The gold price shot up to a 2-week high on Monday, before retreating again as the week wore on. Market watchers see possible further falls although they mostly consider the downside is limited.
Investors in gold have been having a nerve wracking ride of late with several false dawns promising a return to the high $900s - and even bringing out predictions from some analysts of a rapid return to the $1,000 level seen earlier in the year. But, with the US dollar showing signs of strength and oil moving up and down as well, gold has tended to follow the direction suggested by the strengths and weaknesses of these other key influences, rather than plough its own furrow on fundamentals alone.
Gold is primarily looked at by the broader investment market, rather than by the strong gold bug element, as providing a hedge against inflation and against major political turmoil and unrest. Recent statements by Ben Bernanke, the Chairman of Governors of the US Federal Reserve, have suggested that inflation could be becoming a problem and has hinted that the recent spate of cuts in US interest rates to help stimulate the economy may be at an end, and that interest rate rises may be on the horizon to clamp down on inflation due to higher food and commodity prices - not least oil.
This, in turn, has seen a strengthening of the value of the dollar against other currencies (although not a very certain one as occasional bouts of poor economic data tend to reverse the perceived sentiment) and at times when the dollar strengthens and oil falls back from its peaks, the gold price tends downwards.
That is undoubtedly what has occurred over the past few days with a briefly weak dollar and surging oil pulling gold back above the $900 level, only to see it tumble back to the $860s this morning amid fears that it could fall even lower.
But, consider the inflation scenario. The high food, metal commodity and oil prices are filtering through and it is not only the US which may be considering interest rate rises to try and combat inflationary trends, but also the European Central Bank and the Bank of England among others, which have also intimated they may be set on the interest rate rise route. This may mean, should this all come about, that the relative strength of the US dollar engendered by an interest rate increase in the US may be negated by similar, or bigger, interest rate rises elsewhere.
Be that as it may, there are still some fairly serious political tensions in the Middle East, the gold price is getting to a level where jewellery gold purchases may start rising again, world mine supply may well fall again this year, the US economy is still close to recession, inflation is beginning to strike hard in countries like China. All these should be pointers to gold price strength in the medium term.
As we have pointed out here before, investment interest in gold by the greater investment community is very much based on economic perceptions. The past week has seen the pessimists on the economic front take a breather perhaps, but it wouldn't take much in the way of adverse news to bring the doomsayers back and the gold price could then yo yo back up again as fast and as far as it has come down.
The northern hemisphere summer is here. Activity in the markets which drives stock and commodity prices is traditionally at a lower level at this time of year, but come August returning analysts, fund managers and individual investors will be taking a hard look at what they see ahead for the rest of the year and unless the economic situation has shown further improvement, which at this time looks to be increasingly unlikely, the factors which have driven the gold price upwards over the past few years could be back in force again.
Analysts specialising in the gold market seem almost unanimous that the second half of the year will see a rising gold price trend again (although there are some notable exceptions). In the meantime the downside risk is probably limited - but is certainly there - and probably the majority of gold investors will be hanging in for better times ahead. Analysts see good downside resistance in the $850s and $860s. Watch the US indicators. They, and the dollar, and oil, look to continue to set the gold price trend in the immediate future.
Thursday, June 12, 2008
See What People Are Saying About... Speculators Gone Wild
There's definitely no inventory shortage -- when it comes to Fast Money viewer opinions over the rampant speculation in commodities, particularly crude.
Rick from Florida puts it succinctly, "Why are 'gas' and 'distillate' inventories INCREASING while crude oil inventories are DECREASING over several weeks?"
Fast Money fan Shannon in North Carolina offers a regulatory suggestion to curtail the out-of-control speculation: "make a restriction that traders must maintain the capacity to take delivery and show proof of that."
And Miller Tabak strategist Tony Crescenzi's prediction on Tuesday's show of a possible 500-point rebound next week continues to be met with doubt. Fast Money viewer Frank reminds us that consumer buying power has all but been killed by high energy prices and so Q2 earnings "will not be rosy."
Rick from Florida puts it succinctly, "Why are 'gas' and 'distillate' inventories INCREASING while crude oil inventories are DECREASING over several weeks?"
Fast Money fan Shannon in North Carolina offers a regulatory suggestion to curtail the out-of-control speculation: "make a restriction that traders must maintain the capacity to take delivery and show proof of that."
And Miller Tabak strategist Tony Crescenzi's prediction on Tuesday's show of a possible 500-point rebound next week continues to be met with doubt. Fast Money viewer Frank reminds us that consumer buying power has all but been killed by high energy prices and so Q2 earnings "will not be rosy."
Gold tumbles as retail sales hike demand for dollar
NEW YORK (MarketWatch) -- Gold futures on Thursday fell to their lowest level since early May, upended after stronger U.S. retail sales bolstered demand for the dollar and tarnished the precious metal's allure as another asset option and hedge against inflation.
"The market's roller-coaster pattern continued amid the high-noon standoff developing between the Fed and the U.S. dollar's morticians," said Jon Nadler, senior analyst, Kitco Bullion Dealers.
That view was also strengthened by comments from Philadelphia Federal Reserve President Charles Plosser, who told the CNBC television network Thursday morning, "We need to act pre-emptively." Read The Fed.
After sliding to a session low of $131.55 an ounce, gold for August delivery recovered slightly to end $10.90 lower at $872.00 an ounce on the New York Mercantile Exchange.
Another loser in Nymex metals dealings, July silver fell 70 cents to settle at $16.48 an ounce.
In electronic trade late Thursday on Globex, gold for August delivery fell $1.00 to $871.00 an ounce.
The Commerce Department reported an unexpected 1% rise in retail sales last month, marking the fastest increase in six months. Read Economic Report.
The dollar gained strength in the belief that a rebound in retail sales would back the case for the Federal Reserve to hike U.S. interest rates, with the dollar index (DXY:US Dollar Index Future - Spot Price
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"Soaring prices will continue to plague the Fed, and keep policy on hold at the June FOMC meeting with a renewed bias in the balance of risk toward higher inflation -- despite ongoing concerns about the economy," said analysts at Action Economics. The Federal Open Market Committee sets U.S. monetary policy and benchmark interest rates.
Metals investors largely bypassed a Labor Department report that initial jobless claims jumped by 25,000 last week to 384,000. See more.
Another report from the Labor Department indicated that prices of goods imported into the country climbed 2.3% in May, less than the 2.7% growth that analysts had been looking for. Read full story.
Bullion's sharp retreat stands in contrast to gains on Wednesday, with bullion prices on a volatile roller-coaster ride tracking the movements in crude-oil prices. Investors buy gold for its appeal as a hedge against oil-generated inflation but have tended to sell the precious metal when the price of crude moves lower.
On Thursday, crude futures climbed 36 cents to close at $136.74 a barrel on Nymex, after spending the bulk of the day on the decline.
"The market's roller-coaster pattern continued amid the high-noon standoff developing between the Fed and the U.S. dollar's morticians," said Jon Nadler, senior analyst, Kitco Bullion Dealers.
That view was also strengthened by comments from Philadelphia Federal Reserve President Charles Plosser, who told the CNBC television network Thursday morning, "We need to act pre-emptively." Read The Fed.
After sliding to a session low of $131.55 an ounce, gold for August delivery recovered slightly to end $10.90 lower at $872.00 an ounce on the New York Mercantile Exchange.
Another loser in Nymex metals dealings, July silver fell 70 cents to settle at $16.48 an ounce.
In electronic trade late Thursday on Globex, gold for August delivery fell $1.00 to $871.00 an ounce.
The Commerce Department reported an unexpected 1% rise in retail sales last month, marking the fastest increase in six months. Read Economic Report.
The dollar gained strength in the belief that a rebound in retail sales would back the case for the Federal Reserve to hike U.S. interest rates, with the dollar index (DXY:US Dollar Index Future - Spot Price
News, chart, profile, more
Last: 73.74+0.45+0.62%
10:40pm 06/12/2008
Delayed quote dataAdd to portfolio
Analyst
Create alertInsider
Discuss
Financials
Sponsored by:
DXY 73.74, +0.45, +0.6%) , which tracks the greenback against major currency rivals, gaining nearly 0.9% to 73.88. See Currencies.
"Soaring prices will continue to plague the Fed, and keep policy on hold at the June FOMC meeting with a renewed bias in the balance of risk toward higher inflation -- despite ongoing concerns about the economy," said analysts at Action Economics. The Federal Open Market Committee sets U.S. monetary policy and benchmark interest rates.
Metals investors largely bypassed a Labor Department report that initial jobless claims jumped by 25,000 last week to 384,000. See more.
Another report from the Labor Department indicated that prices of goods imported into the country climbed 2.3% in May, less than the 2.7% growth that analysts had been looking for. Read full story.
Bullion's sharp retreat stands in contrast to gains on Wednesday, with bullion prices on a volatile roller-coaster ride tracking the movements in crude-oil prices. Investors buy gold for its appeal as a hedge against oil-generated inflation but have tended to sell the precious metal when the price of crude moves lower.
On Thursday, crude futures climbed 36 cents to close at $136.74 a barrel on Nymex, after spending the bulk of the day on the decline.
Oil declines to $132 as greenback posts gains
Oil prices fell sharply yesterday as the dollar moved higher and forced crude to lose some of its appeal as a hedge against inflation.
Light, sweet crude for July delivery fell $4.38 to $132 a barrel on the New York Mercantile Exchange.
Given the volatile price moves of recent days, oil's decline was not seen as a sign of a changing trend. Prices have gone through several sharp swings over the past week, rising more than $16 last Thursday and Friday as the dollar weakened, falling more than $7 earlier this week as the greenback gained, and jumping back more than $5 on Wednesday as supplies and the dollar fell.
Analysts say oil is range trading, waiting for direction from a significant move in the dollar or change in supply and demand fundamentals.
Many analysts believe the market's overall sentiment remains bullish, and the new records are a real possibility in coming days. Oil reached its latest trading record of $139.12 on Friday.
"The price movement of crude has been ... dictated by what we've seen in the greenback," said Edward Meir, an analyst at an analyst at MF Global UK, in a research note.
Yesterday, the dollar gained ground after the Commerce Department said retail sales rose in May by the biggest amount in six months as 57 million tax rebate checks reached consumers. The 15-nation euro fell to $1.5409 from $1.5571 late Wednesday.
Investors who bought commodities such as oil to protect against inflation when the dollar was falling tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to investors overseas.
The dollar's protracted decline has been a major factor behind the doubling of oil prices over the past year.
Recent statements by U.S. Federal Reserve Chairman Ben Bernanke and U.S. President George W. Bush emphasising the importance of strengthening the dollar helped the U.S.
currency gain ground. But analysts believe more than words are needed to turn the tide; an actual interest rate increase is needed to send the dollar definitively higher, and oil prices down, said Stephen Schork, an analyst and trader in Villanova, Pennsylvania.
In other Nymex trading, July natural gas futures rose 14 cents to $12.80 per 1,000 cubic feet after the Energy Department said inventories rose last week by 80 billion cubic feet, at the low end of analyst estimates.
In London, July Brent crude fell $3.55 to $131.47 on the ICE Futures exchange.
Light, sweet crude for July delivery fell $4.38 to $132 a barrel on the New York Mercantile Exchange.
Given the volatile price moves of recent days, oil's decline was not seen as a sign of a changing trend. Prices have gone through several sharp swings over the past week, rising more than $16 last Thursday and Friday as the dollar weakened, falling more than $7 earlier this week as the greenback gained, and jumping back more than $5 on Wednesday as supplies and the dollar fell.
Analysts say oil is range trading, waiting for direction from a significant move in the dollar or change in supply and demand fundamentals.
Many analysts believe the market's overall sentiment remains bullish, and the new records are a real possibility in coming days. Oil reached its latest trading record of $139.12 on Friday.
"The price movement of crude has been ... dictated by what we've seen in the greenback," said Edward Meir, an analyst at an analyst at MF Global UK, in a research note.
Yesterday, the dollar gained ground after the Commerce Department said retail sales rose in May by the biggest amount in six months as 57 million tax rebate checks reached consumers. The 15-nation euro fell to $1.5409 from $1.5571 late Wednesday.
Investors who bought commodities such as oil to protect against inflation when the dollar was falling tend to sell when the greenback gains ground. Also, a stronger dollar makes oil more expensive to investors overseas.
The dollar's protracted decline has been a major factor behind the doubling of oil prices over the past year.
Recent statements by U.S. Federal Reserve Chairman Ben Bernanke and U.S. President George W. Bush emphasising the importance of strengthening the dollar helped the U.S.
currency gain ground. But analysts believe more than words are needed to turn the tide; an actual interest rate increase is needed to send the dollar definitively higher, and oil prices down, said Stephen Schork, an analyst and trader in Villanova, Pennsylvania.
In other Nymex trading, July natural gas futures rose 14 cents to $12.80 per 1,000 cubic feet after the Energy Department said inventories rose last week by 80 billion cubic feet, at the low end of analyst estimates.
In London, July Brent crude fell $3.55 to $131.47 on the ICE Futures exchange.
Gulf shares advance on dollar gains
Dubai: Gulf shares advanced on speculation the dollar's gain to a three-month high against the yen will lower companies' costs and boost profits.
Abu Dhabi National Energy Co gained after the company's board approved a plan to sell convertible bonds. Qatar Islamic Bank rose to the highest in almost three years as Investor Daily Indonesia reported the bank may soon open a branch in the country. Kuwait Financing and Investment Co jumped on plans to increase capital and convert to an Islamic firm.
"The dollar's gain is good for the region's companies as it makes purchases, of raw materials and other products from non-dollar countries, cheaper," Karim Helmy, assistant vice president at Shuaa Securities, said from Abu Dhabi.
The Abu Dhabi Securities Exchange General Index rose 0.4 per cent to 5,125.89. Qatar's Doha Securities Market Index added 0.5 per cent, bringing the six-day rally to 4.4 per cent. The Kuwait Stock Exchange Index advanced for a fifth day, increasing 0.3 per cent.
The dollar rose to 107.13 yen, the highest since late February, before trading at 106.77 yen at 5.15pm in Dubai. Against the euro, the US currency increased to $1.5510.
Abu Dhabi National Energy jumped 4.4 per cent to Dh4.02, its biggest one-day gain since April 30.
Bond sale
The state-controlled energy company, known as Taqa, said its board approved a plan to sell convertible bonds worth Dh4.15 billion ($1.13 billion).
Qatar Islamic Bank climbed 4.1 per cent to 165.9 riyals, its highest close since October 2005. The country's biggest Islamic bank may open its first office as early as next week, Investor Daily Indonesia reported, citing Alwi Shihab, Indonesian President Susilo Bambang Yudhoyono's envoy to the Middle East.
Kuwait Financing and Investment surged 3.5 per cent to 300 fils. The board of the commercial and personal-financing firm will meet today to discuss plans to increase its capital and convert to an Islamic financing company.
Saudi Arabia's Tadawul All Share Index fell 0.1 per cent. The Muscat Securities Market 30 Index rose 0.5 per cent, while the Bahrain All Share Index dropped 0.2 per cent. The Dubai Financial Market General Index declined 1.2 per cent.
Abu Dhabi National Energy Co gained after the company's board approved a plan to sell convertible bonds. Qatar Islamic Bank rose to the highest in almost three years as Investor Daily Indonesia reported the bank may soon open a branch in the country. Kuwait Financing and Investment Co jumped on plans to increase capital and convert to an Islamic firm.
"The dollar's gain is good for the region's companies as it makes purchases, of raw materials and other products from non-dollar countries, cheaper," Karim Helmy, assistant vice president at Shuaa Securities, said from Abu Dhabi.
The Abu Dhabi Securities Exchange General Index rose 0.4 per cent to 5,125.89. Qatar's Doha Securities Market Index added 0.5 per cent, bringing the six-day rally to 4.4 per cent. The Kuwait Stock Exchange Index advanced for a fifth day, increasing 0.3 per cent.
The dollar rose to 107.13 yen, the highest since late February, before trading at 106.77 yen at 5.15pm in Dubai. Against the euro, the US currency increased to $1.5510.
Abu Dhabi National Energy jumped 4.4 per cent to Dh4.02, its biggest one-day gain since April 30.
Bond sale
The state-controlled energy company, known as Taqa, said its board approved a plan to sell convertible bonds worth Dh4.15 billion ($1.13 billion).
Qatar Islamic Bank climbed 4.1 per cent to 165.9 riyals, its highest close since October 2005. The country's biggest Islamic bank may open its first office as early as next week, Investor Daily Indonesia reported, citing Alwi Shihab, Indonesian President Susilo Bambang Yudhoyono's envoy to the Middle East.
Kuwait Financing and Investment surged 3.5 per cent to 300 fils. The board of the commercial and personal-financing firm will meet today to discuss plans to increase its capital and convert to an Islamic financing company.
Saudi Arabia's Tadawul All Share Index fell 0.1 per cent. The Muscat Securities Market 30 Index rose 0.5 per cent, while the Bahrain All Share Index dropped 0.2 per cent. The Dubai Financial Market General Index declined 1.2 per cent.
Fed, Dollar bears take away Gold's gains
Gold's midweek gains were undone in a hurry overnight as the roller-coaster pattern continued amid the standoff developing between the Fed and dollar bears.
Depressed by a surging (up .64 to 73.87 on the index) US dollar and a $3 slide in crude oil (to $133.50) the precious metal gave back all of yesterday's gains and fell to a low of $864 ahead of the New York opening this morning.
Strong anti-inflation rhetoric from the Fed's Mr. Plosser (he said "interest rates will have to rise) augmented expectations of US interest rate hikes and pushed their possible date of enactment closer to the present. Adding to the dollar's rise were reports expecting retail sales in the US to show a decent gain in the wake of stimulus cheques which were mailed to US taxpayers finding their way into store cash registers in lieu of bank savings accounts as some had expected.
New York spot trading opened with a $15 (1.72%) loss, quoted at $865 bid per ounce, as players reevaluate the possibility that this could be the week (or indeed, the day) during which gold breaks through the $863 low and heads towards the $850 critical support area.
We now look for this break to materialize shortly. The gain in retail sales (up 1% to the strongest level in six months) adds to the case being made for a hike in interest rates. Initial jobless claims moved higher, adding 25,000 individuals to those filing for benefits and import prices rose 2.3% due largely to oil values.
The US dollar broke through the 74 level shortly after the retail numbers hit the wires. Silver was off 50 cents to $16.38 while platinum lost $38 to $2005 and palladium fell $2 to $423 per ounce. Gold's losses widened to $21 and hit a low of $859.50 within five minutes of the retail figures' release. The markets are now pricing in a 125 basis point rate hike by this time next year.
Depressed by a surging (up .64 to 73.87 on the index) US dollar and a $3 slide in crude oil (to $133.50) the precious metal gave back all of yesterday's gains and fell to a low of $864 ahead of the New York opening this morning.
Strong anti-inflation rhetoric from the Fed's Mr. Plosser (he said "interest rates will have to rise) augmented expectations of US interest rate hikes and pushed their possible date of enactment closer to the present. Adding to the dollar's rise were reports expecting retail sales in the US to show a decent gain in the wake of stimulus cheques which were mailed to US taxpayers finding their way into store cash registers in lieu of bank savings accounts as some had expected.
New York spot trading opened with a $15 (1.72%) loss, quoted at $865 bid per ounce, as players reevaluate the possibility that this could be the week (or indeed, the day) during which gold breaks through the $863 low and heads towards the $850 critical support area.
We now look for this break to materialize shortly. The gain in retail sales (up 1% to the strongest level in six months) adds to the case being made for a hike in interest rates. Initial jobless claims moved higher, adding 25,000 individuals to those filing for benefits and import prices rose 2.3% due largely to oil values.
The US dollar broke through the 74 level shortly after the retail numbers hit the wires. Silver was off 50 cents to $16.38 while platinum lost $38 to $2005 and palladium fell $2 to $423 per ounce. Gold's losses widened to $21 and hit a low of $859.50 within five minutes of the retail figures' release. The markets are now pricing in a 125 basis point rate hike by this time next year.
Gold prices fall on rising dollar, demand to pick up
Gold futures and spot prices eased in Indian markets mirroring the international weakness in the metal. The 05 July Contract on Multi Commodity Exchange of India (MCX) fell by 1.02 percetn to 12,331 as against previous close of Rs 12458.
In global markets gold extended losses on Tuesday and dropped below $890 an ounce after the US dollar gained on expectations of a possible interest rate hike, reducing the metal's appeal as an alternative investment.
Gold declined to $889,80/890,70 an ounce from $894,00/896,00 late in New York on Monday. Jewellery makers were taking a wait and watch attitude in expectation of further fall in prices, dealers said.
The dollar hit a three-month high against the yen and rose against other currencies after Federal Reserve chairperson Ben Bernanke said the rise in oil prices added to inflation risks, stoking expectations for rate hikes this year.
Oil was up 68 cents at $135,02 a barrel on Tuesday, having settled $4.19 lower the previous day. US crude jumped to a record $139,12 on Friday in its biggest one-day gain ever.
Silver edged up to $17,07/17,14 an ounce from $17,06/17,16 late in New York on Monday, when it hit a high of $17,67 an ounce, its highest since May 27.
Gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell $4,4 an ounce to $893,7.
The most active Tokyo platinum contract for April 2009 delivery on the Tokyo Commodity Exchange fell 48 yen per gram to 6 826 yen despite a weaker yen, under pressure from a weak cash market.
Spot platinum fell to $2 022/2 042 an ounce from $2 037,50/2 057,50 late in New York.
Palladium firmed to $424,00/429,00 an ounce from $422,00/427,00.
The benchmark August contract on MCX was trading at Rs 12335 down by 1.05 percent from previous close of Rs 12462.
In global markets gold extended losses on Tuesday and dropped below $890 an ounce after the US dollar gained on expectations of a possible interest rate hike, reducing the metal's appeal as an alternative investment.
Gold declined to $889,80/890,70 an ounce from $894,00/896,00 late in New York on Monday. Jewellery makers were taking a wait and watch attitude in expectation of further fall in prices, dealers said.
The dollar hit a three-month high against the yen and rose against other currencies after Federal Reserve chairperson Ben Bernanke said the rise in oil prices added to inflation risks, stoking expectations for rate hikes this year.
Oil was up 68 cents at $135,02 a barrel on Tuesday, having settled $4.19 lower the previous day. US crude jumped to a record $139,12 on Friday in its biggest one-day gain ever.
Silver edged up to $17,07/17,14 an ounce from $17,06/17,16 late in New York on Monday, when it hit a high of $17,67 an ounce, its highest since May 27.
Gold futures for June delivery on the COMEX division of the New York Mercantile Exchange fell $4,4 an ounce to $893,7.
The most active Tokyo platinum contract for April 2009 delivery on the Tokyo Commodity Exchange fell 48 yen per gram to 6 826 yen despite a weaker yen, under pressure from a weak cash market.
Spot platinum fell to $2 022/2 042 an ounce from $2 037,50/2 057,50 late in New York.
Palladium firmed to $424,00/429,00 an ounce from $422,00/427,00.
The benchmark August contract on MCX was trading at Rs 12335 down by 1.05 percent from previous close of Rs 12462.
Gold trading gets a boost in China
SHANGHAI: Shanghai Gold Exchange (SGE), China's only spot gold trading bourse, has got a golden boost after banking major HSBC begin tradin the bourse for the first time.
Besides HSBC, two other foreign banks including Standard Chartered Bank (China) Ltd. and the Bank of Nova Scotia (Guangzhou Branch) have received approval from Chinese government to trade gold on SGE.
Chinesse government has not paced any extra criteria on foreign banks such as trading volume or type when compared with other SGE members.
Official said the involvement of foreign banks could boost gold trading on the SGE. China's domestic gold market began opening up last June, when five foreign banks, HSBC, Standard Chartered, the Bank of Nova Scotia, UBS AG and Societe Generale, were granted preliminary approvals from the PBOC to become SGE members.
It has taken almost a year for HSBC to begin trading gold on the SGE after receiving preliminary approval from the PBOC. The lengthy assessment period was to ensure that the opening of the domestic gold market is in the nation's interests.
The increased participation of banks will expand market liquidity while making arbitrage between the domestic and international markets more common.
Foreign institutions are not yet allowed to trade on the gold futures market, which opened in January. However, as foreign institutions increase their standing in the domestic spot market, it will put added pressure on regulators to liberalize and open up other commodity markets to foreign participation as well.
Besides HSBC, two other foreign banks including Standard Chartered Bank (China) Ltd. and the Bank of Nova Scotia (Guangzhou Branch) have received approval from Chinese government to trade gold on SGE.
Chinesse government has not paced any extra criteria on foreign banks such as trading volume or type when compared with other SGE members.
Official said the involvement of foreign banks could boost gold trading on the SGE. China's domestic gold market began opening up last June, when five foreign banks, HSBC, Standard Chartered, the Bank of Nova Scotia, UBS AG and Societe Generale, were granted preliminary approvals from the PBOC to become SGE members.
It has taken almost a year for HSBC to begin trading gold on the SGE after receiving preliminary approval from the PBOC. The lengthy assessment period was to ensure that the opening of the domestic gold market is in the nation's interests.
The increased participation of banks will expand market liquidity while making arbitrage between the domestic and international markets more common.
Foreign institutions are not yet allowed to trade on the gold futures market, which opened in January. However, as foreign institutions increase their standing in the domestic spot market, it will put added pressure on regulators to liberalize and open up other commodity markets to foreign participation as well.
'Gold price will continue to rise'
Louis Goluboff, managing director of Emerald Capital Investment International, a newly launched financial consulting firm, talks about the influences and pressures weighing on the precious metals sector. His company's flagship fund, The Emerald Explorer Fund, focuses on mining and exploration primarily in the Canadian resources market. In this exclusive interview with The Gold Report, Goluboff tells us why he thinks the juniors are a good play and discusses a few of his favorite names.
TGR: How do you explain what's going on with gold?
LG: I think both the fundamentals as well as speculative investors were pushing the market up. A lot of hedge funds started to sell out of the high end of their valuations, so the gold price dropped down a little bit. But the fundamentals remain unchanged.
TGR: You're saying that both the fundamentals and the speculative side are strong for gold?
LG: That's right. But I'm mostly looking at the U. S. economy and what’s happened with the currency—the credit crisis and the Bear Stearns bailout. I don’t think that’s over—maybe you’ve hit a bit of a bottom with the bailout, but there's still a mortgage crisis in progress. This will keep weighing on the U.S. dollar and that's good for the gold price.
TGR: Why hasn't gold gone up? The Fed took another quarter point off the interest rates in late April and gold went down.
LG: Well, I think it's because of all the sales coming from the speculative side of the market. As those funds get squeezed, they’ve got to sell what’s liquid, and if gold is liquid, they sell it. That’s why a lot of the equities have also been underperforming this past year. The juniors have been hit hardest. The large caps have traded more in line with the price of gold.
TGR: What should an investor be doing with gold—hoarding it or selling it?
LG: Gold's recent pullbacks certainly provide good buying opportunities. I think you'd be well off to invest in gold at these prices. When gold goes up over $1000 and into the $1100 range, you might want to sell in the short term. Overall, I think the price of gold is going to continue to rise.
TGR: Do you care to speculate about how far it’s going to rise?
LG: I don’t think you’re going to see $2000 gold so fast, but it'll be back over $1000 by the end of the year.
TGR: You expect it to go above $1000 before the summer ends?
LG: I think you will see it back above $1000 in the early fall.
TGR: As gold drifts higher in the $900 range and into $1000, what does that mean for our equity plays— both the majors and the juniors?
LG: Right now there’s a lot of cash on the sidelines for a lot of funds. You’re going to start seeing some of that cash go back into market. As the price of gold goes back up, the seniors will be the first to benefit from that. Then some of the money will start going into the juniors. Some of these companies are trading at their 52-week lows despite the rise in commodities prices.
TGR: Will the seasonally lower prices of the metals influence that?
LG: The late summer and early fall are seasonally strong, but even if the price of the underlying commodities drifts down a little bit, I think that the equities will start to trade up with the rest of the equity markets as money starts to come back into play.
TGR: So, you're predicting that the market will start going up?
LG: Yes.
TGR: How do you think the juniors will do over the next six months?
LG: People will reconsider the juniors. There will be quite a bit of consolidation in the market this year and over the next couple of years as some of the seniors go looking for production. They will look to the juniors—let them do the hard work and then, as they get closer to production and defining resources, the seniors will build their own resource base by taking a position in a junior, doing a joint venture, or acquiring the company outright.
TGR: What guidelines do you use to determine which juniors make a safer investment?
LG: Investors have to keep in mind that when they’re investing in the junior mining sector or in any small cap for that matter, whether it is the tech sector or biotech or whatever, that these are very risky securities. It’s fine to have them as a piece of your portfolio, but you should be diversified regardless. So, I don’t think you could ever say that they’re “safe investments.”
TGR: What are your guidelines regarding countries or things to avoid?
LG: There are parts of Africa I won’t invest in and I tend to stay away from politically unstable countries like Venezuela. Where there's the risk of government appropriation of mining concessions, you really have to ask yourself whether it's worth getting involved in a play like that.
TGR: On the other hand, some investors say that when things look really bad, that’s the time to start investing.
LG: That can be a great philosophy and it's why I like the junior sector right now. When you get a lot of speculative buying the market gets too hot, generally that’s a good time to take some profits. When people get pessimistic and fearful, that can be a good time to make an investment. But you always have to balance the risks you’re taking with the rewards you’re hoping to get.
TGR: Are you looking for juniors that are pre- 43-101? How do you evaluate juniors even in stable countries?
LG: We really judge them on a case-by-case basis. We’ll look at private companies that are about to complete a 43-101. Generally you do like to see a 43-101, and you want to see them publicly traded.
TGR: Do you have any preference for the more unusual precious metals?
LG: I prefer gold and gold stocks. There’s been some difficulty on the base metal side, but I do like uranium, zinc, copper and nickel.
TGR: Uranium has really come way off of its highs.
LG: Uranium has gone into a difficult spot but people forget that the long-term contract price is what counts. If the long-term contract price starts to come down, that’s when you have to question what’s happening. A very small percentage of the actual volume of trades takes place at the spot price or on the market. Most of the purchasing by the utilities is done off the market in and around the long-term contract price. And the long-term contract price has remained pretty stable.
TGR: Would you advise an investor to be overweight or underweight with regard to precious and base metals?
LG: I’d definitely be overweight in the uranium sector, especially since a lot of investors have focused on the spot price and considering what’s happened in the junior market overall. I think there’s a real good opportunity here to be investing in junior uranium companies. Again, you have to be careful since juniors are risky, but I think there will be a lot of consolidation in that market. There's a real gap between supply and demand with the potential for supply disruptions.
TGR: Do you have any specific companies you could discuss for our readers?
LG: NFX Gold Inc. (NFX.V) is a perfect example of a junior exploration company in the gold sector that’s really been hurt by the downturn in the junior equity markets. You can find a real upside in stocks like NFX. Their 52-week high was at $1.25, and they’re down to $.45 today. The junior market revolves around finding potentially good deposits. NFX has a joint venture with Maximus at Larder Lake and their recent results point to a significant deposit three miles west of the old Kerr Addison Mine, which was an 11-million ounce producer.
That's not their only potential. They do have joint ventures with other companies, but certainly this is their most interesting. They have a 40,000-meter drill program going on right now in the area in a previously significant gold camp. It's in northern Ontario—a mining-friendly district. Sometimes half the battle is getting drills on the property and good people. There are a lot of good people in Larder Lake and the surrounding areas.
TGR: How do you explain what's going on with gold?
LG: I think both the fundamentals as well as speculative investors were pushing the market up. A lot of hedge funds started to sell out of the high end of their valuations, so the gold price dropped down a little bit. But the fundamentals remain unchanged.
TGR: You're saying that both the fundamentals and the speculative side are strong for gold?
LG: That's right. But I'm mostly looking at the U. S. economy and what’s happened with the currency—the credit crisis and the Bear Stearns bailout. I don’t think that’s over—maybe you’ve hit a bit of a bottom with the bailout, but there's still a mortgage crisis in progress. This will keep weighing on the U.S. dollar and that's good for the gold price.
TGR: Why hasn't gold gone up? The Fed took another quarter point off the interest rates in late April and gold went down.
LG: Well, I think it's because of all the sales coming from the speculative side of the market. As those funds get squeezed, they’ve got to sell what’s liquid, and if gold is liquid, they sell it. That’s why a lot of the equities have also been underperforming this past year. The juniors have been hit hardest. The large caps have traded more in line with the price of gold.
TGR: What should an investor be doing with gold—hoarding it or selling it?
LG: Gold's recent pullbacks certainly provide good buying opportunities. I think you'd be well off to invest in gold at these prices. When gold goes up over $1000 and into the $1100 range, you might want to sell in the short term. Overall, I think the price of gold is going to continue to rise.
TGR: Do you care to speculate about how far it’s going to rise?
LG: I don’t think you’re going to see $2000 gold so fast, but it'll be back over $1000 by the end of the year.
TGR: You expect it to go above $1000 before the summer ends?
LG: I think you will see it back above $1000 in the early fall.
TGR: As gold drifts higher in the $900 range and into $1000, what does that mean for our equity plays— both the majors and the juniors?
LG: Right now there’s a lot of cash on the sidelines for a lot of funds. You’re going to start seeing some of that cash go back into market. As the price of gold goes back up, the seniors will be the first to benefit from that. Then some of the money will start going into the juniors. Some of these companies are trading at their 52-week lows despite the rise in commodities prices.
TGR: Will the seasonally lower prices of the metals influence that?
LG: The late summer and early fall are seasonally strong, but even if the price of the underlying commodities drifts down a little bit, I think that the equities will start to trade up with the rest of the equity markets as money starts to come back into play.
TGR: So, you're predicting that the market will start going up?
LG: Yes.
TGR: How do you think the juniors will do over the next six months?
LG: People will reconsider the juniors. There will be quite a bit of consolidation in the market this year and over the next couple of years as some of the seniors go looking for production. They will look to the juniors—let them do the hard work and then, as they get closer to production and defining resources, the seniors will build their own resource base by taking a position in a junior, doing a joint venture, or acquiring the company outright.
TGR: What guidelines do you use to determine which juniors make a safer investment?
LG: Investors have to keep in mind that when they’re investing in the junior mining sector or in any small cap for that matter, whether it is the tech sector or biotech or whatever, that these are very risky securities. It’s fine to have them as a piece of your portfolio, but you should be diversified regardless. So, I don’t think you could ever say that they’re “safe investments.”
TGR: What are your guidelines regarding countries or things to avoid?
LG: There are parts of Africa I won’t invest in and I tend to stay away from politically unstable countries like Venezuela. Where there's the risk of government appropriation of mining concessions, you really have to ask yourself whether it's worth getting involved in a play like that.
TGR: On the other hand, some investors say that when things look really bad, that’s the time to start investing.
LG: That can be a great philosophy and it's why I like the junior sector right now. When you get a lot of speculative buying the market gets too hot, generally that’s a good time to take some profits. When people get pessimistic and fearful, that can be a good time to make an investment. But you always have to balance the risks you’re taking with the rewards you’re hoping to get.
TGR: Are you looking for juniors that are pre- 43-101? How do you evaluate juniors even in stable countries?
LG: We really judge them on a case-by-case basis. We’ll look at private companies that are about to complete a 43-101. Generally you do like to see a 43-101, and you want to see them publicly traded.
TGR: Do you have any preference for the more unusual precious metals?
LG: I prefer gold and gold stocks. There’s been some difficulty on the base metal side, but I do like uranium, zinc, copper and nickel.
TGR: Uranium has really come way off of its highs.
LG: Uranium has gone into a difficult spot but people forget that the long-term contract price is what counts. If the long-term contract price starts to come down, that’s when you have to question what’s happening. A very small percentage of the actual volume of trades takes place at the spot price or on the market. Most of the purchasing by the utilities is done off the market in and around the long-term contract price. And the long-term contract price has remained pretty stable.
TGR: Would you advise an investor to be overweight or underweight with regard to precious and base metals?
LG: I’d definitely be overweight in the uranium sector, especially since a lot of investors have focused on the spot price and considering what’s happened in the junior market overall. I think there’s a real good opportunity here to be investing in junior uranium companies. Again, you have to be careful since juniors are risky, but I think there will be a lot of consolidation in that market. There's a real gap between supply and demand with the potential for supply disruptions.
TGR: Do you have any specific companies you could discuss for our readers?
LG: NFX Gold Inc. (NFX.V) is a perfect example of a junior exploration company in the gold sector that’s really been hurt by the downturn in the junior equity markets. You can find a real upside in stocks like NFX. Their 52-week high was at $1.25, and they’re down to $.45 today. The junior market revolves around finding potentially good deposits. NFX has a joint venture with Maximus at Larder Lake and their recent results point to a significant deposit three miles west of the old Kerr Addison Mine, which was an 11-million ounce producer.
That's not their only potential. They do have joint ventures with other companies, but certainly this is their most interesting. They have a 40,000-meter drill program going on right now in the area in a previously significant gold camp. It's in northern Ontario—a mining-friendly district. Sometimes half the battle is getting drills on the property and good people. There are a lot of good people in Larder Lake and the surrounding areas.
Who sets global Crude Oil prices?
As Crude Oil is setting the global economy on fire and fears of recession, there is a frequent question people ask. Who sets the oil prices?
The answer generally comes: oil price is set by the Organization of Petroleum Exporting Countries (OPEC), a permanent intergovernmental oil organization, created in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
But the fact is that it is not OPEC that sets the global oil price. One of the most common misconceptions about OPEC is that the Organization is responsible for setting crude oil prices.
Although OPEC did in fact set crude oil prices from the early 1970s to the mid-1980s, this is no longer the case. It is true that OPEC's Member Countries do voluntary restrain their crude oil production in order to stabilize the oil market and avoid harmful and unnecessary price fluctuations, but this is not the same thing as setting prices.
In today's complex global markets, the price of crude oil is set by movements on the three major international petroleum exchanges, all of which have their own Web sites featuring information about oil prices.
They are the New York Mercantile Exchange (NYMEX, http://www.nymex.com), the International Petroleum Exchange in London (IPE, http://www.ipe.uk.com) and the Singapore International Monetary Exchange (SIMEX, http://www.simex.com.sg).
OPEC does not control the oil market. OPEC Member Countries produce about 45 per cent of the world's crude oil and 18 per cent of its natural gas.
However, OPEC's oil exports represent about 55 per cent of the crude oil traded internationally. Therefore, OPEC can have a strong influence on the oil market, especially if it decides to reduce or increase its level of production.
The answer generally comes: oil price is set by the Organization of Petroleum Exporting Countries (OPEC), a permanent intergovernmental oil organization, created in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
But the fact is that it is not OPEC that sets the global oil price. One of the most common misconceptions about OPEC is that the Organization is responsible for setting crude oil prices.
Although OPEC did in fact set crude oil prices from the early 1970s to the mid-1980s, this is no longer the case. It is true that OPEC's Member Countries do voluntary restrain their crude oil production in order to stabilize the oil market and avoid harmful and unnecessary price fluctuations, but this is not the same thing as setting prices.
In today's complex global markets, the price of crude oil is set by movements on the three major international petroleum exchanges, all of which have their own Web sites featuring information about oil prices.
They are the New York Mercantile Exchange (NYMEX, http://www.nymex.com), the International Petroleum Exchange in London (IPE, http://www.ipe.uk.com) and the Singapore International Monetary Exchange (SIMEX, http://www.simex.com.sg).
OPEC does not control the oil market. OPEC Member Countries produce about 45 per cent of the world's crude oil and 18 per cent of its natural gas.
However, OPEC's oil exports represent about 55 per cent of the crude oil traded internationally. Therefore, OPEC can have a strong influence on the oil market, especially if it decides to reduce or increase its level of production.
How big is the global Gold investment market?
Gold is attracting growing interest from a small number of pension funds, some of whom may already be building their exposure to gold, usually as part of a basket of commodities. Why is gold attracting people? And why is it that people love to invest in gold?
Find out here why gold lures people:
Why do people invest in gold?
People around the world invest in gold for many different reasons. Many people view gold as a reliable source of value in times of trouble. Gold offers insurance against stock market failure and has proved to be a liquid, transportable asset for refugees needing to flee their countries. More and more people understand that by investing in gold, they are protecting themselves against a range of risks, such as weakness of the US dollar; unexpected inflation; and low returns on other assets. Some people simply want to own as asset they can trust, because it is real and holds its value over the long term.
Is gold really a good hedge against inflation?
There is substantial evidence to support the view that gold is a good long run hedge against inflation. In the short-run, the gold price may deviate from its long run inflation hedge value, and may take a number of years to revert to this constant. Gold is not a perfect hedge against inflation, but it is the only hedge that has been tried and tested over centuries that have seen currencies rise and fall.
Is gold a global currency?
Gold has retained its role as a monetary asset. Central banks around the world still hold around 12 per cent of their reserves in gold, and even private individuals can and do use gold to settle payments. However, gold is not “issued” by any particular government and is not beholden to any political regime. In this sense, it is a truly global, international currency, free of political or national association and liability.
Is gold a commodity?
Gold is used for different purposes, and these certainly include commodity uses. Industrial applications of gold account for about 10% of demand each year. Demand for gold as jewellery absorbs around 75% of the gold supplied to the market each year, with the balance made up by investment. Gold is certainly included in the leading tradable commodity indices. So for many practical purposes, gold is viewed as a commodity.
How can gold be both a currency and a commodity? Isn’t this a contradiction?
For most of history, currencies have been backed by commodities, or metals were used as money directly. Even today, when national currencies are no longer backed by real assets, gold maintains its value as an independent, international currency but at the same time is used as a commodity, and certainly viewed as a commodity, by many investors around the world. Gold’s ability to play this dual role successfully underpins its usefulness to investors.
Is gold a high risk or low risk investment?
In general, gold is considered a low risk investment because its price is typically not very volatile. The gold price tends not to fluctuate more than the world’s largest blue-chip stock market indices like the S&P 500. That is why many investors with low-risk profiles are attracted to gold. However, investors in high risk assets also find gold useful because they can use it to manage their risk.
What types of returns does gold offer investors?
Although very large investors can lend their gold out and receive a “gold” interest rate, in practice this yield is very low. So the main return on gold is capital gain or loss which is realised by selling some gold. This is no different from many other assets, including, for example, zero coupon bonds.
How big is the gold investment market?
In 2005, the overall gold market saw inflows of US$ 56 billion, of which nearly US$ 9 billion represented investment flows. Ultimately, the size of the gold investment market is some proportion of all the gold that has ever been mined. On this basis, gold represents around 4% of the market capitalisation of global bonds and equities.
How can I invest in gold?
There are many ways to invest in gold and these are explained fully on www.gold.org/value. How an individual chooses to invest in gold depends on the size of the investment, his/her reason for investing, and the purpose of the investment. People invest directly in bars and coins; through gold futures, options, warrants and certificates. They may also hold gold in metal accounts with their bank in just the same way they could have a foreign currency account. The most popular, fastest-growing form of gold investment is also the newest: gold traded in the form of a security on stock exchanges around the world, generally referred to as “gold ETFs”.
It is appropriate for pension funds to invest in gold?
Gold certainly merits the attention of pension funds who are seeking good portfolio diversifiers and wish to reduce the volatility of their returns, particularly in response to changes in International Accounting Standards and as part of a liability-matching strategy. Gold is attracting growing interest from a small number of pension funds, some of whom may already be building their exposure to gold, usually as part of a basket of commodities.
Find out here why gold lures people:
Why do people invest in gold?
People around the world invest in gold for many different reasons. Many people view gold as a reliable source of value in times of trouble. Gold offers insurance against stock market failure and has proved to be a liquid, transportable asset for refugees needing to flee their countries. More and more people understand that by investing in gold, they are protecting themselves against a range of risks, such as weakness of the US dollar; unexpected inflation; and low returns on other assets. Some people simply want to own as asset they can trust, because it is real and holds its value over the long term.
Is gold really a good hedge against inflation?
There is substantial evidence to support the view that gold is a good long run hedge against inflation. In the short-run, the gold price may deviate from its long run inflation hedge value, and may take a number of years to revert to this constant. Gold is not a perfect hedge against inflation, but it is the only hedge that has been tried and tested over centuries that have seen currencies rise and fall.
Is gold a global currency?
Gold has retained its role as a monetary asset. Central banks around the world still hold around 12 per cent of their reserves in gold, and even private individuals can and do use gold to settle payments. However, gold is not “issued” by any particular government and is not beholden to any political regime. In this sense, it is a truly global, international currency, free of political or national association and liability.
Is gold a commodity?
Gold is used for different purposes, and these certainly include commodity uses. Industrial applications of gold account for about 10% of demand each year. Demand for gold as jewellery absorbs around 75% of the gold supplied to the market each year, with the balance made up by investment. Gold is certainly included in the leading tradable commodity indices. So for many practical purposes, gold is viewed as a commodity.
How can gold be both a currency and a commodity? Isn’t this a contradiction?
For most of history, currencies have been backed by commodities, or metals were used as money directly. Even today, when national currencies are no longer backed by real assets, gold maintains its value as an independent, international currency but at the same time is used as a commodity, and certainly viewed as a commodity, by many investors around the world. Gold’s ability to play this dual role successfully underpins its usefulness to investors.
Is gold a high risk or low risk investment?
In general, gold is considered a low risk investment because its price is typically not very volatile. The gold price tends not to fluctuate more than the world’s largest blue-chip stock market indices like the S&P 500. That is why many investors with low-risk profiles are attracted to gold. However, investors in high risk assets also find gold useful because they can use it to manage their risk.
What types of returns does gold offer investors?
Although very large investors can lend their gold out and receive a “gold” interest rate, in practice this yield is very low. So the main return on gold is capital gain or loss which is realised by selling some gold. This is no different from many other assets, including, for example, zero coupon bonds.
How big is the gold investment market?
In 2005, the overall gold market saw inflows of US$ 56 billion, of which nearly US$ 9 billion represented investment flows. Ultimately, the size of the gold investment market is some proportion of all the gold that has ever been mined. On this basis, gold represents around 4% of the market capitalisation of global bonds and equities.
How can I invest in gold?
There are many ways to invest in gold and these are explained fully on www.gold.org/value. How an individual chooses to invest in gold depends on the size of the investment, his/her reason for investing, and the purpose of the investment. People invest directly in bars and coins; through gold futures, options, warrants and certificates. They may also hold gold in metal accounts with their bank in just the same way they could have a foreign currency account. The most popular, fastest-growing form of gold investment is also the newest: gold traded in the form of a security on stock exchanges around the world, generally referred to as “gold ETFs”.
It is appropriate for pension funds to invest in gold?
Gold certainly merits the attention of pension funds who are seeking good portfolio diversifiers and wish to reduce the volatility of their returns, particularly in response to changes in International Accounting Standards and as part of a liability-matching strategy. Gold is attracting growing interest from a small number of pension funds, some of whom may already be building their exposure to gold, usually as part of a basket of commodities.
Dollar rises, gold suffers
Gold’s sheen may a be a bit off this week due to the strengthening of dollar and fall in crude oil prices.
According to experts, the yellow metal will keep low profile this week.
Investment funds are also invariably shifting towards other asset classes including equity, currency and bonds.
Market analysts said the US Federal Reserve would either keep interest rates unchanged or revise them upwards.
Therefore, fundamentals continue to weaken in the valuable asset class.
The price of the yellow metal is expected to slump to $852 an ounce (oz) in London. But it is unlikely to provide any relief to the Indian consumers as the rupee is depreciating against the dollar.
Since the peak of below 40, the rupee has depreciated by about 7-8 per cent, while gold has fallen by above 13 per cent.
Gold had reached $1,033.90 on March 17, the highest-ever price, as the euro and crude oil set previous records.
Surprisingly, the domestic demand has hardly witnessed any major impact of the price rise or the fall because of auspicious days and seasonal buying on occasions like weddings and festivals.
This week, standard gold slumped by 4.65 per cent to Rs 12,205 per 10 grams, while pure gold nosedived by 4.67 per cent to Rs 12,260 per 10 grams in Mumbai. In London, the yellow metal fell by 4.50 per cent to $885.75 an ounce.
According to experts, the yellow metal will keep low profile this week.
Investment funds are also invariably shifting towards other asset classes including equity, currency and bonds.
Market analysts said the US Federal Reserve would either keep interest rates unchanged or revise them upwards.
Therefore, fundamentals continue to weaken in the valuable asset class.
The price of the yellow metal is expected to slump to $852 an ounce (oz) in London. But it is unlikely to provide any relief to the Indian consumers as the rupee is depreciating against the dollar.
Since the peak of below 40, the rupee has depreciated by about 7-8 per cent, while gold has fallen by above 13 per cent.
Gold had reached $1,033.90 on March 17, the highest-ever price, as the euro and crude oil set previous records.
Surprisingly, the domestic demand has hardly witnessed any major impact of the price rise or the fall because of auspicious days and seasonal buying on occasions like weddings and festivals.
This week, standard gold slumped by 4.65 per cent to Rs 12,205 per 10 grams, while pure gold nosedived by 4.67 per cent to Rs 12,260 per 10 grams in Mumbai. In London, the yellow metal fell by 4.50 per cent to $885.75 an ounce.
Gold Rush: When price is up, hunt for Gold is hot
When gold price is up, hunt for the precious metal surges. In the last few months, as global gold prices surged, here in California, there has been a gold rush going on.
The current high price of gold brings back memories of the Californian gold rush when hundreds of thousands of people flocked to the US state in search of the precious metal, according to the World Gold Council web site.
Quoting well known gold analyst Colleen Stanley Bare, the WGC site siad that panning for gold has become what is described as a "hot recreational activity".
Indeed, hovering at around $1,000 an ounce, gold prices have encouraged many people to set out in search of their own fortune just as they did in 1849.
The Californian gold rush began when James Marshall discovered gold at Sutter's Mill in Coloma, California. After news of his discovery spread around 300,000 people arrived in California from across the world to pan for gold in streams and riverbeds.
Brent Shock, who runs gold-panning tours in Jamestown, told the BBC that because of the high price of gold there is a "tremendous" amount of interest from people looking to follow in the footsteps of the so called forty-niners and take part in gold prospecting.
The current high price of gold brings back memories of the Californian gold rush when hundreds of thousands of people flocked to the US state in search of the precious metal, according to the World Gold Council web site.
Quoting well known gold analyst Colleen Stanley Bare, the WGC site siad that panning for gold has become what is described as a "hot recreational activity".
Indeed, hovering at around $1,000 an ounce, gold prices have encouraged many people to set out in search of their own fortune just as they did in 1849.
The Californian gold rush began when James Marshall discovered gold at Sutter's Mill in Coloma, California. After news of his discovery spread around 300,000 people arrived in California from across the world to pan for gold in streams and riverbeds.
Brent Shock, who runs gold-panning tours in Jamestown, told the BBC that because of the high price of gold there is a "tremendous" amount of interest from people looking to follow in the footsteps of the so called forty-niners and take part in gold prospecting.
Why oil prices shot up to extreme highs
By Gary Dorsch
After watching crude oil's parabolic rise – doubling from a year ago, to above $130 a barrel in May – central bankers who under-estimated the power and resiliency of the "crude oil vigilantes" are now praying for this apparent bubble to burst under its own weight, and at a moment's notice, writes Gary Dorsch of SirChartsALot.com...
In an interview with The Daily Telegraph in London, one of the world's biggest hedge fund traders, George Soros, said that although the weak US Dollar, depleting supplies from aging oil fields, government fuel subsidies, and record Chinese and Indian demand could explain the surge in energy prices, the crude oil market is also significantly inflated by speculation.
"Speculation is increasingly affecting the price, which has a parabolic shape, which is characteristic of bubbles," said Soros.
However, he also warned that the oil bubble won't burst until both the US and British economies slipped into recession, after which event, oil prices could fall dramatically.
"You can also anticipate that the [oil] bubble will eventually correct, but that is unlikely to happen before the recession actually reduces the demand. The rise in the price of oil and food is going to weigh and aggravate the recession."
It's dangerous to pick a top in a raging bull market, since bubbles can inflate more than anybody ever imagined. On May 20th, T.Boone Pickens – the legendary oil trader and investor – told CNBC he expected crude oil prices to keeping going up, even from here.
"I think we'll get to $150 this year," he reckoned. The next day, soon-to-be deposed Israeli prime minister Ehud Olmert called for a US naval blockade of Iran. If that happens, crude oil could shoot to $200 per barrel.
Who is Inflating the Oil Bubble?
Chief culprit is the Federal Reserve, the US central bank. By slashing 325-basis points off the Fed funds rate – taking it to a negative 2% after adjusting for inflation and expanding the US broad money supply by 16.5% from a year ago in a desperate effort to stop the slide in the sinking US banking sector – the Fed encourages speculation in commodities by pushing down the Dollar.
That, in turn, pushes up the price of Dollar-denominated commodities such as crude oil, soy beans and Gold.
So far, the Fed's aggressive rate cuts haven't found any meaningful traction in the S&P Banking Index, which is still languishing at its March lows, some 40% lower from a year ago.
Banks continue to post hundreds of billions in losses from toxic sub-prime mortgage debt. But the Fed's single focus on rescuing the banking sector, with no regard for the inflationary consequences of its actions, has led to the emergence of the "crude oil vigilantes".
Much like the famed "bond market vigilantes" of the late '70s and early '80s – who sold US Treasuries hard, pushing up bond yields and forcing the Fed to raise its interest rates – these traders are now punishing central bankers who have too abusive with the world's money supply. The crude oil vigilantes merely swap bonds for oil prices.
In the past, a sharp slowdown in the US economy, the world's biggest oil guzzler, usually pushed the price of crude oil and other commodities lower. But the Fed was caught by complete surprise after crude oil prices doubled, even as America's economy slipped into a recession in the first quarter.
"The current oil price has no relation to market fundamentals," explained Saudi oil chief Ali al-Naimi on March 5th. "It is linked to tremendous speculation in crude oil futures. There are even those who buy futures and speculate that oil prices will reach $200 in 2013."
On April 28th, Opec chief Chakib Khelil observed that crude oil prices were climbing "even though supply is adequate, because the market is driven by the dollar's slide. Each time the Dollar falls 1%, the price of the barrel rises by $4, and of course vice versa.
"If for instance, the US Dollar would strengthen by 10%, it is probable that oil prices will fall by 40%."
But such simple logic has its limitations. China, India, Russia and the Middle East combined are now consuming more crude oil than the United States, burning 20.7 million barrels a day – some 4% from than a year ago, according to the IEA.
The emerging economies are picking-up the slack in the oil market, more than offsetting the 1.3% contraction in US oil demand forecast this year to 20.3 million barrels per day. Thus a mild recession in the Western economies and Japan might not weaken global demand for oil.
Oil Bubble: A Hedge for Much More Than the US Dollar
What's more, big oil exporters like Russia, Mexico and Opec itself are growing so fast economically that their need for energy within their own borders will limit how much they can sell abroad.
Internal oil demand in Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates grew 6% last year, and their exports declined 3%. Mexico's oil output fell 9% in the first four months of 2008. If these trends continue, global crude exports could fall by 2.5 million barrels a day by the end of 2010, adding new strains to the global oil market.
Yet it was shocking to hear Minneapolis Fed chief Gary Stern on May 28th, refuting the linkage between the US Dollar's sharp decline and soaring energy prices, and denying any responsibility for the global Oil Bubble – also known as the "Oil Shock".
"I'd be careful about mistaking correlation and causation. Just because energy prices and the Dollar seem to move together, that doesn't mean that there's causation there. If you're thinking about energy prices, bear in mind that there's been some very significant changes in the global economy that have something to do with this.
"I would point to the very rapid growth in China and India in recent years, and places like that."
Crude oil speculators on the Nymex were buying "black gold" as a hedge against the US Dollar's slide against the Euro, the world's No.2 reserve currency. And perhaps traders in London – also picking up the mantle of "crude oil vigilantes" – have been buying North Sea Brent as a hedge against the British Pound's devaluation, too.
The Bank of England engineered the British Pound's sharp devaluation against the Euro by joining the Fed's rate cutting spree last November. Over the last 8 months, it's made three quarter-point rate cuts to 5.0%.
The European single currency – still paying less to cash savers, but with the European Central Bank (ECB) and its "anti inflation" rhetoric behind it – soared 17% to break above 80 pence per Euro. At the same time, North Sea Brent crude oil prices doubled to $130 per barrel.
Flipped the other way round, the British Pound buys around €1.25, down from €1.50 last summer, making European imports considerably more expensive. For Ivory Tower economists, the Euro's ascent against the British Pound and US Dollar – both of which closely tracked crude oil prices – was just a statistical coincidence.
But for crude oil speculators, the sharp devaluations of the Pound and US Dollar translated into enormous windfall profits in their brokerage accounts.
Whatever the truth of the Oil Bubble's beginning – and the part played by crude oil vigilantes in the London and New York markets – it's always good to have the basic fundamentals on your side when riding the waves of a strong bull market.
Oil production is shrinking in 54 of the world's top 60 oil producing nations, including Britain's North Sea fields – where output peaked in 1999, and has already plunged by half.
The UK began importing liquid gas for the first time in history in July 2005, and its North Sea oil reserve is dwindling at an 8.5% annual rate. Indeed, the curtain might fall on North Sea Brent by 2012 if enough isn't done to maintain development and exploration, according to the UK Offshore Oil Industry.
But political pressure on the Bank of England for more rate cuts could intensify after British housing prices dropped for the eighth straight month in May, down 2% from a year ago. The average selling time for UK homes has climbed to almost 10 weeks, compared to 5.8 weeks in May 2007. And a further slide in home prices could topple the UK's asset-based economy into recession, deepening losses for British banks.
Another round of BoE rate cuts could renew selling pressure on Sterling and buoy Brent crude prices, oil bubble or not. But currency devaluations do not fully account for crude oil's dramatic rise to $135 per barrel last week. "Peak Oil" theorists have an equally strong explanation, and Saudi Arabia's threat to ramp-up oil production by 2012 is sounding hollow.
Currency swings do magnify the volatility and price trends in the crude oil market, however, the same way the "Yen carry" trade magnifies swings in the global stock markets. The massive volatility in Gold Prices – a proxy for global faith in paper currencies – only adds to the pressure on central banks applied by crude oil vigilantes.
No market travels in a straight line forever, and shakeouts in the crude oil market are designed to wipe-off the speculative froth. However, a British and US economic recession would not necessarily burst the oil bubble, especially not if the net result is another sharp devaluation of the British Pound and US Dollar in the foreign exchange market, which would support high oil prices.
Oil Bubble: Subsidies Foil Supply & Demand in China
The basic laws of supply-and-demand don't work in an economy where the government intervenes with price controls. And in China, gasoline prices haven't gone up since last November, even though crude oil prices have gone up 35%.
Beijing controls gasoline prices to limit their effect on inflation, and it prevents refiners from passing on higher oil import costs to consumers. Without the price controls on energy distillates, Chinese inflation would already be in the double digits, threatening social unrest.
China Petroleum & Chemical (Sinopec) said its first-quarter net profit fell 69% from a year earlier due to surging crude oil costs. Sinopec imports about 80% of its total oil needs, and its refineries break even if oil import prices are $76 a barrel or lower.
To cover its losses, SNP received a government subsidy 4.9 billion Yuan ($700m) in the fourth quarter and 7.4bn Yuan ($1.1bn) for the first quarter of this year.
After watching crude oil's parabolic rise – doubling from a year ago, to above $130 a barrel in May – central bankers who under-estimated the power and resiliency of the "crude oil vigilantes" are now praying for this apparent bubble to burst under its own weight, and at a moment's notice, writes Gary Dorsch of SirChartsALot.com...
In an interview with The Daily Telegraph in London, one of the world's biggest hedge fund traders, George Soros, said that although the weak US Dollar, depleting supplies from aging oil fields, government fuel subsidies, and record Chinese and Indian demand could explain the surge in energy prices, the crude oil market is also significantly inflated by speculation.
"Speculation is increasingly affecting the price, which has a parabolic shape, which is characteristic of bubbles," said Soros.
However, he also warned that the oil bubble won't burst until both the US and British economies slipped into recession, after which event, oil prices could fall dramatically.
"You can also anticipate that the [oil] bubble will eventually correct, but that is unlikely to happen before the recession actually reduces the demand. The rise in the price of oil and food is going to weigh and aggravate the recession."
It's dangerous to pick a top in a raging bull market, since bubbles can inflate more than anybody ever imagined. On May 20th, T.Boone Pickens – the legendary oil trader and investor – told CNBC he expected crude oil prices to keeping going up, even from here.
"I think we'll get to $150 this year," he reckoned. The next day, soon-to-be deposed Israeli prime minister Ehud Olmert called for a US naval blockade of Iran. If that happens, crude oil could shoot to $200 per barrel.
Who is Inflating the Oil Bubble?
Chief culprit is the Federal Reserve, the US central bank. By slashing 325-basis points off the Fed funds rate – taking it to a negative 2% after adjusting for inflation and expanding the US broad money supply by 16.5% from a year ago in a desperate effort to stop the slide in the sinking US banking sector – the Fed encourages speculation in commodities by pushing down the Dollar.
That, in turn, pushes up the price of Dollar-denominated commodities such as crude oil, soy beans and Gold.
So far, the Fed's aggressive rate cuts haven't found any meaningful traction in the S&P Banking Index, which is still languishing at its March lows, some 40% lower from a year ago.
Banks continue to post hundreds of billions in losses from toxic sub-prime mortgage debt. But the Fed's single focus on rescuing the banking sector, with no regard for the inflationary consequences of its actions, has led to the emergence of the "crude oil vigilantes".
Much like the famed "bond market vigilantes" of the late '70s and early '80s – who sold US Treasuries hard, pushing up bond yields and forcing the Fed to raise its interest rates – these traders are now punishing central bankers who have too abusive with the world's money supply. The crude oil vigilantes merely swap bonds for oil prices.
In the past, a sharp slowdown in the US economy, the world's biggest oil guzzler, usually pushed the price of crude oil and other commodities lower. But the Fed was caught by complete surprise after crude oil prices doubled, even as America's economy slipped into a recession in the first quarter.
"The current oil price has no relation to market fundamentals," explained Saudi oil chief Ali al-Naimi on March 5th. "It is linked to tremendous speculation in crude oil futures. There are even those who buy futures and speculate that oil prices will reach $200 in 2013."
On April 28th, Opec chief Chakib Khelil observed that crude oil prices were climbing "even though supply is adequate, because the market is driven by the dollar's slide. Each time the Dollar falls 1%, the price of the barrel rises by $4, and of course vice versa.
"If for instance, the US Dollar would strengthen by 10%, it is probable that oil prices will fall by 40%."
But such simple logic has its limitations. China, India, Russia and the Middle East combined are now consuming more crude oil than the United States, burning 20.7 million barrels a day – some 4% from than a year ago, according to the IEA.
The emerging economies are picking-up the slack in the oil market, more than offsetting the 1.3% contraction in US oil demand forecast this year to 20.3 million barrels per day. Thus a mild recession in the Western economies and Japan might not weaken global demand for oil.
Oil Bubble: A Hedge for Much More Than the US Dollar
What's more, big oil exporters like Russia, Mexico and Opec itself are growing so fast economically that their need for energy within their own borders will limit how much they can sell abroad.
Internal oil demand in Saudi Arabia, Russia, Norway, Iran and the United Arab Emirates grew 6% last year, and their exports declined 3%. Mexico's oil output fell 9% in the first four months of 2008. If these trends continue, global crude exports could fall by 2.5 million barrels a day by the end of 2010, adding new strains to the global oil market.
Yet it was shocking to hear Minneapolis Fed chief Gary Stern on May 28th, refuting the linkage between the US Dollar's sharp decline and soaring energy prices, and denying any responsibility for the global Oil Bubble – also known as the "Oil Shock".
"I'd be careful about mistaking correlation and causation. Just because energy prices and the Dollar seem to move together, that doesn't mean that there's causation there. If you're thinking about energy prices, bear in mind that there's been some very significant changes in the global economy that have something to do with this.
"I would point to the very rapid growth in China and India in recent years, and places like that."
Crude oil speculators on the Nymex were buying "black gold" as a hedge against the US Dollar's slide against the Euro, the world's No.2 reserve currency. And perhaps traders in London – also picking up the mantle of "crude oil vigilantes" – have been buying North Sea Brent as a hedge against the British Pound's devaluation, too.
The Bank of England engineered the British Pound's sharp devaluation against the Euro by joining the Fed's rate cutting spree last November. Over the last 8 months, it's made three quarter-point rate cuts to 5.0%.
The European single currency – still paying less to cash savers, but with the European Central Bank (ECB) and its "anti inflation" rhetoric behind it – soared 17% to break above 80 pence per Euro. At the same time, North Sea Brent crude oil prices doubled to $130 per barrel.
Flipped the other way round, the British Pound buys around €1.25, down from €1.50 last summer, making European imports considerably more expensive. For Ivory Tower economists, the Euro's ascent against the British Pound and US Dollar – both of which closely tracked crude oil prices – was just a statistical coincidence.
But for crude oil speculators, the sharp devaluations of the Pound and US Dollar translated into enormous windfall profits in their brokerage accounts.
Whatever the truth of the Oil Bubble's beginning – and the part played by crude oil vigilantes in the London and New York markets – it's always good to have the basic fundamentals on your side when riding the waves of a strong bull market.
Oil production is shrinking in 54 of the world's top 60 oil producing nations, including Britain's North Sea fields – where output peaked in 1999, and has already plunged by half.
The UK began importing liquid gas for the first time in history in July 2005, and its North Sea oil reserve is dwindling at an 8.5% annual rate. Indeed, the curtain might fall on North Sea Brent by 2012 if enough isn't done to maintain development and exploration, according to the UK Offshore Oil Industry.
But political pressure on the Bank of England for more rate cuts could intensify after British housing prices dropped for the eighth straight month in May, down 2% from a year ago. The average selling time for UK homes has climbed to almost 10 weeks, compared to 5.8 weeks in May 2007. And a further slide in home prices could topple the UK's asset-based economy into recession, deepening losses for British banks.
Another round of BoE rate cuts could renew selling pressure on Sterling and buoy Brent crude prices, oil bubble or not. But currency devaluations do not fully account for crude oil's dramatic rise to $135 per barrel last week. "Peak Oil" theorists have an equally strong explanation, and Saudi Arabia's threat to ramp-up oil production by 2012 is sounding hollow.
Currency swings do magnify the volatility and price trends in the crude oil market, however, the same way the "Yen carry" trade magnifies swings in the global stock markets. The massive volatility in Gold Prices – a proxy for global faith in paper currencies – only adds to the pressure on central banks applied by crude oil vigilantes.
No market travels in a straight line forever, and shakeouts in the crude oil market are designed to wipe-off the speculative froth. However, a British and US economic recession would not necessarily burst the oil bubble, especially not if the net result is another sharp devaluation of the British Pound and US Dollar in the foreign exchange market, which would support high oil prices.
Oil Bubble: Subsidies Foil Supply & Demand in China
The basic laws of supply-and-demand don't work in an economy where the government intervenes with price controls. And in China, gasoline prices haven't gone up since last November, even though crude oil prices have gone up 35%.
Beijing controls gasoline prices to limit their effect on inflation, and it prevents refiners from passing on higher oil import costs to consumers. Without the price controls on energy distillates, Chinese inflation would already be in the double digits, threatening social unrest.
China Petroleum & Chemical (Sinopec) said its first-quarter net profit fell 69% from a year earlier due to surging crude oil costs. Sinopec imports about 80% of its total oil needs, and its refineries break even if oil import prices are $76 a barrel or lower.
To cover its losses, SNP received a government subsidy 4.9 billion Yuan ($700m) in the fourth quarter and 7.4bn Yuan ($1.1bn) for the first quarter of this year.
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