Bullion Extracts...

Here we will from time to time post articles that we find interesting and important about anything relevant to investing in gold and sliver bullion or products. When inclusions are sourced from other parties we will acknowledge those authors and/or provide links to that information.

 

 

 

Whats going on with Gold ?

27th September 2011

 

Dear Investor,

As you know, the world lurched further into turmoil over the weekend.

Some of you have asked me why - if gold is a safe haven - why has the USD price fallen?

It's a good question - and one I wanted to answer for you today, because this has massive implications for your investment portfolio. But I'll get to that in a moment.

Gold is supposed to go UP, isn't it?

But it didn't:


That's not a great picture. But wait...

Don't forget the exchange rate effect.

Because if you look at the chart in Aussie dollars, the effect has been muted seriously.

When I woke up Monday morning I read this quote from a commentator in the Sydney Morning Herald: So, the claims by the internet chatroom gold bugs out there that the wall of worry snaking its way around the world meant gold was headed off to more than $US2000 an ounce, if not $US2500 an ounce, are all a sudden looking seriously dumb. I really wish we'd managed to get Brett Le Brocque over to educate him. At the end of this, I'll be asking you to make a decision about who is making more sense to you. I'll also summarise my thoughts in 10 points, so if you are pressed for time, you can go there now! What happened to gold? Headlines like this don't make pretty reading.

If you are holding gold as part of an Australian portfolio, you have been buffered somewhat by the fall in our currency. (We’ll get to currencies in a second).

What is going on with gold?

As we always say, even in a strong bull run, it's stairs up, elevator down. 

So we are never that surprised to see corrections.

And while everyone focuses on the short term, have a look at the longer term history.

The global markets are a complex beast, so I can't claim to know every in and out. However in my view there are two main reasons for this correction.

First, the Chicago Mercantile Exchange, has raised its margin requirements on gold by a LOT. Secondly, the USD strengthened relative to the Euro.

The CME (the world's largest futures and options provider) has announced it will be raising its margin requirements for gold by 21% by close of business, Monday 26 September (US east coast time).

Why does this matter?

Because all week the big global funds have been faced with a choice - borrow more to cover the new margin levels or to sell gold to keep within the new limits.

CME has a number of motivations for increasing its margin requirements, and I wish I had time to go into them here. But one possible motivation is to keep some of the building heat out of the market so that their trading volumes are more sustainable.

Anyway regardless of their motivations, fact is, when margin requirements go UP, then lots of funds SELL.

The second reason comes down to relativities...

Relative movement of USD vs EUR

This reason for the gold price fall is a bit simpler. It's simply that there was SO MUCH BAD NEWS about the Euro zone, so much reason to be concerned, that the USD actually rose against the Euro.

Don't forget, all currency and forex discussions are relative. So as the prospects of the Euro fell, the USD strengthened, and also forex traders parked some cash in the USD.

This pushed the USD up, and gold came down relative to the currency, exactly as you would expect.

When you add this effect to the CME margin decision, the movement on gold is pretty much as you would expect. In the short term.

I wouldn't call it a bubble bursting. But then again, I've never argued that gold is in a bubble.

This brings me to my final argument today. Have the fundamentals changed?

Have the fundamentals changed?

The first point I want to make is one that should be drummed into everyone:

In USD terms, Gold is not falling - the USD is rising.

In other words, gold is money. And the currencies are bouncing around gold, not the other way round.

For thousands of years, gold has had a strong ability to protect buying power. It has never been about making money (and certainly not dividends). So when governments around the world are in a massive debt crisis and printing unmentionable amounts of paper (fiat) currency, it is to be expected that the price of gold, as expressed in the currencies, will rock around a fair bit.

It doesn't mean the fundamentals are changing. In fact, it is probably (in my view) the opposite.

So, I ask you as a thinking investor: Do YOU think anything has changed?

• Is Europe in a better place? Or is it looking more disastrous by the day?
• Has the US solved its massive debt problem? Or is the political situation making things harder?
• Is gold still a safe haven? Or has the nature of gold as money changed suddenly after 5,000 years?

I think you know where I am coming from here...

To me, gold is looking as important as it has ever been. And I don't mind telling you I am not just saying that and doing something else - I am personally investing in gold and plan to hold on until I see signs of fundamental change in the global economy.

Once again my lawyers insist I remind you that this letter is my view not investment advice, and I am certainly not giving you personal advice. This commentary is designed to let you know what I think is going on, so you can make more informed decisions (they're educational). Get good advice, and make informed decisions.

Speaking of decisions, there are 4 things you can do today: Hold, Buy, Sell or Freeze.

You have 4 choices anytime when gold and silver prices Drop :

1. Hold
You are happy with the amount of precious metals in your portfolio because you are playing a smart, well-thought-out long term investment strategy.

2. Sell
You think gold is in a bit of a bubble and will come back a lot in your currency dollar terms (or you think your currency is going to bounce back) - so you think it would be a good time to get out before a further price fall.

3. Buy
You think this pullback is another opportunity to buy bullion at a lower price, and top up your portfolio with physical metal. Perhaps you feel, with all the economic jitters, that ultimately more people will again turn to gold and silver.

4. Freeze
You have no idea what to do, so - like many investors - you freeze and wait for the market to do what it likes to you.

But that said, I think ALL of these positions are reasonable except number 4. Freeze. Freezing is not a strategy, it is panic. If you are HOLDING, that's different. I tip my hat to you. But if you are not moving simply from confusion or a lack of information, you are at the mercy of the market. If this is you, please get off the fence. Thaw yourself with information and expert advice. And make a decision.

Conclusion

My views in summary are:

• Gold has fallen in price in USD terms
• Gold is back to prices of mid August in AUD terms
• Gold priced in currencies which will wiggle around because of global currencies moving against each other
• The CME has just ratcheted up its margin requirements on gold by 21% - ouch.
• You'd expect gold to correct under these circumstances.
• The global economy is still in a world of pain - no fundamentals have changed
• I do not personally feel that gold is in a bubble, nor has it burst
• You should actively choose between HOLD, BUY or SELL. Just don't FREEZE.
• Keep arming yourself with information - the mainstream media know less than you do about precious metals.

 

5 Reasons Gold Will Continue to Rise

By Brian Hicks, Sept 2011

Don't fall for this stuff...

"Gold's peaked."

"I don't see how prices could get any higher."

"There's no way gold can keep this rally alive."

This sentiment is nothing new.

Those lines even came from the same newspaper! It was printed in 2006, when gold traded for less than $600.

And you heard it again as prices broke $700 then $800...

Even as we tear down the $1,900 mark, so called "experts" are still clinging to their "it's peaked" mentality.

Last month alone, prices jumped another 12%.

And thanks to the entire world's lack of trust in D.C. and the U.S. dollar, gold is a long way from peaking.

I'm predicting it'll break at least $5,000 within the next two years. And I know I'm not alone.

1) Economy
The U.S. manufacturing base has been shipped overseas. The few jobs being created are in the service industry or government sector. The official unemployment rate hovers near 10%, and 1 out of every 8 Americans is on food stamps. The 2008 economic implosion destroyed the real estate market, sent foreclosures skyrocketing, and swallowed up a nearly $1 trillion bailout... and yet, most experts predict the worst is still to come.

2) Fear
The sovereign debt crisis threatens to spread across the globe. Fearful investors are shifting assets from the euro and other weakening currencies into gold. The stock market rebounded from its 2008-09 depths, but some analysts say it's overbought and due for painful correction. Meanwhile, turmoil across the Middle East, Asia, and elsewhere is exacting huge costs in American blood and treasure.

3) Demand
The Federal Reserve has kept U.S. interest rates at virtually zero with no sign of a hike on the horizon, thereby lowering the opportunity cost of buying gold. And investors have responded with astonishing eagerness — even forcing the U.S. Mint to ration popular bullion products in order to meet overwhelming demand. Expect central banks in China, India, and Russia to fuel demand for gold.

4) Reflation
Of the major assets, only Treasuries and gold have escaped the selling panic that has gripped the markets. Rushes on gold have caused mints around the world to run out of popular gold coins. Because of the inflationary impact of government bailouts, $2,000 could be the floor, not the ceiling.

5) The Dollar
Dollar weakness, plentiful liquidity, and policy reflation will be persistent themes in the future. Massive fiscal and monetary stimulus have weakened the dollar, whose current resurgence stems mainly from the European debt crisis. Once that crisis reaches the debt-burdened United States, the dollar's weakness as a currency will be evident to all — and its role as the world's reserve currency will be in jeopardy. As always, gold will be the first and most universal remedy.

Gold Corrections - What You Need to Know

You cannot hide from the National Debt...
but there is a solid way to stay out from under it.

Gold climbs as debt fears fuel buying
By Reuters; April 7, 2010

Gold rose to a five-week high in Europe today and held near record levels in euro terms on the back of strong physical demand and as investors, worried by the outlook for the eurozone economy flocked into hard assets. The metal shrugged off hefty gains in the dollar versus the euro, which normally would weigh on gold, as dealers reported good demand for physical stocks of the metal...

"European GDP in Q4 was revised down to 0% today, and the euro's direction looks to be downwards," said Matthew Turner, an analyst at VM Group. "We are used to American investors buying gold because they think the dollar is going to fall. I guess we may have European investors buying because they think the euro is going to go down. That may be one reason why the euro-weak, gold-strong relationship has happened."

Euro-priced gold hit a record high of €856.32 an ounce...

"Increasing concerns over fiscal deficit levels continue to draw diversification towards hard assets, particularly gold," said James Moore, an analyst at TheBullionDesk.com.

 

Crisis could end link between gold and dollar
By Sunil Kumar Singh, EmiratesBusiness24|7; April 1, 2010

"A sovereign debt crisis like the one we have seen in Greece over the past month, kept gold stable as the safe haven buying was offset by a stronger dollar. An escalation of that theme could result in a net rise of gold despite potential dollar strength," says Ole Hansen, Senior Manager for CFD and Listed products, Saxo Bank...

Sentiment among investors remains bullish for 2010 with some asset managers suggesting gold could gain as much as 30 per cent this year, according to Rothschild Private Banking and Trust's latest observation in its investment weekly.

So, what are the factors working behind the price of gold apart from the dollar? The last decade has shown that while gold is, in many ways, a simple asset (it has no default risk or counterparty risk and no complicated structures underpinning it) the drivers behind demand and the gold price are not that simple. Gold has shown that it can perform strongly when economic growth is buoyant, as it did during the 2003-2007 period, but it can also outperform when the global economy is in recession, the WGC report says.

Gold can outperform when inflation is benign (as it did through much of the past decade), it can outperform in a deflationary environment (as it did in 2008 and early 2009), and it can outperform during an environment of above trend inflation or expected inflation (as it has done more recently). While this doesn't imply that gold is immune to cycles, it does show resilience across the economic cycle, WGC says...

Many investors and hedge funds are reported to be flocking into gold on fears that deteriorating public finances and ballooning national debt of major economies can undervalue the current monetary setup, said Pradeep Unni, Senior Research Analyst and Trader at Dubai-based Richcomm Global Services.

 

How to wash your hands of the national debt...

Gold stands its ground
By TheGoldReport, SeekingAlpha; April 5, 2010

Gold prices continue to climb and John Licata, chief commodity strategist at Blue Phoenix Inc., says he sees reason to be optimistic about gold's future...

The Gold Report: The price of gold is around $1,100. Last year you were saying the best buying opportunities were in the $850 range. Are you still recommending gold to investors?

John Licata: Yes I am. Wall Street has thrown the kitchen sink at gold, and for all intents and purposes gold could have fallen below $800 per troy ounce with the rally in the U.S. dollar and overall stock market. Yet gold maintained its resiliency and showed it can act independently of foreign exchange movements. That has me very constructive on the outlook for the yellow metal. We're still holding on to $1,100 -- and I continue to maintain $1,375 as my target on gold for the rest of the year. Gold can benefit from increased geopolitical risk...

Gold will rise as more inflationary pressures present themselves. Only 40% of the stimulus package has actually been allocated. There will be a lot more government money allocated to various economies in the middle, and toward the end, of the year. We can see a lot of inflation -- and not only here in the United States. Globally, we're still trying to figure out what's happening from the sovereign debt perspective. If we keep throwing so much stimulus into reviving economies around the world, then "hyperinflation" is a term that we'll be really comfortable using in 2011.

Because I mentioned sovereign debt, we have to talk about Greece and how that situation could spill over into Portugal, or perhaps even Italy. Yet we have our own problems here in the U.S., with California perhaps coming up with a default of $20 billion. That's another catalyst for gold -- the fact that sovereign debt issues are being magnified right before our eyes even here at home...

 

Greenspan defends Fed record
By Joshua Zumbrun, Bloomberg; April 7, 2010

Congress is considering the most sweeping changes to financial regulation in decades, including a proposal by the Obama administration to limit banks' proprietary trading and provisions allowing for the orderly wind-down of failing financial firms. Former Federal Reserve Chairman Alan Greenspan suggested higher capital standards may be more effective than new rules...

Greenspan said the crisis originated from the securitization of subprime mortgages, which were fueled by low long-term interest rates that he said were outside the Fed's control, and international demand for these securities...

"While, fortunately, much financial innovation is successful, much is not," Greenspan said. "It is not possible in advance to discern the degree of future success of each innovation."

"The next pending crisis will no doubt exhibit a plethora of new assets which have unintended toxic characteristics, which no one has heard of before, and which no one can forecast today," Greenspan said.

 

McEwen -- gold is the ultimate currency
By Geoff Candy, Mineweb; April 1, 2010

Speaking on the Mineweb Gold Weekly podcast, Rob McEwen, the CEO of US Gold and the founder and former Chairman of Goldcorp, retains his long-held views on the gold price (he has recently been quoted as suggesting gold will hit $2,000 this year on its way to $5,000). He says that gold is being driven up by the massive amount of debt that's in place right now and the huge spending programmes by the governments of the west.

These countries, he says, are debasing their currencies in an effort to kick start their respective economies and, while this may work in the short term he says, "long and intermediate term we're going to see the ramifications of this and it will look something like the Weimar Republic of the twenties".

He adds, "First you have to appreciate that gold is [...] the ultimate currency because it can't be manufactured the way all the paper currencies of the world are, the fiat currencies. The supply of gold can only expand at the rate of annual production and that's about 1% a year whereas the paper supply is just a question of how many zeros you put in and you can print out as much as you want."

While McEwen admits that other factors, such as demand from Asia have a role to play in boosting the price of the yellow metal, in the end it comes down to money, how people keep it, store it and ensure its value doesn't diminish.

"August 2007, to me that was the turning point," he says, "that was the first time in probably the last 30 or 40 years that suddenly the entire banking system of the world appeared to be in jeopardy and the question was not of 'how much do I earn on my money', it is 'how do I protect my money', and gold has served that role over the millennium and it's about to do it again."

====================================================

In a bottomless sea of debt,
the Safe Harbor of choice is gold.

Why settle for any ol' port in a storm? In our concluding article HSBC suggests gold will deliver first-class treatment over the next 5 years, reaching $5,000 per ounce. I think you'll agree, that's significantly better than treading water.

 

What's troubling the waters of an economic recovery?

Here's a hint: The Associated Press reports this as "a major problem for the federal government" whose orchestrated federal bailout has "already siphoned $111 billion from the government to stay afloat" and is "expected to hit $188 billion by fall 2011." And by the same thread hangs the fate of many banks...

Click the image/link above to reveal the full Wit & Wisdom of Ed Stein.

 

Gold hits record highs in sterling, euro terms
By Jan Harvey, Reuters; March 2, 2010

Gold priced in both euros and sterling hit record highs in Europe on Tuesday as the precious metal benefited from volatility in the currency markets...

Euro-priced gold touched a peak of 832.83 euros an ounce [subequently extending gains to 837 by early Wednesday]...

Gold priced in sterling also rose to a new record high of 754.46 pounds an ounce [reaching 760 Wednesday]...

[And continuing from an additional Reuters article co-authored with Michael Taylor...]

...the British currency was driven lower by fears that the next UK general election could result in a hung parliament. This could mean an incoming government would struggle to take the action necessary to reduce debt, analysts said.

"Markets fear the UK government will be forced to create more sterling in order to buy their own government bonds and that quantitative easing and debt monetisation may continue for longer than expected," bullion dealer GoldCore said in a note.

"The Bank of England continuing to punish savers with near zero percent interest rates at 0.5 percent while inflation appears to be looming is also contributing to concerns about a new sterling currency crisis." This could lead to further gains in gold, it added.

As Jamie Coleman has aptly written in a ForexLive blog Tuesday, Currencies Stink, Gold in Demand:
'That seems to be the feeling this morning as gold reasserts its traditional safe-haven role as the market questions the sustainability of nations borrowing and spending their way to prosperity. EUR/USD is racing higher along with gold as the battle of the "big uglies" continues. The market is having a tough time deciding if the euro, pound or dollar is the worst of the major currencies. Given the dollar's reserve status, it generally seen as slighty less ugly than the others, but pretty butt-ugly in an absolute sense...' A remark which naturally leads us to the following question...

 

How long can the U.S. dollar defy gravity?
By Steven C. Johnson, Kristina Cooke and David Lawder, Reuters; February 23, 2010

The only time the U.S. dollar ever took a serious shellacking in the marketplace, the wounds were almost entirely self-inflicted. Facing mounting inflation and the escalating cost of the Vietnam War, President Richard Nixon, on Aug. 15, 1971, took the United States off the gold standard, which had been in place since 1944 and required that the Federal Reserve back all dollars in circulation with gold.

The move amounted to a made-in-America double-digit devaluation, shocking the country's foreign creditors.

Deep inside the New York Federal Reserve Bank's fortress in lower Manhattan, Scott Pardee, then 34, was fielding frantic calls from central bankers around the world. They were demanding the United States cover the foreign exchange risk on their reserves.

"The whole roof came in on us," recalled Pardee, a former New York Fed staffer who is now an economics professor at Vermont's Middlebury College. "That is the kind of situation the U.S. doesn't want to be in."

Nearly 40 years later, the dollar still dominates world trade. At the height of the financial crisis in 2008, investors fled to the dollar as a temporary safe haven. But the dollar has been falling steadily since 2002, and as the world economy recovered last year, dollar selling resumed, reviving doubts about how long it could remain the world's unrivalled reserve currency...

As the United States racks up staggering deficits and the centre of economic activity shifts to fast-growing countries such as China and Brazil, these sources fear the United States faces the risk of another devaluation of the dollar. This time in slow motion -- but perhaps not as slow as some might think.

If the world loses confidence in U.S. policies, "there'd be hell to pay for the dollar," Pardee said. "Sooner or later, the U.S. is going to have to pay attention to the dollar."

 

Kevin MacLean sees more gains for gold
By Shirley Won, The Globe and Mail; February 24, 2010

Maclean, manager of the Sentry Select Precous Metals Growth Fund, says: My view is that monetary policy will remain easy in 2010 and into 2011...

What about gold bullion?
If the global economy recovers, I think gold demand will pick up. There is no new supply of gold available so the gold price will rise. If things continue to worsen, then I think that gold as a non-default, hard asset will be an asset of choice in a world where credit risk is the dominant theme. So I think gold is in a win-win position, which is why I run my fund generally 100-per-cent invested...

I think the downside on gold is quite limited because this is a market that only produces about two-thirds of the demand for the products, and the rest of that supply has to come from scrap... mine production is approximately 2,500 tonnes [a year] and not growing.

Demand for gold historically has run perhaps 3,800 to 4,000 tonnes a year. We are well below the amount of gold being produced that is needed to meet normal demand levels...

The other factor is that central banks are now scrambling to reverse their mistake over the last 10 years and buy back their gold because they see now that prospects for a strong U.S. dollar exchange rate are dim indeed. So as a reserve asset, [the greenback] is losing its shine and they want to replace it with something that really does shine, which is gold.

How high can gold go?
If things can hang together, I would expect gold to rise by at least the rate of debt [increase] in the United States at the federal level. At $2-trillion a year, it is rising at about 16 per cent a year.

What do you say to investors who are curious but nervous about the gold sector?
Every investor should be exposed to gold, even the most conservative investor. It's a preservation tool for a portfolio in an environment where gold is, first of all, a win-win. Secondly, it might be a super win and absolutely necessary if the governments of the world, led by the United States, simply print their money into oblivion, which is what they are doing now.

 

Soros signals gold bubble as Goldman predicts record
By Nicholas Larkin and Pham-Duy Nguyen, Bloomberg; March 1, 2010

George Soros is helping drive up gold prices by doubling his bet in a market even he considers a "bubble" as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts...

"When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment," Soros said at the World Economic Forum's annual meeting in Davos, Switzerland, in January. "The ultimate asset bubble is gold," he said.

In a Jan. 28 Bloomberg Television interview, the 79-year-old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of "irrational exuberance" in financial markets three years before the technology bubble burst in 2000. The Standard & Poor's 500 Index rose 89 percent in the period. Buying at the start of a bubble is "rational," Soros said...

Gold is "just an asset that, like everything else in life, has its time and place. And now is that time," Paul Tudor Jones said in an October letter to clients...

"Gold makes sense as an investment," said Jeffrey Christian, the managing director of CPM Group. "Just because the price of gold is going up for the 10th year doesn't mean it's a bubble."

15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year...

Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year.

"I absolutely believe it's heading into a bubble, but that's why you buy it," said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management's Absolute Return Fund in London. "A bubble is good," he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold...

====================================================

Wealth Preservation vs. Inflation and Currency Depreciation

 

Rob McEwen sticks with $2,000/oz gold by year-end
By Liezel Hill, miningweekly; March 9, 2010

Goldcorp founder Rob McEwen is standing by his forecast that the price of gold will reach $2,000/oz by the end of 2010, he said on Monday.

While it may still seem a stretch from current levels of around $1,135/oz, it should be noted that McEwen has been making the prediction since at least March 2006. At that time, prices for the yellow metal had not topped $600/oz since January 1980.

"I have been saying for over five years: by the end of this year, we will be at $2,000 and, when the game is over for gold, it will be over $5,000 an ounce," he said.

 

Gold pursuing complex head and shoulders pattern
By Jamie Saettele, DailyFX; March 9, 2010

Gold has traded sideways since December and appears to be building a bullish base. Specifically, the base could be a complex head and shoulders (the head itself is a head and shoulders). In order to complete the pattern, gold would sell off once more towards $1075 before finding a right shoulder low.

 

'It's Going to Be Inflation Everywhere'
By CNBC.com; March 10, 2010

The global economy is entering a next "supercycle" phase that will generate inflation necessary for recovery, a strategist and protege of noted economist Nouriel Roubini told CNBC.

Arun Motianey, director of fixed income strategy at Roubini's RBG Capital, said ... the times ahead in fact will be more challenging if the economy isn't able to create inflation and suffers deflation instead.

"It's going to be inflation everywhere and it's going to happen really through the weakness of the US dollar," he said. "Then inflation in those other parts of the world that are expecting appreciating currencies, they're going to inflate as well because that's the way you ultimately correct this."

 

...Bigger investors look to gold as an alternative currency
By Geoff Candy, Mineweb; March 10, 2010

Gold is increasingly being viewed as an alternative currency; a theme that is likely to continue throughout 2010 and, possibly beyond. And, it is a view that changes the way in which investors react to the yellow metal. This is the view of Nicholas Brooks, head of research and investment strategy at ETF Securities.

Speaking on the Mineweb Gold Weekly podcast, Brooks said, "Investors are starting to focus much more on the sovereign risk issue. Greece has obviously brought it to investors' attention but obviously there is a lot of concern about what's happening in terms of debt and fiscal balances in developed economies such as the UK, the US and a number of the so-called peripheral European economies and in this environment there is a general concern about the risk of currency debasement and also the concern that governments may be tempted to try and create inflation in order to reduce the real debt levels."

This thinking has resulted in a shift away from viewing gold purely as a hedge against the US dollar... What we are seeing more and more of now, Brooks says, is a rising gold price even when the dollar strengthens.

"As an example in February we saw the gold price hit an all-time-high in both euro and in sterling and a lot of that went uncovered by many publications. But I think that is quite significant because of course the gold hit an all-time-high in US dollars last year, we are well over almost $1000, but it is quite a significant event when it moves to an all-time-high in two of the other world major currencies -- the sterling and the euro and that highlights to me again that investors are all looking at gold as a place to put cash during a period when there are growing concerns about government intentions and government policies."

"Investors do want to diversify away from the dollar -- I'm not arguing that they're about to aggressively sell dollars necessarily, but on a medium term basis a lot of the central banks and sovereign wealth funds would like to reduce their overall exposure to the dollar. And of course, when you look at the euro it's an imperfect currency -- the yen, you're dealing with a very large government debt level in Japan. So when you look around the world, there aren't a lot of options and I think that increasingly the central bank sovereign wealth funds along with private investors, are looking at gold as a place to keep capital in these uncertain times."

 

As confidence returns, gold will rise -- John Embry
By The Gold Report; March 9, 2010

Sprott Asset Management's Chief Investment Strategist believes gold could gain another 30% this year this year as a greater proportion of the public realizes the degree of difficulty that sovereign debt is in.

The Gold Report: John, in Investors Digest of Canada you recently said you're expecting gold to gain another 30% this year.

John Embry: I would say at least 30%. I said that I thought it would be the best year to date. We've had nine years consecutive higher year-end prices and the best year in that span for a year's return was 31%. I think this will be the year that we exceed it in this, the 10th year of the bull market. [...] I think we're getting very close to the point when a greater proportion of the public realizes the degree of difficulty that sovereign debt is in. And at that point, when you can't depend on your government paper as a safe haven, I think that fact puts gold in a much better light in more people's eyes. [...] Governments spent dramatically more money and the results are a budget deficit I never thought I'd see in my life. [...] We'll eventually have to clean out the debt, but I think we go hyper before that.

TGR: So hyperinflation. Would that include stocks as well?

JE: I think stocks will do fine. They may have a violent correction first because a lot of people don't know what the heck we're talking about here. And when they see inflation mounting and economic conditions being less than ideal, they'll sell their stocks. But the fact is that if you go back and look at any hyperinflationary environment anywhere, stocks did infinitely better than paper instruments. So precious metals first, stocks second.
[...]
TGR: All right. Any last comments?

JE: The only comment I'd make is I really think things are sufficiently serious here in a financial or monetary debasement sense that everybody -- and I have never been a table pounder -- but I think every single person with a serious portfolio has got to have a reasonably significant exposure to precious metals. This isn't something that's just insurance for those who've got cold feet. This is something I think is a mainstream thing that people must have.

TGR: When you say a significant portion, what percentages are you thinking?

JE: I used to say 5% to 10% when it was just an insurance thing and the market was pretty sanguine. I say at least 20% now. I see the other assets as being less attractive. I wouldn't buy a bond if you gifted me with the money to do it.

 

Gold: What's more important, price per ounce or ounces owned?
By Jeff Clark, Casey Research; March 5, 2010

In a recent conversation with a fellow gold analyst, he was emphatic that the price one pays for physical gold should be ignored. "What's far more important," he insisted, "is how many ounces I own in relation to the total value of my assets."

...The gold I bought last month was certainly higher priced than what I paid in 2008. But I'm trying to position my assets for protection from eventual dollar debasement and rising inflation. So perhaps focusing more on acquiring sufficient ounces to withstand a storm rather than stubbornly buying none, waiting for "cheaper" prices, however you define that, is a better mindset. Not owning enough gold is equivalent to holding a million-dollar mortgage and having a $10,000 life insurance policy. It won't help much when you really need it.

Of course we should pay attention to price. But the trick is not letting that distract you from buying what you need. You're not buying gold bullion as a speculation (although we expect to make a bundle on our holdings), but as a sound form of cash in an environment where government has no respect for a balance sheet and sees inflation as the only way out of its black hole of debt. During periods of inflation, the government does fine; it's the citizens that suffer from the lost purchasing power of their savings. It's clear our currency is being debased. What's your plan of defense?

For those diligently accumulating gold, how do you know when you have enough? Check your anxiety quotient. If Ben continues printing money or Obama promises more goodies than he has the money to pay for, and you remain calm, then you likely have adequate gold. These are the investors who can afford to be stubborn about price as they build their holdings. In my opinion, this is where we all want to be.

What form of gold should you buy? It depends on why you're buying it. If you understand gold's role in history, owning a physical form will come naturally to you...

...I remember when my wife and I decided it was time to get life insurance. We just had our kids, and it was time to play grown-up. Given what 5,000 years of history has taught us about the value of gold, and given what's happening at this moment in history to our currency, are you playing grown-up with your investments?

 

Marc Faber: Buy some gold every month "forever"
By WallStreetPit, CNBC; March 4, 2010

According to Marc Faber, the editor and publisher of The Gloom, Boom & Doom Report, everybody should buy some gold every month "forever" or look to emerging markets stocks rather than U.S. shares.

"Gold is not the liability of someone else...its quantity cannot increase at the same rate as you can print money, which will eventually...weaken the US dollar," Faber told CNBC on Thursday in a live interview.

"I'm not saying that the dollar will go straight away down because other currencies apparently like the euro are even worse than the U.S. dollar at the present time," he added. "But eventually if you print money, the purchasing power of money will lose [value]..."

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Gold demand rises as global debt-burdens compound

 

China gold demand may double within decade
By Kyoungwha Kim, Bloomberg; March 29, 2010

Gold consumption in China may double within the next 10 years, boosting prices as supplies fail to keep pace with booming demand from investors and the jewelry industry, the World Gold Council said.

China has an insatiable appetite for gold, which looks likely to continue in an environment where domestic mine supply lags behind demand," the council said in a report today... The output shortfall will create a "snowball effect" as the country's production fails to keep pace with the annual leap in consumption, the report said.

Higher mine development costs, potential supply disruptions, tougher safety regulations and depleting ore bodies could put a much higher floor under the gold price, according to the council.

"On the investment side, we see exponential growth," Albert Cheng, the council's managing director for the Far East, said in an interview in Beijing...

"Near-term inflationary expectations and rising income levels are likely to support the investment case for gold as an asset class, especially given that Chinese consumers are high savers and are looking to gold to protect their wealth," the council's report said...

Policy makers in China "encourage some alternative investments, but they don't want people to go crazy about property or the stock market," said Wallace Ng, executive director of commodity derivatives with Fortis Nederland NV in Hong Kong. "So they might encourage them to buy other assets such as gold."

 

 

China's insatiable appetite for gold as demand exceeds supply
By Rhona O'Connell, Mineweb; March 30, 2010

The latest research document from the World Gold Council [...] looks at both supply and demand in the country, concluding that the economic demographics of the country support a robust outlook for gold demand and that the sustained structural shift in Chinese gold demand and supply "potentially creates a brave new world for China's gold industry", with an insatiable appetite for gold that looks likely to continue while local domestic mine supply lags behind demand...

In the conclusion to the study, WGC points out that "Time will tell how China will evolve, as the nation faces multiple challenges in the wake of the global financial crisis. With ongoing uncertainties surrounding the economic recovery, currency and inflation, the search for alternative international asset choices for both investors and the central bank should, in our view and for the reasons outlined in this report, clearly involve consideration of gold."

[W]ith respect to the jewellery market, WGC points out that local Chinese consumers are well aware of gold's benefit as a store of value and that jewellery has always been regarded by Chinese buyers as an investment...

As far as investment is concerned, the Chinese market entered a new phase in the wake of the deregulation in 2001 and the opening of the Shanghai Gold Exchange in 2002. A number of factors point towards increased investment demand in the country, including an average real GDP growth rate of 9.8% per annum throughout the last decade...

A high savings ratio, plus a lack of alternative investment vehicles, points to a growing interest among the Chinese in commodity investment. The Council identifies Chinese consumers as high savers, stemming from the accumulation of wealth that was stimulated in 1978 when the Chinese government shifted the burden of retirement income to individual households and this savings propensity was further boosted by the Asian currency crisis (late 1980s)...

 

China and India calling the gold tune
By Lawrence Williams, Mineweb; March 26, 2010

It may not have been a great week for gold, with prices falling before a small recovery on Thursday and a further bounce back [Fri]day, but the most interesting thing to note about recent price patterns is that every time gold falls a little, resistance comes in as investors somewhere come in and buy on the dips.

The reverse may also be true of course in that in the current climate there appears to be an upwards resistance showing around the $1120 mark, but in reality the recent falls from this kind of level have largely been related to Euro zone currency weakness and perceived corresponding dollar strength -- not fundamental supply/demand.

It is the Asian markets that would now seem to be driving the prices -- notably China and India -- although other Eastern and Middle Eastern states with a history of allegiance to gold both as a store, and recognition, of wealth will also be contributing. India may be the most important [...] and it now seems to be in the process of coming to grips with the plus $1,000 gold price...

[T]his is a necessary process. Gold in India has always been relatively price sensitive and there is usually resistance to sharp upwards moves, but once it is seen that the price is stabilising at the higher levels, then volume purchasing returns and it would appear that that process is again coming to the fore...

[I]t is expected that before long China will overtake India as the world's largest gold consumer on a regular basis. The country's burgeoning middle classes are also inclined towards precious metals purchases as a wealth indicator and protector -- and this has been being encouraged by state organisations...

Thus with the wealth generating populations of the two Asian mega-economies predisposed to buy gold anyway, it does indicate an underpinning of the price at, or near, current levels and market movements suggest this is already happening...

 

Half of U.S. home loan modifications default again
By John Gittelsohn, Bloomberg; March 25, 2010

More than half of U.S. borrowers who received loan modifications on delinquent mortgages defaulted again after nine months, according to a federal report.

The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months.

Modifications are "clearly not working well and it's not a surprise," said Sam Khater, a senior economist at First American CoreLogic. "It's pointless to rewrite these loans because they're underwater." About 24 percent of properties with a mortgage were underwater in the fourth quarter...

U.S. homeowners are struggling to make payments as depressed housing prices leave them owing more than their properties are worth. About 4.5 million foreclosures filings are expected in 2010...

A government watchdog report released today criticized the government's main foreclosure prevention effort, the Home Affordable Modification Program for "spreading out the foreclosure crisis" over several years... "The program will not be a long-term success if large amounts of borrowers simply re-default and end up facing foreclosure anyway," said the report by the Special Inspector General for the Troubled Asset Relief Program...

 

Half of commercial mortgages to be underwater
By CNBC.com; March 29, 2010

By the end of 2010, about half of all commercial real estate mortgages will be underwater, said Elizabeth Warren, chairperson of the TARP Congressional Oversight Panel.

"They are [mostly] concentrated in the mid-sized banks," Warren told CNBC. "We now have 2,988 banks -- mostly midsized, that have these dangerous concentrations in commercial real estate lending."

As a result, the economy will face another "very serious problem" that will have to be resolved over the next three years, she said, adding that things are unlikely to return to normalcy in 2010...

Speaking on troubled mortgage lenders, Warren said it's time for the government to "pull the plug" on mortgage lenders Fannie Mae and Freddie Mac... "There is no implicit guarantee anymore," she added. "I don't care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out."

 

Bernanke: Economy still needs Fed's help
By Reuters; March 25, 2010

Record-low interest rates are still needed to rev up the economic recovery, Federal Reserve Chairman Ben Bernanke told Congress on Thursday.

Bernanke, in testimony to the House Financial Services Committee, essentially repeated the rationale behind the Fed's decision last week to hold rates near zero. He cited still-fragile economic conditions, and noted that inflation is low, which gives the Fed leeway to keep rates at rock-bottom levels.

 

Greenspan calls Treasury yields' rise "canary in mine"
By Bloomberg; March 26, 2010

Former Federal Reserve Chairman Alan Greenspan said the recent rise in Treasury yields represents a "canary in the mine" that [...] reflect investor concerns over "this huge overhang of federal debt which we have never seen before."

"I'm very much concerned about the fiscal situation," said Greenspan, 84, who headed the central bank from 1987 to 2006. An increase in long-term interest rates "will make the housing recovery very difficult to implement..."

 

Could this be the start of 'The Great Bear Market in Bonds'?
By Jeff Cox, CNBC.com; March 30, 2010

Investors' long courtship with debt appears to be coming to a close, and an extended romance with stocks could have yet another chapter. Last week's poorly received series of Treasury auctions looks now to be a fixed-income flare, a warning shot that too much debt amid too little fiscal restraint is making the bond market frothy and ready to come to an unsightly crescendo.

And the damage could hit not only Treasurys but also agency-backed bonds as well as corporates with a longer term than two or three years.

"This is the last leg of money coming off the sidelines, the final rotation into the bond market," says Bob Froelich, senior managing director at The Hartford in Simsbury, Connecticut. "This is the beginning of the end. The bond market is a bubble. It's getting ready to burst."

Since the financial crisis began in 2007, investors have been keen to buy up bonds as protection against the crumbling economy. ... Foreign governments, particularly China and Japan, have stepped in as well to help the US government in multi-trillion-dollar debt auctions that have been used to finance stimulus and bailout programs.

"There's a tremendous amount of latent inflation built into the pipeline," says Michael Pento, chief economist at Delta Global Advisors. "We're being swamped by a tsunami of Treasury auctions. Where are the buyers going to come from?"

 

Greece will issue Dollar-denominated global bond
By Reuters; March 31, 2010

Greece will issue a global U.S. dollar denominated bond in late April or early May, the head of the country's debt agency said on Wednesday.

Greece, with total borrowing needs of 53.2 billion euros ($71.43 billion) this year, faces a refunding hump in April and May as it rolls over maturing bonds, T-bills and pay coupons coming due...

So far this year Greece has raised about 23 billion euros via T-bills, a private placement and syndicated bond issues...

Faced with high borrowing costs, the government has said it would seek to broaden the investor base for its bonds and tap global markets.

 

Make a buck off a sagging dollar
By Andrew Tanzer, Senior Associate Editor, Kiplinger's Personal Finance magazine

After an ugly start, the past year was a good one for most kinds of investments. One glaring exception was the U.S. dollar, which steadily lost value against most of the world's major currencies. And the dollar's prospects for 2010 and beyond don't look promising...

Over the next ten years, the outlook for the dollar is "bleak," says Rob Arnott, who manages more than $43 billion for Research Affiliates. The reason for Arnott's pessimism can be summed up in a four-letter word: debt. Arnott says the ratio of all public-sector debt -- a figure that includes the debts of federal, state and local governments, as well as those of such government-sponsored enterprises as Fannie Mae and Freddie Mac that are now nestled on Washington's balance sheet -- to gross domestic product is a towering 1