Gold Prices: Bull Market or Fool’s Gold?

Author: Joel Anderson

Posted: February 2, 2012

The price of gold has been bullish so far in 2012, jumping almost 11 percent so far this year. Thursday was consistent with these rising prices, with the price jumping almost 0.75 percent and pushing the commodity past its eight-week high to over $1,755 an ounce on the third straight day of rising prices. What does this mean for the price of gold going forward? Depending on who you ask, it’s either going to rise or fall in price.

January’s Gains Temporary?

The current jump in gold prices could represent a rebound from the crash that occurred late last year. Prices reached nearly $1,900 an ounce in mid-August of last year only to crash hard in late September, rallied to close to $1,800 in early November, and then plummeted again, finishing the year at less than $1,550 an ounce.

The debt crisis in Europe and potential collapse or devaluation of the euro had driven investors towards gold, driving up the prices. However, sunnier news from Europe and the resulting increase in investors’ appetite for more risk could contribute to a tumble in gold, similar to what drove prices down during the tail-end of 2011.

Now, January has been a solid month for gold bugs as the price has continued to climb since the start to the year. Driving the price jumps could be a combination of concerns over the ongoing talks over Greek debt and an uptick in new unemployment claims. However, the price could fall again if tomorrow’s new jobs data is as strong as many expect it to be, offering up yet another chapter in the roller-coaster ride that gold’s been on since last summer. Still, several experts predict that January’s gains represent a temporary correction that most likely won’t continue in the long term.

“There’s nothing new to push prices above the record levels we saw last year,” said Rohit Savant, an analyst with CPM Group in New York.  Savant, who pointed out that a relatively strong dollar will push down gold prices, also said that he felt gold is “looking a little overbought.”

Or is a Bullish Month for Gold Starting a Bullish Year?

However, some seem to believe that positive economic news from America will drive the commodity higher. Economic growth will most likely stem from an government stimulus programs and inflation, which should in turn drive investors to gold and away from the dollar. “When economic news comes in better than expected, it boosts commodities, including gold,” said Scott Gardner, the chief investment officer at Verdmont Capital SA in Panama in an e-mail to Bloomberg. Gardner also believed that as “deflationary concerns subside” it would help push up gold prices.

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Gold Prices: Bull Market or Fool’s Gold?

Gold: The Best Money

Author: Bill Bonner

Posted: February 3, 2012

Dow down slightly yesterday. The FTSE was flat. Oil falling further below $100. And gold still going up.

What is most interesting is the movement in the price of gold. It seems to be heading up again – almost no matter what else is happening.

So, let’s look at what might be going on.

If investors sensed a recovery, they would expect banks to lend more freely, people to shop more freely and prices to rise.

This would raise consumer prices; the price of gold should go up.

But if the market sees growth and inflation ahead, why is oil slipping? And why is the Baltic Dry Index – which measures shipping prices – at a 25-year low? And how come last month’s US employment figures were disappointing? And why aren’t stock market prices going up?

Most important, if the economy is really recovering, why is the ten-year note yielding only 1.82%? And what about the long bond? Shouldn’t it be trading at a yield higher than 3%?

And how come house prices fell over the last year, and the last month?

And how come incomes are falling?

Or, to look at it from the opposite point of view, how is it possible for a real recovery to take root in the hard, barren soil of falling house prices and slipping consumer earnings?

But if the economy is not improving, then there should be no increase in inflation and no pressure on the price of gold, right?

Maybe investors don’t anticipate a recovery at all. Maybe they’re buying gold because they see the economy getting worse, not better. We associate a rise in the price of gold with inflation. But gold is much more versatile than we think. It protects your wealth when paper money loses its value. It also protects your wealth when paper money gains in value. It protects you when you are right and when you are wrong.

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Gold: The Best Money

Gold Prices Higher on Positive US Economic Data

Author: Dave Brown

Posted: February 3, 2012

With gold prices nearing a 2 month high in the range of $1,755 per troy ounce, Thursday’s news of reduced United States claims for unemployment benefits has generated optimistic sentiment. The United States equity markets responded positively  to the news with the dollar rising against the euro.

Last week monetary policy guidance in the United States supported spot market gold prices, which have climbed 12 percent so far this year. Underlying confidence in the ability for the price of gold to strengthen during a low interest rate environment has allowed it to rise this year even during periods when other assets are sensitive.

Economic outlook in the United States and Europe

In the United States most economists are expecting a combination of reduced inventory expansion and cautious consumer spending to result in modest quarterly growth, with predictions in the range of 2 percent annualized for the current quarter.

The European sovereign debt crisis challenges the original design of the Eurozone, which was intended for a monetary, but not a fiscal union. Eurozone member countries are not able to properly employ accommodative monetary policies to balance fiscal austerity measures.

One solution might have been to create a strong central bank backed by a common budget for the currency union. This would still have been problematic, since addressing regional issues with centrally directed monetary and fiscal policies seems impractical.

Impact on gold prices

Last year’s concerns over the United States’ debt ceiling and the Eurozone debt crisis drove gold sharply higher for much of the year even as they weighed on the euro. However, towards the end of 2011 gold behaved more like a commodity, tracking equities lower as risk appetite retreated and traders looked to liquidate positions to make margin calls.

Institutional support for gold spot market prices and gold equities in general

Suki Cooper, Precious Metals Analyst with Barclays Capital believes that gold prices will continue to trend higher over the short term, “we still believe the key factors behind gold rallies from last year have not gone away. We saw corrections last year that were led by technical reasons and by the need for liquidity and we expect those to persist in 2012. Real factors like low interest rates and the Fed pushing out its guidance for the next hike are still very positive for gold. Those macro factors are still likely to lead gold higher in our view.”

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Gold Prices Higher on Positive US Economic Data

West African Iron Ore On The Rise

Author: Metal Investment News

Posted: January 31, 2012

Prices of iron ore forward swaps advanced to $146 this week as investors anticipate Chinese steel mills replenishing stockpiles after the Lunar New Year break.

The markets are pricing in a China restocking boom.  Morgan Stanley estimates Chinese infrastructure spending for 2012 to be around $1 trillion.  By 2017 it will be $1.8 trillion - an 80% increase.

Sixty percent of total Chinese iron ore consumption is imported, with the bulk of it coming from Australia. The average wage of an Australian miner is $109,000. West African miners typically make less than $4,000.

BHP Billiton (BHP-NYSE), Rio Tinto (RIO-NYSE) and Xstrata (XTA-L) produce most of the world's iron ore and all have active projects in West Africa.

But the Chinese do not want to be dependent on the "Big Three". They are currently scouring the world for high grade low-cost-assets.

One West African iron ore company that is drilling aggressively, hitting high grade holes, and is only 40 kilometers from a deep sea port is West African Iron Ore (WAI-TSX.V).

WAI has a world-class iron ore asset in Guinea, West Africa with significant growth potential.

Canaccord Genuity Corp has been assisting WAI in identifying a strategic partner in China.  The company is in talks with a number of iron ore producers, consumers and investment funds in China.

"Keen interest has been expressed by all of the potential strategic partners," states CEO Guy Duport, who speaks Chinese, "We are confident that our future financing plans are achievable without imposing undue burden or dilution upon our balance sheet and shareholders."

January 20, 2012 drill results confirm substantial intersections of high grade iron ore near surface and sub-surface mineralisation.  The 19 reverse circulation (RC) results exhibited consistency.  18 of the 19 holes had grades between 25.02% and 26.30% Fe203.  The 19th hole was 28.52%.

A high recovery beneficiation process can produce a product with a grade of at least 64% Fe from feed with an iron content of 25% Fe2O3.

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West African Iron Ore On The Rise

Gold Edges up in Asia, Set for Biggest Gain Since August

Author: Reuters / Singapore

Posted: January 31, 2012

Gold ticked up on Tuesday after the euro rebounded, while bullion prices headed for their biggest monthly rise since August as lingering concerns about growth in the United States prompted buying from investors.

Gold jumped nearly 5% last week, its fourth consecutive weekly gain, after the US Federal Reserve pledged to keep interest rates near zero until at least late 2014, which could put pressure on the dollar.

Gold added $7.45 an ounce to $1,736.09 an ounce by 0656 GMT, having hit a low around $1,716 on Monday.

"Although charts look exhausted, US dollar weakness and recent Fed activity seems to be giving fundamental boost for gold to stay above $1,710," said Pradeep Unni, senior analyst at Richcomm Global Services.

"Steady prices have triggered buying interest."

A top US Federal Reserve official on Monday said he would have preferred a more optimistic statement on the US economy, after the central bank last week painted a grim picture of the recovery and forecast ultra-low interest rates until late 2014, considerably later than investors had expected.

Gold, which struck a record at $1,920.30 last September, was headed for an 11% rise this month, highest since a 12% gain in August 2011.

"Sentiment seems to have improved quite tremendously, I would say. We are now into more bullish territory, more than ever, with the Fed providing enough fundamental support," said Dominic Schnider, head of commodity research at UBS Wealth Management.

"I think we have good reasons to believe we are going to test $1,805 in the coming day. The Fed was clearly the most important event," said Schnider.

Gold has gained for the last four consecutive weeks, with a spike in prices before the Lunar New Year holidays being driven partly by Chinese buying.

"Before the Chinese New Year really started, we've seen quite strong gold exports from Hong Kong to China. Apparently Chinese demand was very solid," said Schnider.

US February gold rose $5.60 to $1,736.60 an ounce.

In other markets, the euro rose on hopes for a Greek debt restructuring deal that would help the country avoid a disorderly default, possibly setting itself up for a test of a key chart level.

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Gold Edges up in Asia, Set for Biggest Gain Since August

Don’t let Volatility Dampen Chances in Equities and Gold

Author: Philip Saunders, Max King

Posted: January 31, 2012

Against a backdrop of volatility and the prospect of a rolling eurozone break-up, the positive investment stories this year are likely to be in equities and gold.

While 2011 was undoubtedly difficult, with a series of macro events ultimately dominating market returns and behaviour, it is important to stand back and balance the negatives with some positive observations when looking ahead into 2012. Some key themes stand out.

First, we expect steady economic growth in 2012. Overall global growth, although decelerating, should still be positive for 2012 at about 3.5% on a purchasing power parity basis, 2.5% on nominal GDP weights. This is close to as good as it gets if commodity prices are not to rise.

Modest growth will not prevent companies in developed markets raising revenues by mid-to-high single-digit percentages.

Growth in developed markets will be held back by the need to cut deficits and the lack of credit expansion, the latter partly the result of the pressure on banks to shrink their balance sheets, but key emerging economies have ample scope to use monetary and fiscal policy to sustain growth that we believe will be reasonably strong.

Eurozone break-up

Looking at Europe, a rolling break-up of the eurozone is a matter of when, not if. This would be a bullish development for the long term.

We said a year ago that peripheral Europe was locked into indefinite recession by its structural loss of competitiveness relative to northern Europe over the past 10 years. This makes it impossible for most countries to reduce fiscal deficits and thereby improve confidence in their creditworthiness.

Bail-outs and quantitative easing can only postpone the inevitable and make it worse. The European Central Bank’s back-door quantitative easing (QE) continues to postpone, not prevent, an unravelling and is undermining the solvency of northern Europe. The suggested investment implication would be to avoid the bonds of stressed European governments and the equity of vulnerable banks until the eurozone crisis is resolved.

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Don’t let Volatility Dampen Chances in Equities and Gold

Gold Procrastinators: The Endless Agony

Author: Gary North

Posted: January 30, 2012

It happened again on Wednesday, January 25. Gold shot up by $50.

Across the nation, a band of perpetual procrastinators thought to themselves: "I knew! I knew! Why didn't I buy?"

This is the never-ending cry of the perpetual gold procrastinator, year after year. "I knew! I knew!"

It is immediately followed with: "I've learned my lesson this time! The next time gold's price falls, I'll buy."

No, he won't.

Why not? Because, when gold falls, he'll say this: "The decline is just getting started. It will fall even more. I'll wait."

He will wait patiently until gold's fall reverses. He will then say to himself: "This is temporary. It will fall back." Then comes the explosive move upward. Then he will say: "I knew! I knew! The next time gold's price falls, I will buy. I mean it this time. I really mean it."

Year after year after year, this is the pattern.

There is a page you can go to and find exactly what gold sold for, stretching back for over a decade. It's here. Here we learn this: on September 5 and 6, gold peaked at $1,895. Then it fell. It bottomed on December 29 at $1,531.

It had moved back up to $1,600 by January 3. That should have sent a "buy" signal to every gold procrastinator. But gold procrastinators do not respond to buy signals. Ever.

They know. But this does them no good financially.

They live in agony. They never buy, and gold moves up. It has for over a decade. They do not learn. They prefer agony to profits.

But this does not make sense. No one prefers agony to profit.

Some people do. We call them masochists. "It hurts! It hurts! Don't stop!"

My father-in-law was a missionary to the Western Shoshone Indian tribe in Nevada/Idaho from 1945-1955. He and an alcoholic physician with the Indian Health Service were the only full-time white men on the reservation.

There would occasionally be visitors on vacation. He told me about one of them. The man worked for one of the casinos in Reno. He worked at the craps table. He told my father-in-law about a man who had made $11,000 at the table. In the late 1940s, that was a lot of money. "He was drunk. He passed out just after he won. We put his chips in his pocket and put him in his room. He left the next day. That was the only man I ever saw who came out that far ahead." My father-in-law asked him why. "They gamble to lose" was the answer.

GOLD'S HATED MESSAGE

That describes gamblers. But what about investors? Do they invest to lose? I think a lot of them do.

Yes, they want to make money. But they want to make it conventionally. They want to make it as upstanding defenders of the American dream.

On March 23, 2000, the Standard & Poor's 500 index peaked at 1527. Today, it is around 1320. But the dollar has depreciated by over 30%. Anyone who took the standard advice to buy and hold a no-load index mutual fund of the S&P 500 has lost 12 years and 40% of his investment. He still believes the story. He will believe the story until an hour before he reaches room temperature.

Why? Because that's the American dream. It confirms the story of American industry, American ingenuity, and American know-how.

It is also the story of Keynesianism, Federal Reserve monetary policy, and federal regulation.

If you call into question the American dream, you call into question Keynesianism, Federal Reserve monetary policy, and federal regulation. That is unAmerican.

Most Americans would rather lose all of their wealth than call into question the American dream, as promised by Keynesians, Federal Reserve economists, and Civil Service-protected federal bureaucrats.

Most Americans are like that guy at the craps table in Reno. Their only hope is to pass out in front of their chips.

Gold sends a message. Here is the message: "You should not put your hope in Keynesianism, Federal Reserve monetary policy, and federal regulation."

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Gold Procrastinators: The Endless Agony

What Made Gold Break Out?

Author: Julian D. W. Phillips

Posted: January 30, 3012

Last week, gold broke through heavy overhead resistance, as did silver, to look very positive for the days ahead. Many technical analysts didn’t feel that gold had that kind of momentum but then came the break. It wasn’t a struggling break; it was robust sweeping resistance aside as though it wasn’t even there.

Fed’s Announcement Last Week

You’re probably saying now that it was the announcement from the Fed that interest rates would be held at current levels for another year more, through to the end of 2014. The superficial assumption is that this means that the dollar will earn nothing, so risk assets should outperform dollar deposits. That’s true, but a great deal more was implied in their statement (as we detailed in the latest issues of the Gold Forecaster & Silver Forecaster). The Fed pointed to long rates rising to above 4% over time, while inflation remained at 2% –and could fall further. Why?

If long-term rates are going to rise while inflation is dropping and short-term rates are flat, it’s more than likely that there will be a robust recovery. In those conditions it is more than likely that it is the dollar that will become suspect with dollar investors moving out of Treasuries. This could cause long-term rates to rise as they sell. The dollar would suffer in the process. What’s of considerable importance is that a rise in long-term rates means that the Treasury markets will fall to reflect interest rate rises. Currently, long-term bonds are at very high prices, so a fall could prove particularly harmful to those markets as well as the broad economy –including housing at a time when that will hurt that struggling market even more.

It is difficult not to see a sad picture for both the dollar and other facets of the developed world economies going forward, despite the noble efforts of the Fed.

What Made Gold, Silver Rise Beyond the Announcement

Investors who are aware that the U.S. gold market is not the hub of the gold market, must be asking why did the price jump in U.S. time? The sophisticated nature of the developed world market allows the U.S. trading markets to act like the waves on the sea shore and move prices quickly and dramatically. It takes the 24-hour market to smooth out the moves to reflect the true demand and supply picture. That’s why London pulled back the gold price on Monday this week. But the jump of $65 after the announcement reflected short covering and new long positions being established in those markets. The jump through $1,700 has been held in position and looks like staying there now.

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What Made Gold Break Out?

Gold Prices Top $1,700 an Ounce as Fed Keeps Interest Rates low to Encourage Economic Growth

Author: Associated Press

Posted: January 25

Gold prices rose Wednesday after the Federal Reserve said it will keep interest rates near zero until 2014 at the earliest to help jump-start economic growth.

The central bank said the economy is growing at a moderate pace but there has been slowing in global growth. It described inflation as “subdued” and held off on any further bond-buying programs.

The Fed’s new plan pushed back the date for any likely increase in its benchmark interest rate by at least a year and a half. Previously, the members of the monetary policy committee had said they would keep rates low until at least mid-2013.

The Fed wants to keep interest rates low to make loans more affordable for businesses and consumers in hopes that they will spend more to aid the economic recovery. That could lead to stronger demand for commodities such as oil and industrial metals.

The announcement prompted investors to buy gold as a hedge against inflation, which investors fear could be a result of the Fed’s extended low-interest rate policy.

Gold for February delivery rose $35.60, or 2.1 percent, to finish at $1,700.10 an ounce. It was the first time that the settlement price topped $1,700 an ounce since early December.

Most commodities followed gold’s lead and posted gains as the dollar weakened against other currencies. Since commodities are priced in dollars, a weaker dollar makes them cheaper for investors who trade with other currencies.

In March metals contracts, silver jumped $1.146, or 3.6 percent, to finish at $33.121 per ounce, copper rose 2.2 cents to $3.8295 per pound and palladium increased $12.80 to $693.35 per ounce. April platinum finished up $27.20 at $1,579.60 an ounce.

Most energy products were higher. Benchmark oil rose 45 cents to end at $99.40 per barrel on the New York Mercantile Exchange. Heating oil fell 0.47 cent to finish at $3.0104 per gallon, gasoline futures increased 2.69 cents to $2.8374 per gallon and natural gas rose 16.8 cents to $2.769 per 1,000 cubic feet.

In March agriculture contracts, wheat rose 7.75 cents to end at $6.4125 per bushel, corn increased 4.25 cents to $6.345 per bushel and soybeans fell 6.5 cents to $12.135 per bushel.

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Gold Prices Top $1,700 an Ounce as Fed Keeps Interest Rates low to Encourage Economic Growth

Gold ETF Mass Exodus

Author: Adam Hamilton

Posted: January 27, 2012

Gold is enjoying an awesome January, rallying strongly out of its oversold late-December lows.  But last month’s hyper-pessimistic sentiment deserves some reflection before it totally fades from memory.  One of the core theses of the bears resolutely predicting sub-$1400 gold prices soon was the notion that there would be widespread liquidations in the flagship GLD gold ETF, a mass exodus of capital.

If it indeed came to pass, gold would almost certainly be considerably lower than we’ve seen in recent weeks.  But it didn’t, the stock traders owning GLD didn’t panic and rush for the exits as feared.  Instead they boldly stood their ground, continuing the long tradition of GLD shares being held in strong hands.  GLD’s entire history shows its owners largely want gold exposure for the long haul, they aren’t flighty.

Just as mass-GLD-liquidation fears captured mindshare in past gold corrections, they are certain to once again become popular bearish centerpieces in future ones.  So gold investors and speculators alike, whether they own GLD or not, need to understand this mighty ETF’s track record during gold corrections.  This critical knowledge will mitigate mass-exodus fears in future gold corrections, reducing the odds of getting suckered into selling low by the bears.

Thanks to wacky conspiracy theorists never ceasing to irresponsibly spout utter nonsense about GLD, it still isn’t as well understood as it ought to be by now.  Holding a staggering 1259.6 metric tons of physical gold bullion in trust for its owners these days, worth a colossal $69.3b, GLD is a massive force in the gold market.  Its price impact on gold since its birth 7 years ago in November 2004 has been enormous!

GLD acts as an incredibly-important conduit for the vast pools of stock-market capital to easily flow into and out of physical gold bullion.  It opened up gold investing to a huge new market, including pension funds, mutual funds, and hedge funds, that never would have gone through the considerable hassles and expenses of buying gold coins.  GLD is a frictionless, cheap, and easy way to get gold exposure.

The operational mechanisms of this conduit are easy to understand.  When a stock trader wants some gold exposure in his portfolio, he buys shares in GLD.  Each share represents 1/10th of an ounce of gold, less a modest 0.4% annual expense ratio necessary to move and store the physical gold bullion and pay the people running this ETF.  If there happens to be a GLD seller right then, the shares change hands without anything happening to GLD’s underlying bullion holdings.

But usually there are more buyers of GLD shares than sellers, or vice versa.  Remember that GLD’s mission is to track the gold price, so if this ETF’s real-time supply and demand isn’t synchronized with gold’s then their prices will disconnect.  In order to avoid failing, GLD’s custodians have to directly shunt excess GLD-share supply or demand directly into gold bullion.  They do this as necessary in 100k-share increments, which equalizes differential price pressure and keeps GLD shares synchronized with gold.

Most of the time since GLD’s launch, there has been more demand for GLD shares than supply.  If these buyers bid up GLD shares and the custodians do nothing, GLD’s share price would decouple from gold to the upside.  To bleed off this excess demand into gold itself, the custodians issue enough new GLD shares to sop up the differential demand.  Then they take the capital raised and promptly buy physical gold bullion to put in their vaults that very day.  So excess GLD demand shunts capital into gold itself.

But sometimes, and this is what the bears worry about during corrections, GLD-share supply exceeds demand.  If the GLD sellers dump their shares faster than gold itself is being sold, this ETF’s price will decouple from gold to the downside.  GLD’s custodians must quickly absorb this differential supply.  And the only way to raise the capital necessary to buy back the excess shares offered is by selling physical gold bullion.  As these funds repurchase GLD shares, excess GLD supply is shunted into gold itself.

So GLD’s holdings, the amount of physical gold bullion it holds in trust for its investors at any given time, are a reflection of the supply-and-demand dynamics of GLD shares relative to gold’s own.  Thankfully GLD has been extraordinarily transparent since its debut, publishing its physical-gold-bullion holdings in great detail (down to individual bars’ sizes and serial numbers) on a daily basis.  By charting this priceless data, we can better understand how stock traders interact with gold via the conduit of GLD.

This first chart looks at the entire history of GLD’s holdings along with the gold price.  The first thing that sticks out is the remarkable growth in this ETF’s gold hoard, it has been wildly popular with stock investors.  Note also that GLD’s holdings tend to be “sticky”.  Once they grow to any new level, they are rarely sold back down again.  GLD’s owners are some of the strongest hands in the whole gold realm.

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Gold ETF Mass Exodus