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USAGOLD NewsGroup Alert Central Banks (and the super-rich) are buying gold; why you should, too, choose the metal over miners. Gold reached a new record high this week above $1,150 per ounce, so without further ado, let's jump right in and review what the market has been telling us since last week's NewsGroup. Mauritius buys IMF gold, follows India as metal soars Mauritius bought 2 metric tons of gold from the International Monetary Fund, underscoring a drive by central banks to boost holdings as the precious metal trades near a record and the dollar slumps. Gold has surged this year as the U.S. currency declines and investors seek to protect their wealth... The Mauritian purchase is "another signal that emerging-market central banks are looking to increase their foreign-exchange allocation in gold," Shane Oliver, head of investment strategy at AMP Capital Investors Ltd., said from Sydney. "There are a lot of uncertainties in the U.S. dollar and not much confidence in other currencies," Oliver said. "Gold is a viable option."
Super-rich seen buying gold, selling hedge funds The investment preferences of the world's wealthiest families have shifted significantly in favour of gold and other commodities and away from hedge funds in the wake of the financial crisis, according to a survey of family offices and advisers of the super-rich. Two-thirds of the 100 respondents ... said that super-rich families are now more likely to invest in gold and other commodities. By contrast, two-thirds of respondents said the wealthiest families are less likely to invest in hedge funds and structured products... The findings confirm reports of a flight to "safer" asset classes, says the survey. Wealthy families' risk appetites have suffered from frauds uncovered in the financial crisis as well as the poor performance of investments. More than nine out of 10 respondents said the level of trust in financial institutions and investment advisers has been hit by the Madoff and Stanford frauds. "Madoff, Stanford, and bank failures are not necessarily seen as one-offs -- families clearly feel they cannot rule out the idea that the failings symbolised by these events are systemic."
Gambling with the dollar The world's appetite for gold as an investment option is intensifying. Last month, India purchased 200 tons of gold at $1,045 an ounce, before the price topped $1,108 on Monday. China, too, may increasingly diversify from paper -- i.e., bonds -- into gold, the price of which, some experienced investors believe, could soar to $2,500 an ounce in three to five years. One reason for all this is U.S. behavior. Gold increasingly looks to investors to be a more reliable store of value than governments' bonds are, especially U.S. bonds as the U.S. government threatens to pile a mammoth health-care entitlement onto the nation's Ponzi welfare state, increasing the nation's debt and borrowing. The fiscal 2009 budget deficit, triple that of 2008, was 10 percent of GDP. Lawrence Lindsey says probable policies will produce deficits of 7 percent of GDP for a decade. Lindsey says Americans' net worth has dropped at least $13 trillion since the recession began in December 2007. What is to be done?
Wrap your head [and hands!] around gold Reaching another new all-time high nominal price above $1,150 per ounce Wednesday, the metal's rise continues to astound its silenced detractors and reward investors who sought timely protection from fundamental weakness in the U.S. dollar. At its core, gold's ascent is about a crisis of confidence in the greenback, and by association other impaired fiat currencies like the British pound (not so sterling anymore). At the risk of repeating myself ... reflect once more upon former Fed chairman Alan Greenspan's own characterization of gold's rise as "an indication of a very early stage of an endeavor to move away from paper currencies." And... It's not just about the dollar... keep a close eye upon the supply environment for gold. (Supply remains tight even as demand reaches new heights.) Last week, we discussed Barrick Gold CEO Aaron Regent's proclamation that the world has passed the peak gold stage, citing a decade-long trend of declining global output in the face of increasing demand and increasing capital expenditures. This week, a research report from South Africa challenged widely held assumptions about the quantity of gold remaining...
South African gold on final deathwatch The apparent bottom line in a paper published in the South African Journal of Science is that South Africa's gold industry is on final deathwatch, despite claims of massive existing below-ground reserves. Chris Hartnady, research and technical director of Cape Town earth sciences consultancy Umvoto Africa, has found that South Africa's Witwatersrand goldfields are around 95% exhausted, and anticipates that production rates should fall permanently below 100 tonnes a year within the coming decade. Gold production from the Witwatersrand, the biggest known gold field in the world, peaked at around 1,000 tonnes in 1970 and has declined ever since... "[T]he glory days of South African gold mining appear to have arrived finally at an ignominious end." Leon Esterhuizen, a London-based specialist analyst at RBC Capital Markets, mentions a number of other challenges faced by South African gold diggers: royalties (a new thing), zooming electricity charges, BEE (black economic empowerment) burdens, safety shutdowns, "massive security costs", and ever-present currency exchange control.
Gold output set for decline in long term The world's top gold mining companies have warned that global production of the precious metal is likely to resume a long-term decline in coming years, in spite of a record-breaking surge in the price of gold to more than $1,100 an ounce... Mark Bristow, chief executive of Randgold Resources, said any increase in mine supply in the near term would be "artificial" -- and due to marginal projects being restarted because of the high price. "We will see little corrections that keep capacity alive, but the fundamental reserve base is in decline in terms of both quality and ounces," he said. Barrick shuts hedge book as world gold supply runs out
Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10% as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run. "There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London. "Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said... The supply crunch has helped push gold to an all-time high ... [as] rising powers of Asia and the commodity bloc are growing wary of Western paper money and debt.
Warnings on gold stocks Each and every day investors get pummelled with opinions. Buy this, sell that; no, sell that, buy this. So who was to know that gold stocks weren't the way to go? With the metal propelling upwards, why not get leverage by buying shares in a miner or emerging producer? What's wrong with that idea? Well, Pure Speculation has yet to be convinced that gold stocks are not (not) one of the great ideas, but apparently others have taken these warnings to heart to judge by the fall in Mt Isa Metals this morning... The company announced this morning that it was confirming its move into West Africa to look for gold... Oh dear, though, this news coincides with two warnings about gold stocks. Jim Rogers, former partner of George Soros, says buy gold, not gold stocks. He sees the metal going to $US2000/oz in short order, so you'll make more money buying the physical market. On the other hand, so many gold company stories never pan out. (We have to admit: ain't that the truth?) It so happens that Baring Asset Management agrees with Rogers. Dow Jones reports that this London firm is recommending investors should switch from mining equities into bullion...
Gold investors should switch from equities to bullion, says Barings Investors in gold should switch from mining equities into bullion to take advantage of soaring prices, according to Percival Stanion, head of asset allocation at Baring Asset Management. Stanion said gold, at record highs above $1,140 a troy ounce, currently provides a stable alternative to currencies such as sterling, the euro and the dollar. "The multi-asset portfolios at Barings have recently benefited from the surge in gold prices and have now sold out of our exposure to gold mining and switched into gold bullion," he said. "In our view, gold is a more stable store of value, over a five-year view, than all paper currencies except the renminbi. Sterling is still our least favoured currency, even after significant falls in value," he said. Buy gold, not miners: Jim Rogers Gold prices have risen 20 per cent in the past year... With strong speculative fund buying, a weakening U.S. dollar and inflation fears, investing in gold is a popular trend as the precious metal becomes an alternative asset class... but with gold in a strong bull market, I wanted to know if the trade was too crowded. Jim Rogers: I don't ever like to buy something making all time highs however I'm not selling my gold. Gold is going to go much higher in the course of the bull market. Doesn't mean it can't go down 20 per cent next year but during the course of the bull market it is going to go much higher it is certainly not a bubble yet. ...... Gold, if you adjust it for its old highs, adjust it for inflation back in 1980, gold should be over $2000 an ounce right now. In my view, in this bull market in commodities gold will make all new highs adjust for inflation. Alix Steel: What about mining stocks as a way to play rising silver and gold prices? Jim Rogers: Not with my money. The studies show that you would make more investing in commodities themselves rather than commodity stocks unless you are a very good stock picker. If you are a good stock picker, unless you find a company that is going to discover silver in Berlin you buy all you can and then you call me and I'm going to buy it too ....short of something like that and there are a hundred gold stocks and most of them don't pan out. But if you own gold, gold is making all time highs.
Gold bull market not manic yet "The hardest thing in investing is to ride a bull market all the way to the end." -- Richard Russell The "R-Man" is 85 years old and has been writing about the market since the 1950s. The reason he gives for the above statement is that the psychological pressure to lock in your gains when you face a rough patch is very strong. Few people have the strength of conviction to weather such tough times. Gold has been acting very strongly. Depending on whether a gold bug or traditional financial writer is telling it, agreement is wide that we are due for a correction, minor or sharp. The more I hear that, the more convinced I am that the correction is further out, and will be smaller than we expect. Central banks are now holding back or even buying gold to replace their rotting dollar reserves. For years they've been dumping their gold to buy dollars. They've wised up. What is the top for gold? I don't know. But I know it isn't there yet. How do I know? Because the vast majority of the public still doesn't take the metal's rise seriously... When gold is near a top, it will be all over the mainstream media, not just the financial media. People will say that buying gold is a no-brainer, and we'll probably hear numbers like US$8,000 an ounce or more... We're nowhere near the end yet. So, I'm going to bite the bullet on any corrections, and increase our gold positions now. They will be for the long haul... SoGen: India's bullion buy starts gold bull-run India's recent decision to buy International Monetary Fund gold could just herald the start of a new bull market in bullion, says Dylan Grice, strategist at Société Générale. He notes several parallels between conditions now and those during the gold bull market of the 1970s. "That period saw tight energy markets, overly accommodative central banks and nervousness that policymakers had lost their way," he says... Furthermore, he says the price at which the dollar would be fully backed by gold (as it was at the peak of the 1970s market) is $6,300. "So there is a case for gold being 'cheap'."
Gold hits new high, central banks buy metal; dollar doubted A lot has transpired in the gold market since last week's NewsGroup, so our mission in this issue is to quickly review 1) where we are, 2) how we got here, and 3) where we're likely headed. Gold scales new heights Gold pushed higher early Thursday morning, extending a record-breaking run that has driven the precious metal up nearly 6% this month ... on a tear since prices rose firmly above $1,000.00 an ounce last month. Gold closed at an all-time high of $1,114.60 an ounce Wednesday. Gold rallied [climbing to a record $1,123.40 overnight] as the dollar slumped against the euro ... but gold's gains were tempered latter in the session as the dollar regained ground against rivals. Given the bleak outlook for the U.S. dollar, however, many analysts say gold will continue to rise into next year... The weak dollar has also fueled speculation that overseas central banks will move to increase their gold holdings as an alternative to the U.S. currency.
...Late last month the Central Bank of India bought 200 metric tons of gold from the International Monetary Fund. [Editor Note: The purchase price for the off-market transaction was established over 2 weeks, October 19th - 30th as gold was trading in a range between $1,030 and $1,070.] It is the biggest signal yet that Asian countries are moving away from the dollar, the Financial Times inferred. As he swapped his country's dollars for hard assets, India's finance minister was blunt: The economies of the U.S. and Europe have "collapsed." India was doing what it could to prepare for the coming meltdown... Since the [1971] collapse of the Breton Woods ["dollar/gold exchange standard"] monetary agreement, the world has conducted its trade and paid its bills in dollars -- not gold. ... So now the world is looking for a way out from underneath its piles and piles of depreciating dollars. India's purchase is "a landmark trade," said Barclays Capital gold specialist Jonathan Spall. It is "a sign for other central banks and sovereign wealth funds." The dollar exodus is set in motion...
Sri Lanka follows Indian move to buy gold The Sri Lankan central bank is buying gold to diversify its reserves and smooth out periods of dollar volatility, Ajith Nivard Cabraal, central bank governor, said. "We did experience this huge currency volatility during the time of the crisis that gave us the feeling that we need to save in something more solid," Mr Cabraal told the Financial Times. "Naturally gold crops up as the more logical item." ...Jonathan Spall, a director at Barclays Capital, said: that, while Sri Lanka might be a minnow in terms of the gold it may buy, it was another argument "in the case being built for gold".
ECB sees gold as important asset [P]articipants at the LBMA Precious Metals Conference in Edinburgh ... heard how the European Central Bank believe that gold will remain an important asset for European central banks as risk diversification becomes a more significant issue. Paul Mercier, deputy director general of market operations at the ECB, said that "gold makes sense as a contributor to risk diversification."
The world should try to mitigate flaws in the dollar based global monetary system by reducing demand for dollar reserves and exploring alternative reserve assets, a group of economists from the International Monetary Fund said on Wednesday. The economists said the crisis had "brought to the fore" long-standing concerns about a system based on a single core currency issued by one country ... the dollar-based system "suffered inherent weaknesses". [The report] comes amid renewed global focus on and dissatisfaction with the role of the dollar in the world economic system... The economists said reducing demand for dollar reserves would be only part of the solution. They said the world would also have to examine alternatives to the dollar as the dominant reserve asset.
Gold glitters because central bankers do not I wish I had listened to Pierre Lassonde. I first wrote about Lassonde [then president of Denver, Colorado-based Newmont Mining Corp., one of the world's largest gold companies] in August 2003 when gold prices soared to a then-unthinkable $375 an ounce. Lassonde told me he had 60% of his liquid assets invested in the precious metal and claimed it had nowhere to go but up. By up, he meant, $500, $1,000 and then maybe even $6,500 an ounce. Some of my colleagues, sources and readers, scoffed as I touted this bold speculation. In 2005, when gold had safely crossed the $500 mark, as Lassonde predicted, I wrote about him again. And I still heard from naysayers. This week, gold hit record highs again, nearing $1,100 an ounce... [Lassonde] says India's move highlights a critical shift. This year is the first in decades when more gold will be purchased for financial reasons than for jewelry. "The naysayers haven't clued in," Lassonde said Wednesday. "People are buying gold as a financial instrument. And they think it's a better instrument than the U.S. dollar, or the euro, or the pound or any other currency." "This is a hard-asset cycle," said Lassonde, referring to commodities like oil and precious metals vs. financial assets. "The cycle still has five to 10 years to go. ... Don't bet against the cycle." "People are coming to realize that gold isn't the barbarous relic people thought it was," Russell Ball, chief financial officer of Newmont, said. "With the collapse of Lehman Brothers ... we saw triple-A-rated debt become worthless over a very short time frame. Now we're seeing high-net worth individuals ... put a significant portion of their portfolios into gold." Central banks around the world are becoming net buyers, as opposed to net sellers, of gold, perhaps setting a new floor for gold prices in a once unthinkable range.
Gold price won't drop below $1,000 an ounce again, Faber says Gold won't fall below $1,000 an ounce again after rising 27 percent this year to a record as central banks print money to help fund budget deficits, said Marc Faber, publisher of the Gloom, Boom & Doom report... "We will not see less than the $1,000 level again," Faber said at a conference today in London. "Central banks are all the same. They are printers. ... You have to own physical gold."
Whither gold now? As gold approaches $1100 I wouldn't be surprised to see some liquidation occurring as some traders close their current long positions and take profits. This may result in a slight pull-back, but does not mean that this move has peaked. In fact this is only the beginning of the next upwards phase... As I have been repeatedly stating in my articles, this current bull market in gold is not about jewellery, but is about the value of paper money in particular the US dollar. And, one of the ways to protect your wealth in such times is to own gold. And, it is for this reason it is imperative for investors to diversify and allocate a portion of their capital to the precious metals gold and silver. The question that some people are now asking is, "Is it too late to enter into this market?" And, my reply is, "absolutely not, especially if you are taking a view over the next five years." If my analysis proves to be correct, I am looking for the price of the precious metal to hit $1300 Ð $1500 during the course of 2010. Thereafter, it will continue much higher.
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Global gold production is in terminal decline despite record prices and Herculean efforts by mining companies to discover fresh sources of ore in remote spots, according to the world's top producer Barrick Gold.
Rob McEwen, founder of Goldcorp Inc., said the recent decline in gold's price is temporary and that the metal will reach $2,000 an ounce by the end of 2010.
