Yesterday, the contract gained $1.51, or 1.6 percent. Futures reached a record $100.09 a barrel on Jan. 3.
Brent crude for February settlement rose $1.85, or 2 percent, to close at $92.92 a barrel on London's ICE Futures Europe exchange. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.
A lower dollar makes oil cheaper in countries using other currencies. West Texas Intermediate, the New York-traded crude- oil benchmark, is up 78 percent from a year ago in U.S. dollars. Oil is up 54 percent in euros, 78 percent in British pounds and 60 percent in yen.
Falling Dollar
The dollar fell as low as $1.4915 against the euro yesterday, the weakest since declining to a record low on Nov. 23 of $1.4967, and traded at $1.4866 at 10:16 a.m. in Sydney. It depreciated the most against the yen since Jan. 2, to 108.11 from 108.84.
``I am worried by the brutality of these price rises that directly hurt growth and purchasing power, not only in France and Europe, but even more in poor countries without oil,'' French President Nicolas Sarkozy said in a speech yesterday to business leaders in Riyadh.
The National Weather Service yesterday forecast below-normal temperatures in all of the lower 48 states, except Florida, from Jan. 19 to Jan. 23. Home-heating demand in the Northeast, the region responsible for 80 percent of U.S. heating-oil use, will be 10 percent above normal for the next week, said Weather Derivatives, a forecaster in Belton, Missouri.
The Organization of Petroleum Exporting Countries, which produces more than 40 percent of the world's oil, will assess winter oil demand, global economic growth and decide on production targets. The group meets Feb. 1 in Vienna.
Qatari Comments
``OPEC are only oil producers, they are not fixing prices. They can't control the market forces,'' Qatari Energy Minister Abdullah al-Attiyah told reporters in Doha, Qatar yesterday. ``They can't control the geopolitics. They can't control the speculation.''
OPEC members produced an average 32.07 million barrels a day last month, up 370,000 barrels from November, according to a Bloomberg News survey of oil companies, producers and analysts.
``OPEC, in particular Saudi Arabia, could increase production, which would eventually lead prices lower, but on a day-to-day basis they have no control on prices'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Royal Dutch Shell Plc, Europe's largest oil company, halted crude exports from the Forcados terminal in Nigeria. The stoppage, known as a force majeure, was declared starting Jan. 11 on deliveries in January and February, Rainer Winzenried, a company spokesman, said yesterday. The action follows a Jan. 9 attack on oil-export and water-discharge pipelines, Winzenried said.
Force majeure is a legal clause that allows a company to miss contracted deliveries because of circumstances beyond its control.
MEND Attacks
The Movement for the Emancipation of the Niger Delta, a Nigerian militant group, said its allies blew up an oil tanker on Jan. 11 following a pledge by the organization to ``rock'' the global oil market through sabotage attacks. Violence by militants has cut Nigeria's oil output by 20 percent since the start of 2006. Nigeria is Africa's biggest crude-oil producer.
Hedge fund managers and other large speculators have increased bets on rising oil prices during the past three weeks, according to U.S. Commodity Futures Trading Commission data.
The net-long position in New York oil futures rose 9 percent to 94,923 contracts in the week ended Jan. 8, the commission said last week. Long positions are bets that prices will rise.
The dollar dropped on speculation that the Federal Reserve will lower interest rates this month, sending gold and platinum futures to records. Crude prices also increased on expectations that fuel consumption will surge this week as colder weather moves across the U.S.
``What we are seeing in the oil market is part of an overall commodity rally,'' said Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago. ``Gold has already surged to another record and all of the other metals and energy markets are following.''
Crude oil for February delivery was unchanged at $94.20 a barrel on the New York Mercantile Exchange at 10:12 a.m. in Sydney. Yesterday, the contract gained $1.51, or 1.6 percent. Futures reached a record $100.09 a barrel on Jan. 3.
Brent crude for February settlement rose $1.85, or 2 percent, to close at $92.92 a barrel on London's ICE Futures Europe exchange. Futures touched $98.50 on Jan. 3, the highest intraday price since trading began in 1988.
A lower dollar makes oil cheaper in countries using other currencies. West Texas Intermediate, the New York-traded crude- oil benchmark, is up 78 percent from a year ago in U.S. dollars. Oil is up 54 percent in euros, 78 percent in British pounds and 60 percent in yen.
Falling Dollar
The dollar fell as low as $1.4915 against the euro yesterday, the weakest since declining to a record low on Nov. 23 of $1.4967, and traded at $1.4866 at 10:16 a.m. in Sydney. It depreciated the most against the yen since Jan. 2, to 108.11 from 108.84.
``I am worried by the brutality of these price rises that directly hurt growth and purchasing power, not only in France and Europe, but even more in poor countries without oil,'' French President Nicolas Sarkozy said in a speech yesterday to business leaders in Riyadh.
The National Weather Service yesterday forecast below-normal temperatures in all of the lower 48 states, except Florida, from Jan. 19 to Jan. 23. Home-heating demand in the Northeast, the region responsible for 80 percent of U.S. heating-oil use, will be 10 percent above normal for the next week, said Weather Derivatives, a forecaster in Belton, Missouri.
The Organization of Petroleum Exporting Countries, which produces more than 40 percent of the world's oil, will assess winter oil demand, global economic growth and decide on production targets. The group meets Feb. 1 in Vienna.
Qatari Comments
``OPEC are only oil producers, they are not fixing prices. They can't control the market forces,'' Qatari Energy Minister Abdullah al-Attiyah told reporters in Doha, Qatar yesterday. ``They can't control the geopolitics. They can't control the speculation.''
OPEC members produced an average 32.07 million barrels a day last month, up 370,000 barrels from November, according to a Bloomberg News survey of oil companies, producers and analysts.
``OPEC, in particular Saudi Arabia, could increase production, which would eventually lead prices lower, but on a day-to-day basis they have no control on prices'' said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Royal Dutch Shell Plc, Europe's largest oil company, halted crude exports from the Forcados terminal in Nigeria. The stoppage, known as a force majeure, was declared starting Jan. 11 on deliveries in January and February, Rainer Winzenried, a company spokesman, said yesterday. The action follows a Jan. 9 attack on oil-export and water-discharge pipelines, Winzenried said.
Force majeure is a legal clause that allows a company to miss contracted deliveries because of circumstances beyond its control.
MEND Attacks
The Movement for the Emancipation of the Niger Delta, a Nigerian militant group, said its allies blew up an oil tanker on Jan. 11 following a pledge by the organization to ``rock'' the global oil market through sabotage attacks. Violence by militants has cut Nigeria's oil output by 20 percent since the start of 2006. Nigeria is Africa's biggest crude-oil producer.
Hedge fund managers and other large speculators have increased bets on rising oil prices during the past three weeks, according to U.S. Commodity Futures Trading Commission data.
The net-long position in New York oil futures rose 9 percent to 94,923 contracts in the week ended Jan. 8, the commission said last week. Long positions are bets that prices will rise.
Gold, Platinum Rise to Record as Dollar Falls; Crop Prices Gain
(Bloomberg) -- Gold and platinum rose to records and cotton and corn surged as a declining dollar increased demand for precious metals and farm products as alternatives to stocks and bonds.
The dollar fell as traders increased bets that the Federal Reserve will lower U.S. interest rates to avoid a recession. Gold has gained 8.3 percent this year and the dollar has fallen more than 1.9 percent against the euro, to a seven-week low. Oil and base metals such as copper also rose, lifting the UBS Bloomberg Constant Maturity Commodity Index to the highest ever.
``We're in a falling-rate environment. I think that works in gold's favor,'' Richard Urwin, London-based head of asset allocation at BlackRock Investment Management, said in an interview with Bloomberg Television. ``We're probably in an environment in which, on average, the dollar is going to depreciate. Gold is a good hedge against it.''
Gold futures for February delivery rose $5.70, or 0.6 percent, to close at $903.40 an ounce on the Comex division of the New York Mercantile Exchange. The price earlier reached $915.90, the highest ever for a most-active contract. The metal for immediate delivery rose $7.20, or 0.8 percent, to $902.60 at 1:59 p.m. in New York. It earlier reached $914.30.
Twenty-three of 29 traders, investors and analysts from Mumbai to Chicago that were surveyed by Bloomberg on Jan. 10 and Jan. 11 advised buying gold this week. Five said sell, and one was neutral.
`Extremely Bullish'
``The market is still extremely bullish,'' said James Moore, an analyst at TheBullionDesk.com in London. ``With the U.S. potentially cutting interest rates while those in Europe stay firm, the dollar looks set to add additional upside momentum.''
Corn and soybeans rose to records, and wheat rose the maximum permitted by the Chicago Board of Trade. Corn, the biggest U.S. crop, has jumped 48 percent in the past five months, and soybeans surged 54 percent. Wheat has doubled in the past year. For a second straight session, cotton rose the maximum permitted by ICE Futures U.S.
``Rising commodity prices, especially agricultural prices, have heightened inflationary concerns,'' Commerzbank AG said in a report on Jan. 11.
The dollar declined on speculation that U.S. borrowing costs will fall below those denominated in currencies held by members of the European Union.
Fed Funds Expectations
Fed funds futures contracts on the Chicago Board of Trade show 54 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting. The Fed lowered the rate 1 percentage point last year. The ECB raised rates twice in 2007 to 4 percent.
Demand for gold will be less affected by a global slowdown than silver, platinum and palladium, said Walter de Wet, head of commodity research in Johannesburg at Standard Bank Group Ltd., Africa's largest lender.
Industrial uses for gold, such as dentistry and electronics production, made up 15 percent of total demand in 2006 compared with more than 50 percent for platinum and 47 percent for silver, according to estimates by London-based research company GFMS Ltd. Jewelry accounts for almost 60 percent of gold consumption.
``The investment component of demand for all of these precious metals is dominating,'' de Wet said. ``We're likely to see an increase in all of these metals but gold is probably going to outpace.'' The gains may last until the second half of this year, he said.
StreetTracks Assets Rise
Assets in the StreetTracks Gold Trust, the world's biggest exchange-traded fund backed by gold, are up 2.2 percent this year to a record 641.81 metric tons.
``We believe the broader investor base is not yet involved in gold, which remains a very small market,'' Citigroup Inc. analyst John Hill said yesterday in a report.
Investment demand for bullion, excluding purchases for jewelry, totaled $13 billion in 2007, Hill said.
Investors may also prefer gold to stocks, analysts said. The Standard & Poor's 500 Index has fallen 3.7 percent this month.
``People are looking at precious metals as principally a safe haven while they ride out a correction in equity markets,'' Peter McGuire, managing director at Commodity Warrants Australia Ltd., said by telephone from Sydney today.
The euro traded as high as $1.4915 today. It reached a record $1.4967 on Nov. 23.
Gold has had a correlation of 0.71 against the euro-dollar exchange rate in the past three months, compared with 0.67 in the previous three months. A reading of 1 would mean the two moved in lockstep.
Inflation-Adjusted Gold
Gold still is cheaper than its inflation-adjusted price. In 1980, futures reached a record $873 an ounce, which would be the equivalent of about $2,186 last year, based on an inflation calculator on the Minneapolis Federal Reserve Web site.
Silver for immediate delivery rose 8.63 cents, or 0.5 percent, to $16.3113 an ounce after earlier rising to $16.60, the highest since November 1980.
Platinum for immediate delivery gained $8.50, or 0.5 percent, to $1,573 an ounce, after earlier touching a record $1,592. The precious metal is used in products such as jewelry and auto-emissions control equipment.
Macquarie Group Ltd. raised its forecast for the average platinum price this year by 16 percent to $1,475 an ounce. It also increased its 2009 and 2010 estimates by 15 percent.
Palladium for immediate delivery advanced $3.75, or 1 percent, to $381.75 an ounce.
Macquarie cut its 2008 palladium forecast by 12 percent to $350 and its 2009 estimate by 14 percent to $365.
Morning `Fixing' Prices
The morning platinum ``fixing'' price used by some mining companies to sell their production gained $24 to $1,589 an ounce, the highest ever. The palladium fixing rose $6 to $382, the highest since May 17, 2006.
Still, gold and other precious metals may decline in the short-term as some price gauges show the rallies have been overdone.
Hedge-fund managers and other large speculators increased bets on higher New York gold futures, to a record net 205,404 contracts on the Comex as of Jan. 8, figures from the U.S. Commodity Futures Trading Commission on Jan. 11 showed. Net long positions were up from 199,438 contracts from a week earlier.
``We are more concerned about the prospects for a sharp correction in all the precious metals rather than for near-term gains,'' UBS London-based analyst Robin Bhar said in a report. ``It is clear that there are very large speculative positions present in gold and that gold is vulnerable to a sharp correction in price at any time.''
The dollar fell as traders increased bets that the Federal Reserve will lower U.S. interest rates to avoid a recession. Gold has gained 8.3 percent this year and the dollar has fallen more than 1.9 percent against the euro, to a seven-week low. Oil and base metals such as copper also rose, lifting the UBS Bloomberg Constant Maturity Commodity Index to the highest ever.
``We're in a falling-rate environment. I think that works in gold's favor,'' Richard Urwin, London-based head of asset allocation at BlackRock Investment Management, said in an interview with Bloomberg Television. ``We're probably in an environment in which, on average, the dollar is going to depreciate. Gold is a good hedge against it.''
Gold futures for February delivery rose $5.70, or 0.6 percent, to close at $903.40 an ounce on the Comex division of the New York Mercantile Exchange. The price earlier reached $915.90, the highest ever for a most-active contract. The metal for immediate delivery rose $7.20, or 0.8 percent, to $902.60 at 1:59 p.m. in New York. It earlier reached $914.30.
Twenty-three of 29 traders, investors and analysts from Mumbai to Chicago that were surveyed by Bloomberg on Jan. 10 and Jan. 11 advised buying gold this week. Five said sell, and one was neutral.
`Extremely Bullish'
``The market is still extremely bullish,'' said James Moore, an analyst at TheBullionDesk.com in London. ``With the U.S. potentially cutting interest rates while those in Europe stay firm, the dollar looks set to add additional upside momentum.''
Corn and soybeans rose to records, and wheat rose the maximum permitted by the Chicago Board of Trade. Corn, the biggest U.S. crop, has jumped 48 percent in the past five months, and soybeans surged 54 percent. Wheat has doubled in the past year. For a second straight session, cotton rose the maximum permitted by ICE Futures U.S.
``Rising commodity prices, especially agricultural prices, have heightened inflationary concerns,'' Commerzbank AG said in a report on Jan. 11.
The dollar declined on speculation that U.S. borrowing costs will fall below those denominated in currencies held by members of the European Union.
Fed Funds Expectations
Fed funds futures contracts on the Chicago Board of Trade show 54 percent odds the Fed will cut its 4.25 percent target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting. The Fed lowered the rate 1 percentage point last year. The ECB raised rates twice in 2007 to 4 percent.
Demand for gold will be less affected by a global slowdown than silver, platinum and palladium, said Walter de Wet, head of commodity research in Johannesburg at Standard Bank Group Ltd., Africa's largest lender.
Industrial uses for gold, such as dentistry and electronics production, made up 15 percent of total demand in 2006 compared with more than 50 percent for platinum and 47 percent for silver, according to estimates by London-based research company GFMS Ltd. Jewelry accounts for almost 60 percent of gold consumption.
``The investment component of demand for all of these precious metals is dominating,'' de Wet said. ``We're likely to see an increase in all of these metals but gold is probably going to outpace.'' The gains may last until the second half of this year, he said.
StreetTracks Assets Rise
Assets in the StreetTracks Gold Trust, the world's biggest exchange-traded fund backed by gold, are up 2.2 percent this year to a record 641.81 metric tons.
``We believe the broader investor base is not yet involved in gold, which remains a very small market,'' Citigroup Inc. analyst John Hill said yesterday in a report.
Investment demand for bullion, excluding purchases for jewelry, totaled $13 billion in 2007, Hill said.
Investors may also prefer gold to stocks, analysts said. The Standard & Poor's 500 Index has fallen 3.7 percent this month.
``People are looking at precious metals as principally a safe haven while they ride out a correction in equity markets,'' Peter McGuire, managing director at Commodity Warrants Australia Ltd., said by telephone from Sydney today.
The euro traded as high as $1.4915 today. It reached a record $1.4967 on Nov. 23.
Gold has had a correlation of 0.71 against the euro-dollar exchange rate in the past three months, compared with 0.67 in the previous three months. A reading of 1 would mean the two moved in lockstep.
Inflation-Adjusted Gold
Gold still is cheaper than its inflation-adjusted price. In 1980, futures reached a record $873 an ounce, which would be the equivalent of about $2,186 last year, based on an inflation calculator on the Minneapolis Federal Reserve Web site.
Silver for immediate delivery rose 8.63 cents, or 0.5 percent, to $16.3113 an ounce after earlier rising to $16.60, the highest since November 1980.
Platinum for immediate delivery gained $8.50, or 0.5 percent, to $1,573 an ounce, after earlier touching a record $1,592. The precious metal is used in products such as jewelry and auto-emissions control equipment.
Macquarie Group Ltd. raised its forecast for the average platinum price this year by 16 percent to $1,475 an ounce. It also increased its 2009 and 2010 estimates by 15 percent.
Palladium for immediate delivery advanced $3.75, or 1 percent, to $381.75 an ounce.
Macquarie cut its 2008 palladium forecast by 12 percent to $350 and its 2009 estimate by 14 percent to $365.
Morning `Fixing' Prices
The morning platinum ``fixing'' price used by some mining companies to sell their production gained $24 to $1,589 an ounce, the highest ever. The palladium fixing rose $6 to $382, the highest since May 17, 2006.
Still, gold and other precious metals may decline in the short-term as some price gauges show the rallies have been overdone.
Hedge-fund managers and other large speculators increased bets on higher New York gold futures, to a record net 205,404 contracts on the Comex as of Jan. 8, figures from the U.S. Commodity Futures Trading Commission on Jan. 11 showed. Net long positions were up from 199,438 contracts from a week earlier.
``We are more concerned about the prospects for a sharp correction in all the precious metals rather than for near-term gains,'' UBS London-based analyst Robin Bhar said in a report. ``It is clear that there are very large speculative positions present in gold and that gold is vulnerable to a sharp correction in price at any time.''
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