South Africa’s second largest gold producer, Gold Fields, said today that it anticipates losing 15-20 percent of its gold output due to the country’s ongoing power problems and that these cutbacks could continue for five years.
JOHANNESBURG (Reuters) -
South Africa's Gold Fields , the world's fourth-largest gold miner, said on Monday it would scale back at some mines and trim production, putting 6,900 jobs at risk, in response to a power crisis which has reduced electricity for industry by 10 percent.
Operations in South Africa's key mining industry were halted for five days last month because of an electricity shortage. Since then, miners have operated with 90 percent of the electricity they would normally need.
Gold Fields forecast gold production for the third quarter would fall between 20 and 25 percent compared with the December quarter due to the crisis and the impact of the Christmas break.
It also said sustainable production at its South African operations was likely to fall by between 15 to 20 percent from the fourth quarter onwards as a result of the 10 percent power cuts imposed on miners by power utility Eskom.
About 6,900 jobs of Gold Fields' total workforce of 53,000 could be affected, the miner said. The National Union of Mineworkers (NUM) will start meeting the government and the Chamber of Mines this week to talk about the jobs, it said.
"Everyone is worried," NUM spokesman Lesiba Seshoka said, adding that Gold Fields had made attempts to start talks with the 280,000-strong union. "We will be reviewing the situation as soon as we get a final report from our regions," he said.
AngloGold Ashanti , the world's third-largest gold miner, has not announced job cuts, but see losses of 400,000 ounces in 2008 due to the power crisis.
Harmony said it had lost about 800 kg (25,720 ounces) during the five-day production halt.
"I suppose the most stark issue here is the potential for job losses (at Gold Fields)," said a Johannesburg-based gold analyst who did not want to be named.
"Harmony has announced they have already reduced their work force, their contractors, by nearly 5,000," referring to a review of the group's operations that has included selling off some of its mines, and not as a result of the power crisis.
SHARES FALL
Shares of Gold Fields, South Africa's second-largest gold miner, were down 2.37 percent at 112.82 rand, underperforming a 1.7 percent dip in the gold mining index <.JGLDX>.
Gold Fields said on Monday all non-essential electricity use had been stopped, but it would spend about 200 million rand ($25.64 million) on extra emergency power to safeguard employees in case there is a total blackout.
"The inability of Eskom to supply the mines their full power requirements, and to commit to additional electricity demand for new mining projects...in development, has caused a significant crisis in the South African mining industry," Terence Goodlace, the head of Gold Fields South Africa operations, said.
"It is paradoxical that we have to consider downscaling in the current record-high gold price environment."
Gold hit an all time high of $953.60 on Thursday, and on Monday spot gold was at $947.70/$948.50 a troy ounce.
Goodlace said all available electrical power would have to be directed to higher margin, revenue generating shafts, at the expense of lower margin shafts and a development project at its Driefontein 9 shaft.
Gold Fields said to meet its 10 percent cut in electricity, two shafts and a shaft depth extension project at Driefontein and two shafts at Kloof mine would be mothballed, closed or scaled back.
Its South Deep mine was to be restructured for geological reasons, which would be compounded by the power rationing, it said. Production at its Beatrix mine, which is less energy intensive than Driefontein and Kloof, was unlikely to be affected.
It also said it was studying opportunities to generate its own electricity at the different mines.
Monday, February 25, 2008
Silver ETF outperforms mining stocks
JOHANNESBURG -
Silver may have recently pushed through 27-year highs to over $18 an ounce, but investors in silver stocks remain far from convinced, with the average listed company in the sector trading 33% lower than 12-month highs. The best performing "stock" in the sector, which includes a selection of 50 names, is an ETF, in the form of iShares Silver (SLV US, $178.77a unit).
The multi year resources boom that has fully extended through raw materials, commodities and metals has seen lots of new names cropping up on stock exchanges, leaving investors with ever-wider choices. The total market capitalisation of the 50 selected silver names (reflected in the table below) is $41.2bn, falling short of the single market capitalisation of the world's most valuable gold stock, Barrick (ABX US, $49.61), at $43.1bn, and far short of the world's biggest diversified resources stock, BHP Billiton (BLT LN, £16.18), which currently carries a market value of $192bn.
Even within the silver sector, Mexico's Penoles (PE&OLES* MM, P289.50), which in finer detail is diversified beyond silver, comprises nearly a quarter of the value of the combined silver sector reflected. Penoles ranks as one of the better performers in the silver sector, but behind the likes of Coeur d'Alene (CDE US, $4.80), Pan American Silver (PAAS US, $36.84), Silvercorp (SVM CN, C$9.58), and JSC Polymetal (PMTL LI, $8.68).
JSC Polymetal has made significant inroads into investor portfolios in the past while. The stock is ranked as Russia's largest silver producer with four operating mines and a number of prospective exploration licenses. The operating company has been commended for its strong track record, building all of its mines on time and on budget using its in-house technical team.
As for the metal price, recent levels have exceeded consensus expectations. On the fundamentals, the general view is that global demand for silver will continue to outpace new mine supply, and that increases to industrial and investment segments of global demand will more than offset continued declines in the photographic segment. The combined overview suggests that when the silver price cools off, consolidation among listed stocks may set in.
Silver may have recently pushed through 27-year highs to over $18 an ounce, but investors in silver stocks remain far from convinced, with the average listed company in the sector trading 33% lower than 12-month highs. The best performing "stock" in the sector, which includes a selection of 50 names, is an ETF, in the form of iShares Silver (SLV US, $178.77a unit).
The multi year resources boom that has fully extended through raw materials, commodities and metals has seen lots of new names cropping up on stock exchanges, leaving investors with ever-wider choices. The total market capitalisation of the 50 selected silver names (reflected in the table below) is $41.2bn, falling short of the single market capitalisation of the world's most valuable gold stock, Barrick (ABX US, $49.61), at $43.1bn, and far short of the world's biggest diversified resources stock, BHP Billiton (BLT LN, £16.18), which currently carries a market value of $192bn.
Even within the silver sector, Mexico's Penoles (PE&OLES* MM, P289.50), which in finer detail is diversified beyond silver, comprises nearly a quarter of the value of the combined silver sector reflected. Penoles ranks as one of the better performers in the silver sector, but behind the likes of Coeur d'Alene (CDE US, $4.80), Pan American Silver (PAAS US, $36.84), Silvercorp (SVM CN, C$9.58), and JSC Polymetal (PMTL LI, $8.68).
JSC Polymetal has made significant inroads into investor portfolios in the past while. The stock is ranked as Russia's largest silver producer with four operating mines and a number of prospective exploration licenses. The operating company has been commended for its strong track record, building all of its mines on time and on budget using its in-house technical team.
As for the metal price, recent levels have exceeded consensus expectations. On the fundamentals, the general view is that global demand for silver will continue to outpace new mine supply, and that increases to industrial and investment segments of global demand will more than offset continued declines in the photographic segment. The combined overview suggests that when the silver price cools off, consolidation among listed stocks may set in.
Gold prices moves up on global cues
MUMBAI: Gold remained on its upward trend as the prices climbed up to Rs 70 per ten gram in the bullion market today thanks to the ongoing marriage season that triggered the buying of the yellow metal.
According to traders the gold prices went up by Rs 70 per ten gram because the ornament manufactures have shown great interest in buying the commodity amid speculation that the US will lower interest rates along with increased energy cost.
Meanwhile, silver prices remained unchanged on some support, however weekly-based showed a jump of Rs 185 per kilo on speculative buying.
In London, gold for immediate delivery climbed s6.96 dollar to 952.16 dollar an ounce and silver climbed 16 cents to 18.18 dollar an ounce to its highest since October 1980.
In local market, standard gold and ornaments posted higher by Rs 70 each at Rs 12,320 and Rs 12,170 per 10 grams respectively.
Sovereign too followed suit and gained to Rs 9,825 per piece of eight gram, a level never seen before.
In the silver section, silver ready remained unchanged at Rs 22,450 per kg selective support.
Weekly-based delivery, while, climbed by Rs 185 at Rs 23,235 per kg.
Silver coins maintained its price on some support at Rs 26,200 for buying and Rs 26,300 for selling of 100 coins.
According to traders the gold prices went up by Rs 70 per ten gram because the ornament manufactures have shown great interest in buying the commodity amid speculation that the US will lower interest rates along with increased energy cost.
Meanwhile, silver prices remained unchanged on some support, however weekly-based showed a jump of Rs 185 per kilo on speculative buying.
In London, gold for immediate delivery climbed s6.96 dollar to 952.16 dollar an ounce and silver climbed 16 cents to 18.18 dollar an ounce to its highest since October 1980.
In local market, standard gold and ornaments posted higher by Rs 70 each at Rs 12,320 and Rs 12,170 per 10 grams respectively.
Sovereign too followed suit and gained to Rs 9,825 per piece of eight gram, a level never seen before.
In the silver section, silver ready remained unchanged at Rs 22,450 per kg selective support.
Weekly-based delivery, while, climbed by Rs 185 at Rs 23,235 per kg.
Silver coins maintained its price on some support at Rs 26,200 for buying and Rs 26,300 for selling of 100 coins.
Confusing gold and silver
ATLANTA (ResourceInvestor.com): Gold and silver continued to confound those who bet against them despite an apparent weakening of some of the indicators this report follows closely over the past two weeks.
In this report we find that the largest of the largest gold futures traders, those classed by the Commodities Futures Trading Commission (CFTC) as “commercial,” are once again net short gold metal in record proportions. For the details see the COT Changes section just below.
We also discover that the world’s gold exchange traded funds have not had to issue many new shares or add gold to their respective hoards over the past week, so positive money flow (more wealth entering than leaving) into those metal trading vehicles also seems to have paused with gold in the $900s the ounce. Read more about that in the Gold ETFs section below.
The most glaring bearish indication to surface this week is the continued apparent disconnect between mining shares and the metals. Although gold literally traded higher than it ever has this past week in un-inflation-adjusted nominal terms (into the $950s Thursday), and silver closed at a new 27-year high (Friday’s $18.02 last trade on the cash market), mining shares just couldn’t make a new high or even come close to doing so.
This report believes that the primary reason that mining shares, which usually lever gold gains aren’t levering, is the ongoing global fearful re-pricing lower of risk in all equities markets. Diligent readers will find more about that in charts in the Gold Indexes and Gold Charts sections below.
Perhaps the most interesting item to note in this offering of the report is that while the COMEX commercial gold futures traders are record net short nominally (252,740 contracts net short) and also pretty well on up there in percentage to total open interest terms (51.60% of all open contracts), meaning they are well positioned for a gold pullback, the commercial net short positioning for silver is actually pretty tame relative to where it has been over the past three years in percentage terms. For more about that and one possible explanation why see the Silver COT section below.
Finally, as the Big Markets continued to be fearfully sold off ahead of what is being billed by gleeful fear mongers as any number of catastrophic possible outcomes to the very real problem of global tightening credit, a problem caused in no small part by previous Fed loose money policies and over-leveraged packaging of sub-standard mortgage loans to carry traders, and as the entire world absolutely understands that stuff is costing more than the published inflation figures, no wonder gold and silver have continued to confound the brave (read misguided) souls who have bet against it up to now.
Bottom Line
Let’s see. The COMEX commercial gold traders are record net short gold futures nominally again, and their net short positions are a relatively high percentage of the total open interest. Money flow into gold ETFs has paused (but hasn’t yet turned negative). Mining shares continue to underperform precious metals and although we’ve just recently seen a few tentative signs of life from mining stocks well down the mining share food chain (as expected), miners on the Canadian exchanges and the OTCBB still suffer from chronic illiquidity and a severe buyer’s strike for all higher risk speculative issues (they’re dreadfully anemic).
That sounds pretty bearish, doesn’t it? Maybe it is, but the metals just don’t know it yet. Or, maybe we have an unusual paradox on our hands this time. A paradox where investors worldwide have been selling lots of other stuff in order to buy gold and silver, including, until recently, even selling high-risk, low-priced gold and silver mining stocks to the point where even so called “stink bids” get hit regularly.
Will gold and silver continue on it’s upward elevator ride near-term? No one knows for sure what will happen in the future, especially short-term, and although the indicators are just about all showing some upside fatigue the metals have been poor places to bet on the downside for a good while now. The powerful rallies for both gold and silver could most certainly keep right on confounding the short sellers, but just remember that elevators go both ways, up and down. Placing carefully considered trailing stops in positions that catch your share of the upward movement, allow for reasonable volatility, but get you out if momentum shifts back down is the way the smartest short-term money in the market plays it.
On to some of the indicators.
COT Changes. In the Tuesday 2/19 commitments of traders report (COT) the COMEX large commercials (LCs) collective combined net short positions (LCNS) increased 9,140 contracts or 3.75% from 243,600 to a new record 252,740 contracts net short Tuesday to Tuesday as gold added $21.52 or 2.37% from $906.40 to $927.92. Since Tuesday gold tested as high as $953.98 Thursday before modest Friday profit taking and a last trade of $944.60 on the cash market.
As of Tuesday’s COT reporting cutoff, COMEX gold open interest rose for the first time in five reports. The open interest bumped up 14,040 from the previous week’s 475,749 to 489,789 total open contracts. As 14,040 COMEX contracts were added (2.95%) the collective commercial net short positions rose 3.75%.
Long-term February 2009 and beyond COMEX forwards actually FELL 613 contracts to 48,822 lots open, which is now just under 10% of total open contracts. Still no telltale ultra-bearish spike up in long-term forwards in other words.
The large commercial traders on the COMEX are once again record net short in their collective positioning nominally and as of Tuesday their net short positions represented 51.60% of all COMEX open contracts, a relatively high percentage.
Incidentally, the last time the LCs set a new record net short position was just last month on January 15 when they reported being net short 251,114 contracts with gold then at $888.78, but at the time their net short positions were 42.28% of the total open. Gold has since advanced $55.82.
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Gold ETFs. Over the past week gold holdings at streetTRACKS Gold Shares, the largest gold exchange traded fund, remained flat at 631.15 tonnes. As of Friday’s figures that’s equal to $19.2 billion U.S. dollars worth of gold bars held by a custodian in London for the trust. There have been no significant additions or subtractions to the number of shares or gold metal holdings for GLD for the month of February so far.
Gold holdings for the U.K. equivalent to GLD, LyxOR Gold Bullion Securities Limited, also stayed steady at 107.90 tonnes of gold held. Barclay’s iShares COMEX Gold Trust gold holdings once again reported 59.93 tonnes of gold held for its investors, so it was also flat.
There was no significant change in gold holdings over the past week in all of the gold ETFs sponsored by the World Gold Council. Their collective gold holdings edged down a miniscule 0.06 to 784.62 tonnes of the precious metal worth $23.8 billion.
As gold traded above $900 the ounce positive money flow (more wealth entering than leaving) has paused for the world’s gold exchange traded funds, but it is also apparent that it has not turned substantially negative as of yet.
Silver ETF: Metal holdings for Barclay’s iShares Silver Trust [AMEX:SLV], the U.S. silver ETF, added 77.06 to 5,149.22 tonnes of silver metal held for its investors over the past week. The metal turned in a net $0.93 gain, up 5.44% for the holiday-shortened U.S. week on the cash market with a Friday last trade of a short-strangling $18.02.
Modest positive money flow (more wealth entering than leaving) did continue for the U.S. silver ETF for the week.
Silver COT: As silver added $0.35 (2.0%) from COT reporting Tuesday to Tuesday (from $17.19 to $17.54) the large commercial COMEX silver traders (LCs) increased their collective net short positioning (LCNS) by 4,516 (6.34%) to 75,790 contracts of net short exposure. That was as the total open interest on the COMEX rose just 1,842 (1%) to 189,151 COMEX 5,000-ounce contracts.
The silver LCNS percentage of total open interest increased a little more, but at just over 40% it’s still quite a bit under where it spent most of 2007 and it’s considerably under the average LCNS percentage seen in 2005-2006. In other words, the current commercial net short positioning is fairly normal or even below average.
Although slightly higher this week, we have yet to see a telltale bearish very large spike up in the number of net short positions reported by the COMEX commercial traders and it is interesting that the total open interest has not really increased all that much since the end of January (just 6,095 contracts from 183,056 to 189,151).
On the other hand, the commercial net short positioning did increase at more than twice the number of overall new contracts for the reporting week, meaning the commercials were being a little more aggressive on the short side. Even if they were short term wrong again.
Why, with silver up a whopping 63% since it’s August turning low, is the silver LCNS is still such a low percentage of the total open interest?
Could it be that the commercials have memories long enough to remember the last time they did take an overly large net short position in 2005 and what happened when they did? (They had their collective heads handed to them on a silver platter.)
One side point for this offering is to note that there have been a few tentative signs of life showing in the small, very speculative, high-risk miners and explorers well down the mining share food chain since the last report, as expected.
The vacuum of liquidity from the speculative mining and exploration stocks has been nothing short of brutally amazing over the past four months, indeed since the middle of last year. It is especially dramatic for thinly traded companies on less liquid markets such as in Canada, relative to the HUI (and the HUI hasn’t been doing all that great either compared to gold). Compared to the HUI the smaller, more speculative mining and exploration stocks have been murdered and that’s hard for some investors to take for very long given that the metals themselves have been on a tear. Compared to the metals, spec miners have been dismembered, ground up and fed to the pigs. It’s much worse than the plunge seen in 2003.
According to old-timers in the resource biz, this could possibly be one of the best buying opportunities of the Great Gold Bull in the making for those with the stomach for it, a longer time horizon and the high-risk capital to put to work ahead of the inevitable flood of liquidity back into the sector sometime in the next year or so.
Investors fled the spec miners in droves but they’ll be back, and back in a big way sooner or later. This report continues to believe that it is not too soon to be adding shares into obvious downside overreactions for the most promising of the juniors and explorers, especially when a large have-to-sell-now seller shows up into little or no buying pressure, setting off pure first stage panic for retail shareholders and driving these otherwise promising lottery tickets down from merely real cheap to ridiculously cheap.
A few very successful and well-funded vulture-like long-time veteran contrarian stock accumulators this report corresponds with regularly are actively setting up their stink bid targets for their favorite small miners right now. They are literally hoping for pullbacks in the metals to allow their “stupidly cheap” buy targets a better chance of being hit. And, they have been panning what they feel is loads of future pay dirt over the past month too.
As one of them put it in response to the question of whether he might be early yet, he replied: “It doesn’t matter if we’re early. We’re (starting) at such a low entry point now, if we are (early) we get to add more (if it gets even cheaper), if not, then we’re happy with our positions. … We just don’t get many opportunities like this one.”
HUI:Gold Ratio. The popular HUI:Gold Ratio measures the relative performancee of mining shares versus gold. When the ratio is rising mining shares are putting in a stronger performance relative to the metal and vice versa.
Short-Term Outlook: (Upside breakouts remain underway. Caution flags flying for both short term trading bulls and bears. Trailing stops elevated to “near resistance” strategy.)
Short term traders should have already tightened trailing stops to at least a “near resistance” strategy as discussed in previous reports.
Both sides of the gold market battlefield can and should expect heightened volatility near term. Both short term trading bulls and bears should exercise caution and meticulously manage their respective trailing stop strategies accordingly.
If a harsh pullback materializes for gold, silver and selected mining shares, it is still this report’s contention that strong dips can be bought in measured increments provided traders are disciplined in the use and management of new-trade trailing stops for protection.
Until next time, scheduled for two weeks from now, as always MIND YOUR STOPS.
Long-Term Outlook: (Continued cautiously bullish, trailing stops normal.)
This report remains long term cautiously bullish, but new positions should only be added into weakness. Strong dips can be bought provided traders are disciplined in the use and management of appropriate new-trade trailing stops for protection.
Long term gold market drivers have not changed: A secular bullish perfect storm trend for precious metals continues. Rapidly escalating global investor demand, easier participation by investors via ETFs, conversion of Middle East petroleum dollars to gold, rising new demand from Asia, possible central bank buying partially offsetting central bank selling, conversion from dollars to gold by large U.S. dollar denominated foreign exchange reserves, declining gold production, increased political and NGO interference to bring new sources on line, rapidly escalating costs to produce, delays and shortages of equipment and manpower, previous two-decade bear-market-induced shortage of intellectual capital for miners, safe-haven buying to hedge strong, reckless, competitive dilution of under-backed fiat paper currencies, probably continued de-hedging and continued troubling global political and religious tensions are just some of the factors contributing to the long-term bullish winds now blowing. In real terms gold remains undervalued versus nearly all other commodities and strongly undervalued as measured by the world’s fiat paper promises. … The Great Gold Bull has a long way to go. It just won’t go straight up. Got gold?
In this report we find that the largest of the largest gold futures traders, those classed by the Commodities Futures Trading Commission (CFTC) as “commercial,” are once again net short gold metal in record proportions. For the details see the COT Changes section just below.
We also discover that the world’s gold exchange traded funds have not had to issue many new shares or add gold to their respective hoards over the past week, so positive money flow (more wealth entering than leaving) into those metal trading vehicles also seems to have paused with gold in the $900s the ounce. Read more about that in the Gold ETFs section below.
The most glaring bearish indication to surface this week is the continued apparent disconnect between mining shares and the metals. Although gold literally traded higher than it ever has this past week in un-inflation-adjusted nominal terms (into the $950s Thursday), and silver closed at a new 27-year high (Friday’s $18.02 last trade on the cash market), mining shares just couldn’t make a new high or even come close to doing so.
This report believes that the primary reason that mining shares, which usually lever gold gains aren’t levering, is the ongoing global fearful re-pricing lower of risk in all equities markets. Diligent readers will find more about that in charts in the Gold Indexes and Gold Charts sections below.
Perhaps the most interesting item to note in this offering of the report is that while the COMEX commercial gold futures traders are record net short nominally (252,740 contracts net short) and also pretty well on up there in percentage to total open interest terms (51.60% of all open contracts), meaning they are well positioned for a gold pullback, the commercial net short positioning for silver is actually pretty tame relative to where it has been over the past three years in percentage terms. For more about that and one possible explanation why see the Silver COT section below.
Finally, as the Big Markets continued to be fearfully sold off ahead of what is being billed by gleeful fear mongers as any number of catastrophic possible outcomes to the very real problem of global tightening credit, a problem caused in no small part by previous Fed loose money policies and over-leveraged packaging of sub-standard mortgage loans to carry traders, and as the entire world absolutely understands that stuff is costing more than the published inflation figures, no wonder gold and silver have continued to confound the brave (read misguided) souls who have bet against it up to now.
Bottom Line
Let’s see. The COMEX commercial gold traders are record net short gold futures nominally again, and their net short positions are a relatively high percentage of the total open interest. Money flow into gold ETFs has paused (but hasn’t yet turned negative). Mining shares continue to underperform precious metals and although we’ve just recently seen a few tentative signs of life from mining stocks well down the mining share food chain (as expected), miners on the Canadian exchanges and the OTCBB still suffer from chronic illiquidity and a severe buyer’s strike for all higher risk speculative issues (they’re dreadfully anemic).
That sounds pretty bearish, doesn’t it? Maybe it is, but the metals just don’t know it yet. Or, maybe we have an unusual paradox on our hands this time. A paradox where investors worldwide have been selling lots of other stuff in order to buy gold and silver, including, until recently, even selling high-risk, low-priced gold and silver mining stocks to the point where even so called “stink bids” get hit regularly.
Will gold and silver continue on it’s upward elevator ride near-term? No one knows for sure what will happen in the future, especially short-term, and although the indicators are just about all showing some upside fatigue the metals have been poor places to bet on the downside for a good while now. The powerful rallies for both gold and silver could most certainly keep right on confounding the short sellers, but just remember that elevators go both ways, up and down. Placing carefully considered trailing stops in positions that catch your share of the upward movement, allow for reasonable volatility, but get you out if momentum shifts back down is the way the smartest short-term money in the market plays it.
On to some of the indicators.
COT Changes. In the Tuesday 2/19 commitments of traders report (COT) the COMEX large commercials (LCs) collective combined net short positions (LCNS) increased 9,140 contracts or 3.75% from 243,600 to a new record 252,740 contracts net short Tuesday to Tuesday as gold added $21.52 or 2.37% from $906.40 to $927.92. Since Tuesday gold tested as high as $953.98 Thursday before modest Friday profit taking and a last trade of $944.60 on the cash market.
As of Tuesday’s COT reporting cutoff, COMEX gold open interest rose for the first time in five reports. The open interest bumped up 14,040 from the previous week’s 475,749 to 489,789 total open contracts. As 14,040 COMEX contracts were added (2.95%) the collective commercial net short positions rose 3.75%.
Long-term February 2009 and beyond COMEX forwards actually FELL 613 contracts to 48,822 lots open, which is now just under 10% of total open contracts. Still no telltale ultra-bearish spike up in long-term forwards in other words.
The large commercial traders on the COMEX are once again record net short in their collective positioning nominally and as of Tuesday their net short positions represented 51.60% of all COMEX open contracts, a relatively high percentage.
Incidentally, the last time the LCs set a new record net short position was just last month on January 15 when they reported being net short 251,114 contracts with gold then at $888.78, but at the time their net short positions were 42.28% of the total open. Gold has since advanced $55.82.
Gold versus the commercial net short positions as of the Tuesday COT cutoff:
Gold ETFs. Over the past week gold holdings at streetTRACKS Gold Shares, the largest gold exchange traded fund, remained flat at 631.15 tonnes. As of Friday’s figures that’s equal to $19.2 billion U.S. dollars worth of gold bars held by a custodian in London for the trust. There have been no significant additions or subtractions to the number of shares or gold metal holdings for GLD for the month of February so far.
Gold holdings for the U.K. equivalent to GLD, LyxOR Gold Bullion Securities Limited, also stayed steady at 107.90 tonnes of gold held. Barclay’s iShares COMEX Gold Trust gold holdings once again reported 59.93 tonnes of gold held for its investors, so it was also flat.
There was no significant change in gold holdings over the past week in all of the gold ETFs sponsored by the World Gold Council. Their collective gold holdings edged down a miniscule 0.06 to 784.62 tonnes of the precious metal worth $23.8 billion.
As gold traded above $900 the ounce positive money flow (more wealth entering than leaving) has paused for the world’s gold exchange traded funds, but it is also apparent that it has not turned substantially negative as of yet.
Silver ETF: Metal holdings for Barclay’s iShares Silver Trust [AMEX:SLV], the U.S. silver ETF, added 77.06 to 5,149.22 tonnes of silver metal held for its investors over the past week. The metal turned in a net $0.93 gain, up 5.44% for the holiday-shortened U.S. week on the cash market with a Friday last trade of a short-strangling $18.02.
Modest positive money flow (more wealth entering than leaving) did continue for the U.S. silver ETF for the week.
Silver COT: As silver added $0.35 (2.0%) from COT reporting Tuesday to Tuesday (from $17.19 to $17.54) the large commercial COMEX silver traders (LCs) increased their collective net short positioning (LCNS) by 4,516 (6.34%) to 75,790 contracts of net short exposure. That was as the total open interest on the COMEX rose just 1,842 (1%) to 189,151 COMEX 5,000-ounce contracts.
The silver LCNS percentage of total open interest increased a little more, but at just over 40% it’s still quite a bit under where it spent most of 2007 and it’s considerably under the average LCNS percentage seen in 2005-2006. In other words, the current commercial net short positioning is fairly normal or even below average.
Although slightly higher this week, we have yet to see a telltale bearish very large spike up in the number of net short positions reported by the COMEX commercial traders and it is interesting that the total open interest has not really increased all that much since the end of January (just 6,095 contracts from 183,056 to 189,151).
On the other hand, the commercial net short positioning did increase at more than twice the number of overall new contracts for the reporting week, meaning the commercials were being a little more aggressive on the short side. Even if they were short term wrong again.
Why, with silver up a whopping 63% since it’s August turning low, is the silver LCNS is still such a low percentage of the total open interest?
Could it be that the commercials have memories long enough to remember the last time they did take an overly large net short position in 2005 and what happened when they did? (They had their collective heads handed to them on a silver platter.)
One side point for this offering is to note that there have been a few tentative signs of life showing in the small, very speculative, high-risk miners and explorers well down the mining share food chain since the last report, as expected.
The vacuum of liquidity from the speculative mining and exploration stocks has been nothing short of brutally amazing over the past four months, indeed since the middle of last year. It is especially dramatic for thinly traded companies on less liquid markets such as in Canada, relative to the HUI (and the HUI hasn’t been doing all that great either compared to gold). Compared to the HUI the smaller, more speculative mining and exploration stocks have been murdered and that’s hard for some investors to take for very long given that the metals themselves have been on a tear. Compared to the metals, spec miners have been dismembered, ground up and fed to the pigs. It’s much worse than the plunge seen in 2003.
According to old-timers in the resource biz, this could possibly be one of the best buying opportunities of the Great Gold Bull in the making for those with the stomach for it, a longer time horizon and the high-risk capital to put to work ahead of the inevitable flood of liquidity back into the sector sometime in the next year or so.
Investors fled the spec miners in droves but they’ll be back, and back in a big way sooner or later. This report continues to believe that it is not too soon to be adding shares into obvious downside overreactions for the most promising of the juniors and explorers, especially when a large have-to-sell-now seller shows up into little or no buying pressure, setting off pure first stage panic for retail shareholders and driving these otherwise promising lottery tickets down from merely real cheap to ridiculously cheap.
A few very successful and well-funded vulture-like long-time veteran contrarian stock accumulators this report corresponds with regularly are actively setting up their stink bid targets for their favorite small miners right now. They are literally hoping for pullbacks in the metals to allow their “stupidly cheap” buy targets a better chance of being hit. And, they have been panning what they feel is loads of future pay dirt over the past month too.
As one of them put it in response to the question of whether he might be early yet, he replied: “It doesn’t matter if we’re early. We’re (starting) at such a low entry point now, if we are (early) we get to add more (if it gets even cheaper), if not, then we’re happy with our positions. … We just don’t get many opportunities like this one.”
HUI:Gold Ratio. The popular HUI:Gold Ratio measures the relative performancee of mining shares versus gold. When the ratio is rising mining shares are putting in a stronger performance relative to the metal and vice versa.
Short-Term Outlook: (Upside breakouts remain underway. Caution flags flying for both short term trading bulls and bears. Trailing stops elevated to “near resistance” strategy.)
Short term traders should have already tightened trailing stops to at least a “near resistance” strategy as discussed in previous reports.
Both sides of the gold market battlefield can and should expect heightened volatility near term. Both short term trading bulls and bears should exercise caution and meticulously manage their respective trailing stop strategies accordingly.
If a harsh pullback materializes for gold, silver and selected mining shares, it is still this report’s contention that strong dips can be bought in measured increments provided traders are disciplined in the use and management of new-trade trailing stops for protection.
Until next time, scheduled for two weeks from now, as always MIND YOUR STOPS.
Long-Term Outlook: (Continued cautiously bullish, trailing stops normal.)
This report remains long term cautiously bullish, but new positions should only be added into weakness. Strong dips can be bought provided traders are disciplined in the use and management of appropriate new-trade trailing stops for protection.
Long term gold market drivers have not changed: A secular bullish perfect storm trend for precious metals continues. Rapidly escalating global investor demand, easier participation by investors via ETFs, conversion of Middle East petroleum dollars to gold, rising new demand from Asia, possible central bank buying partially offsetting central bank selling, conversion from dollars to gold by large U.S. dollar denominated foreign exchange reserves, declining gold production, increased political and NGO interference to bring new sources on line, rapidly escalating costs to produce, delays and shortages of equipment and manpower, previous two-decade bear-market-induced shortage of intellectual capital for miners, safe-haven buying to hedge strong, reckless, competitive dilution of under-backed fiat paper currencies, probably continued de-hedging and continued troubling global political and religious tensions are just some of the factors contributing to the long-term bullish winds now blowing. In real terms gold remains undervalued versus nearly all other commodities and strongly undervalued as measured by the world’s fiat paper promises. … The Great Gold Bull has a long way to go. It just won’t go straight up. Got gold?
India Gold prices continue to surge
MUMBAI: Gold prices in India continued to surge on Thursday along with rest of the world as demand for the yellow metal remains very high everywhere.
Mumbai market opened at new peak adding Rs 190 to move up to Rs 12,195 per 10 gram. In Delhi at Rs 12,215 by rising Rs 175, in Chennai at Rs 12,130 by adding Rs 200, while in Kolkata, it opened at last closing level of Rs 12,225 per 10 gram respectively.
Gold prices zoomed to open at new high levels on the bullion markets across the world as a rally in oil and farm commodities boosted demand for precious metals as a hedge against inflation.
Buying activity further fuelled following reports that the gold in futures trading rose to all-time high of 949.20 and silver rising to 27-year high.
The major support to the trading sentiment came in from reports the bullion in the US markets touched a record 949.20 and silver at 17.94 dollar an ounce, its highest since 1980.
The gold in global markets touched a record 13 times this year and jumped to 949.20 dollar yesterday as crude oil rose to 101.32 dollar a barrel, the highest since trading began in 1983 on the New York Mercantile Exchange.
Mumbai market opened at new peak adding Rs 190 to move up to Rs 12,195 per 10 gram. In Delhi at Rs 12,215 by rising Rs 175, in Chennai at Rs 12,130 by adding Rs 200, while in Kolkata, it opened at last closing level of Rs 12,225 per 10 gram respectively.
Gold prices zoomed to open at new high levels on the bullion markets across the world as a rally in oil and farm commodities boosted demand for precious metals as a hedge against inflation.
Buying activity further fuelled following reports that the gold in futures trading rose to all-time high of 949.20 and silver rising to 27-year high.
The major support to the trading sentiment came in from reports the bullion in the US markets touched a record 949.20 and silver at 17.94 dollar an ounce, its highest since 1980.
The gold in global markets touched a record 13 times this year and jumped to 949.20 dollar yesterday as crude oil rose to 101.32 dollar a barrel, the highest since trading began in 1983 on the New York Mercantile Exchange.
Falling dollar Vs other currencies and gold
For some years now the other side of the "falling Dollar" problem has been the problem of a "rising Euro" or "rising Pound" or even a "rising Brazilian Real".
The exchange rate of the US Dollar has been falling in value against all other paper currencies, and this affects all kinds of business arrangements – thus getting lots of press attention.
European tourists flood into Manhattan, for example, giving the locals an inferiority complex. But European exports also become less competitive against Dollar-denominated goods, giving the tourists good reason to spend their cash quick. Because we may now be nearing an end to this process.
Non-US currencies – and non-Dollar-pegged currencies most especially – have risen against the Dollar to the point where European companies, for example, are feeling unfairly disadvantaged. Germany's trade surplus almost halved in December, and its manufacturing output has sharply slowed.
And just where are all the domestic tourists?
This "competitive disadvantage" is unpleasant at any time, but it is particularly unwelcome when there is a slowdown due to other reasons, like the property and financial bust which has become a worldwide phenomenon.
So what can these foreign central banks do? They can actually kill two birds with one stone. They can handle the uncomfortably high currency, and the domestic softness, with what amounts to an "easy" monetary policy of their own.
Thus, we see the Bank of England and Bank of Canada cutting their policy rates recently. The Bank of Japan is still stuck at a puny 0.5%, and while the European Central Bank has been speechifying about inflation recently, the pressure is on to do something about today's growth slowdown instead.
Yes, the official CPI might be rising faster than they'd like – now at a 14-year record, and with the Eurozone money supply growing four times faster than the official annualized target – but it's not enough of a problem yet that anyone is willing to suffer higher interest rates or a further rise in the currency to do something about it.
Besides, isn't inflation caused by China?
Thus we come to the point where all currencies decline in value together, while the exchange rates between them remain relatively stable. Think of it sort of like today's one-dollar bill, ten-dollar bill, and the quarter. While they all decline in purchasing power together, their comparative values remain stable.
This is what happened in the early 1970s. The world's currencies were pegged at fixed exchange rates to the Dollar back in those days, while the Dollar itself was pegged to gold at a rate of $35 per ounce.
After the Dollar left gold in 1971, and its value declined, other countries' governments said: "Hey, wait a second! I'm not sure of what you're trying to do with this cheap-Dollar stuff, but we don't want any part of it."
Sort of like the Middle Eastern Dollar-pegged currencies today, or the Chinese Yuan recently.
So, in the spring of 1973, they all de-pegged from the Dollar. See ya later, greenback! And that was the beginning of the floating currency system we have today.
Immediately after the de-pegging and then floating, the Dollar fell against all major currencies (and the minor ones, too). The Fed's Dollar index, which remains a useful gauge today, shows this drop.
(This index, by the way, starts in 1973 because it was not necessary before then.)
Then what happened? Governments of the time began to chew over the Dollar-led problems that emerged, and came to the same conclusion as governments today.
Damn the inflation – we have to keep these foreign exchange rates under control!
So the Dollar index stopped falling, for a while at least. And all in all during the 1970s, it only lost about 20% of its value as all world governments inflated together. During the great Dollar collapse of 1978-1979 – a collapse in terms of purchasing power – many foreign exchange rates were nearly unchanged.
The Dollar actually fell in real terms by about 10:1 during that decade, at least according to the Gold Price. It took only $35 to buy an ounce of gold in 1970. In the 1980s and 1990s, it took more like $350.
However, this decline became invisible to a lot of people, since the Dollar/Euro rate now affects almost everybody, but the Dollar/Gold rate directly affects almost nobody.
It was no longer so obvious that inflation was being caused by a "falling Dollar". When it took more dollars to buy things, most people did not figure out that the Dollar – and the Deutschemark, Franc, Pound, and Yen – was simply losing value. On November 19, 1973, Newsweek magazine proclaimed on its cover that the world was "Running Out of Everything".
Either that, or you could blame those horrible Arabs! It's true, there were some oil disruptions during the decade. Many people still blame these for the inflation of the time. None of these people has an explanation of why, years after the crises had passed, oil prices didn't fall back to their 1960s levels around $2.50 a barrel, however.
A few people saw the way that currencies were losing value compared to Gold Bullion, the timeless standard of value. They understood instinctively where the inflation was coming from. The government economists, however, didn't see it that way. They couldn't quite figure it out, but they were pretty sure that they didn't want to add to the growing problems with a restrictive monetary policy.
The Fed remained "accommodative" until finally the crisis reached a point where Paul Volcker gained a political mandate to do something about it. That something? Volcker chose sharply higher interest rates – a move that finally stemmed the Dollar's decline in terms of purchasing power and Gold Prices.
If there is a difference between those times and today, it must certainly be the amazing deterioration of financial conditions around the world. This is matched by a consensus on what to do about it: central bank policy rates that are low, low, low. The big yield curve inversions of the 1970s aren't coming back right away. Barring some unexpected twist – the Chinese pegging the Yuan to gold for example – it looks likely that currencies will all go down together, as they did in the 1970s.
The only place to hide would be in physical things: cattle, corn, steel, and eventually property.
For the 1980 presidential elections, Ronald Reagan actually recorded a television advertisement that promised a return to the gold standard. Why? Because the departure from gold in 1971 had led to the first major inflationary episode in modern US history. So wasn't it obvious?
The ad didn't run; Reagan was talked out of it. But soon, politicians will have another chance to re-think the Gold Standard.
I think the next gold standard will appear in a place that nobody expects, like Moldova, Morocco or Vietnam. Home mortgages denominated in gold have already been available in Vietnam for some time, and apparently some shopkeepers there are already adjusting retail prices according to gold exchange rates, too.
They are, in effect, already applying a sort of underground gold standard. Not everybody in this world is quite so benighted as our friends at the United States Federal Reserve.
Looking to Buy Gold today? For direct access to live Gold Market prices – and to save up to 80% compared with coin dealers' fees – click through to BullionVault now...
Formerly a chief economist providing advice to institutional investors, Nathan Lewis is now part of the investing team at an asset-management company. A writer for the Financial Times, Asian Wall Street Journal, Daily Yomiuri, The Daily Reckoning, Pravda, Dow Jones Newswires and other publications, he is also the author – with Addison Wiggin – of Gold: The Once and Future Money, published by John Wiley & Sons in May 2007, as well as the essays and thoughts at New World Economics.
The exchange rate of the US Dollar has been falling in value against all other paper currencies, and this affects all kinds of business arrangements – thus getting lots of press attention.
European tourists flood into Manhattan, for example, giving the locals an inferiority complex. But European exports also become less competitive against Dollar-denominated goods, giving the tourists good reason to spend their cash quick. Because we may now be nearing an end to this process.
Non-US currencies – and non-Dollar-pegged currencies most especially – have risen against the Dollar to the point where European companies, for example, are feeling unfairly disadvantaged. Germany's trade surplus almost halved in December, and its manufacturing output has sharply slowed.
And just where are all the domestic tourists?
This "competitive disadvantage" is unpleasant at any time, but it is particularly unwelcome when there is a slowdown due to other reasons, like the property and financial bust which has become a worldwide phenomenon.
So what can these foreign central banks do? They can actually kill two birds with one stone. They can handle the uncomfortably high currency, and the domestic softness, with what amounts to an "easy" monetary policy of their own.
Thus, we see the Bank of England and Bank of Canada cutting their policy rates recently. The Bank of Japan is still stuck at a puny 0.5%, and while the European Central Bank has been speechifying about inflation recently, the pressure is on to do something about today's growth slowdown instead.
Yes, the official CPI might be rising faster than they'd like – now at a 14-year record, and with the Eurozone money supply growing four times faster than the official annualized target – but it's not enough of a problem yet that anyone is willing to suffer higher interest rates or a further rise in the currency to do something about it.
Besides, isn't inflation caused by China?
Thus we come to the point where all currencies decline in value together, while the exchange rates between them remain relatively stable. Think of it sort of like today's one-dollar bill, ten-dollar bill, and the quarter. While they all decline in purchasing power together, their comparative values remain stable.
This is what happened in the early 1970s. The world's currencies were pegged at fixed exchange rates to the Dollar back in those days, while the Dollar itself was pegged to gold at a rate of $35 per ounce.
After the Dollar left gold in 1971, and its value declined, other countries' governments said: "Hey, wait a second! I'm not sure of what you're trying to do with this cheap-Dollar stuff, but we don't want any part of it."
Sort of like the Middle Eastern Dollar-pegged currencies today, or the Chinese Yuan recently.
So, in the spring of 1973, they all de-pegged from the Dollar. See ya later, greenback! And that was the beginning of the floating currency system we have today.
Immediately after the de-pegging and then floating, the Dollar fell against all major currencies (and the minor ones, too). The Fed's Dollar index, which remains a useful gauge today, shows this drop.
(This index, by the way, starts in 1973 because it was not necessary before then.)
Then what happened? Governments of the time began to chew over the Dollar-led problems that emerged, and came to the same conclusion as governments today.
Damn the inflation – we have to keep these foreign exchange rates under control!
So the Dollar index stopped falling, for a while at least. And all in all during the 1970s, it only lost about 20% of its value as all world governments inflated together. During the great Dollar collapse of 1978-1979 – a collapse in terms of purchasing power – many foreign exchange rates were nearly unchanged.
The Dollar actually fell in real terms by about 10:1 during that decade, at least according to the Gold Price. It took only $35 to buy an ounce of gold in 1970. In the 1980s and 1990s, it took more like $350.
However, this decline became invisible to a lot of people, since the Dollar/Euro rate now affects almost everybody, but the Dollar/Gold rate directly affects almost nobody.
It was no longer so obvious that inflation was being caused by a "falling Dollar". When it took more dollars to buy things, most people did not figure out that the Dollar – and the Deutschemark, Franc, Pound, and Yen – was simply losing value. On November 19, 1973, Newsweek magazine proclaimed on its cover that the world was "Running Out of Everything".
Either that, or you could blame those horrible Arabs! It's true, there were some oil disruptions during the decade. Many people still blame these for the inflation of the time. None of these people has an explanation of why, years after the crises had passed, oil prices didn't fall back to their 1960s levels around $2.50 a barrel, however.
A few people saw the way that currencies were losing value compared to Gold Bullion, the timeless standard of value. They understood instinctively where the inflation was coming from. The government economists, however, didn't see it that way. They couldn't quite figure it out, but they were pretty sure that they didn't want to add to the growing problems with a restrictive monetary policy.
The Fed remained "accommodative" until finally the crisis reached a point where Paul Volcker gained a political mandate to do something about it. That something? Volcker chose sharply higher interest rates – a move that finally stemmed the Dollar's decline in terms of purchasing power and Gold Prices.
If there is a difference between those times and today, it must certainly be the amazing deterioration of financial conditions around the world. This is matched by a consensus on what to do about it: central bank policy rates that are low, low, low. The big yield curve inversions of the 1970s aren't coming back right away. Barring some unexpected twist – the Chinese pegging the Yuan to gold for example – it looks likely that currencies will all go down together, as they did in the 1970s.
The only place to hide would be in physical things: cattle, corn, steel, and eventually property.
For the 1980 presidential elections, Ronald Reagan actually recorded a television advertisement that promised a return to the gold standard. Why? Because the departure from gold in 1971 had led to the first major inflationary episode in modern US history. So wasn't it obvious?
The ad didn't run; Reagan was talked out of it. But soon, politicians will have another chance to re-think the Gold Standard.
I think the next gold standard will appear in a place that nobody expects, like Moldova, Morocco or Vietnam. Home mortgages denominated in gold have already been available in Vietnam for some time, and apparently some shopkeepers there are already adjusting retail prices according to gold exchange rates, too.
They are, in effect, already applying a sort of underground gold standard. Not everybody in this world is quite so benighted as our friends at the United States Federal Reserve.
Looking to Buy Gold today? For direct access to live Gold Market prices – and to save up to 80% compared with coin dealers' fees – click through to BullionVault now...
Formerly a chief economist providing advice to institutional investors, Nathan Lewis is now part of the investing team at an asset-management company. A writer for the Financial Times, Asian Wall Street Journal, Daily Yomiuri, The Daily Reckoning, Pravda, Dow Jones Newswires and other publications, he is also the author – with Addison Wiggin – of Gold: The Once and Future Money, published by John Wiley & Sons in May 2007, as well as the essays and thoughts at New World Economics.
Selling Low and Buying High
Today is Presidents’ Day, which means the markets are taking a rare break. Hopefully, you’ve been able to enjoy the long weekend, too.
Today I’d like to share an old trading tale I think you’ll enjoy. It’s a true story. (Seems like the best ones always are.) I first wrote it up in April of 2007, along with some extended thoughts on gold. The story is still fresh and the gold thoughts still apply. So without further ado, here it is.
Ed. Note: this piece was originally written in April of 2007. At that time gold was $200 to $300 lower, the dollar was 5-10% higher, and Gordon Brown was not yet prime minister. Also, subprime woes had not yet materialized like a skunk at the garden party. Other than that, all arguments still apply -- perhaps now more than ever.
Memorable birthday presents are always nice. One of the best presents your humble editor ever received came from European central bankers.
In late summer 1999, nearly eight years ago now, yours truly and a friend put some money in a special joint trading account. The plan was to speculate a little in the precious metals and perhaps turn a profit from the Y2K complications ahead.
Gold was about as down in the dumps as it had ever been. Stocks like CMGI and Qualcomm were all the rage. It was almost the total reverse of what we have now. “Dot com” was a heroic and inspirational suffix, rather than the punch line to a joke. Hard assets were seen as the musty leftovers of an antiquated age.
With gold in the $260-$280 range, and volatility having ticked down to nothing, my trading partner and I felt that things were seriously out of whack.
Confident that something would have to give, the joint trading account was loaded up with call options on gold futures. We bought super-cheap call options at a strike price of $330 -- more than $50 out of the money in a low volatility market -- with an expiration date nine to 12 months out.
We were prepared to wait. But as it turns out, we didn’t have to wait too long.
In September of 1999 -- within days of the aforementioned birthday -- more than a dozen European central banks announced a moratorium on future gold sales. The signatories agreed to limit their gold sales to a maximum 400 tons per year over the next five years.
The news hit the gold pit like scalding hot water on a sleeping cat. The yellow metal exploded, posting the biggest single-day rally in 20 years. The joint futures trading account went from $10,000 to $60,000 (give or take) in the space of a week.
No, you don’t see birthday presents like that one very often. Fifty grand rarely comes so easy.
But that’s not the most curious part of the story. The intriguing question is how gold had gotten so low in the first place.
Earlier that same year (1999), gold had been languishing a bit below $300. The yellow metal had been stuck in a sideways funk for more than a year, after steadily trekking downward from its 1996 peak. It seemed things were gloomy as could be for gold bugs… but they were about to get much worse.
In May of 1999, the British government announced plans to sell half of its existing gold reserves. Proceeds from the sale were to be invested in government bonds (issued by the U.S., Europe and Japan).
It was an awfully timed surprise for gold. What’s worse, the auction-style plan for selling the reserves seemed the height of idiocy.
When you have a large quantity of anything to sell on the open market, you normally do it as quietly as possible so as not to run the price down if you are selling (or up if you are buying). It was almost as if the British government wanted to hammer gold through the floor, rather than seeking the best price possible for Her Majesty’s assets.
Gold futures gapped down huge on news of Britain’s plan. All hope seemed lost. Central bankers had apparently gone insane, and they were going to sell all the gold they owned for nothing.
The yellow metal relentlessly down-ticked from that point on, to its ultimate bottom in the fall of 1999. Shortly after that the timely (and lucky) purchase of $330 call options ensued, and Europe’s non-British bankers did the rest.
More ancient history. But now the question becomes more pointed. Why, oh why did Britain do something so foolish?
We now have an answer of sorts: Because Gordon Brown is an idiot.
Gordon Brown is Britain’s all-but-anointed prime minister in waiting, for those who don’t follow British politics (and who can blame you). Back in ‘99, Brown was displaying a taste for boneheadedness in his job running the UK treasury. It is only now that the full scope of things comes to light.
In a long-overdue expose titled “Goldfinger Brown’s £2 billion blunder in the bullion market,” the Sunday Times tells the tale:
GATHERED around a table in one of the Bank of England’s grand meeting rooms, the select group of Britain’s top gold traders could not believe what they were being told.
Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day.
It was May 1999 and the gold price had stagnated for much of the decade. The traders present — including senior executives from at least two big investment banks — warned that Brown, who was not at the meeting, could barely have chosen a worse moment.
…“The timing of the decision was ludicrous.
We told them you are going to push the gold price down before you sell,” said Peter Fava, then head of precious metal dealing at HSBC who was present at the meeting. “We thought it was a disastrous decision; we couldn’t understand it. We brought up a lot of potential problems at the meeting.”
…The decision to sell 400 tons of gold is seen in City circles as a financial bungle on the scale of the Tories’ “Black Wednesday” that cost the taxpayer £3.3 billion, according to Treasury estimates.
Dominic Hall, a former gold dealer who now runs thebulliondesk.com, a website for the gold market, said: “Brown was keen to throw mud at the opposition over Black Wednesday but this was a financial disaster on a similar scale.”
Fascinating. Based on these and other details, it appears that the decision to dump half of Britain’s reserves -- ultimately at the cost of billions -- was made by a single uninformed dolt and his group of doltish cronies. The Sunday Times adds more to the story:
According to other sources… Bank of England officials told those present they had “little say” about what was going to happen and that they were “doing what they were told.” This was a decision made by Brown and his inner circle, who appeared uninterested in their expert advice.
It’s the classic libertarian’s lament: What can you do with government? You’re damned if you do, damned if you don’t.
It is highly unsettling to realize that momentous decisions are taken by pigheaded men -- and it is still mostly men -- with far more arrogance than sense. Sadly, the thought of government by committee is no less appalling. Many a terrible plan has arisen from gutless, mealy-mouthed consensus.
Unfortunately, as long as there are men like Gordon Brown in government -- and the world is rife with them, for they are the type attracted to public service in the first place -- governments will continue to do exceedingly dumb things.
It is a natural temptation to respect the trappings of power -- or, at the very least, to respect the logistical decision-making mechanisms of power. This may be a mistake. Many first-world countries, it seems, are run with less regard for logic and common sense than your average corner grocery.
Here is the moneymaking part of the equation, at least as far as gold goes.
By deciding to dump gold at the worst possible time, Gordon “Goldfinger” Brown has shown us how spectacularly stupid governments can be at selling low. When push comes to shove, we may find that governments are equally spectacular at buying high.
Consider the lay of the land in terms of dollars and gold reserves. The asset boom we are experiencing right now [circa April 2007], the rising tide of liquidity that has fueled a buyout mania and lifted so many boats, is being fueled by dollars. Dollars, dollars, dollars.
Today I’d like to share an old trading tale I think you’ll enjoy. It’s a true story. (Seems like the best ones always are.) I first wrote it up in April of 2007, along with some extended thoughts on gold. The story is still fresh and the gold thoughts still apply. So without further ado, here it is.
Ed. Note: this piece was originally written in April of 2007. At that time gold was $200 to $300 lower, the dollar was 5-10% higher, and Gordon Brown was not yet prime minister. Also, subprime woes had not yet materialized like a skunk at the garden party. Other than that, all arguments still apply -- perhaps now more than ever.
Memorable birthday presents are always nice. One of the best presents your humble editor ever received came from European central bankers.
In late summer 1999, nearly eight years ago now, yours truly and a friend put some money in a special joint trading account. The plan was to speculate a little in the precious metals and perhaps turn a profit from the Y2K complications ahead.
Gold was about as down in the dumps as it had ever been. Stocks like CMGI and Qualcomm were all the rage. It was almost the total reverse of what we have now. “Dot com” was a heroic and inspirational suffix, rather than the punch line to a joke. Hard assets were seen as the musty leftovers of an antiquated age.
With gold in the $260-$280 range, and volatility having ticked down to nothing, my trading partner and I felt that things were seriously out of whack.
Confident that something would have to give, the joint trading account was loaded up with call options on gold futures. We bought super-cheap call options at a strike price of $330 -- more than $50 out of the money in a low volatility market -- with an expiration date nine to 12 months out.
We were prepared to wait. But as it turns out, we didn’t have to wait too long.
In September of 1999 -- within days of the aforementioned birthday -- more than a dozen European central banks announced a moratorium on future gold sales. The signatories agreed to limit their gold sales to a maximum 400 tons per year over the next five years.
The news hit the gold pit like scalding hot water on a sleeping cat. The yellow metal exploded, posting the biggest single-day rally in 20 years. The joint futures trading account went from $10,000 to $60,000 (give or take) in the space of a week.
No, you don’t see birthday presents like that one very often. Fifty grand rarely comes so easy.
But that’s not the most curious part of the story. The intriguing question is how gold had gotten so low in the first place.
Earlier that same year (1999), gold had been languishing a bit below $300. The yellow metal had been stuck in a sideways funk for more than a year, after steadily trekking downward from its 1996 peak. It seemed things were gloomy as could be for gold bugs… but they were about to get much worse.
In May of 1999, the British government announced plans to sell half of its existing gold reserves. Proceeds from the sale were to be invested in government bonds (issued by the U.S., Europe and Japan).
It was an awfully timed surprise for gold. What’s worse, the auction-style plan for selling the reserves seemed the height of idiocy.
When you have a large quantity of anything to sell on the open market, you normally do it as quietly as possible so as not to run the price down if you are selling (or up if you are buying). It was almost as if the British government wanted to hammer gold through the floor, rather than seeking the best price possible for Her Majesty’s assets.
Gold futures gapped down huge on news of Britain’s plan. All hope seemed lost. Central bankers had apparently gone insane, and they were going to sell all the gold they owned for nothing.
The yellow metal relentlessly down-ticked from that point on, to its ultimate bottom in the fall of 1999. Shortly after that the timely (and lucky) purchase of $330 call options ensued, and Europe’s non-British bankers did the rest.
More ancient history. But now the question becomes more pointed. Why, oh why did Britain do something so foolish?
We now have an answer of sorts: Because Gordon Brown is an idiot.
Gordon Brown is Britain’s all-but-anointed prime minister in waiting, for those who don’t follow British politics (and who can blame you). Back in ‘99, Brown was displaying a taste for boneheadedness in his job running the UK treasury. It is only now that the full scope of things comes to light.
In a long-overdue expose titled “Goldfinger Brown’s £2 billion blunder in the bullion market,” the Sunday Times tells the tale:
GATHERED around a table in one of the Bank of England’s grand meeting rooms, the select group of Britain’s top gold traders could not believe what they were being told.
Gordon Brown had decided to sell off more than half of the country’s centuries-old gold reserves and the chancellor was intending to announce his plan later that day.
It was May 1999 and the gold price had stagnated for much of the decade. The traders present — including senior executives from at least two big investment banks — warned that Brown, who was not at the meeting, could barely have chosen a worse moment.
…“The timing of the decision was ludicrous.
We told them you are going to push the gold price down before you sell,” said Peter Fava, then head of precious metal dealing at HSBC who was present at the meeting. “We thought it was a disastrous decision; we couldn’t understand it. We brought up a lot of potential problems at the meeting.”
…The decision to sell 400 tons of gold is seen in City circles as a financial bungle on the scale of the Tories’ “Black Wednesday” that cost the taxpayer £3.3 billion, according to Treasury estimates.
Dominic Hall, a former gold dealer who now runs thebulliondesk.com, a website for the gold market, said: “Brown was keen to throw mud at the opposition over Black Wednesday but this was a financial disaster on a similar scale.”
Fascinating. Based on these and other details, it appears that the decision to dump half of Britain’s reserves -- ultimately at the cost of billions -- was made by a single uninformed dolt and his group of doltish cronies. The Sunday Times adds more to the story:
According to other sources… Bank of England officials told those present they had “little say” about what was going to happen and that they were “doing what they were told.” This was a decision made by Brown and his inner circle, who appeared uninterested in their expert advice.
It’s the classic libertarian’s lament: What can you do with government? You’re damned if you do, damned if you don’t.
It is highly unsettling to realize that momentous decisions are taken by pigheaded men -- and it is still mostly men -- with far more arrogance than sense. Sadly, the thought of government by committee is no less appalling. Many a terrible plan has arisen from gutless, mealy-mouthed consensus.
Unfortunately, as long as there are men like Gordon Brown in government -- and the world is rife with them, for they are the type attracted to public service in the first place -- governments will continue to do exceedingly dumb things.
It is a natural temptation to respect the trappings of power -- or, at the very least, to respect the logistical decision-making mechanisms of power. This may be a mistake. Many first-world countries, it seems, are run with less regard for logic and common sense than your average corner grocery.
Here is the moneymaking part of the equation, at least as far as gold goes.
By deciding to dump gold at the worst possible time, Gordon “Goldfinger” Brown has shown us how spectacularly stupid governments can be at selling low. When push comes to shove, we may find that governments are equally spectacular at buying high.
Consider the lay of the land in terms of dollars and gold reserves. The asset boom we are experiencing right now [circa April 2007], the rising tide of liquidity that has fueled a buyout mania and lifted so many boats, is being fueled by dollars. Dollars, dollars, dollars.
Gold lower on US support of IMF bullion sale
The price of gold dropped Monday after the US said it will support a limited sale of gold bullion by the International Monetary Fund in order to cover revenue shortfalls.
The IMF holds 3,217.3 tonnes of gold, less than only the United States and Germany, and the US will support the sale of around 401 tonnes.
Expected buyers include the central banks of China and India.
Shortly before the close of floor trade in New York April gold had fallen $7.30 to $940.50 per troy ounce.
April platinum was also lower, dropping $14.30 to $2,153.50 per troy ounce, but March silver added 5 cents to $18.09 per troy ounce.
Meanwhile among base metals, May copper was down 5 cents to $3.76 per pound in New York and three-month copper was $60 lower to $8,270 per tonne or $3.75 per pound in London after London Metal Exchange inventories added 7,625 tonnes on the session.
The IMF holds 3,217.3 tonnes of gold, less than only the United States and Germany, and the US will support the sale of around 401 tonnes.
Expected buyers include the central banks of China and India.
Shortly before the close of floor trade in New York April gold had fallen $7.30 to $940.50 per troy ounce.
April platinum was also lower, dropping $14.30 to $2,153.50 per troy ounce, but March silver added 5 cents to $18.09 per troy ounce.
Meanwhile among base metals, May copper was down 5 cents to $3.76 per pound in New York and three-month copper was $60 lower to $8,270 per tonne or $3.75 per pound in London after London Metal Exchange inventories added 7,625 tonnes on the session.
Gold Remains Generally Well Bid
Gold is maintaining a firm tone with new record highs anticipated in the short term. The yellow metal has been underpinned by solid investment and safe haven buying, as well as firm oil and a generally weak dollar.
Persistent concerns about South African supplies were highlighted once again today: Gold Fields, Africa's second largest producer of gold, reportedly may eliminate as many as 6,900 jobs from its SA work force. They plan to focus on high grade mines, while cutting production at lower quality mines. They anticipate that quarterly gold production will drop as much as 25%.
The proposed job cuts stem from the inability of Eskom, the state run utility, to provide adequate and consistent power to Gold Fields' mines. Eskom acknowledges that the power crisis is not likely to be resolved until new power plants come on-line in 2012. South Africa is the second largest producer of gold, accounting for 10% of global output.
Anglogold, South Africa's biggest gold producer, has said that they have no plans to lay off workers at this point. However, they could offer no guarantees with respect to job security. One of the means that Anglogold has used to address the crisis is to not lift ore to the surface. By stockpiling ore below ground, they save power, but this has a negative impact on global supplies as well.
South Africa also accounts for 80% of the world's platinum output, making it far and away the largest global producer. The power crisis is having even a greater impact on platinum, which is up over 40% already this year. It is anticipated that the SA power crisis will result in a 400k - 500k ounce supply shortfall this year. Some estimates of the supply deficit have been as high as 700k ounces. Platinum gained 34% last year on the back of a 265k ounce deficit. Platinum is mildly corrective today, but the outlook remains favorable. Rising platinum has had a supportive effect on gold and the rest of the precious metals complex.
Oil is maintaining a firm tone as a result of heightened geopolitical tensions in the Middle East. Turkey is engaged in a military incursion into northern Iraq that began last week. This has been a particularly ferocious cross-border assault on PKK bases and could be a protracted campaign, despite calls from Iraq for Turkey to withdraw.
The IAEA reported last week that it was still unable to determine the "full nature of Iran's nuclear programme." Iran did cooperate in other areas of the investigation, managing to put a positive spin on the agency's report as a whole. However, many questions remain as to Iran's capabilities and desires. A study by EU experts contends that Iran could have enough uranium for a bomb by the end of this year. This is much quicker than any previous estimate, including the much publicized US NIE from last year.
Israel remains fully convinced that Iran is a significant threat to the region and understandably so, given continued inflammatory rhetoric by Iranian President Mahmoud Ahmadinejad and other Iranian officials. Recent remarks by Iranian leaders were so bellicose that it warranted specific EU condemnation "in the strongest terms" as "unacceptable, damaging and uncivilised." The prospect of Israeli or US attacks on Iranian nuclear facilities have crept back onto the radar screen. These concerns are underpinning oil prices and peeking safe haven gold interest.
Serbia and Russia have rejected Albanian rule in Kosovo amid continued protests and violence in the Balkans. The US has already recognized Kosovo independence. The EU remains split on the issue, despite favorable reactions by France, Germany and the UK. These tensions on the European continent are also contributing to safe haven gold buying.
The dollar is maintaining a defensive tone with the dollar index trading below 76.00. Scope remains for short term probes below 75.00, which would bode well for a retest of the all-time low at 74.48 and a resumption of the dominant downtrend. A weaker dollar increases the appeal of gold as an alternative investment and makes gold cheaper and therefore more attractive to holders of foreign currencies.
Persistent concerns about South African supplies were highlighted once again today: Gold Fields, Africa's second largest producer of gold, reportedly may eliminate as many as 6,900 jobs from its SA work force. They plan to focus on high grade mines, while cutting production at lower quality mines. They anticipate that quarterly gold production will drop as much as 25%.
The proposed job cuts stem from the inability of Eskom, the state run utility, to provide adequate and consistent power to Gold Fields' mines. Eskom acknowledges that the power crisis is not likely to be resolved until new power plants come on-line in 2012. South Africa is the second largest producer of gold, accounting for 10% of global output.
Anglogold, South Africa's biggest gold producer, has said that they have no plans to lay off workers at this point. However, they could offer no guarantees with respect to job security. One of the means that Anglogold has used to address the crisis is to not lift ore to the surface. By stockpiling ore below ground, they save power, but this has a negative impact on global supplies as well.
South Africa also accounts for 80% of the world's platinum output, making it far and away the largest global producer. The power crisis is having even a greater impact on platinum, which is up over 40% already this year. It is anticipated that the SA power crisis will result in a 400k - 500k ounce supply shortfall this year. Some estimates of the supply deficit have been as high as 700k ounces. Platinum gained 34% last year on the back of a 265k ounce deficit. Platinum is mildly corrective today, but the outlook remains favorable. Rising platinum has had a supportive effect on gold and the rest of the precious metals complex.
Oil is maintaining a firm tone as a result of heightened geopolitical tensions in the Middle East. Turkey is engaged in a military incursion into northern Iraq that began last week. This has been a particularly ferocious cross-border assault on PKK bases and could be a protracted campaign, despite calls from Iraq for Turkey to withdraw.
The IAEA reported last week that it was still unable to determine the "full nature of Iran's nuclear programme." Iran did cooperate in other areas of the investigation, managing to put a positive spin on the agency's report as a whole. However, many questions remain as to Iran's capabilities and desires. A study by EU experts contends that Iran could have enough uranium for a bomb by the end of this year. This is much quicker than any previous estimate, including the much publicized US NIE from last year.
Israel remains fully convinced that Iran is a significant threat to the region and understandably so, given continued inflammatory rhetoric by Iranian President Mahmoud Ahmadinejad and other Iranian officials. Recent remarks by Iranian leaders were so bellicose that it warranted specific EU condemnation "in the strongest terms" as "unacceptable, damaging and uncivilised." The prospect of Israeli or US attacks on Iranian nuclear facilities have crept back onto the radar screen. These concerns are underpinning oil prices and peeking safe haven gold interest.
Serbia and Russia have rejected Albanian rule in Kosovo amid continued protests and violence in the Balkans. The US has already recognized Kosovo independence. The EU remains split on the issue, despite favorable reactions by France, Germany and the UK. These tensions on the European continent are also contributing to safe haven gold buying.
The dollar is maintaining a defensive tone with the dollar index trading below 76.00. Scope remains for short term probes below 75.00, which would bode well for a retest of the all-time low at 74.48 and a resumption of the dominant downtrend. A weaker dollar increases the appeal of gold as an alternative investment and makes gold cheaper and therefore more attractive to holders of foreign currencies.
Gold Falls as U.S. Pledges Support for Some IMF Bullion Sales
(Bloomberg) -- Gold fell the most in almost two weeks after the U.S. said it would back ``limited'' sales of bullion reserves by the International Monetary Fund, the third- largest holder of the precious metal.
Some of the IMF's $98 billion in reserves should be sold to cover a revenue shortfall, said David McCormick, the Treasury's undersecretary for international affairs. Gold has more than tripled in the past seven years, gaining 12 percent this year and reaching an all-time high of $958.40 an ounce on Feb. 21.
``Anytime there's more supply coming into the market, the price goes lower,'' said Ron Goodis, the futures trading director at Equidex Brokerage Group Inc. ``There's a fear that the large speculators who've been pushing this market higher might step back and wait to buy.''
Gold futures for April delivery declined $7.30, or 0.8 percent, to $940.50 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest for a most-active contract since Feb. 12.
The IMF holds 3,217.3 metric tons of gold, the most behind the central banks of the U.S. and Germany, according to data from the producer-funded World Gold Council. The U.S. has 8,133.5 tons, and Germany holds 3,417.4 tons.
The Bush administration said it supported sales of as much as 12.9 million ounces, or about 401 metric tons.
`Tepid' Response
``The response from the market is muted or tepid at best,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``It turns out that if you look at it historically, central banks tend to sell at the lows and buy at the highs.''
Currently, central banks sell gold under guidelines of the Central Bank Gold Agreement. Under that accord, countries that adopted the euro, along with Switzerland and Sweden, agreed to limit sales to 2,500 metric tons from Sept. 27, 2004, to Sept. 6, 2009, or 500 tons a year.
Official sales by central banks rose 33 percent in 2007 to 488 metric tons, according to estimates by research company GFMS Ltd.
Any amount sold by the IMF would likely be limited to quantities in line with the central bank accord, said George Milling-Stanley, the World Gold Council's manager of investment and market analysis.
Second and third-tier central banks, including China's and India's, may buy the IMF's gold, limiting the pressure on prices by keeping the bullion out of the hands of investors, said Dennis Gartman, economist and editor of the Suffolk, Virginia- based Gartman Letter.
Dollars for Gold
``If you're China, you're holding all those dollars in reserves, it wouldn't be a bad idea to swap some of that for gold,'' Gartman said.
China is the 10th-largest holder of gold among central banks, with just 1 percent, or 600 metric tons, in reserves, according to World Gold Council data.
World gold-mine production fell 1.4 percent last year to 2,444 metric tons, an 11-year low, GFMS has said.
Barrick Gold Corp. Chief Executive Officer Greg Wilkins said in an interview on Bloomberg Television that the gold market can absorb the sale by the IMF. Barrick is the world's biggest producer of the metal.
Gold may rebound and climb to $1,000 an ounce this year as inflation accelerates and the Federal Reserve weakens the dollar by cutting interest rates, some analysts said.
The UBS Bloomberg Constant Maturity Commodity Index gained as much as 0.8 percent to a record today, led by agricultural commodities. Gold rose 31 percent in 2007 as inflation rose at the fastest pace since 1990.
``It's the price of goods and services that matter to determine gold's value,'' said James Turk, founder of GoldMoney.com, which had $305 million in gold and silver in storage for investors at the end of January. ``Gold is a good value today.''
Silver futures for March delivery rose 5 cents, or 0.3 percent, to $18.085 an ounce. The metal has gained 21 percent this year, while gold is up 12 percent.
Some of the IMF's $98 billion in reserves should be sold to cover a revenue shortfall, said David McCormick, the Treasury's undersecretary for international affairs. Gold has more than tripled in the past seven years, gaining 12 percent this year and reaching an all-time high of $958.40 an ounce on Feb. 21.
``Anytime there's more supply coming into the market, the price goes lower,'' said Ron Goodis, the futures trading director at Equidex Brokerage Group Inc. ``There's a fear that the large speculators who've been pushing this market higher might step back and wait to buy.''
Gold futures for April delivery declined $7.30, or 0.8 percent, to $940.50 an ounce on the Comex division of the New York Mercantile Exchange. The percentage drop was the biggest for a most-active contract since Feb. 12.
The IMF holds 3,217.3 metric tons of gold, the most behind the central banks of the U.S. and Germany, according to data from the producer-funded World Gold Council. The U.S. has 8,133.5 tons, and Germany holds 3,417.4 tons.
The Bush administration said it supported sales of as much as 12.9 million ounces, or about 401 metric tons.
`Tepid' Response
``The response from the market is muted or tepid at best,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``It turns out that if you look at it historically, central banks tend to sell at the lows and buy at the highs.''
Currently, central banks sell gold under guidelines of the Central Bank Gold Agreement. Under that accord, countries that adopted the euro, along with Switzerland and Sweden, agreed to limit sales to 2,500 metric tons from Sept. 27, 2004, to Sept. 6, 2009, or 500 tons a year.
Official sales by central banks rose 33 percent in 2007 to 488 metric tons, according to estimates by research company GFMS Ltd.
Any amount sold by the IMF would likely be limited to quantities in line with the central bank accord, said George Milling-Stanley, the World Gold Council's manager of investment and market analysis.
Second and third-tier central banks, including China's and India's, may buy the IMF's gold, limiting the pressure on prices by keeping the bullion out of the hands of investors, said Dennis Gartman, economist and editor of the Suffolk, Virginia- based Gartman Letter.
Dollars for Gold
``If you're China, you're holding all those dollars in reserves, it wouldn't be a bad idea to swap some of that for gold,'' Gartman said.
China is the 10th-largest holder of gold among central banks, with just 1 percent, or 600 metric tons, in reserves, according to World Gold Council data.
World gold-mine production fell 1.4 percent last year to 2,444 metric tons, an 11-year low, GFMS has said.
Barrick Gold Corp. Chief Executive Officer Greg Wilkins said in an interview on Bloomberg Television that the gold market can absorb the sale by the IMF. Barrick is the world's biggest producer of the metal.
Gold may rebound and climb to $1,000 an ounce this year as inflation accelerates and the Federal Reserve weakens the dollar by cutting interest rates, some analysts said.
The UBS Bloomberg Constant Maturity Commodity Index gained as much as 0.8 percent to a record today, led by agricultural commodities. Gold rose 31 percent in 2007 as inflation rose at the fastest pace since 1990.
``It's the price of goods and services that matter to determine gold's value,'' said James Turk, founder of GoldMoney.com, which had $305 million in gold and silver in storage for investors at the end of January. ``Gold is a good value today.''
Silver futures for March delivery rose 5 cents, or 0.3 percent, to $18.085 an ounce. The metal has gained 21 percent this year, while gold is up 12 percent.
Gold prices set to slide
The commodity bourses hogged the limelight last week with commodities setting records after records. Platinum traded at an all-time high and went above $2,200, Palladium above $500 and Rhodium within a spitting distance of $9,000.
The agri commodities were not far behind either: wheat, soya and maize made exciting trading patterns. Of course, gold and silver, too, scaled fresh peaks. Gold went up all the way to $954 during the week while silver reached a fresh 27-year high by going beyond $18 threshold. Run-up to Budget 2008-09
Tuesday saw the beginning of the rally, and on that day itself the price went beyond $920 an ounce. Wednesday saw the price beginning from a vantage point at $928 in cash market, and thus did not have much difficulty to go beyond $940 mark. Thursday took the prices way beyond $950 level, all the way to $954.70, yet another record. The market cooled down a bit on Friday yet the price closed at a very healthy $944.60 an ounce, registering the best weekly gain in decades.
With the sustained weakness in US dollar, the push to the precision metals was automatic. The dollar fell to a three-week low against the euro on concerns that the Federal Reserve will cut borrowing costs to avert a recession. (The dollar has lost 11% against the euro in the past year.)
The real push to gold, however, came from the astonishing rise in the crude price. Crude oil advanced to an all time high price of $101.32 a barrel in New York. The main driver to the oil prices came from the speculation that the OPEC, due to meet on March 5, is expected to cut output as winter heating demand wanes.
The across the board rise in commodities price during this week is clear indication that the investors are piling in their investible funds in the commodities sector, after having taken a heavy beating in stocks around the world. The most important news during the week in precious metals market was that China surpassed the US to become the world’s second-largest market for gold jewelry.
Coming to trading during the new week, the economic indicators due this week are existing home sales on Monday, producer price index and consumer confidence on Tuesday, new home sales on Wednesday, GDP numbers and jobless claims on Thursday. The prices are likely to stay volatile during the week, and there is a very strong case for decline in the gold prices this week.
According to statistics released by the World Gold Council (WGC) the sales of gold jewellery reached a record high of 302.2 tons, up by 34% and second only to India.
The remarkable thing is that the consumption in China went up exactly in a year when it fell in the US, supposedly a price-inelastic buyer. In 2007, the demand for gold in the US saw a 14% year-on-year drop. Even the gold market in Italy and Britain slumped, but the Red country sales were up. Another remarkable fact is that the Chinese buying has increased at a time when the gold prices are reaching the skies and smashing one record after another. China saw a 20% year-on-year growth in gold jewelry sales in the last quarter of 2007 - the very period when the price of gold was going up remarkably.
The economic indicators due this week are existing home sales, producer price index and consumer confidence, new home sales, GDP numbers and jobless claims.
The prices are likely to stay volatile during the week, and there is a very strong case for decline in the gold prices this week.
The market is top heavy and thus needs to be attempted with greatest caution. (Sify)
The agri commodities were not far behind either: wheat, soya and maize made exciting trading patterns. Of course, gold and silver, too, scaled fresh peaks. Gold went up all the way to $954 during the week while silver reached a fresh 27-year high by going beyond $18 threshold. Run-up to Budget 2008-09
Tuesday saw the beginning of the rally, and on that day itself the price went beyond $920 an ounce. Wednesday saw the price beginning from a vantage point at $928 in cash market, and thus did not have much difficulty to go beyond $940 mark. Thursday took the prices way beyond $950 level, all the way to $954.70, yet another record. The market cooled down a bit on Friday yet the price closed at a very healthy $944.60 an ounce, registering the best weekly gain in decades.
With the sustained weakness in US dollar, the push to the precision metals was automatic. The dollar fell to a three-week low against the euro on concerns that the Federal Reserve will cut borrowing costs to avert a recession. (The dollar has lost 11% against the euro in the past year.)
The real push to gold, however, came from the astonishing rise in the crude price. Crude oil advanced to an all time high price of $101.32 a barrel in New York. The main driver to the oil prices came from the speculation that the OPEC, due to meet on March 5, is expected to cut output as winter heating demand wanes.
The across the board rise in commodities price during this week is clear indication that the investors are piling in their investible funds in the commodities sector, after having taken a heavy beating in stocks around the world. The most important news during the week in precious metals market was that China surpassed the US to become the world’s second-largest market for gold jewelry.
Coming to trading during the new week, the economic indicators due this week are existing home sales on Monday, producer price index and consumer confidence on Tuesday, new home sales on Wednesday, GDP numbers and jobless claims on Thursday. The prices are likely to stay volatile during the week, and there is a very strong case for decline in the gold prices this week.
According to statistics released by the World Gold Council (WGC) the sales of gold jewellery reached a record high of 302.2 tons, up by 34% and second only to India.
The remarkable thing is that the consumption in China went up exactly in a year when it fell in the US, supposedly a price-inelastic buyer. In 2007, the demand for gold in the US saw a 14% year-on-year drop. Even the gold market in Italy and Britain slumped, but the Red country sales were up. Another remarkable fact is that the Chinese buying has increased at a time when the gold prices are reaching the skies and smashing one record after another. China saw a 20% year-on-year growth in gold jewelry sales in the last quarter of 2007 - the very period when the price of gold was going up remarkably.
The economic indicators due this week are existing home sales, producer price index and consumer confidence, new home sales, GDP numbers and jobless claims.
The prices are likely to stay volatile during the week, and there is a very strong case for decline in the gold prices this week.
The market is top heavy and thus needs to be attempted with greatest caution. (Sify)
Gold jewellery no more Indian bride's best friend
AHMEDABAD, India (Reuters) - When textile designer Anshu Murarka married earlier this month, her wedding trousseau had a laptop, a plasma television and mutual fund units besides seven gold coins, dainty gold chains, pendants and bracelets.
Twenty seven years ago, says Anshu's mother Ramila, she had five hundred grams of gold in the form of necklaces, ear rings, bangles and hair braids in her wedding dowry.
The unchallenged place of gold jewellery in Hindu weddings made India the world's largest consumer of the metal.
But soaring prices resulted in upstart gadgets replacing gold jewellery in the wedding dowry.
"If my daughter had to wear all gold (jewellery) at her wedding, I would have had to spend an additional 200,000 rupees which was out of the question for now," Ramila Murarka said.
"About 20-30 years ago, a middle-class wedding trousseau had an average of 100 grams of gold. Now it has fallen to 70-80 grams," said Ajay Mitra, managing director-India of the industry-funded World Gold Council (WGC).
"Televisions, cars and cell phones have crept into a woman's marriage."
Gold prices have risen by 25 percent on year curbing demand at a time when weddings are scheduled, and traditionally a boomtime for the trade.
On Monday, a bank quoted prices at 12,421 rupees per 10 grams, up from 12,377 rupees on Friday. The April gold contract on the Multi Commodity Exchange of India touched its highest level on Monday at 12,186 rupees.
In January, when the season started, imports of gold totalled just 24 tonnes, down 72 percent on the year, according to the figures of the WGC.
FASHIONS CHANGE, DESIGN REMAINS
While jewellery is losing appeal, it is not as if gold itself has lost any shine.
Rising incomes have ensured that the base of gold buyers is getting bigger, an analyst said. WGC figures show India's gold imports rose 7 percent in 2007 to 773.6 tonnes.
Nineteen-year old bride, Vindhya Tiwari, also in Ahmedabad, said she did not want her parents to feel the financial burden of buying gold for her.
"So it is simple for me -- mix gold jewellery with fake (gold) jewellery," Tiwari said referring to her attire on her wedding day last week when she wore her mother's gold jewellery with newly acquired non-gold ones.
It's just that patterns of spending and new priorities have to be made room for.
Ritu Datta, an air-hostess also based in Ahmedabad, said she chose to buy a car with the money meant for her trousseau.
"I find it senseless to buy expensive gold ornaments and keep it in safe vaults when I can buy a car and use it everyday," Datta said.
These signs of more purchasing power help to sell more gold.
"With the reach of television increasing and the heavy promotions, gold has created a position in the minds of people," said Nayan Pansare, a gold market expert working for jewellery exporting companies.
"Many luxuries have become a necessity so brides may be buying less gold, but overall gold consumption may continue to increase due to Indians' fascination for the metal and more people being able to afford it now."
Twenty seven years ago, says Anshu's mother Ramila, she had five hundred grams of gold in the form of necklaces, ear rings, bangles and hair braids in her wedding dowry.
The unchallenged place of gold jewellery in Hindu weddings made India the world's largest consumer of the metal.
But soaring prices resulted in upstart gadgets replacing gold jewellery in the wedding dowry.
"If my daughter had to wear all gold (jewellery) at her wedding, I would have had to spend an additional 200,000 rupees which was out of the question for now," Ramila Murarka said.
"About 20-30 years ago, a middle-class wedding trousseau had an average of 100 grams of gold. Now it has fallen to 70-80 grams," said Ajay Mitra, managing director-India of the industry-funded World Gold Council (WGC).
"Televisions, cars and cell phones have crept into a woman's marriage."
Gold prices have risen by 25 percent on year curbing demand at a time when weddings are scheduled, and traditionally a boomtime for the trade.
On Monday, a bank quoted prices at 12,421 rupees per 10 grams, up from 12,377 rupees on Friday. The April gold contract on the Multi Commodity Exchange of India touched its highest level on Monday at 12,186 rupees.
In January, when the season started, imports of gold totalled just 24 tonnes, down 72 percent on the year, according to the figures of the WGC.
FASHIONS CHANGE, DESIGN REMAINS
While jewellery is losing appeal, it is not as if gold itself has lost any shine.
Rising incomes have ensured that the base of gold buyers is getting bigger, an analyst said. WGC figures show India's gold imports rose 7 percent in 2007 to 773.6 tonnes.
Nineteen-year old bride, Vindhya Tiwari, also in Ahmedabad, said she did not want her parents to feel the financial burden of buying gold for her.
"So it is simple for me -- mix gold jewellery with fake (gold) jewellery," Tiwari said referring to her attire on her wedding day last week when she wore her mother's gold jewellery with newly acquired non-gold ones.
It's just that patterns of spending and new priorities have to be made room for.
Ritu Datta, an air-hostess also based in Ahmedabad, said she chose to buy a car with the money meant for her trousseau.
"I find it senseless to buy expensive gold ornaments and keep it in safe vaults when I can buy a car and use it everyday," Datta said.
These signs of more purchasing power help to sell more gold.
"With the reach of television increasing and the heavy promotions, gold has created a position in the minds of people," said Nayan Pansare, a gold market expert working for jewellery exporting companies.
"Many luxuries have become a necessity so brides may be buying less gold, but overall gold consumption may continue to increase due to Indians' fascination for the metal and more people being able to afford it now."
India spot gold steadies after hitting record high
MUMBAI (Thomson Financial) - India spot gold steadied after opening at a fresh all-time high, trade participants said.
In London, gold edged up towards last week's record peaks as players piled back into the metal amid continuing global inflation risk fears, with crude oil rising back towards 100 usd per barrel.
But Bharghav Vaidya, proprietor of Mumbai-based trading house Bharghav Vaidya and Associates, said it is very likely the lack of physical demand will cause a correction.
The Bombay Bullion Association estimated imports slumped to 5 tonnes in January from 62 tonnes a year earlier because of surging prices.
Mumbai gold of 0.995 purity closed 35 rupees higher at 12,265 rupees per 10 grams, having opened at 12,280 rupees per 10 grams. Gold of 0.99 purity closed 30 rupees higher at 12,320 rupees per 10 grams.
Silver of 0.999-purity closed 30 rupees higher at 22,735 per kg.
tfn.newsdesk@thomson.com
sim/ukn/ms1
COPYRIGHT
Copyright Thomson Financial News Limited 2007. All rights reserved.
In London, gold edged up towards last week's record peaks as players piled back into the metal amid continuing global inflation risk fears, with crude oil rising back towards 100 usd per barrel.
But Bharghav Vaidya, proprietor of Mumbai-based trading house Bharghav Vaidya and Associates, said it is very likely the lack of physical demand will cause a correction.
The Bombay Bullion Association estimated imports slumped to 5 tonnes in January from 62 tonnes a year earlier because of surging prices.
Mumbai gold of 0.995 purity closed 35 rupees higher at 12,265 rupees per 10 grams, having opened at 12,280 rupees per 10 grams. Gold of 0.99 purity closed 30 rupees higher at 12,320 rupees per 10 grams.
Silver of 0.999-purity closed 30 rupees higher at 22,735 per kg.
tfn.newsdesk@thomson.com
sim/ukn/ms1
COPYRIGHT
Copyright Thomson Financial News Limited 2007. All rights reserved.
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