Just say no to gold, advise private bankers

October 06, 2010

Gold’s high price made it hard to extract further gains, said several US bankers. — Reuters picNEW YORK, Oct 6 —Gold is all the rage as investors flee uncertain markets and worry about inflation, but some bankers to the very rich do not take a shine to the precious metal.



Gold prices have spiked 22 per cent this year, with investors sending gold futures to record highs of more than US$1,337 (RM4,144) yesterday. The weak dollar, volatility in currency markets and deficit worries boosted demand for the metal as a safe store of value.

Private banking executives, say gold’s glittering price tag is or should give their wealthy clients pause.

“We’re not really recommending gold right now, just because it’s at a level where there are things driving it beyond the types of things (where) that we can add a lot of value,” US Trust President Keith Banks said at the Reuters Global Private Banking Summit in New York.

Instead, Banks said gold prices may reflect the surge in demand for gold exchange-traded funds, listed shares that purchase physical gold, and broader worries about government spending leading to rapid price inflation.

“So what exactly is leading to gold at the levels it’s at? Your guess is as good as mine,” said Banks, who runs the Bank of America private bank unit.

The SPDR Gold Trust ETF, which lets retail investors more easily bet on gold, has surged 21 per cent this year to a record high of 130.71. The fund shares are up more than 50 per cent since the end of 2008.

Wealthy families are more interested than ever in owning commodities such as metals and energy, assets that do not move up and down in step with stock and bond prices. They also offer a hedge against inflation, since their values rise with prevailing prices.

There are many critics who warn gold is the latest frenzy and is doomed to collapse.

“With gold being over US$1,300 an ounce now, you have people who are asking whether, first, ‘Is it another bubble?’ and then, ‘How far can I ride that bubble?,’” Credit Suisse Americas private banking chief Anthony DeChellis said.

Bessemer Trust Chief Executive John Hilton said his New York wealth management firm allocated a single-digit percentage of its real return fund into gold.

For some clients, he acknowledged, that was not enough.

“We have clients who have made very large individual purchases of gold. Sometimes they’ll just say they’re doing it, and they’ll ask us if we can hold it for them, but we haven’t made any large purchases of gold directly for our clients,” said Hilton, whose firm manages about US$56 billion.

US private bankers, to be sure, also told the Summit they do recommend investments in a range of commodities.

“We have been a proponent of having an exposure to commodities. The bank is optimistic about the economic recovery, and commodities is a way to play global growth,” said US Trust’s Banks.

US Trust formed its Specialty Asset Management group, which buys hard assets on behalf of its wealthy clients — anything from real estate, timberland and farmland to oil and gas properties. US Trust will buy and sometimes hire people to operate these assets.

The business, which manages about US$16 billion of assets, is seeing strong interest from clients, he said.

“These are assets that I think people can feel good about, that are probably not going to track the more typical areas, and it’s just a unique opportunity,” Banks said. — Reuters

'We are going to have higher prices for commodities'

'We are going to have higher prices for commodities'
Wheat, sugar, cotton and gold are arousing interest from investors across the globe.


By Paul Farrow, Personal Finance Editor
Published: 7:00AM BST 02 Oct 2010


Sugar prices are at a seven-month high

It wasn't so long ago that investors were extolling the virtues of hedge funds, private equity, currency swaps and infrastructure. But these newfangled alternatives have been knocked off their perch by investments that were being traded by City gents wearing tails and top hats more than a century ago.

Wheat, sugar, cotton and perhaps the oldest of all investments, gold, are grabbing the headlines and generating interest from sophisticated investors across the globe. The reason is rising prices. This week, sugar climbed to a seven-month high on concern that adverse weather will curb output in Brazil, the world's biggest exporter, and Australia, the third-largest.

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Cotton extended its rally to its highest price in more than 15 years, wheat prices have risen by 60pc over the past 12 months, while gold continues to attract investors worried about a global double-dip recession and its price hovers around a record high of $1,300 an ounce.

For many private investors investing in commodities is a novelty. Yet research published this week by JP Morgan suggests that people who do not have any exposure to commodities within their investment portfolios could be missing a trick or two.

"Commodities are the oldest asset class known to man, but perhaps one of the least understood today," said Rumi Masih, the global head of the strategic investment advisory group at JPM. "You can go back even further – one of the first investors known to profit from a commodity trade was the pre-Socratic Greek philosopher Thales (pictured), who, as Aristotle recalls, invested in oil presses near the ancient Ionian cities of Chios and Miletus early in the growing season one year and thus reaped the benefits of a bumper crop of olives."

Mr Masih's research found that commodities were a hedge against rising inflation and improved returns while reducing volatility. Commodities outperformed equities and bonds when economies were in a late expansion phase by 10pc and marginally outperformed when economies were in the early expansion phase just after a recession. The only time they lagged other assets was towards the end of a recession.

The commodity recovery story has been triggered by the supply and demand effect – quite simply, demand for many commodities outstrips supply as giant economies such as India and China march forward.

Even though the demand for metals has been rising, supply is tight – no new mine shafts have been opened in 20 years worldwide, according to JPM. The last iron ore smelter to be built in the United States dates back to 1969.

"The case for including commodities as one component of a diversified portfolio has become stronger in the wake of the 2008 financial crisis and amid the economic ascendancy of China," Mr Masih said. "There are significant supply constraints on commodities amid burgeoning demand for them, not only among developed nations and China but also from a broader swath of the developing world. This includes emerging economies in places as far afield as Africa, Asia and South America."

JP Morgan is not the only commodity bull. Commodity analysts at Standard Chartered estimate that nearly $200bn (£130bn) worth of investment projects were suspended as a result of the financial crisis in iron ore, copper, and coal alone.

Among soft commodities, particularly grains, disruptions to climatic patterns have again tightened supply. "This combination of medium-term demand-side pressure against the background of a limited short-term supply response in many commodities looks set to keep commodity prices supported," said Philip Poole, the global head of macro and investment strategy at HSBC Global Asset Management.

The question for investors is which commodities to buy and whether they are arriving too late to the party – as the graphs show that commodities have recovered from their 2008 falls. Commodities are volatile beasts – just ask investors who piled into oil stocks as crude marched towards $147 a barrel in 2008, only to come down with a jolt as the price plummeted to $60. Investors who bought exchange-traded funds following sugar, natural gas, zinc, cocoa and lead prices have seen the value of their investments fall by 10pc or more.

Gold continues to win favour and, with the economic uncertainty set to linger, demand will be strong. The question is whether the price can go much higher. There are concerns that cotton may not be rich pickings. Connor Noonan, a commodities analyst at asset management house Castlestone, is bullish on the prospects for cotton over the medium term, but he expects a lot of volatility, "with prices easing over the next month".

Evercore Pan Asset invests in commodity ETFs, but at present owns only two – ETF Securities Agriculture and iShares Timber. And it avoids gold. "We sold out of a general, 'hard' commodity ETF, which was a play on oil earlier in the year," said Christopher Aldous, the chief executive. "We have no way of understanding its movement. Its prices seem to be driven by speculators and we have missed out on the price rises – and we are not going to start chasing it now."

Legendary investor Jim Rogers, who set up one of the world's first hedge funds with George Soros in the Seventies, is also an advocate of commodities over the long term – although he warns investors not to simply buy those that have shot up in price in recent months. He recommends commodities that have not moved up that much. "Buy silver rather than gold, for instance, if you want to buy precious metal," he said. "I would like to buy coffee too. But there is still a huge potential [in general]. If governments are going to continue to print money, we are going to have higher prices for commodities."

http://www.telegraph.co.uk/finance/personalfinance/8036344/We-are-going-to-have-higher-prices-for-commodities.html

Investors see silver lining in economic gloom

Investors see silver lining in economic gloom
Forget gold. Silver, the yellow metal's poor cousin, has been the investment of the year.


By Garry White
Published: 7:00PM BST 03 Oct 2010

The price of silver is at a 30-year high

Silver prices have risen 31pc in 2010 to a 30-year high, outperforming gold, equities and most base metals. On Tuesday, the gold-silver ratio dropped below 60 for the first time in 11 months.

The gold-silver ratio is simply the number of ounces of silver it takes to buy one ounce of gold. The silver price is currently $22.11 and the gold price is $1,317, so the silver ratio now stands at 59.6.

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The ratio varies wildly. In 1970, it was about 20 and it peaked at just under 100 in 1991. The average is around about 40 – and that is the key to any silver bull's argument. Historically, it appears that silver is undervalued in relation to gold, they argue.

In 2010, the ratio has been as high as 72, recorded in February, and is now just below 60. Many believe it could have further to fall.

The reasons for gold's outperformance are well documented – inflationary fears, currency woes and safe-haven demand – but does the declining ratio towards its average mean that silver is going to continue with its charge forward?

Most analysts are not that bullish – with a price of about $24 targeted for next year. There are some, however, that believe the silver price will become much more lustrous over the coming years.

James Turk, who founded bullion dealer GoldMoney in 2001 and manages $1.2bn (£758m) of assets, thinks prices could hit $50 by the end of next year, but accepts that there will be volatility along the way.

Mr Turk believes quantitative easing will devalue currencies and send precious metals much higher.

"Just pick up your newspaper to see what central banks are doing to destroy currencies," Mr Turk says. "Unlike the 1970s, there are no safe havens from currency debasement – such as the deutschemark."

Mr Turk is more bullish on silver than gold. "The problem is the volatility," Mr Turk says. "Essentially it is a cheap form of gold, but it is not for everyone because of the volatility."

He says investors should always buy the physical metal and not paper and advises a portfolio of one-third silver to one-third gold.

Suki Cooper, a precious metals analyst at Barclays Capital is not so bullish. She has an average target for silver next year of $22.2, expecting the metal to peak in the second quarter at an average price of $23.7.

"Silver mine supply is still growing and industrial demand – although improving – remains relatively weak. Silver is still in surplus, but it has benefited form safe-haven buying," Ms Cooper says. "The price could fall sharply if investor interest wanes."

Already investor interest this year is much lower than last year, which is surprising given the recent bull run.

In the current year to date investment inflows into silver have amounted to 1,377 tonnes. In the nine-months to September 2009 it was 2,942 tonnes – with full year 2009 inflows at 4,112 tonnes, Ms Cooper notes.

However, Mr Turk remains unbowed. "I expect the gold-silver ratio to fall back below 23 over the next three-to-five years," he says, despite most analysts thinking this is unlikely.

Precious metals consultancy GFMS also believes that there is a risk of a sharp fall in the silver price.

Silver has risen on gold's coat-tails, but it is also used in industrial processes so it has risen on hopes of a recovery in the global economy too.

Philip Klapwijk, GFMS's chairman, said last week that the absence of an improvement in the economy will be a negative for the silver price.

"If you think gold will continue to advance in the medium term, then why wouldn't silver necessarily follow suit? One reason could be that if economic prospects take a bath, that side of the argument for silver becomes a lot weaker," Mr Klapwijk said.

"In the current situation, silver is benefiting from both general optimism on industrial production in emerging markets, and the investor interest in safe-haven assets like gold," he added.

All of this implies that, on a fundamental basis, silver is looking more toppy than gold at the moment after its recent outpeformance.

Instead of chasing the price of the physical metal, investors may want to invest in silver mining companies that are expanding production, such as the FTSE 100 group Fresnillo.

In the first half of this year, the group's cash cost of production was just $3.58 an ounce – one of the lowest in the industry. It aims to bring on line one new mine or expansion per year until 2014.

Of course the share price will be hit if the silver price falls, but the company will remain highly profitable. But cautious investors may want to wait for a dip before they pile in.

Quantitative easing could boost oil prices

Oil prices could rise by more than a quarter if there is more QE – even if demand stays weak, according to new analysis from Bank of America Merrill Lynch.

The broker's economists expect the Federal Reserve to expand its easing programme by $500bn (£317bn) to $750bn as early as the first quarter of 2011.

If the global money supply expanded at the same pace as this, gold would move 15pc higher and oil prices by 26pc, the broker argues.

This could bring Brent crude oil prices up from an average of $78 a barrel this year to an average of $83 a barrel next year irrespective of demand, Merrill said.

COPPER for delivery in three months hit a two year high on the London Metals Exchange on Friday, following upbeat manufacturing data from China.

The price rose to $8,078 (£5,101) a tonne, the highest level since August 1 2008, but prices eased in the afternoon.

The purchasing managers index rose to 53.8 in September from 51.7 in August, the China Federation of Logistics and Purchasing said. A figure above 50 indicates expansion.


http://www.telegraph.co.uk/finance/markets/8039595/Investors-see-silver-lining-in-economic-gloom.html

Big investors moving away from stocks into gold and bonds

Published: Tuesday August 24, 2010 MYT 9:05:00 AM
Updated: Tuesday August 24, 2010 MYT 9:13:21 AM

Big investors moving away from stocks into gold and bonds

NEW YORK: The smart money has moved away from stocks. So is the era of stock investing over?

It's too early to tell, but one thing is certain: "Money goes where it is treated best, and that hasn't been in stocks," says Wade Slome, who advises high net-worth investors and runs a hedge fund at his firm, Sidoxia Capital Management in Newport Beach, California.

The overall stock market is down over the past decade, while the price of gold has more than quadrupled and corporate bond returns have doubled. Couple that with the slow economy, and hedge fund managers and institutional investors continue to shift money away from stocks to investments they think will be safer.

An estimated $170 billion has been put in bond funds this year, while $35 billion has been pulled from stock funds, according to the Investment Company Institute, a trade group for the mutual fund industry.

So much for buy and hold.

Analysts at Bespoke Investment Group say we're in a "drive-by market." Their take: Stock investors aren't anticipating or analyzing anything. They just react to the news of the day and then move on to the next thing.

Three months ago, the survival of European banks and economies was front and center. Now, it's barely mentioned. Same goes for the "flash crash" in May. News of strong corporate earnings one day can drive the market sharply higher, but a weak earnings report the next can send prices plunging.

"Investors look at what is in front of them at that minute, and that's it," says Paul Hickey, one of the founders of the investment research firm.

The volatility begets more volatility, which further unnerves investors who have been punished by losses over the last decade. The total return, including dividend, for the benchmark Standard & Poor's 500 index is down about 11 percent since August 2000, according to Bespoke.

That means an investor who put in $10,000 in an S&P index fund 10 years ago and held it now has less than $9,000 to show for it.

Billionaire investor George Soros is one of those who bolted out of stocks in the second quarter. His Soros Fund Management reduced its stock holdings by about 40 percent to $5.1 billion from April through June, according to a quarterly report filed Aug. 17 with U.S. securities regulators. The fund sold 93 percent of its stake in Pfizer and 98 percent of its stake in Wal-Mart during the quarter.

The fund's biggest holding is an exchange-traded fund in gold-related stocks. It represents 13 percent of its stock portfolio. The quarterly report does not detail the fund's holdings outside of stocks, and the fund declined to comment on its investments.

Other big-name investors with large positions in gold ETFs include John Paulson, who was made famous for his successful bet that the subprime mortgage market would blow up.

They are sticking with gold even though prices for the precious metal are up 9 percent this year to more than $1,200 an ounce. That's four times the $300 price of an ounce of gold in 2000.

There has been an equally bullish move into government and corporate bonds. The Federal Reserve has pushed down interest rates to almost zero to stimulate the economy. That has spurred a rally in Treasury bonds and notes. The benchmark 10-year Treasury yield is down to 2.6 percent, its lowest level since the height of the financial crisis in 2009. Prices and yields move in the opposite direction.

Lower rates should help companies because they make it cheaper to borrow money and allow them to refinance their existing debt. Corporate profits then go up, leaving more money to spend on expansion or workers.

That's why lower rates should help boost stocks, says Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "But we are not seeing that at all right now."

Instead, investors are putting money into corporate bonds, even those that offer little guaranteed return. IBM was able to raise $1.5 billion by selling 3-year notes that pay a mere 1 percent in interest. That was only 0.30 percentage points more than the yield on comparable U.S. Treasurys.

Johnson & Johnson sold 10-year bonds this month with a 2.95 percent yield, even though it pays a dividend equal to about 3.7 percent of its stock price.

That means an investor who buys $10,000 in J&J bonds gets back $295 annually for 10 years, plus the principal. If that investor bought 166 shares of J&J stock at about $60 a share now and held it for a decade, the annual payout would be $360 a year, plus any price appreciation in the stock and increases in dividends. J&J has increased its dividend for 48 consecutive years.

Junk bonds are also attracting investors. They are being issued by companies at a record clip. Junk bonds are rated lower than other corporate debt because they have a higher probability of default. Investors are compensated for that risk with higher yields, which currently average around 9 percent.

Institutional investors like pension funds that are willing to take above-average risks to get above-average returns, says Ed Yardeni, who runs his own investment and economics consulting firm.

"Investors are fed up with stocks," Yardeni says. "But they are still diversified: Half their portfolio is in gold and half in bonds."

Of course, investing in bonds and gold aren't risk-free. Far from it. The dramatic rallies in both have some on Wall Street saying that bonds and gold could be nearing a bubble that's about to pop.

By taking those positions, investors are hedging their bets about what's to come with the economy. Gold is considered a protector against inflation, and bonds are good to hold in times of deflation.

As for stocks, they're getting the short shrift they deserve. - AP

http://biz.thestar.com.my/news/story.asp?file=/2010/8/24/business/20100824091246&sec=business

Investment In Gold Seminar by Krassimir Petrov

Krassimir Petrov - Investment Analysis (part 1)

29:14 - 2 years ago

Tavex Investment Gold Seminar in Stockholm April 9, 2008http://video.google.com/videoplay?docid=3236390700554076825#docid=-4020393826410739752

Krassimir Petrov - Investment Analysis (part 2)

28:52 - 2 years ago

Tavex Investment Gold Seminar in Stockholm April 9, 2008http://video.google.com/videoplay?docid=3227070987190450403#

Krassimir Petrov - Investment Analysis (part 3)

32:33 - 2 years ago

Tavex Investment Gold Seminar in Stockholm April 9, 2008http://video.google.com/videoplay?docid=976700141486118374#

Krassimir Petrov - Investment Analysis (part 4)

13:30 - 2 years ago

Tavex Investment Gold Seminar in Stockholm April 9, 2008http://video.google.com/videoplay?docid=1383332369012611726#

The Coming Bubble of 2010, and How to Avoid It

The Coming Bubble of 2010, and How to Avoid It


Adam J. Wiederman
May 30, 2010


Even though it has been barely two years since the latest investing bubble burst, sending the stocks of Fannie Mae and Freddie Mac to their knees, there's yet another bubble forming. And I believe it will burst this year.

Don't just take my word for it; even world-renowned investor George Soros agrees.

Just ahead, I'll tell you how to completely avoid it, and I'll present an alternative strategy you can adopt instead of following the crowd into this bubble.

But first, let's take a look at this bubble and how it formed.

All that glitters
Congress has spent billions of dollars in stimulus funds to jump-start the economy. This influx of dollars was funded almost entirely with debt. As the national debt level rises, the dollar becomes weaker, because currency investors shy away from high-debt countries. This causes higher inflation, which most everyone agrees is coming.

But the consensus right now is that the best way to counteract inflation is by investing in gold.

And the consensus is dead wrong!
Alas, gold is a luxury commodity. It has no coupon rate or growth prospects, and it can rise in price only as much as demand for it grows.

It's also difficult to value. Some believe the price of gold per ounce should match the Dow Jones Industrial Average. Others believe it must reflect the price of a top-tier man's suit. Still others believe it must account for global supply and demand.

In spite of this inherent confusion, many prominent investors -- John Hathaway of the Tocqueville Gold Fund, Jim Rogers of Quantum Fund fame, and even top hedge fund managers like David Einhorn and John Paulson, to name a few -- believe gold can do well right now.

Even more shockingly, a recent Value Investors Congress was full of lectures on how to profit in precious metals.

Even the best can be fooled
The average investor is blindly following these noteworthy financial wizards. That's why more than $12 billion of new money was invested in the SPDR Gold Trust in 2009 alone. I'm the first to admit that falling prey to other investors' moves is an easy pitfall, but it can set you up for disaster.

So what exactly are all these investors -- and their followers -- overlooking? These two key facts:

1. When gold demand rises, supply does, too, which brings gold prices back down.
Fortune magazine reports that gold miners invested more than $40 billion into new projects since 2001, and they "are now bearing fruit." Bullion dealer Kitco "predicts that these new mining projects will add 450 tons annually -- or 5% -- "to the gold supply through 2014, enough to move prices lower." The demand also brings out sellers of scrap gold, which adds even more to the supply.

All this while demand for gold (other than as an investment) dropped 20% in 2009.

2. Gold is historically a poor investment.
Perhaps the most damning fact is that, from 1833 through 2005, gold and inflation had nearly perfect correlation, according to Forbes. This means that, after taxes, you would have actually lost money in gold.

Warren Buffett once quipped:

It gets dug out of the ground. ... Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

Truth be told, the only way to get the price of gold to rise is to get other investors to buy into the idea -- like a giant Ponzi scheme. And as we know from watching the unraveling of Bernie Madoff's empire, that can't last forever.

No wonder the vice governor of the Chinese central bank recently announced that the bank is holding off on purchasing gold.

All of this explains why buying gold today is a horrible decision -- and why investors would be better off looking elsewhere.

The absolute best place to look
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).

Here are six solid candidates that fit that bill, all of which have a long history of dividends -- through periods of inflation and deflation alike:

Company
Market Cap
Dividend Yield
5-Year Compounded Annual Growth Rate of Dividends
Liabilities-to-Assets Ratio
Dividends Paid Since

United Technologies (NYSE: UTX)
$64 billion
2.5%
16.2%
66%
1936

McDonald’s (NYSE: MCD)
$72 billion
3.3%
30.7%
53%
1976

Abbott Laboratories (NYSE: ABT)
$74 billion
3.7%
9.2%
61%
1926

Coca-Cola (NYSE: KO)
$118 billion
3.4%
10.1%
48%
1893

Chevron (NYSE: CVX)
$149 billion
3.9%
11.4%
44%
1912

Johnson & Johnson (NYSE: JNJ)
$163 billion
3.7%
11.4%
43%
1944

Data from Capital IQ and DividendInvestor.com.

These are exactly the sorts of dividend-paying stocks that former hedge-fund analyst and current Motley Fool Income Investor advisor James Early looks for in his market-beating service.

In his newsletter, James has put together a "core portfolio" of top dividend stocks, consisting of six dividend stocks he believes every investor should use as a platform to profitable dividend investing.

This article was originally published Nov. 6, 2009. It has been updated.

http://www.fool.com/investing/dividends-income/2010/05/30/the-coming-bubble-of-2010-and-how.aspx


Take home message:
The best way to invest for inflation is to invest in high-yield dividend companies. Unlike gold, which has no coupon rate and no growth potential, you should be sending your investing dollars to companies that pay a dividend (which often rises) and also have both stable growth potential (which also often rises) and strong assets (in inflationary periods, assets are more valuable since they cost more to replace).

Gold bulls claim price could double to $3,000 in five years

Gold bulls claim price could double to $3,000 in five years

Fears that American, British and other governments intend to inflate their way off the rocks of excessive debt prompted record inflows into gold this week.

By Ian Cowie
Published: 7:35AM BST 20 May 2010

Now some fund managers claim the price could more than double to $3,000 (£2,080) per ounce within five years.

Heavily indebted governments throughout the developed world are struggling to fill deficits of black-hole dimensions in public finances by imposing spending cuts and tax rises. Both are expected in Britain's emergency Budget on June 22 and neither will be popular.

But keeping interest rates lower than inflation and letting the currency take the strain is another way to reduce the real value of debt. You can see why politicians may feel that is the ''least worst'' option.

Stealthily robbing savers by eroding the purchasing power of money is less likely to cause riots in the streets than spending cuts, because inflation tends to hit older people hardest while unemployment hits the young.

Governments can devalue their own currencies, but it is harder for them to make more gold. That fact helped prompt record inflows of $484m (£336m) into gold exchange-traded commodities this week, while gold trading volumes peaked at $2.1bn (£1.45bn).

However, the precious metal is not a one-way bet and it slipped back below $1,200 (£830) on Thursday as some investors took profits amid anxiety about an unsustainable bubble in the gold price.

Graham French, manager of the M & G Global Basics Fund, was undeterred. He said: "In a scenario of rising sovereign risk, where government finances are hugely overstretched and central banks have been systematically devaluing paper money, gold's value as a safe haven and a stable physical currency can only increase over the medium term.

"Against this backdrop, the gold price could go much higher than these already elevated levels. It wouldn't be too far fetched to see it rising above $2,000, or even up to $3,000."

Mr French's strategy is based on the belief that things that emerging markets sell will fall in price over the next five years, while things that emerging markets buy will rise in price.

The explanation is that demand from the heavily indebted developed world may remain subdued, while demand from largely debt-free consumers in emerging markets will rise.

Rupert Robinson, chief executive of Schroders Private Bank, said: "Gold is setting record highs in almost every currency, despite headwinds including a strong dollar and monetary tightening in India and China, the main end markets for gold. Today's economic environment makes gold a must in any client portfolio.
"Interest rates are at historically low levels; central banks are bailing out the system; we have seen a huge amount of quantitative easing; currencies being debased and governments around the world are short of money.

Nothing goes up in a straight line, indeed there are signs that gold may be becoming over-owned and too fashionable in the short term, but I think that over the long term gold is a good asset to hang on to. It could easily reach $2,000 per ounce within the next five years," Mr Robinson said.

Richard Davis, of BlackRock's Natural Resources team, added: "Gold always does well in times of uncertainty, and this week is no exception. Lingering concerns over the Greek bail-out, uncertainty over global economic growth, and an inconclusive election result in Britain have all created nervousness in stock markets, and risk-averse investors are looking to gold as a store of value.

The fact that gold bullion is a real asset, which does not depend for its value on any company or government, makes it compelling as a 'safe haven' investment. Gold bullion is particularly popular in Asia and the Middle East and investors in these regions have continued to pile money into the asset class.

"It is worth noting that, adjusted for inflation, gold is still some way off its all-time high of $850 per ounce in 1980, equivalent to more than $2,200 in today's terms."

Adrian Ash, of BullionVault.com, said: "Inflation alone is not the driver. It's real interest rates that matter, because if cash is beating inflation, no one needs gold. Whereas when cash loses value, year after year – and if the major productive alternatives, such as bonds, shares and property, also fail investors as well – then gold really comes into its own.

"Cash is being actively devalued – and not just in Britain; the Eurozone crisis is only the latest prime mover. Underlying the decade-long upturn in gold is a repeated attack on the virtue of savings," Mr Ash said.

Gold's fundamental appeal remains that it is a store of value that is largely immune to government intervention.
Mr French observed: "The great Irish dramatist George Bernard Shaw said: 'You have to choose between trusting the natural stability of gold or the natural stability and intelligence of members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.' I have to say, I'm with Bernard Shaw on this."

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/7743787/Gold-bulls-claim-price-could-double-to-3000-in-five-years.html

The New Touch-Face of Vending Machines

The New Touch-Face of Vending Machines

By STEPHANIE ROSENBLOOM 

At a hotel in Abu Dhabi, a cash machine dispenses gold. Futuristic vending machines are proliferating, selling high-end products, and not for small change

Gold rises to new record as investors flock to safety

Gold rises to new record as investors flock to safety
May 12, 2010 - 6:55AM

Gold futures rose to a record in New York as government debt in Europe spurred demand for the precious metal as an alternative to currencies.

Gold futures reached $US1232.50 an ounce amid concern that Europe's most-indebted nations will struggle to contain deficits after policy makers provided almost $US1 trillion in a rescue package. The metal priced in euros also reached an all-time high today, and bullion in UK pounds and Swiss francs has surged.

"This is the beginning of the unraveling of fiat currencies," said Michael Pento, the chief economist at Delta Global Advisors Inc. in Huntington Beach, California. "Money has to be backed by something. People are beginning to realize that gold is the world's reserve currency."

Gold futures for June delivery rose $US30.90, or 2.6 per cent, to $US1231.70 on the Comex in New York, compared with yesterday's settlement. The previous record was $US1227.50 on December 3.

Gold for immediate delivery reached an all-time high of $US1231.70, exceeding the previous record of $US1226.56 set on December 3.

Gold has climbed 11 per cent in 2010, following nine straight annual gains. This year, the euro has dropped more than 11 per cent against the US dollar, an index of equities in major markets is down and returns on the benchmark 10-year US were up 3.8 per cent.

"People are in panic mode," said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. "There is absolute panic over the risk of contagion spreading to other countries in Europe. Yields on Treasuries are so low, people are starting to look to gold as an alternative."

Bloomberg

Talk about laying your reputation on the line!

Nouriel Roubini's Worst Call Ever
http://www.fool.com/investing/general/2010/01/04/nouriel-roubinis-worst-call-ever.aspx

This article has a good discussion on investing in gold. There are people arguing for and others arguing against.  Investing opinions are always so interesting.  Depending on your frame of thinking, you are either a bull or a bear.  It is difficult to predict the market.  Economists have a tough job to make the call.  It is a tougher job to expect them to be right all the time!

Here is a comment by a reader:

"Gold is an obsession. It can never be 'fairly' valued as demand cannot be measured in terms of physical need. The demand for gold has much more to do with the level of fear investors are feeling than with any concievable fundamentals.

I can look a company's balance sheet, listen to its conference calls, chat with fellow Fools and decide on the basis of facts whether its current stock price is fair or not.

Compare that to trying to project inflation, US government policy changes, and the reserve needs of opaque central banks in Asia. All of those things will affect the future price of gold.

Those of us who bought healthy companies in the spring of 2009 at bargain prices are already reaping the gains. Buying gold now is betting on the future $2k price which in turn is betting on future economic conditions and future investor sentiment. That's a lot of "ifs"."

Enjoy the rest of the article.

The Future of Gold, the Dollar, and More

The Future of Gold, the Dollar, and More
By Jennifer Schonberger
December 11, 2009

The dollar has had a huge effect on the stock market's moves this year. As the dollar has depreciated, many stocks have climbed higher; the logic is that a weaker dollar will boost the bottom lines of companies such as McDonald's (NYSE: MCD), Aflac (NYSE: AFL), and Coca-Cola (NYSE: KO), all of which derive a substantial portion of their revenues from abroad. The depreciating dollar has also boosted commodity prices and associated commodity stocks such as Freeport-McMoRan (NYSE: FCX) or Newmont Mining (NYSE: NEM), serving to lift the market.

As we approach 2010, what is the future of the dollar, and what are the implications for the asset prices that move inversely to it? What does it all mean when it comes to rebalancing the global economy and our economic relationship with China?

For some insight on all this, I spoke with the man who had the foresight to call the financial meltdown in 2006: Peter Schiff, president and chief global strategist of Euro Pacific Capital and author of the newly updated book Crash Proof 2.0.

Schiff believes the dollar is on a long-term downward trajectory, and that it could collapse if the government continues its current policies. That has implications for the stock market and gold, which he thinks could go to $5,000 an ounce.

Here's an edited transcript of our conversation:

Jennifer Schonberger: You've been bearish on the dollar for some time. Do you still stand by your bearish call for the greenback?

Peter Schiff: Yes. I think the dollar is going to fall for years. It's not going to fall every day, or every week. There are going to be periods of time where the dollar rallies -- that's how markets work. Like a bull market climbs a wall of worry, a bear market follows a slope of hope. And there's always going to be hope that the dollar is going to recover, based on "maybe the Fed will raise interest rates," "maybe the U.S. economy will improve." But none of that is going to help the dollar. I think the dollar's fate has been sealed by the policies being pursued by the government and the Federal Reserve, and unfortunately it's a grim fate.

Schonberger: If the dollar does remain weak, as you expect, what are the implications in terms of rebalancing the global economy?

Schiff: Part of rebalancing the global economy is going to necessitate a lower dollar. The reason the global economy is so out of balance is because the dollar is artificially strong. It's been propped up by foreign central banks, and this enables Americans to import products they really can't afford. So if we want the global imbalances to be solved, it's going to require a lower dollar -- and that's what's going to happen. The longer foreign central banks artificially prop up the dollar, enabling Americans to keep spending borrowed money, the worse the global imbalances are going to get.

Schonberger: You recently wrote, "While [China's] peg [to the U.S. dollar] certainly is responsible for much of the world's problems, its abandonment would cause severe hardship in the United States." Why?

Schiff: It would cause hardship in the U.S., but it's something that we have to deal with sooner rather than later. By propping up the U.S. dollar and by carrying U.S.-dollar-denominated debt -- U.S. Treasuries, mortgage-backed securities -- the Chinese have kept interest rates and consumer prices artificially low. Americans have been able to benefit from that in the short run because their mortgages, car payments, and credit card payments are lower. They can go to stores like Wal-Mart (NYSE: WMT) and get those everyday low prices. But those prices aren't because of Wal-Mart, they're because of China.

When the Chinese government removes all those subsidies, there's going to be an immediate benefit to the Chinese people, because they're suddenly going to see lower prices and more access to capital. In America, we're going to have the rug pulled out from under us ...

Schonberger: The dollar is central to the relationships of other assets' prices. There is an inverse relationship between the dollar and equities. Do you expect that linkage (between the dollar and equities) to continue into next year?

Schiff: Remember, there's an inverse relationship between the dollar and the price of everything, because as the dollar loses value, you need more dollars to buy anything. That's true for an ounce of gold, a barrel of oil, a bushel of wheat, or shares of stock. So you're always going to see prices rising as the dollar is falling. That's what's happening now.

Now at some point, inflation could be so problematic that it drives interest rates up substantially, and as inflation gets bigger and bigger, the prices that tend to react more quickly will be things like food and energy. So if U.S. corporations suddenly see the cost of their long-term debt or short-term debt jump up and their customers don't have any money to buy their products because they're spending all their money on food, then ultimately you could see falling stock prices as the dollar is falling.

Schonberger: Speaking of relationships, you expect gold to go to $5,000 an ounce, correct?

Schiff: Yeah. It could go higher than that, but I think $5,000 is a reasonable expectation of where gold is headed over the course of the next several years, based on monetary and fiscal policy that is in place. Now if the government were to reverse course -- if they suddenly brought the budget into surplus, and if the Fed aggressively raised interest rates back up to a reasonable level, say 5%, 6%, or 7%, not just a quarter-point every few months -- then gold would probably not get to $5,000.

But I don't think they're going to do that. Based on what the Fed is saying and doing, they're going to keep interest rates at practically nothing for as far as the eye can see. The U.S. economy is not recovering. All we're doing is spending stimulus money. The minute you take away the stimulus, all the GDP growth, all the jobs that are associated with that stimulus spending, will vanish. So they can't take the stimulus away without destroying the phony recovery. So if interest rates are going to stay low and they're going to keep printing money, the only thing that's going to happen is the dollar is going to fall until it all of a sudden collapses ...

Schonberger: So then you're actually calling for a collapse in the dollar relatively soon?

Schiff: Relatively soon, yes. Maybe not tomorrow, but I think it will happen soon. I think it will happen before Barack Obama leaves office even if he's only a one-termer. The first initial collapse in the dollar will be about a 50%, 60%, or 70% decline in dollar value. That collapse will usher in the new leg -- the much more severe leg of our economic downturn. Not only will we have a financial crisis, but we'll also have a currency and economic crisis.

Hopefully that will be the tough medicine, the shock that finally causes Congress and the Fed to abandon its current policy and start doing the right thing. If it doesn't -- if they respond to that big drop in the dollar by creating more inflation, and if they fail to raise interest rates aggressively and withdraw liquidity -- then they will turn the dollar into confetti. Then we will have hyperinflation. If we go down that road, gold prices aren't just going to $5,000, they'll go to $50,000, or $500,000. I hope that cooler heads will prevail before we go down that road, but from this point that's still a possibility if we don't change policies.

Strong words from Peter Schiff.

Fool contributor Jennifer Schonberger does not own shares of any of the companies mentioned in this article. AFLAC is a Stock Advisor recommendation. Coke and Wal-Mart are Inside Value picks. Coke is also an Income Investor recommendation. The Motley Fool has a disclosure policy.

http://www.fool.com/investing/general/2009/12/11/the-future-of-gold-the-dollar-and-more.aspx

Gold price slumps as dollar strengthens

Gold price slumps as dollar strengthens

The gold price has hit a number of all-time highs in recent weeks
The gold price has slumped after surprisingly good US unemployment data sent the US dollar higher, making gold a less attractive investment.

Gold fell more than $65, or 5%, to $1,161.4 an ounce, down from a record high of $1,226.56 in early trading.

After figures showed the US jobless rate falling, the dollar gained 2% on the Japanese yen and 1.3% on the euro.

Gold has hit a number of record highs in recent weeks as the dollar weakened due to low interest rates in the US.

'Teeth kicking'

Both the dollar and gold are seen as safe investments, but investors have preferred gold in recent months due to the weak dollar.

The US has said it will maintain low interest rates for some time, which makes the dollar less attractive.

But the sudden strengthening of the dollar has now sent the gold price sharply lower.

The dollar rose on the back of data which showed that the US unemployment rate fell in November to 10%, down from 10.2% in October.

In all, 11,000 jobs went over the month - the smallest number since the recession began in December 2007. That was far fewer than the 130,000 expected by most analysts.

The dollar rose against the euro, to $1.4889, and against the yen, to 90 yen.

"So many people have piled into gold, so this pop in the dollar is freaking people out," said Matt Zeman at LaSalle Futures Group.

"The dollar is rocking and gold is getting its teeth kicked in."

http://news.bbc.co.uk/2/hi/business/8396542.stm

Market bubbles and individual stock bubbles are investor traps

Bubbles are not caused by fundamental events. It is investors themselves who create them. Investors come to believe some things that are not true or not rational and thus create a mania in a stock, in an industry, or in the overall market. If the mania goes on for a time, a bubble is created, and that builds until its inherent instability leads it to break.

One of the interesting differences between bubbles and bear markets is that in a bear market, there are plenty of bulls and bears. In a bubble, the few bears are drowned out by the loud and almost universal bullishness. This happened with the Internet, because a mania is normally caused by a belief in something that is supposed to be new and amazing, even though this cannot be proved.

It is natural to like momentum and money, but if investors have no disciplines and no sense of bubbles, then they are headed not for the big money, but for quite the opposite.
 
There are market bubbles once in a great while, perhaps once in a life-time, but individual stock bubbles are more common. All bubbles have some similarities that concern how perceptions, emotions, and a lack of accurate information combine to set an investor trap.
 
 
http://myinvestingnotes.blogspot.com/2009/06/bubble-trouble.html
http://myinvestingnotes.blogspot.com/2009/09/markets-in-government-fuelled-bubble.html
http://myinvestingnotes.blogspot.com/2009/11/stock-market-bubble-to-end-morgan.html

Gold: how high can the price go?

Gold has reached an all-time high, breaking through the $1,100 an ounce barrier on a weaker US dollar and the continued appetite from investors for the precious metal's safe-haven attributes.

Published: 2:51PM GMT 10 Nov 2009

Demand continues to be strong – even Harrods, the famous Knightsbridge store, is getting in on the act by selling gold bars and coins to its upmarket customers.

Gold has returned more than 20pc over the past year but the question remains: how high can the price of gold go?

Here are the thoughts of analysts taken from around the globe.

Suki Cooper, commodities analyst, Barclays Capital
Ms Cooper said: “We expect prices to maintain their upward momentum through to at least the first half of 2010, where we expect prices to average $1,140 in the second quarter. The unexpected purchase of gold by the Reserve Bank of India has only added to the positive sentiment towards gold. Even though gold's attributes have not changed, we have seen a change in attitude from investors towards gold. From the official sector through to retail investors, there has been a structural shift in the demand side.”

Jim Rogers, chairman of Singapore-based Rogers Holdings
Mr Rogers argues that gold hasn't begun to peak, adding that it will climb from a nominal record near $1,100 an ounce to $2,000 an ounce in the future. He said: “Just to get back to the old high back in 1980, adjusted for inflation, the price would need to be over $2,000 now. So we’ll certainly get there some time in the next decade.”

London Bullion Market Association
A poll of about 370 delegates at the London Bullion Market Association's annual conference predicted that gold would be at $1,181 in 12 months' time. The poll covered 368 traders, analysts, miners and central bankers.

Ellison Chu, Standard Bank Asia
The Hong Kong based manager of precious metals at the bank expects the price of gold to maintain four-figure levels given the strong demand, particularly from Asia.

"India's purchase [India’s central bank recently bought 200 tonnes of gold] had a psychological impact on investors. They think other central banks will also buy gold for their reserves. Gold will probably hang on to these high levels. We're seeing good seasonal demand ahead of Christmas and the Chinese New Year."

Nouriel Roubini, professor of economics at New York University’s Stern School of Business
In an interview with Hard Assets Investor, Mr Roubini said there were only two scenarios that would see gold go much higher: inflation and Armageddon.

“We don’t have Armageddon, we don’t have inflation, so gold can maybe go slightly higher. But those people who delude themselves that gold can go to $1,500 or $2,000 are just talking nonsense. The fundamentals are not justified, and those people are just talking their books.”

David Levenstein, investment adviser
Writing on Mineweb, David Levenstein, a veteran of 29 years in futures, equities, forex and bullion, said gold appeared to be on course for a shift to $1,300 because of the gloomy outlook for the dollar.

"Frankly, I cannot see any bit of news that may suddenly appear that could have a miraculously powerful effect on the value of the dollar," he wrote. "While my experience has taught me that it is very difficult to predict future prices, all the empirical evidence tends to indicate that we can expect much higher prices for gold."

Bill Downey, investor and price analyst
“Cycles suggest we are nearing a pullback. We have arrived at a key resistance area at a time when key cycles are due. We're modifying key resistance to $1,105-$1,110 followed by $1,132-$1,150. The potential for a high to be established this week and an autumn correction unfolding thereafter has grown significantly. We want to see at least a bit of price weakness first ... but longs [those who hold gold] should be cautious.”

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/6537637/Gold-how-high-can-the-price-go.html

The story behind the US$1-billion revenue of gold trading floors in Vietnam

Not All That Glitters Is Gold
By Hai ly
Friday, October 30,2009,00:55 (GMT+7)


A gold trading floor with healthy liquidity should enable investors to place and match orders equal to thousands of taels each when gold prices jump or plunge

The story behind the US$1-billion revenue of gold trading floors

For the first time in history, gold prices exceeded US$1,050 an ounce, prompting the international and local media to predict that they may climb to US$1,100-1,200. Many individual investors on gold trading floors have incurred losses by betting on falling prices. “When prices first rose, a number of investors did not attempt to cut losses, but continue selling gold. However, a prolonged period of price increase has eroded their endurance. When global prices underwent a correction phase, investors could no longer withstand the losses. At that time, banks also started to step in. Together with owners of gold trading floors, they have dealt with the accounts of these investors,” said Nguyen Duc Thai Han, deputy general director of the Asia Commercial Bank (ACB).

Reaching US$1 billion

Unlike the sale of gold bars, the operations of most gold trading floors currently fall under two categories. Some gold trading floors such as those operated by SBJ (Sacombank Jewelry) and ACB allow investors to engage in mutual transactions. Others, meanwhile, require investors to place their orders with the owners of the trading floors, who will, in turn, place these orders with international trading floors. Their revenue is hard to measure. Both investors and management agencies should be concerned about the actual liquidity of domestic gold trading floors. Some trading floors put their daily order-matching volumes at 200,000-300,000 taels, or even 400,00 taels. The total revenue reaped by gold trading floors reaches US$1 billion per day, which far outshines that of the stock market.

Reality, however, is not so shiny. A close look at order-matching volumes at some gold trading floors has provided some surprising insights. In general, the value and volume of gold traded soars when gold prices fluctuate drastically. This also holds true for stocks and many material commodities. However, at many gold trading floors, trading volumes actually surge when global gold prices vary little. It is possible that owners of gold trading floors have placed orders worth hundreds or thousands of taels apiece when price disparity is insignificant, so as to generate staggering revenue. This, in turn, makes gold trading floors more competitive and appealing to investors. Investors may then open accounts at gold trading floors which capture their attention.

Should this be the case, are the actual trading volumes at domestic gold trading floors as enormous as many people think? A gold trading floor with healthy liquidity should enable investors to place and match orders equal to thousands of taels each when gold prices jump or plunge. How many gold trading floors actually satisfy this criterion? Or are they manipulating their revenue to lure investors?

It is vital for the authorities, especially the State Bank of Vietnam (SBV), which compiles and implements regulations governing gold trading floors, to accurately evaluate the scale of these floors. What is the appropriate deposit for gold trading? How much gold should banks keep to ensure liquidity? What about trading gold on accounts held by credit institutions? These are all controversial issues. There should also be regulations concerning the financial capabilities and business skills of both owners of gold trading floors and investors. At present, local gold prices move in tandem with their global counterparts and are also influenced by international speculation. Gold trading, therefore, comes with both high returns and high risks. Is this activity suitable for all investors? Unless the authorities can provide a satisfactory answer to this question, effectively managing gold trading floors is an uphill task.

On the other hand, the revenue which banks reap from gold trading floors also varies as gold prices fluctuate. The turnover comes from three sources:
1. trading fees of some VND2,000 per tael (or VND4,000 per tael if they are collected from both buyers and sellers);
2. overnight loans of gold and the dong, offered to gold trading accounts at gold trading floors (this activity is not related to mobilizing and lending loans as credit);
3. trading gold, domestically or otherwise, via accounts or purchase of gold bars.

For instance, ACB’s revenue generated by gold trading topped VND1 trillion last year, including VND1.4-1.5 billion of daily trading fees. ACB has been a member of the Dubai gold trading floor for three months, where the bank carries out its own transactions rather than those requested by its individual investors. This move has also sheltered ACB against drastic changes in the domestic gold market.

In developed countries, individuals access international stock, bond, foreign currency and gold markets, from the U.S. and Europe to Australia and Japan via brokers. This is not yet the case in Vietnam, where the necessary conditions have not been in place. Still, the proliferation of domestic gold trading floors makes it important for the Government to manage such activity efficaciously when it is allowed. Misleading revenue figures posted by gold trading floors will ineluctably trigger unhealthy competition and hamper the interest of investors.


http://english.thesaigontimes.vn/Home/business/trade/7199/

The Price Level and Gold

The Price Level and Gold

In each country, the price level at the end of World War II was essentially the same as it was 150 years earlier. Since World War II, however, the path of inflation changed dramatically. The price level rose almost continuously over the past 55 years, often gradually but sometimes at double-digit rates, as in the 1970s. Excluding wartime, the 1970s witnessed the first rapid and sustained inflation ever experienced in U.S. history.


The dramatic changes in the recent inflationary trend should not come as a surprise. During the nineteenth and early twentieth centuries, the United States, the United Kingdom, and the rest of the industrialized world were on a gold standard. A gold standard restricts the supply of money and hence the inflation rate. From the Great Depression through World War II, however, the world shifted to a paper money standard. Under a paper money standard, there is no legal constraint on the issuance of money, so inflation is subject to political as well as economic forces. Price stability depends on the ability fo the central banks to limit the supply of money and control the inflationary policies of the federal governements.


The chronic inflation that the United States and other developed economies have experienced since World War II does not mean that the gold standard was superior to the current paper money standard. The gold standard was abandoned because of its inflexibility in the face of economic crises, particularly the banking collapse of the 1930s. The paper money standard, if administered properly, can avoid the banking panics and severe depressions that plaqued the gold standard. However, the cost of this stability is a bias toward chronic inflation.


It is not surprising that the price of gold has followed the trend of overall inflation closely over the past two centuries. The price of gold soared to $850 per ounce in January 1980, following the rapid inflation of the preceding decade. When inflation was brought under control, the price of gold fell. One dollar of gold bullion purchased in 1802 was worth $14.38 at the end of 2001. That is actually less than the change in the overall price level! In the long run, gold offers investors some protection against inflation but little else. Whatever hedging property precious metals possess, these assets will exert a considerable drag on the return of a long-term investor's portfolio.

#Ironically, despite the inflationary bias of a paper money system, well-preserved paper money from the early nineteenth century is worth many times its face value on the collectors' market, far surpassing gold bullion as a long-term investment. An old mattress found containing nineteenth-century paper money is a better find for the antique hunter than an equivalent sum hoarded in gold bars!

Related:

Dr. Marc Faber on the risk of hyperinflation
http://www.youtube.com/watch?v=bsoIYnuF0eY

Marc Faber ger rid of your cash buy commodities while they are still cheap !!!!!!
http://www.youtube.com/watch?v=qE7xrv7-1MU

Marc Faber "U S will default on debt or enter hyperinflation" 02-05-09
http://www.youtube.com/watch?v=loa92ZG1KV8

The bear case for gold

A Goldilocks economy, like Goldilocks' porridge, is neither too hot nor too cold

Goldilocks and the bear case for gold

The primary risk to the gold price is a return of the "Goldilocks" economy, according to analysts at a firm of asset managers.

By Richard Evans

Last Updated: 5:02PM BST 28 Apr 2009

A Goldilocks economy – one that is neither too hot nor too cold, sustaining moderate economic growth, low inflation and low interest rates – would "completely remove the safe-haven investment case for gold as a form of insurance against inflation or as an alternative currency", said the commodities and resources team at Investec Asset Management.

Real yields could once again be obtained in cash and bonds, and equities could begin discounting economic growth, the analysts added.

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"Under the Goldilocks scenario the US Federal Reserve's balance sheet will quickly adapt once economic activity begins to improve as the Fed reduces the money supply dramatically and curbs any major inflationary cycle," Investec said.

"Furthermore, under this scenario all other central banks will do the same. Inflation would be averted, and economic growth could continue."

The bank said the current high price of gold was driven by demand from investors putting their money into the classic safe-haven asset. But it added: "Should investment flows into gold cease or turn negative, we believe that this drying up of investor demand will have repercussions for the gold price.

"A return of risk appetite or improvements in other asset classes could result in an unwinding of investment buying and put considerable downward pressure on the gold price, particularly if global economic and financial conditions begin to show meaningful signs of improvement."

Although Investec has identified factors that could push the gold price down, the bank's overall stance on the precious metal remains bullish. It said: "We continue to believe that gold can perform well in either an inflationary or deflationary environment.

"This supports our positive outlook for the commodity and for gold equities. Quantitative easing programmes are also supportive for gold."

The London afternoon gold fix was $891.00 an ounce.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5237330/Goldilocks-and-the-bear-case-for-gold.html

Gold hits four-week high as swine flu fears grow and China builds reserves

Gold hits four-week high as swine flu fears grow and China builds reserves
Gold has climbed to its highest in almost a month as fears of a global flu pandemic prompted investors to seek safer assets, according to a report from Reuters.

Last Updated: 10:44AM BST 27 Apr 2009

Gold, which has registered four straight sessions of gains, has risen by 5pc over the past week
Fears of a global swine flu pandemic grew with new infections in the US and Canada on Sunday, while millions of Mexicans have stayed indoors to avoid a virus that has killed more than 100 people.

Gold hit an "intra-day" high (in other words, not a closing price) of $918.25 an ounce, its highest since April 2. The price had been boosted on Friday by the revelation that China had secretly raised its gold reserves by 75pc since 2003, confirming years of speculation that it had been buying.


Gold, which has registered four straight sessions of gains, has risen by 5pc over the past week and is just 8pc below an 11-month high above $1,000 hit in February.

Darren Heathcote of Investec Australia said: "I am not too sure how the swine flu will play out. The problem is the potential for this to explode to pandemic proportions, leaving a lot of people very wary. It may well benefit gold, as gold would be seen as a safe haven.”

Dealers expected gold to face resistance around $932 – an intra-day high seen in early April. "Ultimately, we could well be targeting that mid $960s again, which is that peak in the middle of March," added Heathcote.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5229027/Gold-hits-four-week-high-as-swine-flu-fears-grow-and-China-builds-reserves.html

Will copper outshine gold and silver?

Will copper outshine gold and silver?
All the talk of metal investing in recent months has focused on the safe-haven and inflation hedge of gold. Yet other metals, notably copper and silver, have been starting to attract investor attention too.

By Paul Farrow
Last Updated: 7:55AM BST 18 Apr 2009

The copper price has risen by more than 50pc this year Photo: GETTY
All the talk of metal investing in recent months has focused on the safe-haven and inflation hedge of gold. Yet other metals, notably copper and silver, have been starting to attract investor attention too.

It is only a year ago that the commodity bull run was still in full swing. The wheels fell off in August, since when the price of metals has nose-dived. Orders for metals dried up overnight and the subsequent price falls have been deeper than during the worst years of the Great Depression.

But could there be glimmer of hope for a metals revival?

John Meyer, a mining analyst at Fairfax, the investment bank, thinks so. He is revising many of his metal forecasts upwards because of several factors, including a weaker US dollar, inflation fears and the renewed demand from China.

"The ratio of the copper price versus gold is at its lowest level since 1990 – people forget that many metals, not just gold, are a hedge against inflation. China is buying up copper and, while some see it as strategic buying, it also has to buy metals simply to maintain its economic growth," said Meyer. "Copper is our principal focus, although lead, zinc and tin may fare well too."

The revelation that China's State Reserves Bureau (SRB) has been buying copper on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons has caught many investors' imagination. There's even talk of China creating a 'copper standard' for the world's currency system.

Nobu Su, the head of Taiwan's TMT group, which ships commodities to China, said the next industrial revolution was going to be led by hybrid cars - and that needs copper. "You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel and rarer metals such as titanium, indium (used in thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

Evy Hambro, who runs the BlackRock World Mining investment trust, said the key question for metal commodities was whether the renewed demand for metals was due to companies restocking inventory levels which had been run down, or whether they were turning the capacity tap back on. If it is the former, the commodity revival could be short-lived.

He remained unconvinced that it was the latter. "We are not seeing a pick-up in demand in Europe or the US – and demand for commodities tends to slow in the summer in the northern hemisphere anyway. But we remain overweight copper, which has some of the best fundamentals."

Investors looking at copper ought to be aware that its price has risen by more than 50pc this year, so late joiners have missed some of the recovery already.

Hambro is still positive on gold, but is less convinced that aluminium will shine. Aluminium's price has fallen by more than half since last summer, but there is still a huge oversupply, which is unsupportive of a sharp price rise if demand turns.

The central banks' stimulus to kick-start the flagging car industry could also provide a fillip to metals. For example, more than 80pc of lead is used for car batteries, while 53pc of a car is made from steel.

Fairfax pointed out that sales of cars rose sharply in Germany in February after its government introduced a stimulus plan which allows consumers to trade an old car for a new one with state aid of €2,500. "That's a pretty huge increase – sales had fallen 14pc year-on-year in January," said Meyer.

Hambro agreed that fiscal stimulus would boost many metals involved in car production, but that it was difficult to judge when it would be seen to filter through. "If a car plan is announced in next week's Budget, will orders for aluminium rise sharply? Unlikely."

But early signs that the economic downturn may be reaching a floor have led many analysts to believe that silver could outperform gold. The debate about the relative merits of gold and silver was triggered because the world's largest consumer, India, did not import any gold in March for the second month running.

"In India you have people who can only afford silver and people who will only buy gold, but there are a large number of people in the middle who will rotate from gold to silver," said Ashok Shah, the chief investment officer at London & Capital.

That phenomenon is likely to be repeated in other countries as unemployment, salary cuts and potential tax rises take their toll on consumer spending. Eugen Weinberg, an analyst at Commerzbank, said: "Silver over the past 30 years has been the poor cousin. In the first half of the last century gold and silver were on a similar footing in terms of monetary value and their roles as safe havens."

Just as with copper, a measure of value is the ratio of gold to silver prices, which in the last century fell as low as 14 and compares with levels of around 70 now – suggesting gold is overvalued. Since the early 1980s the ratio has averaged about 65 and mostly ranged between 30 and 100.

Weinberg added: "The ratio could drop to between 40 and 50 in the medium term. People who cannot afford to buy gold for jewellery will buy silver."

Industrial demand for silver, including from the photography industry, is reckoned to be about 65pc of total global supplies, estimated at 895 tonnes. For gold, industrial and dental demand is about 11pc of supplies estimated at around 3,880 tonnes, according to consultants GFMS.

Part of the boost for silver will come from investment demand. With gold prices still near $900 an ounce, holdings of exchange- traded silver funds are expected to rise.

The iShares Silver Trust, the largest silver-backed exchange-traded fund listed in New York, holds a record 8,413 tonnes, a gain of more than 20pc since early January. That compares with a rise of more than 40pc in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund.

Metal commodities have become a staple part of many portfolios, as investors look for diversification and assets that are not correlated to the performance of shares. There are several ways you can get exposure to individual metals – one of the most popular is exchange-traded commodities (ETCs), which you can buy through most stockbrokers or online share dealers.

London-listed ETCs last week experienced net inflows for the fifth consecutive week, with precious metals ETCs seeing the largest inflows. They included ETFS Physical Gold ($38m), ETFS Physical Platinum ($14m) and ETFS Nickel ($2m).

The other option is to buy a unit or investment trust that invests in a spread of equity-related commodities. Popular funds include BlackRock World Mining, Investec Resource Enhanced or JPM Natural Resources.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5165209/Will-copper-outshine-gold-and-silver.html



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Gold: longest losing streak since August

Gold: longest losing streak since August
Gold headed for its fourth weekly decline, the longest losing streak since August, as a global stock rally eroded demand for the metal as a store of value.

By Bloomberg staff
Last Updated: 4:19PM BST 17 Apr 2009

Gold eased as Asian stocks advanced on growing confidence the global recession is easing. Investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, dropped to 1,119.43 metric tons after holding at a record high of 1,127.68 tons the previous four days.

“Further strength in equity markets would signal an increasing risk appetite, which would be detrimental to precious metals, which have relied on safe-haven demand for support as the majority of commodity prices collapsed under the weight of rapid and severe economic deterioration,” said Toby Hassall, an analyst at Commodity Warrants Australia Pty.

Bullion for immediate delivery fell for a second day by as much as 0.4pc to $872.63 an ounce. It traded at $873.30 in Singapore, down 1pc for the week. Gold has fallen 4.6pc in the past month while the benchmark MSCI Asia Pacific Index soared 18pc.

US stocks rose after the government said fewer Americans filed claims for jobless benefits last week, and as JPMorgan Chase & Co posted better-than-expected earnings yesterday. A day earlier, US consumer prices posted their first annual decline since 1955, alleviating concern that Federal Reserve actions will cause inflation to soar.

“Over the longer term however, unprecedented fiscal and monetary stimuli have increased inflationary expectations, which will be constructive to gold prices,” said Hassall.

Among other precious metals for immediate delivery, silver was down 0.5pc at $12.18 an ounce, platinum gained 0.4pc to $1,211.50 an ounce, and palladium climbed 0.4pc to $234.50 an ounce.

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/5172424/Gold-longest-losing-streak-since-August.html

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