Gold

Gold powered through $940 - its highest levels since July ‘08.

Also noticed that the Gold ETF (GLD) has traded more than 50 million shares today - it’s biggest volume day since Sept 17 and 18, 2008, the week Lehman went bankrupt and the government bailed out AIG.

A number of mints, including the Perth Mint, the South African Mint, the US Mint and the Royal Canadian Mint have suspended orders for short periods as a result of high demand for gold coins.

The US Mint has introduced a new system of gold coin pricing as a result of increases in the price of gold bullion.

During last fall’s violent stock market downdraft, the U.S. Dollar Index (USDX) put on a spectacular, unprecedented two month - 15% rally. It’s spectacular because to get even a 10% move over an entire year is a big deal for any major currency.

But gold is still (mistakenly) considered by many as the “anti-dollar.” So its behavior during a U.S. dollar rally does not come as a complete shock in hindsight.

Yet the gold price we see is misleading in two significant ways.

First, try going out there and buying an ounce of physical gold. In normal times, the average coin dealer will charge in the neighborhood of 3% above spot price. This past November, that premium shot up by 3-5 times, with many charging 10%-15% above spot, plus eight weeks or more for delivery. So when buying an ounce of gold, how realistic is the spot price, especially during a panic? In the midst of the mayhem, one larger Canadian precious metals dealer, Kitco, saw its list of products shrivel overnight from about 16 items to merely three, due to a lack of supply.

Second, gold is quoted in U.S. dollars around the world. But India is the single-largest gold market, with the rest of Asia showing a strong affinity for the universally cherished yellow metal. Throw in Europe and Latin America, and you can see how most of the world looks at gold through entirely different lenses - through their own currencies.

To be fair, let’s gain some distance from our own provincial viewpoint by taking a small trip around the globe. This way, we can get a handle on how the price of gold has behaved elsewhere. Euro Gold

During the anomalous spike in the U.S. dollar last fall, the European euro lost considerable ground against it. So gold priced in euros shot up. March saw the record of near € 650 gold bettered in September by € 670 gold. Europeans were clearly happy with gold’s behavior, which currently sits around an all-time euro high of € 720. UK Gold

Gold priced in British pounds sterling has performed astoundingly well. Brits saw gold at £ 500 per ounce in March, then £ 530 in September, and £ 600 by year’s end. Gold, now at £ 650, is still setting new record levels, dating back to 1717 when they began keeping records. Canadian Gold

Canadian gold investors have few gripes. In March of last year, gold was trading at C$1,003; by late September, the price was up by nearly C$ 50. And right now, it hovers at a record C$ 1,160 level. Despite the amazing strength the Canadian dollar has shown in recent years, gold has performed very well in this resource-based currency. Brazilian Gold

Brazil is the most populous country in Latin America. And gold’s performance in the Brazilian real did not disappoint either. The record set in March at R$ 1,719 per ounce was easily surpassed in September with a sharp spike to R$ 2,069. Today, it sits at R$ 2,115; which is R$ 415, or 24%, above its March levels. Indian Gold

India’s currency is the rupee (INR). And for traditional, cultural, and even practical reasons, Indians are the biggest gold investors on the planet. As in much of the rest of the world, gold set a record near INR 41,000 in March. It then pulled back in July, but spiked to a new record near INR 43,000 in September. At roughly INR 45,800 today, gold is priced way above its previous March and September 2008 record levels. Chinese and Japanese Gold

If anyone should be disappointed with the performance of gold over the past year, it is investors in China and Japan. Gold’s record in March, at CNY (yuan) 7,050, has not been bettered yet. September saw a spike back near the CNY 6,250 level, and gold currently rests at a price of roughly CNY 6,400 per ounce.

Japan’s gold price hasn’t fared much better. The March record near ¥ 100,000 per ounce remains unchallenged. Gold managed a rally to ¥ 95,000 in September, but has since fallen back to the ¥ 84,850 level.

So as the U.S. dollar rose late last year, the Chinese yuan and Japanese yen were the two major currencies that tagged along, making gold investors’ relative losers in those nations. The Chinese and Japanese 2008 gold experience differs little from the American one. And yet, gold in U.S. dollars is currently just 8% shy of its all time record at $1,023.50.

Despite the recent American, Chinese and Japanese gold experience, most of the rest of the world’s gold investors are a happy lot. When converting the price back into their home currency, those investors are basking in its glow, while gold sits at or near all-time record highs.

For now, however, gold is still priced in dollars for many market participants. The same is true for all other commodities. I expect that will change over the next several years. Scores of foreign central banks have indicated their intentions to lower levels of dollar-denominated reserves to reduce exposure. Meanwhile, Kuwait has dropped its dollar peg, opting instead for a basket of currencies. And Iran already trades some of its oil for non-U.S. dollar currencies.

As the U.S. dollar continues to lose value - and hence, its influence - on the world stage, commodities are increasingly likely to be priced either in local money, or to be quoted in a variety of currencies.

Heck, commodities may even be priced in quantities of gold before this is all over. Gold investors can only hope.

For now, as new price records are regularly being established, most aren’t complaining about the value of their gold.

With their sights set on breathtaking new heights to come, American, Chinese, and Japanese gold investors are sure to see their patience rewarded, as have already so many of their fellow investors the world over.

Millions of Americans have been adding to their gold stockpiles during this downturn, yet the price hasn’t gone much above $1000 – Or in the case of SPDR Gold Trust GLD $100. In hindsight, if gold was going to stage an apocalyptic rally, shouldn’t it have come during the meltdown of Bear Stearns and the rest of the financial infrastructure?

That it didn’t, should lead us to question whether gold will go significantly higher in the short term.

In the long-term precious metals like gold still represent sound asset allocation strategy, but in the near present, gold still looks overpriced. And we shouldn’t be too shocked to see gold continue pull back over the next few weeks^[1].

1. ↑ "Gold’s Two-Faced Disappointment" Article from InvestmentU

NEW DELHI: Forget equities and other investment options, the world is now in a mad rush for gold coins. If reports emerging from all corners are any indication, gold coins have witnessed a surge in demand following the global recession.

According to analysts, investors are set to make a dash for gold coins now because of the slowdown.

According to a gold coin dealer in US, he has witnessed a sharp increase in people purchasing gold as a result of the economic recession.

David Bernhardt of Engle’s Coin Shop in Indianapolis told TV channels that more customers have been buying $950 US Mint gold bullion coins in a bid to diversify their investments.

Many people in Indiana are putting their money into gold rather than stocks and bonds.

Data from the US Mint indicated that almost 1.2 million gold coins were sold last year, nearly triple the number purchased in 2007.

The mint reported last autumn that supplies of many gold coins were depleted as a result of an upsurge in demand.

Meanwhile, Royal Canadian Mint has launched its first gold coin designs for 2009, including a coin commemorating the opening of Canada’s first commercial coal mine in Port Morien, Cape Breton in 1720 and the tenth anniversary of Nunavut, the country’s newest territory.

MUMBAI: Gold is the ultimate solution to all your woes during a recession time like this.

This lesson was learnt by one and all across the globe following the meltdown triggered by the subprime crisis in the US.

People across the globe are now digging out their old jewellery and selling them off to tide over the crisis after the recessionary trend slowly squeezed out their savings.

People in the US, Europe and South Korea are selling their jewellery to pay back loan instalments and other debts.

According to reports from across the globe, people are even selling off their wedding rings to tide over the crisis.

In fact, South Koreans are feeling the pinch most. They are selling gold jewellery, including wedding rings, amid the economic downturn.

Amid the severe economic slump, they are selling gold rings and other jewellery to make up for loss of income or to repay in instalments bank loans they took out to buy houses.

Unlike before, when sellers were from all age groups, many now are in their early 30s.

Often they sell gold rings traditionally given to children to mark their first birthday.

Jewellers’ business had also been hard hit by the economic recession and the surge in gold prices.

There are many more sellers than buyers as gold prices have more than doubled over the past two years.

As economic woes deepen, increasing numbers of consumers are seeking to cash in their idle assets including jewellery.

Many grooms used to give brides rings, earrings, necklaces and bracelets. Now more couples are exchanging wedding rings only.

Gold will have it's day again, but not yet. Until the US Dollar acts like the "dead currency" that Marc Faber and others declare it to be, Gold will continue to decline. The chart is not healthy right now either. You will likely see the dollar weakening and gold strengthening around the same time. Gold will turn around eventually - patience

Bullion prices suffered yet another blow Thursday, matching a 1-month low hit the previous day, due to a weaker euro and falling stock markets, but a rise in ETF holdings to new record suggested bullion still finds favor among investors.

The world's largest gold backed exchange-traded fund, the SPDR Gold Trust GLD, said it held 790.66 tones of gold on Jan. 14, up 3.06 tones from 787.60 tones on Jan. 9, with poor prospects for the global economy igniting demand for bullion as a safe-haven asset.

Last year also we have seen Bullion has shown the great returns especially Gold had showed a jump by 58% in 2008 should be no surprise given the rapid declines in stock markets around the world last year as investors looked for safer investment strategies.

The rally in gold which has start from $680 and shown a high of $1032 in the very 1st quarter of the last year itself.

Gold has been in a downtrend against the dollar, while since October, being in a firm uptrend against the pound, making an all time high of £611.25 at the end of last year.

MUMBAI: Even though gold saw a huge fall of around Rs 335 per 10 gm this week and came down to below 13K level, it is not helping to lure buyers into the market. Since the buyers are keeping away from market, this may hit the gold imports of the country.

It seems people still believe that gold prices are very high even though the prices are below 13K now.

In Mumbai, gold prices plunged to Rs 12,990per 10 gm on Tuesday.

According to analysts, the current fall is because of the economic slowdown and a surge in dollar.

Market watchers said people are making use of the present situation and they are selling old gold ornaments to make maximum profit from this high prices siatution.

According to traders, if prices fall below $800 an ounce in international markets or Rs 12,600 per 10 gm in domestic markets physical buying may revive.

The lower demand has cast its shadow over imports. India imports more than two-thirds of its annual demand of about 700 tonnes a year. In December imports fell to as low as 3.7 tonne as high prices refrained traders from purchases even during the Christmas and New Year festivals.

With this week's fall, gold has become cheaper by more than Rs 1,000 per 10 gm, down nearly 5.04% from its life-time high of Rs 13,680 touched on July 15, 2008.

In international markets, gold, which normally guide price trend here tumbled $37.70 an ounce at $815.20 as the euro fell against the dollar on speculation that the European Central Bank will cut interest rates.

NEW DELHI : Gold and silver prices fell Thursday mainly on heavy selling by stockists based on global trends.

Gold prices tumbled by Rs 110 to Rs 13,090 per 10 gram here while silver fell by Rs 300 to Rs 17,750 per kg.

Gold ornaments also fell by Rs 110 to Rs 12,940 per 10 gram. Sovereign, on the other hand, continued to be asked at previous level of Rs 10,725 per piece of eight gram.

Silver coins fell by Rs 100 to Rs 26,800 for buying and Rs 26,900 for selling of 100 pieces. Silver ready fell by Rs 300 at Rs 17,750 per kg and weekly-based delivery by Rs 310 at Rs 17,550 per kg.

Analysts said selling by stockists influenced by a weakening trend in international market amid restricted buying due to off marriage and festival season mainly pulled down gold prices.

Seems as though we have hit a high point for gold.

Millions of Americans have been adding to their gold stockpiles during this downturn, yet the price hasn’t gone much above $1000 – Or in the case of GLD $100. In hindsight, if gold was going to stage an apocalyptic rally, shouldn’t it have come during the meltdown of Bear Stearns and the rest of the financial infrastructure?

That it didn’t, should lead us to question whether gold will go significantly higher in the short term.

In the long-term precious metals like gold still represent sound asset allocation strategy, but in the near present, gold still looks overpriced. And we shouldn’t be too shocked to see gold continue pull back over the next few weeks^[1].

1. ↑ "Gold’s Two-Faced Disappointment"Article from InvestmentU

These days, many think of gold as a great investment for its safety and growth.

Gold is an effective hedge against a declining U.S. dollar and an inflationary economy. It’s why every investor should have some exposure to gold in his or her portfolio.2

For all its benefits, there are currently two problems with the physical metal. Because it’s in great demand, it’s hard to get. Consequently, purchasing it requires a stiff premium - in some cases, a premium of 10% or more - when and if you do find bullion or coins to invest in.

A much better way is to pick up a few shares of SPDR Gold Trust ETF (NYSE:GLD), which seeks to replicate the price performance of gold bullion. Shares of GLD trade at the ratio of 10 shares to one ounce of gold.

This investment trust holds the physical metal for investors in vaults: You can see what that looks like here. HSBC Bank serves as the custodian of the trust’s physical gold and recently had to move it to a larger vault to accommodate growing investment.

Despite almost everyone being bullish about Gold, the metal hasn’t been able to set new highs.

The long side is crowded with bulls, just like the technology sector was back in 1999. And we all know how that turned out.

That said, the gold market is much different than the tech sector. I believe every investor should have some gold or another precious metal in his or her portfolio. However, there’s a better way to do it than by simply buying it outright at the moment.

Gold is classified in investment circles as a commodity but that is misleading. Commodities, with the exception of gold, are consumables. Not that gold isn't a consumable, but its value is based on its intrinsic currency value, dependent on no governement, industry or philosophy, but rather as an avoidance of same.

Gold's value (demand) increases as currencies destabilize and, so the theory goes, the only real risk to an investment in gold is that an alchemist may eventually succeed. Until then, the downside of gold is that you draw no interest, and even incur a modest safe-storage expense.

If you follow the historical graphs for gold they flat-line during times of growth and stability, ala the Clinton years, and re-calibrate the charts during eras like the past eight years when wars and deficit spending prevailed. My read on the stituation is that gold will continue to climb until such time as world strife is brought under control and currency values stabilize as a result of steady, though modest, growth. Not a risk in the foreseeable future.

Demand for Gold hampering:- India is the largest consumer of Gold but has not imported ANY Gold in Feb and March 2009. Weak Indian Rupee and rising price of Gold in international market has taken a toll on Indian importers in a double-whammy; it is visible through statistical evidence also. Last year, Indians imported 23 and 21 tonnes respectively in same months. Wedding season has already started and still there is no sign of revival in demand for Gold. According to WGC (World Gold Council) statistics, demand for the yellow metal in India has slumped by nearly 50% to 102.1 tonnes in the first quarter of calendar 2008, compared to 202.2 tonnes in the corresponding quarter of 2007. Even during the peak season of December 2008-February 2009, consumers had postponed their purchases because of high prices.

Technical Outlook:- Gold was rising nicely in an up-channel which continued from Mid-November'08 till late March'09. The yellow metal did trade above $1000 for some time but now looks like being distributed near that resistance. The up-channel has also broken down and once support at $880-885 gives away, test of $790-800 looks possible.

JOHANNESBURG : One of world’s leading gold producers, South Africa on Thursday said its gold output fell 8.7 percent in volume terms and total mineral production dropped 6.1 percent in November last year compared with the same month in the previous year.

According to Statistics South Africa, production of non-gold minerals fell 5.7 percent.

South African gold output has fallen since state-owned power utility Eskom suffered a near collapse in the electricity grid last January.

Eskom has since limited supply to around 90 to 95 percent power to mines in the country, the world's biggest source of platinum and the second-ranked gold producer.

1:Due to banks and other investors suffering big losses in recent times , cash needs have forced the selling of large quantities of gold causing frequent large dips in current high price gold market but not altering the continuing general increase in value. 2:As far as crude oil and gold relationship considered gold prices dropped when oil prices are dropped in current situation this not seems to happening so this may lead to further pressure on gold prices to fal, but this also is of no significance in the long run. Only if all commodity prices, as well as overall cowt of living, fall for 2-3 quarters, world-wide, will the price of gold follow. Anyone interested in gold in todays market should examine gold prices during the great depression.

3:weakening demand of common peoples for purchase of golds.

For the most part, silver and gold are still taking their cues from the oil and dollar markets. These physical commodities follow the oil market directionally, but move to the inverse of the dollar.

Gold has also continued to move in a similar pattern to silver: Lower. However, not to the same extent. December gold futures are currently near the $807 an ounce level and holding above its lows of $778 an ounce from a few weeks ago.

Since both metals move in tandem, when one goes down, so does the other. Gold topped out right near $1,000 an ounce back on July 15 and has given up roughly $200 an ounce since then - a $20,000 move in equity.

As with the other commodities, that’s a big swing. And just like silver, gold is oversold and could see just as impressive a bounce if people start to pile in.

Current Support Level $725.00 Only a breach & settlement below this would trigger the bear trend. gold is a safe bet. its the most basic form of hedging. The Strength of the USD in 2008 its near its peak, currently trading against the EURO at 1.28 from 1.48 earlier in the year and 1.63 against the GBP from 1.95 earlier in the year, it has run out of steam for the following reasons

DECLINE IN INFLATIONARY PRESSURES oil 50% decline world growth forecast 3% 2008 - lower 2009 central banks flooding the market with USD FED rate cuts and further expected

but then the other big issue that affects GOLD prices is its inverse relation to the USD, which as indicators would suggest is now at its peak, hence a decline in USD would mean a bounce back for GOLD.

but take a look at the 2001 period when greenspan, the then FED chairman cuts fed targets aggressively and GOLD was trading below $300 till 2003.

Expect history to repeat its self and GOLD to fall irrevalent of its USD inverse relationship. The reasons are simple.

When FED cuts rates this aggressively they have no option but to cut the USD from its GOLD relation, as 2001. When assets become as cheap as they are at the moment and a time frame of stable market bottom has passed, which it hasnt yet as the VIX indicator would tell you, investors need aggressive action for the medium term, thus shifting out of GOV BONDS and GOLD and into equities and corporate bonds, the latter i suspect will take further time to gain investor confidence.

Remember, the markets trade on forward earnings and outlook, and when the stable market conditions have regained control and panic has settled, traders will prove, before the investors do, that assets are once again shifting out of secure instruments and chasing the returns once again.

Every time the market fluctuates to the down-side, we seem to get inundated with Gold advertisements - with all sorts of theories including:

a. One that gold’s price - after accounting for inflation is at a fraction of (your favorite year here)’s quotation.

b. The Dow/Gold theory that one unit of gold will equal the DJIA - in other words, either gold is worth ten fold what it is now, or the DJIA is worth 10x less than where it is now. Both scenarios are not just unlikely, but stupid, and sophomoric at best.

Let’s get to the specifics of gold. A good seventy percent of gold production is used for the manufacture of jewelry - with my fellow Indians being the single largest purchasers of auric adornments. A smaller fraction is used by China for similar purposes. A mere 20% of this world’s production is used in industry - where heat and electricity need to be conducted as rapidly as possible [electronics and the automotive industries is where it is used extensively]. Thanks to gold being a NOBLE metal, it reacts with almost nothing, and dissolves in cyanide and aqua-regia - making the extraction [to spec] of Gold, one of the most difficult and toxic processes in the whole world.

Since gold is a noble metal, it is never consumed by industrial processes. It is used to bond chips to packages [bond-wire] - and conduct electrical signals from silicon to the external pins of a chip. It is used in exotic cars for radiating heat from engines/exhaust systems, etc. None of this “consumes” the gold. In fact a lot of chips are processed - to re-extract the gold contained in them.

For centuries, gold was the standard by which all else would be measured. In fact most currencies were pegged to the amount of gold that their treasury had in store. But all of that changed when FDR signed an executive order to ban US Citizens from owning/hoarding gold - and mandated them to use fiat currency [the dollar]. The Bank of England followed and in the early 1900’s, stopped the conversion of pounds to gold.

Thanks to a liquid market, gold prices are quoted every day [bid and ask], and are actively traded on the Nymex [now a division of the CME]. While buying gold stocks and gold mining companies is easy, buying and storing gold [as an investment] is in my books, a lose-lose proposition.

First, you pay a large bid/ask spread for the commodity - which in this case is HUGE.

Second, you often pay for storage and insurance of the gold that you bought.

Third, you wait years for it to go up - while stocks out-pace your returns, and often, pay dividends

Fourth - there is not much leverage you can use - unless you are “playing” with options or futures, and that is not the same as investing in gold. It is more of speculating in gold.

Fifth, it is the fact that if you randomly pick ten year horizons, only the most carefully chosen time-frames will result in a better outcome than an investment in the S&P [or DJIA].

Sixth, and most importantly, if currency were pegged to gold, sure there will be little inflation, but it definitely would have frozen the flow of capital, and the expansion of capital markets [which has been a good thing in the last half a century despite some recent setbacks]. Since this is an academic detail at this point, and the latest misguided attempt to create a gold-based islamic currency was a failure, I declare gold - as a currency, dead. It is a commodity, and in the past month, the US dollar has been deemed by markets as a safer haven than gold. Long live the dollar - and the full faith and credit of the US.

Bottom-line: Wear it, enjoy it, buy it for fun, but do not invest in gold. It is NOT an investment now, nor is it in the future. © Bapcha’s Stocks, Oct 27, 2008.