JAVED MAHMOOD
KARACHI - As the international prices of different commodities continued to rise last year, the global investment in commodities has set a new record by hitting 175 billion dollars in the calendar year 2007. Last year the investment in commodities, especially gold, marked an increase of 40 billion dollars and expanded to 175 billion dollars highest mark, The Nation learnt on Monday.
It was learnt that the foreign institutions and investors were making huge investment in commodities, especially metals, as they anticipate further increase in their prices in 2008.
Financial sector analysts believe that massive investment in gold and other commodities had also created a recession in the global stock markets as investors had diverted some proportions of their investment towards glittering gold.
Gold had taken lead over other commodities regarding increase in its prices, especially during the last couple of months. For example, the spot gold prices increased from $808.25 per ounce in November 2007 to $811.45 in December and further improved to $914 an ounce on 14th January 2008.
This is greatly associated to both tight fundamentals and encouraging external factors as the weakening dollar and declines in major stock indices around the world. Likewise, with macro-economic uncertainties and interested rate cuts by the Fed, gold appears as a safe investment against inflation and the falling dollar. Speculative length in gold stands very high with a potential for price corrections, but observers agree that the outlook is very favourable for gold in 2008.
Speculative investment in gold increased substantially in December compared to November 2007 with net length going up by 1,758 contracts month on month. Despite a decline in the first week of January, net length is still high and positive as a result of the scaling up of gold prices, which traded at $914.40 an ounce on the London spot market on 14 January.
In the case of industrial metals, the copper continues to be characterized by a bearish sentiment in the financial market. Finally, the interest rate cut by the US Federal Reserve is likely to encourage the inflow of investment into commodities given their higher relative returns compared to other assets.
Industrial metal prices (copper, aluminum, lead, nickel, zinc, tin) continued to decline in December, falling 10% on a monthly basis. Declines were associated with rising returns and worries about falling world demand. Zinc and nickel were among the metals most affected in the second half of the year and a general decline across the metal sector took place in December relative to the previous month. Aluminum prices plunged 6.5% due to increasing Chinese production growth and net exports of metals, alloy and semi-manufactured products, as well as rising stocks.
Copper prices dropped 8.9% on rising stocks and uncertainties about further slow growth of global demand, especially outside China. Lead prices fell 22% owing to rising inventories and better expectations on the supply side.
Industrial metal prices opened the New Year in a positive way supported by the weaker dollar. However, the outlook for the industrial metal markets over the coming months is mixed depending on the view assumed relative to the role of US demand growth and the impact of an US recession in 2008 and the ability of Chinese demand to balance this situation.
Monday, February 4, 2008
Recession or Not, Commodities Prices Have Room to Grow
CAPE TOWN (ResourceInvestor.com) -- A recession in the U.S. economy is clearly a concern - but it is not a “slam dunk,” said economist Dr. Martin Murenbeeld at the Mining Indaba 2008.
Murenbeeld kicked off this year’s Indaba - the biggest yet, bringing together more than 3,000 delegates representing nearly 700 companies, 150 sponsors and 40 government and quasi-government delegations - with his address “Commodities, Currencies and Interest Rates”.
In front of a packed auditorium, Murenbeeld said his company, DundeeWealth Economics, predicts there is a 50-50 chance of a recession in the U.S.
But a U.S. recession may not hurt emerging global economies as much as one might think, he said.
Although recessions are not good for commodities markets in general, efforts to combat rising inflation in the United States are devaluing the U.S. dollar, which is bullish for commodities.
“Turning points in the dollar tend to coincide with turning points in the gold price,” Murenbeeld said, adding that that is also true for energy and even zinc, among other resources.
He said that it is easy enough to predict that the dollar has more to fall, and it looks as though the dollar has already surpassed the first phase of devaluation: declining against the euro and the Canadian dollar. Now, the dollar is moving on to the second - and more significant - phase, according to Murenbeeld: declining against Asian currencies.
“The decline of the dollar against Asian currencies is more important than the decline of the dollar against the euro,” he said. In the short run, commodities markets in Asian countries may fall as the dollar weakens because they are priced in U.S. dollars. But as prices fall, demand will pick up, he said, and then prices will rise again.
In addition, lower interest rates are positive for commodities, Murenbeeld said. “When real interest rates decline, demand for goods and services generally respond positively. … Real interest rates declining is good for commodities prices.”
The commodities market is also looking strong due simply to the fact that this is the beginning of year seven of the current bull market. Even the shortest bull markets historically have lasted for more than seven years, so there is plenty of time to run, he said.
Forex markets will likely support the commodities markets as well, according to Murenbeeld.
“The total amount of global financial assets is $123 trillion,” he said. Of that, $55 trillion is in managed assets and $200 billion is in managed commodities. That number does not represent the recommended commodities diversification in investors’ portfolios, he said, meaning investments in the commodities complex have room to grow.
Murenbeeld kicked off this year’s Indaba - the biggest yet, bringing together more than 3,000 delegates representing nearly 700 companies, 150 sponsors and 40 government and quasi-government delegations - with his address “Commodities, Currencies and Interest Rates”.
In front of a packed auditorium, Murenbeeld said his company, DundeeWealth Economics, predicts there is a 50-50 chance of a recession in the U.S.
But a U.S. recession may not hurt emerging global economies as much as one might think, he said.
Although recessions are not good for commodities markets in general, efforts to combat rising inflation in the United States are devaluing the U.S. dollar, which is bullish for commodities.
“Turning points in the dollar tend to coincide with turning points in the gold price,” Murenbeeld said, adding that that is also true for energy and even zinc, among other resources.
He said that it is easy enough to predict that the dollar has more to fall, and it looks as though the dollar has already surpassed the first phase of devaluation: declining against the euro and the Canadian dollar. Now, the dollar is moving on to the second - and more significant - phase, according to Murenbeeld: declining against Asian currencies.
“The decline of the dollar against Asian currencies is more important than the decline of the dollar against the euro,” he said. In the short run, commodities markets in Asian countries may fall as the dollar weakens because they are priced in U.S. dollars. But as prices fall, demand will pick up, he said, and then prices will rise again.
In addition, lower interest rates are positive for commodities, Murenbeeld said. “When real interest rates decline, demand for goods and services generally respond positively. … Real interest rates declining is good for commodities prices.”
The commodities market is also looking strong due simply to the fact that this is the beginning of year seven of the current bull market. Even the shortest bull markets historically have lasted for more than seven years, so there is plenty of time to run, he said.
Forex markets will likely support the commodities markets as well, according to Murenbeeld.
“The total amount of global financial assets is $123 trillion,” he said. Of that, $55 trillion is in managed assets and $200 billion is in managed commodities. That number does not represent the recommended commodities diversification in investors’ portfolios, he said, meaning investments in the commodities complex have room to grow.
The Coming Gold Surge
JUPITER, Fla. (Dow Jones) -- Gold has enjoyed a great run over the past few years, but it hasn't been a straight path.
There have been enough dips and outright plunges to make gold traders feel like they're riding the devil's own roller coaster. But one strategy has worked time and time again: Buy the dips.
It takes courage to buy when everyone else is selling. But if you do your research, you can act with confidence that even if gold dips lower than you're buying it, the upside potential is huge.
My preliminary price objective for gold is $1,065 per ounce, and it could go a lot higher than that. Let's look at some forces driving precious metals higher.
Global gold production fell to a 10-year low of 2,444 metric tonnes in 2007, according to Gold Fields Mineral Service. This year, production will likely drop again. While China is producing more gold -- up 12% -- South Africa's output is falling off a cliff, down 8.1%.
Gold miners are exploring frantically, but the mother lodes are getting harder to find. This should drive consolidation in the industry going forward as the big companies gobble up the smaller fish to replace their reserves.
The most active gold ETF, the streetTracks Gold Shares (GLD), held 630 tons of gold at the end of January -- more than the European Central Bank or China's central bank. What's more, a new gold ETF in India is planned for this year.
Global demand for gold is exploding. Especially in places like China, where the first gold futures contract launched on January 9th. But also in the Middle East, where petrodollars are pouring into gold, and the gold trade in Dubai is accelerating.
The U.S. dollar is sliding
Since hitting a low in 2001, the Euro has nearly doubled against the dollar, but gold has more than tripled. The dollar and gold are on what I like to call " the see-saw of pain" -- as one goes up, the other generally goes down.
The Federal Reserve's actions are bullish for gold
In January, the Fed slashed its benchmark interest rate to 3%. It's the most aggressive rate-cutting since 1990, and I think Fed Chairman Ben Bernanke will keep cutting until rates are at 2.5%. Why? Because the Fed is worried that the U.S. is sliding into recession. Indicators include the worst January for retailers since 1996, plunging consumer confidence, and S&P 500 earnings expected to tumble for the second quarter in a row.
Looking ahead, one million adjustable mortgage resets will start hitting with a vengeance in April. The Fed will likely want rates as low as possible when that happens.
Lower interest rates weigh on the U.S. dollar, because international funds will flow to currencies with higher interest rates. So, cutting the benchmark interest rate is generally inflationary and bullish for gold. Adjusted for inflation, gold would have to hit $2,200 to hit its high from the early 1980s. Even if we get just halfway there this year, it could be one heck of a ride.
Ways to play the coming surge
If you think the U.S. is dragging its trading partners into a global recession, you'll probably want to own bullion, because the Fed and other central banks will pull out all the stops to reflate the economy, especially in an election year.
We're already seeing inflation. Last year, consumer prices rose 4.1%, the most since 1990. And despite some tough talk from Bernanke, I don't think the Fed gives a rat's patoot about inflation. It will risk that to avoid a deep recession.
A general inflationary trend should keep gold prices moving higher even if market malaise drags gold mining stocks lower. I think the easiest way to own gold is through one of the gold exchange-traded funds like the streetTRACKS Gold Trust. You don't have to store the bars or carry them back and forth to your local gold dealer.
On the other hand, if you think the Fed can stave off a recession and/or you think the global economy will chug along nicely even if the U.S. slides into recession, then gold miner shares could rally hard. The Market Vectors Gold Miners ETF (GDX) should fit the bill.
There have been enough dips and outright plunges to make gold traders feel like they're riding the devil's own roller coaster. But one strategy has worked time and time again: Buy the dips.
It takes courage to buy when everyone else is selling. But if you do your research, you can act with confidence that even if gold dips lower than you're buying it, the upside potential is huge.
My preliminary price objective for gold is $1,065 per ounce, and it could go a lot higher than that. Let's look at some forces driving precious metals higher.
Global gold production fell to a 10-year low of 2,444 metric tonnes in 2007, according to Gold Fields Mineral Service. This year, production will likely drop again. While China is producing more gold -- up 12% -- South Africa's output is falling off a cliff, down 8.1%.
Gold miners are exploring frantically, but the mother lodes are getting harder to find. This should drive consolidation in the industry going forward as the big companies gobble up the smaller fish to replace their reserves.
The most active gold ETF, the streetTracks Gold Shares (GLD), held 630 tons of gold at the end of January -- more than the European Central Bank or China's central bank. What's more, a new gold ETF in India is planned for this year.
Global demand for gold is exploding. Especially in places like China, where the first gold futures contract launched on January 9th. But also in the Middle East, where petrodollars are pouring into gold, and the gold trade in Dubai is accelerating.
The U.S. dollar is sliding
Since hitting a low in 2001, the Euro has nearly doubled against the dollar, but gold has more than tripled. The dollar and gold are on what I like to call " the see-saw of pain" -- as one goes up, the other generally goes down.
The Federal Reserve's actions are bullish for gold
In January, the Fed slashed its benchmark interest rate to 3%. It's the most aggressive rate-cutting since 1990, and I think Fed Chairman Ben Bernanke will keep cutting until rates are at 2.5%. Why? Because the Fed is worried that the U.S. is sliding into recession. Indicators include the worst January for retailers since 1996, plunging consumer confidence, and S&P 500 earnings expected to tumble for the second quarter in a row.
Looking ahead, one million adjustable mortgage resets will start hitting with a vengeance in April. The Fed will likely want rates as low as possible when that happens.
Lower interest rates weigh on the U.S. dollar, because international funds will flow to currencies with higher interest rates. So, cutting the benchmark interest rate is generally inflationary and bullish for gold. Adjusted for inflation, gold would have to hit $2,200 to hit its high from the early 1980s. Even if we get just halfway there this year, it could be one heck of a ride.
Ways to play the coming surge
If you think the U.S. is dragging its trading partners into a global recession, you'll probably want to own bullion, because the Fed and other central banks will pull out all the stops to reflate the economy, especially in an election year.
We're already seeing inflation. Last year, consumer prices rose 4.1%, the most since 1990. And despite some tough talk from Bernanke, I don't think the Fed gives a rat's patoot about inflation. It will risk that to avoid a deep recession.
A general inflationary trend should keep gold prices moving higher even if market malaise drags gold mining stocks lower. I think the easiest way to own gold is through one of the gold exchange-traded funds like the streetTRACKS Gold Trust. You don't have to store the bars or carry them back and forth to your local gold dealer.
On the other hand, if you think the Fed can stave off a recession and/or you think the global economy will chug along nicely even if the U.S. slides into recession, then gold miner shares could rally hard. The Market Vectors Gold Miners ETF (GDX) should fit the bill.
UAE - Dirham could be revalued: DCCI
Dubai: As part of meeting the convergence criteria to achieve GCC monetary union by 2010, the UAE is likely to revalue the dirham, the Dubai Chamber of Commerce and Industry said in a report on Monday.
Last December, Gulf leaders at the Doha Summit made a unanimous commitment to overcome the economic challenges facing the 2010 GCC monetary union target.
"This [commitment of the political leadership] indicates that the UAE Government will relinquish control of its exchange rate policy in favour of meeting with the GCC monetary union criteria.
"It is therefore most likely that the UAE Central Bank will revalue the dirham against the dollar in line with other GCC currencies," the DCCI said.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The report argues that revaluation will help to some extent in alleviating inflationary pressures while retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for monetary union by 2010.
Since 1983, GCC countries have been integrating their economies.
The final step in the integration process, a monetary union, has been agreed to be created by 2010.
Non-binding criteria
The monetary union would involve all GCC members adopting a single currency vis-a-vis world currencies, adopting common monetary and banking policies, creating a pool of foreign exchange reserves managed by one central bank and achieving reasonable economic convergence.
In 2004, the GCC countries agreed to adopt the official convergence criteria of the European Union.
However, for all practical purposes, these criteria are non-binding for the GCC countries mainly due to high oil revenues and the peg to the US dollar.
The GCC countries have met all convergence criteria on levels of public debt, budget deficits, interest rates and foreign reserves. However, the criteria set for inflation rates has not been met.
The inflation criteria stipulate that inflation rates should not exceed two per cent of the lowest three's average.
With the steadily increasing divergence among the GCC member states, the criteria have not been achieved.
Although GCC econ-omies are fairly well harmonised, in terms of economic structure, cyclicality and openness, the report said that unfortunately, the disparities in inflation rates undermine the convergence of economies in real terms, especially with regard to interest and exchange rates.
Kuwait de-pegged from the US dollar peg earlier in 2007.
Oman opted out of joining the monetary union in 2010, and there are mounting internal and external pressures on monetary authorities to change their currency policy as a result of the depreciation of the US dollar.
Last December, Gulf leaders at the Doha Summit made a unanimous commitment to overcome the economic challenges facing the 2010 GCC monetary union target.
"This [commitment of the political leadership] indicates that the UAE Government will relinquish control of its exchange rate policy in favour of meeting with the GCC monetary union criteria.
"It is therefore most likely that the UAE Central Bank will revalue the dirham against the dollar in line with other GCC currencies," the DCCI said.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
The report argues that revaluation will help to some extent in alleviating inflationary pressures while retaining adherence to the dollar peg stipulated as an integral part of the convergence criteria necessary for monetary union by 2010.
Since 1983, GCC countries have been integrating their economies.
The final step in the integration process, a monetary union, has been agreed to be created by 2010.
Non-binding criteria
The monetary union would involve all GCC members adopting a single currency vis-a-vis world currencies, adopting common monetary and banking policies, creating a pool of foreign exchange reserves managed by one central bank and achieving reasonable economic convergence.
In 2004, the GCC countries agreed to adopt the official convergence criteria of the European Union.
However, for all practical purposes, these criteria are non-binding for the GCC countries mainly due to high oil revenues and the peg to the US dollar.
The GCC countries have met all convergence criteria on levels of public debt, budget deficits, interest rates and foreign reserves. However, the criteria set for inflation rates has not been met.
The inflation criteria stipulate that inflation rates should not exceed two per cent of the lowest three's average.
With the steadily increasing divergence among the GCC member states, the criteria have not been achieved.
Although GCC econ-omies are fairly well harmonised, in terms of economic structure, cyclicality and openness, the report said that unfortunately, the disparities in inflation rates undermine the convergence of economies in real terms, especially with regard to interest and exchange rates.
Kuwait de-pegged from the US dollar peg earlier in 2007.
Oman opted out of joining the monetary union in 2010, and there are mounting internal and external pressures on monetary authorities to change their currency policy as a result of the depreciation of the US dollar.
India's glittering jewellery market
With exports of US$ 17.1 billion in 2006-07, India's gem and jewellery industry has been second only to textiles in earning foreign exchange for the country.
As per the Gem and Jewellery Export Promotion Council (GJEPC), the Mumbai-based apex body of the trade, exports of diamond merchandise alone touched US$ 9.77 billion last year.
According to Tehmasp Printer, MD of the fast growing India branch of the Antwerp-based diamond certification authority of the International Gemological Institute, no country can match India in the cutting of gemstones and crafting of fine jewellery.
According to the World Gold Council (WGC), India’s gold consumption this year could in fact cross the 1,000-tonne mark for the first time.
The booming domestic market along with export advantage of the industry and the Government's decision to allow foreign direct investment of up to 51 per cent in single brand retail stores has attracted a large number of players to the sector.
**Swarovski, the global crystal goods manufacturer and marketer, is on an expansion spree in India and hopes to achieve 5 to 10 per cent of its global turnover from the country in the next 10 years. The company plans to set up 30 stores by 2009, from the current 13.
**Damas India, part of one of the largest jewellery retail outlets in the world, is adding 16 new stores to its present dozen stores in India.
**Morgan Stanley, Citigroup, Goldman Sachs and BSMA Ltd. collectively purchased a 7 per cent stake in Gitanjali Gems for around US$ 27.8 million.
**Goldman Sachs and UBS Securities have acquired 6.28 per cent in Shrenuj & Co at around US$ 2.07 million and US$ 2 million, respectively.
**Gemology Headquarters International (GHI), a US-based gemological grading and research laboratory, has opened its first Indian branch at Opera House, Mumbai.
**Reliance Retail is planning an aggressive entry into the jewellery retail market through its about 400 to 500 jewellery retail outlets across the country.
Government Initiatives
In the New Annual Supplement to Foreign Trade Policy (2004-2009) announced on April 19, 2007, the Government has extended the following facilities to this sector:
Service Tax on services (related to exports), which are rendered abroad have been exempted.
Re-import of Diamonds & Jewellery (either in complete or partial lot) exported on consignment basis have been allowed.
In the light of increase in global prices of precious metal, duty free entitlement for consumables for export of rhodium plated silver jewellery has been increased to 3 per cent.
To reduce the transaction cost for the diamond sector, testing facility at International Diamond Laboratory (IDL), Dubai, has been incorporated in the list of laboratory/certifying agencies.
Duty free import entitlement of tools, machinery & equipment has been allowed. For metals other than gold, platinum, it will be 2 per cent and for gold and platinum, it will be 1 per cent of FOB value of exports during the previous financial year.
Categorisation of exporters as One to Five Star Export Houses has been changed to Export Houses and Trading Houses with rationalisation and change in export performance parameters.
In addition, the Government has decided to make gold hallmarking mandatory from January 1, 2008. It has also made the import of polished diamonds completely duty free. Also, special economic zones dedicated to gems and jewellery are to come up in Surat, Kolkata, Goregaon, Dhulia and Hyderabad.
The Government is also set to unveil the new mining policy to make it easier for foreign and domestic firms to invest in the exploration and mining of diamonds, gold and other metals. Currently, India produces merely 0.4 per cent of its gold consumption despite having 9 per cent of global gold reserves.
Looking Ahead
The booming economy along with the rapid increase in income levels is estimated to further accelerate the growth of this industry.
According to a KPMG study, India’s growing importance in the global jewellery market is only expected to increase in the future with total estimated jewellery sales of US$ 21 billion by 2010 and US$ 37 billion by 2015. Diamond jewellery consumption in India is also estimated to jump by 78 per cent in 2010.
As per the Gem and Jewellery Export Promotion Council (GJEPC), the Mumbai-based apex body of the trade, exports of diamond merchandise alone touched US$ 9.77 billion last year.
According to Tehmasp Printer, MD of the fast growing India branch of the Antwerp-based diamond certification authority of the International Gemological Institute, no country can match India in the cutting of gemstones and crafting of fine jewellery.
According to the World Gold Council (WGC), India’s gold consumption this year could in fact cross the 1,000-tonne mark for the first time.
The booming domestic market along with export advantage of the industry and the Government's decision to allow foreign direct investment of up to 51 per cent in single brand retail stores has attracted a large number of players to the sector.
**Swarovski, the global crystal goods manufacturer and marketer, is on an expansion spree in India and hopes to achieve 5 to 10 per cent of its global turnover from the country in the next 10 years. The company plans to set up 30 stores by 2009, from the current 13.
**Damas India, part of one of the largest jewellery retail outlets in the world, is adding 16 new stores to its present dozen stores in India.
**Morgan Stanley, Citigroup, Goldman Sachs and BSMA Ltd. collectively purchased a 7 per cent stake in Gitanjali Gems for around US$ 27.8 million.
**Goldman Sachs and UBS Securities have acquired 6.28 per cent in Shrenuj & Co at around US$ 2.07 million and US$ 2 million, respectively.
**Gemology Headquarters International (GHI), a US-based gemological grading and research laboratory, has opened its first Indian branch at Opera House, Mumbai.
**Reliance Retail is planning an aggressive entry into the jewellery retail market through its about 400 to 500 jewellery retail outlets across the country.
Government Initiatives
In the New Annual Supplement to Foreign Trade Policy (2004-2009) announced on April 19, 2007, the Government has extended the following facilities to this sector:
Service Tax on services (related to exports), which are rendered abroad have been exempted.
Re-import of Diamonds & Jewellery (either in complete or partial lot) exported on consignment basis have been allowed.
In the light of increase in global prices of precious metal, duty free entitlement for consumables for export of rhodium plated silver jewellery has been increased to 3 per cent.
To reduce the transaction cost for the diamond sector, testing facility at International Diamond Laboratory (IDL), Dubai, has been incorporated in the list of laboratory/certifying agencies.
Duty free import entitlement of tools, machinery & equipment has been allowed. For metals other than gold, platinum, it will be 2 per cent and for gold and platinum, it will be 1 per cent of FOB value of exports during the previous financial year.
Categorisation of exporters as One to Five Star Export Houses has been changed to Export Houses and Trading Houses with rationalisation and change in export performance parameters.
In addition, the Government has decided to make gold hallmarking mandatory from January 1, 2008. It has also made the import of polished diamonds completely duty free. Also, special economic zones dedicated to gems and jewellery are to come up in Surat, Kolkata, Goregaon, Dhulia and Hyderabad.
The Government is also set to unveil the new mining policy to make it easier for foreign and domestic firms to invest in the exploration and mining of diamonds, gold and other metals. Currently, India produces merely 0.4 per cent of its gold consumption despite having 9 per cent of global gold reserves.
Looking Ahead
The booming economy along with the rapid increase in income levels is estimated to further accelerate the growth of this industry.
According to a KPMG study, India’s growing importance in the global jewellery market is only expected to increase in the future with total estimated jewellery sales of US$ 21 billion by 2010 and US$ 37 billion by 2015. Diamond jewellery consumption in India is also estimated to jump by 78 per cent in 2010.
Gold’s forward march continues
MUMBAI: Indian gold markets also responded to the global trend and the prices moved up rapidly this week with the Mumbai bullion market witnessing huge rise in gold prices, which hit Rs 11,890 per 10 gm.
Even though the yellow metal was expected to hit new heights, this week’s rise was mainly due to South Africa supply concerns, US financial turmoil and a depreciating dollar.
Standard gold in Mumbai rose by Rs 105 to hit a fresh high of Rs 11,890 per 10 gm while pure gold surged by Rs 100 to touch Rs 11,940 per 10 gm.
If one adds the 1 per cent value addition tax (VAT), the price crossed the psychological barrier of Rs 12,050 per 10 gm for the first time in India.
According to reports from London, the yellow metal zoomed to $937 per ounce, a historic high. The global trend is because of concerns over US economic recovery after the 50 basis point Fed cut on Thursday.
According to analysts, investors, hit by a slump in stock markets, are trying to grab as much yellow metal as possible. They hope for a huge return in gold following the Gold Field Minerals Services’ (GFMS) projection that the gold price is to hit $1000 an ounce this year.
An analyst said the present price escalation in gold is purely driven by the economy. Hence, there is little chance that it could come down drastically, given that the fundamentals remain unchanged.
Gold rose by more than 30 per cent in 2007, its biggest annual gain since 1979.
Even though the yellow metal was expected to hit new heights, this week’s rise was mainly due to South Africa supply concerns, US financial turmoil and a depreciating dollar.
Standard gold in Mumbai rose by Rs 105 to hit a fresh high of Rs 11,890 per 10 gm while pure gold surged by Rs 100 to touch Rs 11,940 per 10 gm.
If one adds the 1 per cent value addition tax (VAT), the price crossed the psychological barrier of Rs 12,050 per 10 gm for the first time in India.
According to reports from London, the yellow metal zoomed to $937 per ounce, a historic high. The global trend is because of concerns over US economic recovery after the 50 basis point Fed cut on Thursday.
According to analysts, investors, hit by a slump in stock markets, are trying to grab as much yellow metal as possible. They hope for a huge return in gold following the Gold Field Minerals Services’ (GFMS) projection that the gold price is to hit $1000 an ounce this year.
An analyst said the present price escalation in gold is purely driven by the economy. Hence, there is little chance that it could come down drastically, given that the fundamentals remain unchanged.
Gold rose by more than 30 per cent in 2007, its biggest annual gain since 1979.
Tips to buy Gold and get you sleep at night
cautionary tale of sleepless nights and tortured days. Buying Gold ought to be a pleasure.
Swapping your hard earned (yet all too easy to print) paper money for something solid, trustworthy and rare – and hopefully maintaining or even increasing its value – should help you sleep at night.
That's certainly what BullionVault delivers to its customers. But my experience of buying gold before helping to create this online service was a different matter altogether. Let me share my pain, so you don't have to...
Discovering the Gold Market
I got out of most of my stock-market investments just before 2000 for a number of reasons, not least the insane market valuations and the Millennium Bug – which wrought more trouble with the abrupt culmination of all those massive bug-fixing projects than any bugs which actually arose.
Whilst I was seeking a worthy place for my cash, flyers for the Fleet Street Letter and Daily Reckoning dropped through the door. They mentioned an arcane investment returning to fashion – Gold – alongside the resurgence of inflation through excessive money supply.
Coincidental with the demise of the Millennium Bug was the European Union's abolition of VAT on investment gold on 1st January 2000 – perhaps intended to foster demand for the intended sales of central bank gold, that "barbarous relic" from less-enlightened, less sophisticated times.
Learning more about the private Gold Market over the following months, I realized what a confined and confusing place it can be for the private investor.
Where to Buy Gold?
It seemed there were perhaps only a couple of dealers where one might buy a kilo bar of Gold Bullion. Hardly a competitive market, with several per cent premium to pay on even a few kilo bars at a time. Gold Certificates seemed only a little easier or cheaper – and the lowest-cost options came "backed" by a promise of gold, rather than simply delivering physical gold itself.
With those premiums, hassles and concerns to discourage me, I watched the Gold Price slowly rise against the Dollar. And after watching it rise for too many months, I also realized just how much gold really had risen against the Pound Sterling, too!
Buying Gold
I finally decided to Buy Gold, and so I talked to the main private gold dealers I could find. Both of them were based a significant distance away from my home, and – to be honest – they didn't seem to be in the most reputable locations, either.
I couldn't take time off work to buy my gold in person, so instead I chose to buy gold from the closest dealer by telephone. I was instructed where to wire my funds before I could purchase any bars, with an added premium to cover any intervening moves in the Gold Price.
Yet more alarm bells started ringing when I saw that the dealer's bank account had no mention at all of the company I thought I was dealing with. But I wanted to Buy Gold, and so – after allowing time for the funds to clear – I telephoned the dealer, ready to buy my bars.
There and then I was offered a price – take it or leave it – which I took. The bars would be delivered to me by post the next day, plus a cheque (sent later) for any unspent funds.
With my gold bought, if not yet delivered, I checked the live spot Gold Price quoted on the internet...and found I'd paid way too much. So I phoned my dealer, complained, and got a little extra discount.
Right, time to relax I thought.
Taking Delivery of Gold
But the next day, the bars didn't arrive.
I would have liked to have been at home awaiting the delivery – but I'd had to trust my flat's extremely honest landlady (thanks, Gloria) to receive them while I was at work. I didn't tell her exactly what was arriving, so it was hard to express my concern when she told me that my mystery parcel hadn't made it.
Where had it gone? Had I been hoodwinked?
It was too late to do anything that evening; snow was still falling from the freezing night before. So I prepared a plan of action for the next day – including, perhaps, a visit to the dealer in person.
Next morning after a sleepless night, I got up, went to work, and called the dealer. He reassured me that my gold bars should arrive later that day. The delay, it seemed, was because the delivery truck had been abandoned overnight on the motorway due to those icy conditions – with my gold bars inside!
Returning home that evening, I was happy to find Gloria minding some very anonymous, grey, plastic envelopes with a bemused expression on her face...
"What's in these bags? They're very heavy for their size!"
They should be, I thought. They're about twice as heavy as lead, Gloria...
In privacy I unwrapped the bars from their bags. Inside each was a dull gold brick, the size of a Mars bar, stuffed inside another heavy-duty transparent bag to better protect its soft metal.
Each bar looked a little worse for wear, and far from the pristine condition I expected. Gold bars tend to be covered in nicks and scratches, but new to the game, I wondered just how much metal I'd actually bought, let alone whether I'd actually received the 99.5% pure gold I'd paid for.
I weighed the bars, measured them, and calculated their density – which all seemed about right. But I still wondered if anyone, even the dealer I bought them from, would actually take back such bars for anywhere near the current Gold Price when I wanted to sell.
In fact, I was now sorely tempted to call the whole thing off, and sell the bars straight back. One thing that stopped me, however, is that normal couriers are reluctant to handle more than £5,000 in one delivery. Back then in 2002, that £5,000 limit was already less than one small gold bar's value.
For sending out gold, it seems, the gold dealers apparently have a special arrangement. But to return my gold for re-sale, I would have to arrange something even more special, or go in person.
So I kept the bars – together with the associated hassles of finding somewhere to keep them, and the eventual hassle of selling them, somehow, for a fair price. Now I know much more about gold, and I am happy to have bought those bars in the first place – even though their value initially went down for a year!
I'm also happy they helped me along the path to finding and helping develop the BullionVault service. Building a better way to buy gold – instantly, online, and for the lowest mark-ups you'll find anywhere – was worth those sleepless nights and high-stress few days.
But having said that, if you know anyone wants to buy a kilo gold bar – and who's happy to pay more than the 95% valuation of my gold that a dealer would most likely give me – do let me know!
Courtesy : BullionVault
Swapping your hard earned (yet all too easy to print) paper money for something solid, trustworthy and rare – and hopefully maintaining or even increasing its value – should help you sleep at night.
That's certainly what BullionVault delivers to its customers. But my experience of buying gold before helping to create this online service was a different matter altogether. Let me share my pain, so you don't have to...
Discovering the Gold Market
I got out of most of my stock-market investments just before 2000 for a number of reasons, not least the insane market valuations and the Millennium Bug – which wrought more trouble with the abrupt culmination of all those massive bug-fixing projects than any bugs which actually arose.
Whilst I was seeking a worthy place for my cash, flyers for the Fleet Street Letter and Daily Reckoning dropped through the door. They mentioned an arcane investment returning to fashion – Gold – alongside the resurgence of inflation through excessive money supply.
Coincidental with the demise of the Millennium Bug was the European Union's abolition of VAT on investment gold on 1st January 2000 – perhaps intended to foster demand for the intended sales of central bank gold, that "barbarous relic" from less-enlightened, less sophisticated times.
Learning more about the private Gold Market over the following months, I realized what a confined and confusing place it can be for the private investor.
Where to Buy Gold?
It seemed there were perhaps only a couple of dealers where one might buy a kilo bar of Gold Bullion. Hardly a competitive market, with several per cent premium to pay on even a few kilo bars at a time. Gold Certificates seemed only a little easier or cheaper – and the lowest-cost options came "backed" by a promise of gold, rather than simply delivering physical gold itself.
With those premiums, hassles and concerns to discourage me, I watched the Gold Price slowly rise against the Dollar. And after watching it rise for too many months, I also realized just how much gold really had risen against the Pound Sterling, too!
Buying Gold
I finally decided to Buy Gold, and so I talked to the main private gold dealers I could find. Both of them were based a significant distance away from my home, and – to be honest – they didn't seem to be in the most reputable locations, either.
I couldn't take time off work to buy my gold in person, so instead I chose to buy gold from the closest dealer by telephone. I was instructed where to wire my funds before I could purchase any bars, with an added premium to cover any intervening moves in the Gold Price.
Yet more alarm bells started ringing when I saw that the dealer's bank account had no mention at all of the company I thought I was dealing with. But I wanted to Buy Gold, and so – after allowing time for the funds to clear – I telephoned the dealer, ready to buy my bars.
There and then I was offered a price – take it or leave it – which I took. The bars would be delivered to me by post the next day, plus a cheque (sent later) for any unspent funds.
With my gold bought, if not yet delivered, I checked the live spot Gold Price quoted on the internet...and found I'd paid way too much. So I phoned my dealer, complained, and got a little extra discount.
Right, time to relax I thought.
Taking Delivery of Gold
But the next day, the bars didn't arrive.
I would have liked to have been at home awaiting the delivery – but I'd had to trust my flat's extremely honest landlady (thanks, Gloria) to receive them while I was at work. I didn't tell her exactly what was arriving, so it was hard to express my concern when she told me that my mystery parcel hadn't made it.
Where had it gone? Had I been hoodwinked?
It was too late to do anything that evening; snow was still falling from the freezing night before. So I prepared a plan of action for the next day – including, perhaps, a visit to the dealer in person.
Next morning after a sleepless night, I got up, went to work, and called the dealer. He reassured me that my gold bars should arrive later that day. The delay, it seemed, was because the delivery truck had been abandoned overnight on the motorway due to those icy conditions – with my gold bars inside!
Returning home that evening, I was happy to find Gloria minding some very anonymous, grey, plastic envelopes with a bemused expression on her face...
"What's in these bags? They're very heavy for their size!"
They should be, I thought. They're about twice as heavy as lead, Gloria...
In privacy I unwrapped the bars from their bags. Inside each was a dull gold brick, the size of a Mars bar, stuffed inside another heavy-duty transparent bag to better protect its soft metal.
Each bar looked a little worse for wear, and far from the pristine condition I expected. Gold bars tend to be covered in nicks and scratches, but new to the game, I wondered just how much metal I'd actually bought, let alone whether I'd actually received the 99.5% pure gold I'd paid for.
I weighed the bars, measured them, and calculated their density – which all seemed about right. But I still wondered if anyone, even the dealer I bought them from, would actually take back such bars for anywhere near the current Gold Price when I wanted to sell.
In fact, I was now sorely tempted to call the whole thing off, and sell the bars straight back. One thing that stopped me, however, is that normal couriers are reluctant to handle more than £5,000 in one delivery. Back then in 2002, that £5,000 limit was already less than one small gold bar's value.
For sending out gold, it seems, the gold dealers apparently have a special arrangement. But to return my gold for re-sale, I would have to arrange something even more special, or go in person.
So I kept the bars – together with the associated hassles of finding somewhere to keep them, and the eventual hassle of selling them, somehow, for a fair price. Now I know much more about gold, and I am happy to have bought those bars in the first place – even though their value initially went down for a year!
I'm also happy they helped me along the path to finding and helping develop the BullionVault service. Building a better way to buy gold – instantly, online, and for the lowest mark-ups you'll find anywhere – was worth those sleepless nights and high-stress few days.
But having said that, if you know anyone wants to buy a kilo gold bar – and who's happy to pay more than the 95% valuation of my gold that a dealer would most likely give me – do let me know!
Courtesy : BullionVault
Sell Gold when you have confidence in Dollar
By William Rees-Mogg
If confidence in the Dollar is restored, that will be the day to sell gold. But it looks a long way off.
In January 2007, Gold Price stood around $600 an ounce. By the end of January 2008, the Gold Price had touched a new record peak of $929 an ounce.
The rapidity of that – some 50% inside 12 months –invites the question: Can gold's bull market be sustained?
I have expected for some years that the price of gold price would in fact rise to $1,000 an ounce, and I still regard that as a reasonable forecast. But even $1,000 an ounce no longer looks all that impressive. It is the equivalent of about $400 in real terms, if one takes 1980 as the base year.
To reach a new high in real terms, gold would have to rise to about $2,500 an ounce, and that is still a long way off.
The latest sharp increase in the Gold Market has been caused by anxieties about the power supply crisis in South Africa. The normal rule of investment would be that interruptions of the power supply are likely to be temporary. In terms of labor militancy, a power close-down is like a strike, and the rule is "buy on a strike, sell on a settlement."
However, the electricity supply situation in South Africa is particularly worrying for long-term gold mining output, not just the short term.
The South Africans have in the past supplied electricity to Zimbabwe, which has now had to be cut off, accentuating the economic crisis of the Mugabe regime. The cause of the current shortage is the failure of South Africa to build those new power stations which the South African economy requires. It takes a decade or so to develop a major electrical supply program.
There has also been inadequate maintenance. Local observers think that there will be a considerable delay before an adequate supply is available in the gold mines. There will not be a quick fix.
However, the Gold Price is influenced by many factors, of which physical supply is only one. Gold is a unique commodity in that well over 90% of all the gold even mined is thought still to be in existence. Obviously this is true of bullion, but it is also true of jewelry. There are, of course, industrial processes which effectively destroy the gold they use, but even then the metal is so valuable that it pays to recover and reuse it wherever possible.
Normal price schedules assume a relationship between production and consumption which does not determine the price of gold. The best way to understand the Gold Market is to regard gold as a kind of shadow currency, competing with national fiat currencies, and influenced by expectations of inflation and global movements of interest rates.
However, this is quite complex. For instance, the fear of recession, such as exists at the present time, normally produces expectations of lower interest rates, which will reduce the carrying cost of gold, and tend to raise the Gold Price. Yet the fear of a recession is, essentially a fear of deflation, and gold is regarded as a hedge against inflation.
In other words, the demand for gold is not determined – historically – by any single factor, except possibly for fear. Gold can be seen as a defense against a number of different threats.
At present, the weakness of other currencies, particularly of currencies normally used as national reserves, is probably the strongest reason for gold’s long term rise in Dollar terms. The world has too many dollars. That situation seems unlikely to change in the near future.
If confidence in the Dollar is genuinely restored, that will be the day to sell gold. It is a day which still looks a long way off.
Leading political editor William Rees-Mogg is former editor-in-chief for The Times of London and an independent peer in the House of Lords in Westminster.
Lord Rees-Mogg has been credited with accurately forecasting glasnost and the fall of the Berlin Wall – as well as the 1987 financial crash. His political commentary appears in The Times every Monday. His financial insights can be found in Strategic Investment, the widely respected newsletter he founded more than 15 years ago.
Courtesy: www.bullionvault.com
If confidence in the Dollar is restored, that will be the day to sell gold. But it looks a long way off.
In January 2007, Gold Price stood around $600 an ounce. By the end of January 2008, the Gold Price had touched a new record peak of $929 an ounce.
The rapidity of that – some 50% inside 12 months –invites the question: Can gold's bull market be sustained?
I have expected for some years that the price of gold price would in fact rise to $1,000 an ounce, and I still regard that as a reasonable forecast. But even $1,000 an ounce no longer looks all that impressive. It is the equivalent of about $400 in real terms, if one takes 1980 as the base year.
To reach a new high in real terms, gold would have to rise to about $2,500 an ounce, and that is still a long way off.
The latest sharp increase in the Gold Market has been caused by anxieties about the power supply crisis in South Africa. The normal rule of investment would be that interruptions of the power supply are likely to be temporary. In terms of labor militancy, a power close-down is like a strike, and the rule is "buy on a strike, sell on a settlement."
However, the electricity supply situation in South Africa is particularly worrying for long-term gold mining output, not just the short term.
The South Africans have in the past supplied electricity to Zimbabwe, which has now had to be cut off, accentuating the economic crisis of the Mugabe regime. The cause of the current shortage is the failure of South Africa to build those new power stations which the South African economy requires. It takes a decade or so to develop a major electrical supply program.
There has also been inadequate maintenance. Local observers think that there will be a considerable delay before an adequate supply is available in the gold mines. There will not be a quick fix.
However, the Gold Price is influenced by many factors, of which physical supply is only one. Gold is a unique commodity in that well over 90% of all the gold even mined is thought still to be in existence. Obviously this is true of bullion, but it is also true of jewelry. There are, of course, industrial processes which effectively destroy the gold they use, but even then the metal is so valuable that it pays to recover and reuse it wherever possible.
Normal price schedules assume a relationship between production and consumption which does not determine the price of gold. The best way to understand the Gold Market is to regard gold as a kind of shadow currency, competing with national fiat currencies, and influenced by expectations of inflation and global movements of interest rates.
However, this is quite complex. For instance, the fear of recession, such as exists at the present time, normally produces expectations of lower interest rates, which will reduce the carrying cost of gold, and tend to raise the Gold Price. Yet the fear of a recession is, essentially a fear of deflation, and gold is regarded as a hedge against inflation.
In other words, the demand for gold is not determined – historically – by any single factor, except possibly for fear. Gold can be seen as a defense against a number of different threats.
At present, the weakness of other currencies, particularly of currencies normally used as national reserves, is probably the strongest reason for gold’s long term rise in Dollar terms. The world has too many dollars. That situation seems unlikely to change in the near future.
If confidence in the Dollar is genuinely restored, that will be the day to sell gold. It is a day which still looks a long way off.
Leading political editor William Rees-Mogg is former editor-in-chief for The Times of London and an independent peer in the House of Lords in Westminster.
Lord Rees-Mogg has been credited with accurately forecasting glasnost and the fall of the Berlin Wall – as well as the 1987 financial crash. His political commentary appears in The Times every Monday. His financial insights can be found in Strategic Investment, the widely respected newsletter he founded more than 15 years ago.
Courtesy: www.bullionvault.com
Why Gold can not be a hedge against inflation
DETROIT (ResourceInvestor.com) -- Gold hit a new record high price last Monday, January 28, 2008. Had you purchased one ounce of pure gold on Jan. 21, 1980, you would have paid $847.00 for it; in 1980 dollars, or, according to the Wall Street Journal today, an astounding $2,228.60 in inflation adjusted 2008 dollars.
Therefore if you had sold on Jan. 28, 2008, the one ounce of pure gold, which you purchased on January 21, 1980, you would have lost in 2008 dollars the sum of $2,228.60 minus $927.10, which equals $1341.50. The interesting part of this calculation is that many gold sellers today are still telling you that you would have made $927.10 minus $847.00, so $80.10.
This kind of illogical trickery and double-speak pervades the so-called precious metal market. Even the sober and conservative WSJ, which gives you the inflation adjusted figure of $2,228.60, for the previous 1980 highest price of gold goes on to tell you: “The precious metal has been a horrible hedge against inflation. To keep pace with inflation going back to 1980, gold futures would need to be above $2,228 today. Believers see that as a sign that gold has a lot of room to rise and predict it will surpass the $1000 mark this year.”
Incredibly the WSJ does not point out that even at $1,000 gold would not even come close to tracking, much less alleviating the cost of, inflation over the last 30 years. The cumulative inflation rate of the U.S. dollar since January 21, 1980, essentially over the last 28 years has been 167%!
These constant discussions and articles about gold and other so-called precious metals as hedges against inflation clearly prove that over the long run they are not any such thing. In dollars as a ‘store of value’ gold cannot hold a candle to most of the ‘minor metals’ or even any of the so-called base, i.e., common, metals.
Now ask yourself, to paraphrase the words of the poet, “What rough beast slouches towards [Washington] waiting to be born?” For natural resources the answer is clearly price inflation from too much money, created in part by making the Fed Funds Rate too low, so that banks can ‘create money’ by borrowing it very cheaply and lending it out at higher rates, chasing the too few domestically produced natural resources, the shortages of which have resulted from, in great part, an anti-mining bias promoted by activist environmentalists who fix their sights on the past and refuse to accept the advances in health and safety that have occurred in the natural resources production sector in the last 30 years.
Since our legislators, finance ‘experts’ and businessmen have systematically ignored the effects of the cornering of natural resources supplies by foreign nations and foreign businesses, which are not subject to the laws of the U.S. with regard to monopolization and price (fixing) controls, the U.S. consumer is about to discover that a rapid inflationary period is well under way, a great part of which is due to the necessity to import natural resources priced in inflating dollars, and that the only way to avoid massive natural resource driven price inflation is to slow down import demand while re-igniting the American natural resource machine.
It was widely publicized two weeks ago that a Wall Street analyst predicted that the great iron ore price squeeze, about which I wrote two weeks ago, would result this year in a 22% rise in the price of steel sheet. Then just a couple of days ago General Motors CFO announced that due to such factors as ‘raw material price increases’ the prices of cars would have to be considerably increased this year. If American financiers would try to deal with the natural resources price inflation issue by opening their eyes they would find that America could be self-sufficient in iron ore, economically, if they would just observe what the world iron-ore virtual cartel is doing. They might also try to notice that steel producers who own iron mines are not trying to sell them for short-term gain but are holding them as long term strategic risk price and availability management.
America may also need to openly admit to and widen some of the policies of resource nationalism which we in fact practice while our politicians and so-called free market favouring financial pundits hypocritically preach against them. A moratorium on the resource-conservation-by-non-production hypocrisy and its replacement by increased domestic natural resource production and recycling would also help the American economy.
An excellent illustration of the above two points was the attempt just a couple of years ago of the China National Oil Company (CNOOC) [NYSE:CEO], a state owned enterprise of the People’s Republic of China, to buy Occidental Petroleum [NYSE:OXY]. This would have given CNOOC not only the domestic (as well as foreign) American assets of a first class oil exploration, producer, refiner and distributor, with all of the state-of-the-art oil field technology and access to the domestic American market that it had, but also the assets of Occidental’s wholly owned subsidiary, Molycorp, an owner of producing locations for domestic American molybdenum and rhenium, and of Molycorp’s Mountain Pass, California, rare earth metals mine and mill, which although now shut down due to environmental issues was as recently as 1994 producing 34% of the world’s demand for rare earth metals including 100% of U.S. domestic needs then. The U.S. Congress balked at the sale of OXY to CNOOC for ‘security’ reasons, and a white knight, Chevron [NYSE:CVX], was brought in to keep OXY in ‘domestic’ hands.
Therefore if you had sold on Jan. 28, 2008, the one ounce of pure gold, which you purchased on January 21, 1980, you would have lost in 2008 dollars the sum of $2,228.60 minus $927.10, which equals $1341.50. The interesting part of this calculation is that many gold sellers today are still telling you that you would have made $927.10 minus $847.00, so $80.10.
This kind of illogical trickery and double-speak pervades the so-called precious metal market. Even the sober and conservative WSJ, which gives you the inflation adjusted figure of $2,228.60, for the previous 1980 highest price of gold goes on to tell you: “The precious metal has been a horrible hedge against inflation. To keep pace with inflation going back to 1980, gold futures would need to be above $2,228 today. Believers see that as a sign that gold has a lot of room to rise and predict it will surpass the $1000 mark this year.”
Incredibly the WSJ does not point out that even at $1,000 gold would not even come close to tracking, much less alleviating the cost of, inflation over the last 30 years. The cumulative inflation rate of the U.S. dollar since January 21, 1980, essentially over the last 28 years has been 167%!
These constant discussions and articles about gold and other so-called precious metals as hedges against inflation clearly prove that over the long run they are not any such thing. In dollars as a ‘store of value’ gold cannot hold a candle to most of the ‘minor metals’ or even any of the so-called base, i.e., common, metals.
Now ask yourself, to paraphrase the words of the poet, “What rough beast slouches towards [Washington] waiting to be born?” For natural resources the answer is clearly price inflation from too much money, created in part by making the Fed Funds Rate too low, so that banks can ‘create money’ by borrowing it very cheaply and lending it out at higher rates, chasing the too few domestically produced natural resources, the shortages of which have resulted from, in great part, an anti-mining bias promoted by activist environmentalists who fix their sights on the past and refuse to accept the advances in health and safety that have occurred in the natural resources production sector in the last 30 years.
Since our legislators, finance ‘experts’ and businessmen have systematically ignored the effects of the cornering of natural resources supplies by foreign nations and foreign businesses, which are not subject to the laws of the U.S. with regard to monopolization and price (fixing) controls, the U.S. consumer is about to discover that a rapid inflationary period is well under way, a great part of which is due to the necessity to import natural resources priced in inflating dollars, and that the only way to avoid massive natural resource driven price inflation is to slow down import demand while re-igniting the American natural resource machine.
It was widely publicized two weeks ago that a Wall Street analyst predicted that the great iron ore price squeeze, about which I wrote two weeks ago, would result this year in a 22% rise in the price of steel sheet. Then just a couple of days ago General Motors CFO announced that due to such factors as ‘raw material price increases’ the prices of cars would have to be considerably increased this year. If American financiers would try to deal with the natural resources price inflation issue by opening their eyes they would find that America could be self-sufficient in iron ore, economically, if they would just observe what the world iron-ore virtual cartel is doing. They might also try to notice that steel producers who own iron mines are not trying to sell them for short-term gain but are holding them as long term strategic risk price and availability management.
America may also need to openly admit to and widen some of the policies of resource nationalism which we in fact practice while our politicians and so-called free market favouring financial pundits hypocritically preach against them. A moratorium on the resource-conservation-by-non-production hypocrisy and its replacement by increased domestic natural resource production and recycling would also help the American economy.
An excellent illustration of the above two points was the attempt just a couple of years ago of the China National Oil Company (CNOOC) [NYSE:CEO], a state owned enterprise of the People’s Republic of China, to buy Occidental Petroleum [NYSE:OXY]. This would have given CNOOC not only the domestic (as well as foreign) American assets of a first class oil exploration, producer, refiner and distributor, with all of the state-of-the-art oil field technology and access to the domestic American market that it had, but also the assets of Occidental’s wholly owned subsidiary, Molycorp, an owner of producing locations for domestic American molybdenum and rhenium, and of Molycorp’s Mountain Pass, California, rare earth metals mine and mill, which although now shut down due to environmental issues was as recently as 1994 producing 34% of the world’s demand for rare earth metals including 100% of U.S. domestic needs then. The U.S. Congress balked at the sale of OXY to CNOOC for ‘security’ reasons, and a white knight, Chevron [NYSE:CVX], was brought in to keep OXY in ‘domestic’ hands.
Will gold sales meet crucial shortfall
St. LOUIS (ResourceInvestor.com): Statistics by London-based GFMS show that the first half of 2008 will see central bank gold sales slowing from the levels seen last year.
Overall net central bank sales - including countries outside the Eurosystem - in the first half of calendar year 2008 will reach approximately 200 tonnes.
“As far as fourth CBGA year sales are concerned, we expect these will be somewhere in the mid-400 tonnes,” Kavalis Nikos, senior analyst at GFMS, told RI.
The forth agreement year of the second Central Bank Gold Agreement (CBGA), where signatories within the Eurosystem are limited to 500 tonnes per agreement year, is currently underway after starting on 27 September 2007. The European Central Bank (ECB) has reported sales consistent with the agreement of about 110.7 tonnes, although some sales have not yet been posted.
The World Gold Council put sales at 117 tonnes at end-November. Nikos told RI that current estimates suggest sales up to the end of last week (25th January) totalled a little over than 120 tonnes, excluding Swiss and Swedish sales in January yet to be announced. GFMS expects Switzerland to have sold at least 10 tonnes and Sweden one tonne this month.
In a free 13-page report sponsored by Société Générale, entitled “Official Sector Activity in Gold - Full Year 2007,” GFMS said the fourth year of the agreement is likely to see a “significant shortfall” in terms of sales, concluding that total sales will “almost certainly” fall short of the 500-tonne limit.
On Sept. 26, 2007, the third year of the current CBGA came to an end with total sales by the signatories over the period having reached 476 tonnes. The biggest seller from the European group last agreement year was Spain, followed by Switzerland and France.
However, the Swiss sold substantial amounts of gold in November and December. From June through December, the Swiss National Bank released 145 tonnes of gold into the market, making it the largest seller in the calendar year of 2007.
Spain sold 165 tonnes in the agreement year ending in Sept. 2007. At the end of November, Spanish gold reserves were estimated at 282 tonnes, accounting for nearly 40% of the country’s total reserves. France’s reserves fell to 2,624 tonnes at end-November, equivalent to 57% of total official reserves.
Other confirmed sales from the CBGA group in the January-November period were made by Austria, Sweden and Germany. Austria and Sweden sold 9 tonnes, while Germany sold 5 tonnes for coin mining purposes with no intention to sell substantial quantities. A further combined 20 tonnes left the vaults of at least two other unnamed members of the Eurozone late in 2007.
“[This year] France and Switzerland have been the two largest sellers with Netherlands following,” said Nikos.
According to the report, Switzerland will most likely continue selling at a rate similar to that seen in the last quarter of 2007, “if not somewhat higher, given the high price environment.” The Swiss sold 34 tonnes a month on average to end the last agreement year.
GFMS said France will probably continue to offload bullion in regular intervals, towards its 500-600 tonne target, while smaller sellers like Sweden and Austria will continue to provide marginal quantities to the market.
The report indicates a possibility that the ECB could release part of its reserves into the market some time in the first half of 2008, keeping with the tradition set in the first three years of the current agreement. The ECB recently sold 42 tonnes in November after sales of 60 tonnes in the last agreement year, bringing total percentage of gold in reserves to about 15% of total reserves.
Italy is not expected to appear as a seller in the short to medium term, while the Netherlands seems to have now ended its programme. Similarly, Spain is unlikely to feature prominently as a seller this year having already sold a significant part of its reserves in 2007.
This leaves only a handful of non-regular potential sellers, such as Portugal and Belgium, and any possible releases from which are likely to remain limited, according to GFMS.
The gold price has gained 13% in one month alone, after breaking the previous all-time of $850 on Jan. 2. Spot prices closed Wednesday at $921.00 bid, down $4.50 on the day.
Overall net central bank sales - including countries outside the Eurosystem - in the first half of calendar year 2008 will reach approximately 200 tonnes.
“As far as fourth CBGA year sales are concerned, we expect these will be somewhere in the mid-400 tonnes,” Kavalis Nikos, senior analyst at GFMS, told RI.
The forth agreement year of the second Central Bank Gold Agreement (CBGA), where signatories within the Eurosystem are limited to 500 tonnes per agreement year, is currently underway after starting on 27 September 2007. The European Central Bank (ECB) has reported sales consistent with the agreement of about 110.7 tonnes, although some sales have not yet been posted.
The World Gold Council put sales at 117 tonnes at end-November. Nikos told RI that current estimates suggest sales up to the end of last week (25th January) totalled a little over than 120 tonnes, excluding Swiss and Swedish sales in January yet to be announced. GFMS expects Switzerland to have sold at least 10 tonnes and Sweden one tonne this month.
In a free 13-page report sponsored by Société Générale, entitled “Official Sector Activity in Gold - Full Year 2007,” GFMS said the fourth year of the agreement is likely to see a “significant shortfall” in terms of sales, concluding that total sales will “almost certainly” fall short of the 500-tonne limit.
On Sept. 26, 2007, the third year of the current CBGA came to an end with total sales by the signatories over the period having reached 476 tonnes. The biggest seller from the European group last agreement year was Spain, followed by Switzerland and France.
However, the Swiss sold substantial amounts of gold in November and December. From June through December, the Swiss National Bank released 145 tonnes of gold into the market, making it the largest seller in the calendar year of 2007.
Spain sold 165 tonnes in the agreement year ending in Sept. 2007. At the end of November, Spanish gold reserves were estimated at 282 tonnes, accounting for nearly 40% of the country’s total reserves. France’s reserves fell to 2,624 tonnes at end-November, equivalent to 57% of total official reserves.
Other confirmed sales from the CBGA group in the January-November period were made by Austria, Sweden and Germany. Austria and Sweden sold 9 tonnes, while Germany sold 5 tonnes for coin mining purposes with no intention to sell substantial quantities. A further combined 20 tonnes left the vaults of at least two other unnamed members of the Eurozone late in 2007.
“[This year] France and Switzerland have been the two largest sellers with Netherlands following,” said Nikos.
According to the report, Switzerland will most likely continue selling at a rate similar to that seen in the last quarter of 2007, “if not somewhat higher, given the high price environment.” The Swiss sold 34 tonnes a month on average to end the last agreement year.
GFMS said France will probably continue to offload bullion in regular intervals, towards its 500-600 tonne target, while smaller sellers like Sweden and Austria will continue to provide marginal quantities to the market.
The report indicates a possibility that the ECB could release part of its reserves into the market some time in the first half of 2008, keeping with the tradition set in the first three years of the current agreement. The ECB recently sold 42 tonnes in November after sales of 60 tonnes in the last agreement year, bringing total percentage of gold in reserves to about 15% of total reserves.
Italy is not expected to appear as a seller in the short to medium term, while the Netherlands seems to have now ended its programme. Similarly, Spain is unlikely to feature prominently as a seller this year having already sold a significant part of its reserves in 2007.
This leaves only a handful of non-regular potential sellers, such as Portugal and Belgium, and any possible releases from which are likely to remain limited, according to GFMS.
The gold price has gained 13% in one month alone, after breaking the previous all-time of $850 on Jan. 2. Spot prices closed Wednesday at $921.00 bid, down $4.50 on the day.
China gets silver for gold production
BEIJING: China could only finish second in the race for topmost gold producer of the world last year and had to contend with ‘silver medal’ as South Africa retains the ‘gold medal’.
According to statistics from the China Gold Association, China produced 270.29 tons of gold last year, up 12.67 percent from 2006, which made it the world’s second largest bullion producer.
However,China was just two tons behind the largest producer, South Africa, whose output was a little over 272 tons in 2007.
According to the National Development and Reform Commission, from 2006 to 2010, China’s gold production target is 1,300 tons. During that period, China also aims to increase its gold base reserve by 3,000 to 3,500 tons.
South Africa has been the biggest gold producer since 1905. Analysts said, China was expected to overtake the African nation as the world number one by 2010.
According to statistics from the China Gold Association, China produced 270.29 tons of gold last year, up 12.67 percent from 2006, which made it the world’s second largest bullion producer.
However,China was just two tons behind the largest producer, South Africa, whose output was a little over 272 tons in 2007.
According to the National Development and Reform Commission, from 2006 to 2010, China’s gold production target is 1,300 tons. During that period, China also aims to increase its gold base reserve by 3,000 to 3,500 tons.
South Africa has been the biggest gold producer since 1905. Analysts said, China was expected to overtake the African nation as the world number one by 2010.
The dollar edged up against the euro
The dollar edged up against the euro after the release of better-than-expected manufacturing data in January. The comments from European Commission on Thursday also supported the movement, according to which the economic confidence in the euro zone decreased further in January while business climate indicator also dropped.
The economic sentiment indicator in the euro zone stood at 101.7 in January, down by 1.7 points from that in December last year. The industrial confidence component of the indicator in January fell to 1 from 2 in the euro area, while consumer confidence deteriorated to -12 from -9 in December.
Most of the data from the US till released are not supporting the recovery of the economy and has projected broad crisis in the U.S housing and employment sector. Traders will eye the release of key non farm pay rolls data from the U.S for further direction.
The US President Bush had called for a ‘stimulus package’ of roughly $145 billion in tax relief for individuals and businesses, in an attempt to boost the economy.
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 1.4798 (1.4865) against the euro, after trading in the range 1.4955– 1.4783.
Last day, DEUR March traded in the range 149.20 – 147.89 and closed at 147.95
The economic sentiment indicator in the euro zone stood at 101.7 in January, down by 1.7 points from that in December last year. The industrial confidence component of the indicator in January fell to 1 from 2 in the euro area, while consumer confidence deteriorated to -12 from -9 in December.
Most of the data from the US till released are not supporting the recovery of the economy and has projected broad crisis in the U.S housing and employment sector. Traders will eye the release of key non farm pay rolls data from the U.S for further direction.
The US President Bush had called for a ‘stimulus package’ of roughly $145 billion in tax relief for individuals and businesses, in an attempt to boost the economy.
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 1.4798 (1.4865) against the euro, after trading in the range 1.4955– 1.4783.
Last day, DEUR March traded in the range 149.20 – 147.89 and closed at 147.95
Wall Street: After the rally, a retreat
Following a big advance last week, investors take a step back on weakness in the financial sector and worries about the economy. Microsoft's move for Yahoo is also in focus.
NEW YORK (CNNMoney.com) -- Stocks slumped Monday, following last week's big rally, as investors mulled analyst downgrades of the financial sector and the continued threat of a recession.
The Dow Jones industrial average (INDU) gave back around 0.9%, the broader Standard & Poor's 500 (SPX) index lost 1.1% and the Nasdaq composite (COMP) fell 1.3%.
Treasury prices slumped, raising the corresponding yields. The dollar was mixed versus other major currencies.
Stocks rallied at the end of last week, after a miserable January, as investors welcomed Microsoft's bid for Yahoo and more talk of a bailout for the troubled bond insurers.
Last week the Dow gained 4.4% and the S&P 500 jumped 4.9%. The Nasdaq advanced 3.8%.
After such a big run, stocks were vulnerable Monday. Investors are trying to figure out if the market has put in a 'bottom' after the recent selloff or if last week's advance was just a temporary respite from all the selling.
"We saw a pretty decisive move upward on good volume, but the financial condition of the economy is still perilous," said Robert Philips, president and chief investment officer at Walnut Asset Management.
He said that the outlook for stocks over the next few months is going to depend on whether the market has actually bottomed out and also whether the bond insurers get some relief. The latest leg of the credit crisis has surrounded the solvency of insurers MBIA (MBI) and Ambac Financial (ABK).
In economic news, the December factory orders index rose more than expected. Orders rose 2.3%, the government reported, topping forecasts for a rise of 2%. Orders rose 1.7% in November.
However, the report did little to alleviate concerns about the economic slowdown, following Friday's surprisingly weak Jan. jobs report.
After the close, News Corp. (NWS, Fortune 500) reported higher quarterly earnings that met estimates.
Tuesday's lone economic report is the ISM's January reading on the services sector of the economy.
NEW YORK (CNNMoney.com) -- Stocks slumped Monday, following last week's big rally, as investors mulled analyst downgrades of the financial sector and the continued threat of a recession.
The Dow Jones industrial average (INDU) gave back around 0.9%, the broader Standard & Poor's 500 (SPX) index lost 1.1% and the Nasdaq composite (COMP) fell 1.3%.
Treasury prices slumped, raising the corresponding yields. The dollar was mixed versus other major currencies.
Stocks rallied at the end of last week, after a miserable January, as investors welcomed Microsoft's bid for Yahoo and more talk of a bailout for the troubled bond insurers.
Last week the Dow gained 4.4% and the S&P 500 jumped 4.9%. The Nasdaq advanced 3.8%.
After such a big run, stocks were vulnerable Monday. Investors are trying to figure out if the market has put in a 'bottom' after the recent selloff or if last week's advance was just a temporary respite from all the selling.
"We saw a pretty decisive move upward on good volume, but the financial condition of the economy is still perilous," said Robert Philips, president and chief investment officer at Walnut Asset Management.
He said that the outlook for stocks over the next few months is going to depend on whether the market has actually bottomed out and also whether the bond insurers get some relief. The latest leg of the credit crisis has surrounded the solvency of insurers MBIA (MBI) and Ambac Financial (ABK).
In economic news, the December factory orders index rose more than expected. Orders rose 2.3%, the government reported, topping forecasts for a rise of 2%. Orders rose 1.7% in November.
However, the report did little to alleviate concerns about the economic slowdown, following Friday's surprisingly weak Jan. jobs report.
After the close, News Corp. (NWS, Fortune 500) reported higher quarterly earnings that met estimates.
Tuesday's lone economic report is the ISM's January reading on the services sector of the economy.
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