Aug 22

Any Growth in Gold?

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Physical gold looks like the best option according to this:

Gold Mining stocks face a slow, long-term decline in output…

PORTFOLIO Joe Foster calls himself a “stock picker”, says the Gold Report – and he’s pretty good at it.

Class A shareholders in Van Eck Global‘s International Investors Gold Fund have seen an average return of almost 25% for 10 straight years under his care. “I’m looking for the gold companies that are going to outperform the indexes, my peers and gold,” Joe says in this exclusive interview with The Gold Report

The Gold Report: Joe, in your view, what are the catalysts that will push gold to the next level?

Joe Foster: Well, there could be a range of catalysts, any one of which could rear its ugly head.

TGR: Which ones are most likely?

Joe Foster: The financial system has not yet recovered from the shock of the credit crisis. We’re in the midst of a historic credit contraction that could turn into a deflationary credit contraction. As the Fed and the economy deal with this, there is a range of possibilities that could create a catalyst.

One would be further implementation of quantitative easing, where the Fed steps in and buys securities in order to prop up the financial system. A second is the housing market, which looks like it’s weakening again. If we see a double dip in the housing market, it could create the financial stress that provides a catalyst.

The sovereign debt issues are something that, to me, will be on the table for quite some time. They could flare up again in Europe and elsewhere. State and municipalities’ finances are in very difficult shape right now. We could see some form of stress in the municipal bond market that could cause some sort of a catalyst for gold, as well.

So there’s a range of catalysts that could come into the market over the next year or two that drive it higher.

TGR: The Fed may look at more quantitative easing, but it doesn’t really have a lot of room to operate as far as interest rates go. What sort of economic policy does America need at this point?

Joe Foster: I think our monetary system needs an overhaul. I guess some sort of stimulus, whether it be quantitative easing or some more fiscal stimulus, might be necessary to keep the economy from going into a deeper recession. But I think plans to create a more sound monetary system would go a long way toward boosting confidence in the government’s ability to handle these crises in the future or to prevent them from happening.

TGR: Do you think what is happening now will ultimately result in a new currency down the road? Perhaps even a global currency?

Joe Foster: A global currency would be very difficult. Just to have a sound Dollar again would create a lot of stability around the world. Many other countries still peg their currencies to the Dollar, so proper management of the Dollar would, in effect, create a sound global currency. The Dollar is still the world’s reserve currency. I’m calling for some sound money policies that we haven’t seen since the Dollar was floated back in the 1970s.

TGR: In a June commentary on gold you said, “states across the country are undertaking austerity measures to counter gapping budget deficits.” Could a state, or states, defaulting on loans or even declaring bankruptcy be the next leg down that turns the recession into something worse?

Joe Foster: Well, I doubt it would go as far as a state actually declaring bankruptcy. Congress looks like it’s going to approve another round of state aid to keep the states afloat. I think you would see the federal government step in before we saw a bankruptcy. But states like New York and California and others around the country are in serious financial trouble. We’ll have to see if the austerity measures that they’re implementing will keep them out of bankruptcy. I think this is more of a slow burn. I don’t see it as being the catalyst for the next leg in the gold market. I think we’ll reach the next leg in the gold market before any state reaches such a desperate situation.

TGR: How high do you see gold getting by the end of this year and through the end of 2011?

Joe Foster: I’m looking for it to make new highs as we trend into 2011, moving through the fall of 2010. The high was around $1,265 in June. We’ve been on a steady trend higher. There’s a lot of volatility in the gold market, but I would expect that trend to continue. It wouldn’t surprise me if it moved through the $1,400 level sometime during 2011.

TGR: You said that you believe that the government would step in and prevent a state from declaring bankruptcy or becoming insolvent. Do you believe the government is, to some extent, manipulating the gold market?

Joe Foster: I think that’s speculation. I haven’t seen solid evidence that the government is manipulating the gold market one way or the other. Even if they are, I think the market will determine where the Gold Price goes in the longer term.

TGR: You have managed assets for investors since 1998. In the post-2008 era, are you managing your gold fund the same way you did in the pre-2008 era?

Joe Foster: Well, we’re using the same strategies or similar strategies now that we have since this bull market began in 2001. Relative to our peers, we’re probably overweight in juniors and mid-cap companies and underweight in the large-cap companies. Some of the fundamental strategies that we use remain in place.

I would say that the big difference is that, prior to the credit crisis, we spent a lot of time explaining to investors why they should invest in gold as a hedge against financial stress. Since the credit crisis we don’t spend much time explaining why you should invest in gold because investors get it. Everybody gets it now that gold functions as a sound currency and as a financial hedge in times of turmoil.

I spend more time describing how we construct our portfolio and manage the fund because investors are now asking: “How do I invest in gold? Do I want Gold Bullion? Do I want a Gold ETF? Do I want a managed fund? Do I want an equity ETF?” Those are the questions that investors are asking now that we weren’t hearing prior to the crisis.

TGR: That’s noteworthy. But your asset allocation must’ve changed some since the crisis. You said it’s heavier than your competitors on juniors and mid caps.

Joe Foster: I’ve got an entire range. I’ve got companies from juniors all the way up to the largest producers in the fund. We play the whole spectrum of gold companies. It’s just that I’ve got a higher weighting in juniors and midtiers than I do in the large-cap companies. We’re stock pickers, we’re bottom-up, fundamentals-driven stock pickers. I’m looking for the gold companies that are going to outperform the indexes, my peers and gold.

TGR: You’ve certainly done a good job. Over the last 10 years, Class A shares in your International Investors Gold Fund are up almost 25%. Does gold’s steady climb upward provide a greater margin for error in gold fund management?

Joe Foster: Not really. When you look at Gold Mining, gold production peaked in 2001 and it’s been on a slow decline ever since. In an industry that’s in decline, you know you’re going to have winners and losers. The market likes companies that can provide growth. But in a declining industry those types of companies become fewer and farther between. And there are lots of gold companies that have underperformed gold in this cycle. So stock picking becomes very important. It’s not always easy to outperform gold in this type of an industry environment.

TGR: How do you go about picking stocks? What are you looking for?

Joe Foster: We look for growth. Companies that can develop properties at reasonable cost and that can increase their margins. The best kind of growth is organic growth, where companies discover deposits and develop them. That’s the first thing we look for, organic growth. The second thing would be growth through acquisitions. We look for management that can identify creative acquisitions and grow that way.

TGR: Is it still cheaper for companies to go out and raise money and drill for organic growth versus acquiring assets through M&A?

Joe Foster: It’s very difficult to do. For most of the industry, it’s almost impossible. The reason gold production isn’t increasing globally is that all the easy stuff has already been found. The prolific gold fields of South Africa, Nevada and Western Australia are all mature areas that are in decline. The industry hasn’t found another prolific gold area like Nevada. Instead, they have to look all over the world and into remote areas. There are new discoveries being made; it’s just not at the pace that we saw 20 years ago when Nevada and Western Australia were emerging.

TGR: You mentioned Nevada. When I was looking at your fact sheet on the International Investors Gold Fund, only about 10% of your holdings are based in the US Does America need more gold mines?

Joe Foster: The US is still one among the top-five gold producers in the world. It’s still a substantial gold producer. I don’t know if we need more gold mines. It’s a function of geology. Probably 90% of the gold production in the US comes out of Nevada. As I said earlier, Nevada is past its prime; it’s a region wherein production is in decline.

TGR: But California has banned new Gold Mining projects, and Montana has banned heap leaching as a form of gold extraction. We’re seeing some exploration success in places like Wyoming and Idaho. The US is still the fourth-largest country in the world by area, so you would think there are lots of areas that remain unexplored.

Joe Foster: Well, if the United States was more mining friendly, there’s no doubt it could be a much larger gold producer than it is; but, in all practicality, that’s not going to happen. Mining is such a miniscule part of the US economy that it’s not politically feasible to revise the mining laws in states like California and Oregon. It’s a bit much to ask in places like that.

TGR: Do you have some parting thoughts for us?

Joe Foster: Well, we talked about the gold market more in the near term, but this gold market’s been in bull mode for almost 10 years now. As far as we can tell, it could go on for another 10 years. Who knows? I think the actions we’re seeing among the monetary and fiscal authorities around the world are setting up a situation wherein we could see another inflationary cycle once we get through this credit contraction. I think in the longer term, the risk of an inflationary cycle is going to be with us for quite some time. That’s going to be the ultimate driver of this gold bull market.

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Aug 22

Europe Trembles

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Europe seems bound for austerity.

Success will not distract Germany from its austerity program…

IT’S NOW BEEN
65 years since Europe’s last major war, writes Bill Bonner in his Daily Reckoning from Ouzilly, France.

Still, when Germany gets up off its knees, the continent trembles. And last week, the Berlin government announced the best results since the wall fell in ’89. From the first quarter to the second one the republic’s GDP rose 2.2%.

At that rate – about 9% a year if it continues – Germany is running neck and neck with China. Compared to France and the US, Germany is flying nearly 4 times as fast. Greece meanwhile is backing up. Its economy shrank 1.5% last quarter.

Histocially, the Teuton tribes were an aggressive lot. The Usipetes, Tenchteri, Batavi, Cherusci, Chatti, Vandals, Goths, Franks, Alans, Suebians – all jostled each other for centuries. They must have gotten a taste for competition. And when Rome wheezed her last gasps they fell on her like French tax collectors on a widow’s estate. The Vandals pushed all the way across Gaul and Iberia, crossed to North Africa, and from their new base in Carthage, continued to tickle the old Empire until it rolled over on them.

Everybody has his elbows out. But competition takes many forms. Better to build Audis and Mercedes than Tigers and Messerschmitts. Better to race for market share than for the Champs Élysée. Whatever form it takes, competition isn’t likely to stop. Happily, most of the time, it is a boon to everyone – even to the losers. That’s why Germany’s current success is only a threat to the economists and commentarists who’ve been giving her advice. The rest of us hold our breath and hope for more.

It was only a month ago that Martin Wolf led a “great debate” on how governments should react to the financial crisis. Of all the ideas to come out of financial crisis of ’07, Wolf proposed one of the most remarkable. He illustrated it with the fable of the ant and the grasshopper. He saw two types of economies. There were those that produced and those that consumed. The trouble, according to Wolf, was that the two didn’t compete at all. Instead, they lived in a kind of symbiotic parasitism. The grasshoppers lived off the labors of the ants. Not only did the grasshoppers make the things that the ants used, the ants took the grasshoppers’ money and lent it back to them, so they could buy more. The grasshoppers were ruining themselves. But the ants were making a mistake too. They were building up capital, but what could they do with it? There was no point in expanding output capacity; arguably, they already produced too much. And what could they buy? The grasshoppers had nothing to sell.

That was not the worst of it. When the grasshoppers had spent too much, said Wolf, both bugs were trapped. If the grasshoppers in Spain and Greece were forced to spend less, the ants in Düsseldorf were condemned to sell less. Their economies were doomed to go down together, like galley slaves chained to a sinking ship.

In any case, it looked like the sort of thing the fixers could fix. Germany is all make. Greece is all take. The system was out of whack. Trade flows must balance out to zero, so Wolf et al concluded that the problem could be corrected on either side. Germany could stop working so hard and exporting so much stuff it didn’t want. Or, Greece could stop spending so much money it didn’t have. Since any slowdown in spending threatens the “recovery,” it would be better for Germans to do more spending themselves. They should raise wages and encourage their own people to buy more Audis…more ouzo…and more pointy shoes with curled up toes. This was no time for austerity.

They misunderstood the problem. Imagine two men marooned on an island. They barely survive. One works hard, hunting, gathering, and planting. The other dances on the beach like Zorba, depending on the kindness of his companion for his daily rations. The problem is not the lack of balance. The problem is the slacker. You could redress the balance between them by getting the productive one to slack off too. But then, they’d both starve.

The Euro was seen as part of the problem, too. It was either too low for Germany or too high for Greece, said analysts. In the good old days, Greece could have pulled a fast one, devaluing its currency to make its citizens poorer, and their labor and exports cheaper. But now, there is no cheap and easy solution.

Which set us to a-wondering about how the world possibly got to where it is. For the hundred years from the end of the Napoleonic Wars to the beginning of WWII, Europe was rarely happier, more prosperous…or more at peace. Yet during that time, money was even more inflexible than the Euro. Governments did not commit premeditated murder of their own currencies. Instead, the value of paper money was protected by gold. People competed by working harder, saving more, and figuring out how to produce more with less – just as the Germans are doing now.

This week, the Merkel team followed up. “The lady’s not for turning,” Ms. Merkel might have said, taking a line from Margaret Thatcher’s Brighton conference speech of 30 years ago. With the pressure off its budget, the commentators thought the Germans might be tempted to ease up on their austerity program. Instead, the German government will continue to pursue cuts to military and social spending, she said.

Success will not distract Germany from its austerity program. Whether failure will send it off the rails is a question to be answered later.

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Aug 20

Gold price consolidation – poised for the next move?

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Interesting update on gold.

The gold price appears to be consolidating again and we could well see its high tested and exceeded in September, historically a good month for the yellow metal.

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Aug 20

Gold prices rise as USD weakens

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Early week gains for gold bolstered by India festival season.

The price of gold was up again Tuesday as the US dollar weakened and investors expected more interest from physical buyers of gold for jewelry as India‘s festival season approached, while prices for platinum and palladium were higher on a report that US industrial production expanded more than expected in July.
December gold added $2.10 to […]

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Aug 20

Newcrest invests in Sumatra gold projects

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Australian gold major, Newcrest, is to take a direct stake in Sumatra Copper and Gold and earn-in and option on its Indonesian gold exploration projects

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Aug 20

Gold Prices Gearing Up for September Rally

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Will there be a Gold rally soon? this article brings up some important points to consider.

By Melissa Pistilli—Exclusive to Gold Investing News

After a slight dip on profit-taking and a brief pause in trading action, COMEX gold prices climbed to a 7-week high of $1233.90 an ounce in mid-session Wednesday.  Posting a third straight day of gains, the yellow metal closed at $1230.50 an ounce in New York.

Tuesday, SPDR Gold Trust (NYSE:GLD), the top gold-backed ETF fund, reported its first rise in holdings in nearly a week, from 1,286 metric tons to 1,294 metric tons.

The Fear Factor has returned to the gold market this week as a drop in global equity markets and ongoing concerns over global economic health reawakened safe haven sentiments.

“With gold prices managing to forge higher in the face of a weakening global economic outlook and a weaker US Dollar, it would appear that the flight to quality crowd is back on its feet again,” commented Jaime Greenough, Futures Representative at Global Securities, in a note Tuesday.

Deflation vs. Inflation

The big debate amongst gold market analysts recently revolves around the diverging possibilities of deflation and inflation. Those in the inflationist camp see the quantitative easing measures of recession-gripped governments such as the US as naturally leading to the serious devaluation of currencies (such as the dollar) and eventually skyrocketing inflation. Others argue that deflation is a much more likely scenario, and in fact, may already be taking shape. The fear of gold investors in a deflationary environment is that many will rush to liquidate assets, including gold, for cash, bringing down the yellow metal’s price significantly.

As for signals that inflation is rolling this way, inflationists this week pointed to wholesale producer prices increasing for the first time since April and reports that hedge fund Eton Park Capital Management staked a rather large position, about 6.6 million shares, in SPDR Gold Trust ETF in June.

However, those holding the contrary opinion tried to burst the gold bug bubble this week, including MarketWatch columnist Nick Godt and The Wall Street Journal’s Brett Arends.

Despite all the attention given to the threat of inflation, “the bond market, the ultimate barometer of such things, has been telling another story,” quips Godt. “Yields on benchmark 10-year Treasurys, which rise along with inflation expectations as bond prices drop, did rise Tuesday. But the move comes after yields on Treasurys Monday slumped to their lowest level since at least April 2009, just about when hedge funds and conservative pundits began to warn about deficits and inflation.”

According to Godt, concerns of slow growth in the US economy and the rising risk of deflation is what prompted the Fed to buy bonds on Tuesday. He also points out that while Eton Park may have “boosted its holdings,” one of the world’s largest hedge funds and the largest holder of the SPDR Gold Trust, Paulson & Co., has left its stake in the ETF unchanged since March at 31.5 million shares.

“You’ll hear plenty of voices on Wall Street telling you there’s no serious chance of deflation,” says WSJ columnist Brett Arends, who is not impressed by the arguments used to deny the risk of deflation. “Trouble is, they have a terrible track record of predicting these big, paradigm shifts. Over the past decade, few predicted the bear market, the housing collapse or the financial crisis. Their assurances need to be taken with a fistful of salt.”

Arends cites some distressing labor and housing statistics as signs that “deflation may already be here.” Consumer prices haven’t moved since May, hourly wages have fallen 0.7 percent, with a 2 percent drop in the manufacturing sector, from Q1 to Q2, and housing prices have “been steeped in deflation for years.” While other numbers, such as the Federal Reserve Bank of Cleveland’s median inflation index shows underlying inflation near zero.

Fall Season Just Around the Corner

For now, the outlook for gold going into the 4Q 2010 remains positive with many analysts calling for prices well into the $1300 an ounce range.

The Hindu festival of Raksha Bandhan on August 24th will usher in the buying season in India, the world’s leading gold consumer. Gold prices traditionally rally off the summer lows in September as many players come back to the market. And if this year holds true to that seasonality, says Mineweb’s Laurence Williams, “we could expect to see gold’s high point for the year threatened and surpassed” in what might turn out to be “a good September.”

The Street’s Alix Steel notes that prices for the precious metal have “historically [risen] as much as 2.5 [percent] in September, which would push prices towards their intraday high of $1,264 an ounce.”

Matt Zeman, an analyst at LaSalle Futures Group in Chicago, anticipates gold climbing to fresh highs over the upcoming weeks, all that’s needed is more gloomy global economic reports, which shouldn’t be too much of a stretch.

Ashraf Laidi, chief market strategist at CMC Markets, pegs gold at $1,330 an ounce by the middle of the 4Q on rising economic woes, further quantitative easing measures, lower risk appetite, and escalating tensions in the Middle East.

Despite these positive forecasts, some see little real support for higher gold prices. “As long as you see continued U.S. dollar strength I think gold will remain in a corrective/consolidated phase,” says Atyant Capital managing director, Pratik Sharma, who anticipates the yellow metal remaining rangebound between $1,160 and $1,250 an ounce over the coming months.

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Aug 20

Gold continues to glitter at IIJW

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Gold jewelery in India might be bouncing back despite record high prices.

Several celebrities have been spotted at India International Jewellery Week (IIJW), which continues to display a large range of gold jewellery.

The five-day event, which is being held for the first time ever, saw Bollywood actress Neena Gupta and her daughter attend the third day of the show.

One of the brands showing its wares at the exhibition was Intergem Exports, which is based in Indore.

It had its new Slices collection on display, which is made from 18-c gold.

Kashi Jewellers, which has been exporting to the UK, US, Middle East and South Africa since 1979, also had several pieces for visitors to look at.

Its collections featured both modern and traditional design influences to give each piece a unique appeal.

Organised by the Gem and Jewellery Export Promotion Council of India, more than 30 jewellery designers will have presentations at IIJW and it is held at Hotel Grand Hyatt in Mumbai from August 15th to 19th.

The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

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Aug 20

What’s Driving Gold Right Now?

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It’s important to understand the underlying driving force for gold. Here is an interesting article that highlights this.

The key factors driving Gold Prices, plus those less-important elements…

RIGHT NOW, it appears that the Gold Price is being linked to the state of global economic growth or lack thereof, writes Julian Phillips of The Gold Forecaster.

Is it? Or are there other factors that contribute to the rise in the demand for gold? A look at the different types of demand gives us perspective on the real influences on the Gold Price.

Start with China’s contribution to the Gold Price, because this week saw an announcement that China is now the second largest economy in the world as well as being the world’s largest exporter. This is a landmark announcement as this country is headed fast to be the world’s largest economy with the world’s largest foreign exchange reserves.

As a nation, we do believe China is Buying Gold, eventually for their reserves, from local production as well as in the market. Additionally, the government and its institutions are encouraging the rapidly swelling numbers of newly enriched middle classes to Buy Gold. It is hard to give you an accurate number on this because such growth has never been seen before.

But there is a brake on the relationship of the growth of this class as regards gold. The Chinese are savers and because of their skepticism, recent experience of being poor and inexperience, they are not quick to change from the simplest of saving-account deposits to other investments. But overall they are happy with gold as an investment and are moving across to it, particularly as they understand the benefits of a rising price. Their obedience to government directives is helping the process. They have the lowest per capita holding of gold in Asia. We attribute this firstly to the long history of hardly any disposable per capita in the country. This is changing fast.

The demand is not seasonal except that it reaches a high point at the Chinese New Year, a time for people to celebrate and give presents. After New York closes, Asian demand kicks in at the start of their day pointing towards Indian, Indonesian, etc. demand, including that from China. Watching the market right through to before London opens, also gives on insight into demand from there.

Please note, this demand does not take note of the state of European or US economic growth. Most Chinese gold buyers are not aware of Western economics, but want financial security through savings in Yuan and gold.

Chinese demand is going to be large enough to be a major Gold Price driver in 2010 and 2011 and beyond.

Indian demand is also crucial. The monsoon this year (south of Pakistan) has been plentiful and expectations are that the harvest will be a good one. As 70% of gold purchases used to come from the agricultural sector, this time of the year is significant still. But as India urbanizes, the seasonality of gold buying there is lessening. Because the disposable income of Indians in the countryside is limited, the tonnage of actual gold purchased by them is falling. On the other hand, the numbers of the middle class is increasing and so is their disposable income.

To a growing extent this is making up the volumes that could be bought. The volume purchased per annum has been as high as 850 tonnes but can fall to 400 tonnes a year. The monsoon has had as much to do with that alongside rapidly rising prices. Please note that this difference is the same as de-hedging demand from the major Gold Mining companies was at its height.

Although India is growing at 8% per annum, the Indian middle classes are not growing as fast as China’s middle class. The main restraint on Indian gold buying is the fear that the Gold Price will fall after they have bought it. This year we do expect them to be more enthusiastic because the Gold Price has been stable over the last year and more at around $1,200.

They usually start to buy just before or after the beginning of September. That’s in two weeks time. Indian demand goes on through the year to May of next year.

Indian demand has been a major gold demand sources and is going to be a growing force, in line with Asian growth in 2010 and for years to come. As with China, western economic growth or lack thereof, does not affect Indian demand.

Developed world jewelry demand will also play a role. With the northern hemisphere and developed world holidays slowing down to early September, manufacturers of gold jewelry there start to gear up for the year end festivities. They Buy Gold for this time in September so that it can be in the shops in November or earlier. This has, in the past been the largest source of demand for gold.

Developed world demand relates directly to developed world levels of disposable income. These are not good this year, so we expect no increase in demand from that source. Disposable income has been well down since the start of the housing crisis, which began towards the end of 2007. We don’t expect them to rise for at least one year. But the buying that will take place will begin round about the beginning of September and last through to November before it slows to the steady flow up to May of next year.

If the Gold Price does not rise by much this demand will rise in significance, but we feel that it will again be sidelined by rising prices soon.

Industrial demand, in contrast, doesn’t matter so much for Gold Prices. Intel’s recent results and following comments showed us that electronics have now joined the category of ‘necessary’ items for households and businesses. As electronics are the main use for gold in industry, we do not expect there to be any significant drop in demand from industry. Overall, industrial demand is not seasonal, but such demand is not a major factor in the Gold Price.

As for demand from Central Banks, we are of the opinion that the turn in the market, by central banks from seller to buyers, overall is a trend that has barely begun. Russia, China, Saudi Arabia, the Philippines and no doubt to be joined by others in the future, are buyers of gold. Previous sellers have now taken a firm grip on their remaining holdings. Last year central bank buying equaled over 400 tonnes.

The monetary crises that lie ahead in the next year or two will, we believe, will incite much more buying by central banks as confidence in the monetary system continues to decline.

The International Monetary Fund’s sale falls out of this category, but is a supplier at the moment. Of its 413 tonnes there remains around 150 tonnes. We expect to see this absorbed completely within one year. Once this has gone prices will rise to the point where dishoarding begins, so providing the market with supply.

Again this demand is non-seasonal. However, it not only leads investment demand, it has the capacity to absorb all available supplies. Further, once its persistent visibility is accepted, it will incite considerably more institutional investment demand. Central bank demand these days is aimed at giving central banks liquidity when its nation faces international monetary credibility problems. We expect to see this demand rise in 2010 and 2011.

Finally, Gold Investment demand. Apart from the huge demand we have seen for the shares of gold Exchange Traded Funds enormous demand for physical gold bullion has been present in the market place. It is persistent and large. However, it will not chase prices. It is professional and aims at buying certain amounts at particular prices. It ranges from small wealthy individuals through to institutions to Sovereign Wealth funds. You need to know how all these demand forces come together and impact the Gold Price!

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Aug 20

Gold Investment Outlook

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Look at the investment outlook for gold. must read article:

Gold Investment has soared in recent years, but looks set to rise further…

MANAGING DIRECTOR for investment at the World Gold Council in New York, Jason Toussaint here speaks to Hard Assets Investor about why institutions are Buying Gold for their portfolios today…

Hard Assets Investor: I’m really happy to have you here, the World Gold Council is a very important organization, representing the gold industry.

Jason Toussaint: Yes, the World Gold Council is a market development organization that is owned by the largest Gold Mining companies in the world. Back in the ’80s, they decided to pool their resources into one organization, which we now know as the World Gold Council. And our goal, and our mission in life, if you will, is to create and sustain demand for gold.

We do that across a number of primary sectors, four sectors to be precise. We have an investment sector, which I manage on a global basis, which is informing and educating the investment public about the merits of gold in portfolio construction and long-term diversification. We have a government affairs division, which works with central banks, many of them around the world, to understand gold as a reserve asset.

We have an industrial sector, which is dealing with semiconductor manufacturers, etc., to increase and find more uses for gold in the industrial segment. And then, of course, last but not least, the jewelry sector, which is the most important and has the largest demand.

HAI: You work with the Gold Investment area. Is it only recently that we’ve seen larger investors, institutional investors, taking sizable positions, and owning gold as a real asset class?

Jason Toussaint: Right. The biggest shift that took place – and I would call it a paradigm shift in this market – is not necessarily the merits of Gold Investment, because those have been around for quite some time, and we’ll discuss those, but the access. And when we launched the SPDR Gold Shares here in the US in 2004, having an exchange-traded product with all the guaranteed two-way markets – infinite liquidity, if you will – of trading on the market, overcame a lot of the issues that investors have had in the past with accumulating gold.

HAI: We should just state that the World Gold Council created the GLD, the very popular Gold ETF that is currently out there right now, and has really taken off among investors.

Jason Toussaint: We sponsored it, through a subsidiary based in New York – World Gold Trust Services. Its market cap is now just below $50 billion, and we are now the second-largest ETF in the world. What is very interesting, if we look back to when we launched the product in November 2004, it surpassed $1 billion in assets under management in its fourth trading day. So, we were absolutely tapping into latent demand by investors who wanted to invest in gold, but didn’t necessarily know how.

Before the ETFs, if you wanted to invest in gold, it was buying Gold Bars and coins, primarily, which is fraught with issues such as price discovery, where do I purchase these things. And then, of course, there are costs associated with transport insurance and storage.

HAI: What percentage of gold demand, prior to the ETF, was represented by investor demand? And, what percentage, let’s say, was jewelry fabrication?

Jason Toussaint: Before the ETFs, investment demand was roughly probably 15% of aggregate gold demand. Now it’s upwards of…depending on quarter to quarter…20 to 30%. It’s pretty much doubled.

HAI: So, the biggest component of overall demand, the most important, is the investment side now?

Jason Toussaint: Right. And I think, kind of coming back to the access vehicle, looking at SPDR Gold Shares and, frankly, other Gold ETFs backed by physical bullion available in the world, has really made gold investable for the first time, for many classes of investors.

For instance, you mentioned pension funds. Pension funds are absolutely asking about the merits. We work with them closely now, about why they should Buy Gold. And then, more importantly, how they do it. Because you can imagine, if a pension fund wanted to buy a billion Dollars’ worth of gold previously, then they would need to worry about, "Well, where do we store it? How is this valued? How do we trade it?" etc. And, trading gold is quite specialized. By putting it on exchange, it is now part of the professional investment process.

HAI: So we’ve seen a doubling in investment demand – you definitely see that growing further?

Jason Toussaint: We absolutely do see investment demand continuing. Even at $50 billion, I like to tell people we’re just barely scratching the surface now. There is a vast market out there that does not hold gold.

HAI: How large is the total capitalization of the gold market, roughly?

Jason Toussaint:
Six trillion Dollars.

HAI: Six trillion? So, in the scheme of things, it’s not really all that big – global GDP, what, $60-$70 trillion?

Jason Toussaint: Right…but then, we need to also understand that the primary driver is jewelry. And the primary buyers of gold jewelry, the largest markets, if you will, are the Middle East, India and China. And looking at continued demand, and the relative balance between jewelry and investment, I think what we will see is a continued increasing demand for jewelry in those markets. Because, if you think of their domestic growth rate, and the fact that in the case of China and India, most importantly, the creation of a new middle class, new wealth and an affinity towards gold, that is, I think, a very, very long-term structural shift in gold demand, which I think is often overlooked.

HAI: Well, we’re out of time right now. I want to thank Jason for stopping by.

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Aug 19

Malaysia’s New Gold Currency

Gold Price Comments Off on Malaysia’s New Gold Currency

Wow a Gold back currency!!! Could it be true?

Islam’s new gold money vs. the crony corporate capitalism of the West…

SOME OF OUR
Islamic cousins have seen the light and wish to move away from paper money and back to commodity money, notably gold and silver, writes Toby Baxendale at the Cobden Centre.

It seems that a brave state in Malaysia will be doing this within weeks. We welcome this. The British Pound and US Dollar have declined by 99.42% and 98.17% in value respectively since they were detached from their roots in gold. The beneficiaries of this massive wipe out in the purchasing power money are, firstly, the governments of the day, which can issue excess paper currency to fund their various promises via “monetizing” bits of their debt obligations. Secondly, the handmaiden in this activity – the private sector banks – are next in line to benefit.

Banks use the state-supported apparatus to create new purchasing power out of nothing via the bank credit generated by the new deposits made available to them via the monetization process, and thereby enrich themselves and their favored clients. This is the Crony Corporate Capitalism that we have today.

So fair play to the state of Kelantan, who wish to get the monkey off their back. The Americans, with the Dollar as the world’s reserve currency, have been able to print gigantic amounts with little negative economic effect to themselves. Each time an Asian exporter sells real goods for this newly created paper or bank deposit that has been created out of nothing, he essentially trades his real goods for depreciating purchasing power.

Reporting the news from Malaysia, The Guardian points out that:

“The idea was first mooted by Malaysia’s former prime minister, Mahathir Mohamad, in the aftermath of the 1997 Asian financial crisis. He argued that the coins would never hang their possessor out to dry in the same way that paper money had. As precious metals with intrinsic value, gold and silver are more resistant to market fluctuations and devaluation compared to the US Dollar – an argument he took to the Organisation of the Islamic Conference as a tool to battle western hegemony.”

It will be interesting to watch the UK based Dinar Exchange mentioned in the article:

“Then there is Dinar Exchange, the British equivalent of Indonesia’s WIN. As the ‘official certified supplier of Islamic gold Dinar and silver Dirham in the United Kingdom’, the company had just concluded a month-long series of roadshows in May that saw it promoting the gold Dinar to Muslims in key UK cities such as London, Birmingham and Edinburgh. The group is inviting more to spread this Islamic vision as Dinar agents.”

Immigration is very controversial in this country. Here, at least, I clearly see potential for Islamic immigrants to have a positive ideological influence on the native community, by imbuing new spirit in the fight for Honest Money!

This is the people’s money spontaneously trying to compete with the legal tender Pound Sterling controlled by the state. Bad money crowds out good money with legal tender laws, as Gresham taught us. I do see this as a beacon of light in a very murky world.

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