The Middle East ruckus means more to rich Westerners than a rising oil price…
Oct 11
Gold investors wanting coins and small bars might be surprised if another "crisis" hits the markets…
WE’VE GOT IT pretty easy right now, writes Jeff Clark of Doug Casey’s Gold & Resource Report.
Click or call, and you can quickly and conveniently own a Gold Coin or small bar to keep at home. But if global concerns cause another panic – or the Dollar breaks down – you could find yourself standing in a line at the local coin shop or getting a busy signal from a larger coin dealer.
Simply, for reasons I’ll discuss here, you may find it very difficult to buy physical gold when that time comes.
It’s happened before. Though there were no precious metal ETFs in 1980, the demand for physical gold was so great that you literally had to wait in line at a coin shop to buy, with plenty of occasions when you would have been turned away due to lack of inventory. And you’ll recall we saw serious shortages, unexpected delays, and soaring premiums for retail investment products in late 2008.
Given the fragile state of global affairs and the waiting-in-the-wings crisis for the US Dollar, I’ll be surprised if we don’t see another panic into physical gold. And the question is, will there be enough metal to go around when the public – 95% of which own none – wakes up and wants to buy it?
Answer: No.
Contrary to some claims, it isn’t because we’re about to run out of supply. While global mine production peaked in 1999 at 82.1 million ounces and has trended down since, take a look at the second largest source of supply – scrap. As you would expect, bad economic times and the surge in Gold Prices have triggered an increase in supplies from that source.
In fact, since 1999, as the price of gold climbed, the scrap supply nearly doubled. (Scrap comes mostly from jewelry, 75% of which derives from India, East/Southeast Asia, and the Middle East.)
So when you examine the total supply of gold coming to the market, it’s actually nudged up for three consecutive years, hitting 116.6 million ounces in 2009, a modest 8% increase over 1999. In the greater scheme of things, the total supply of gold to market has changed very little.
So what’s the problem?
First, you’d think a higher price would lead to rising mine production – but that’s not happening. From 1999 through 2009, the average annual Gold Price rose 248%, yet gold production fell 6.6%.
This means that as gold continues higher, we cannot count on miners producing more yellow metal for us to buy. This concern will become increasingly obvious as more buyers enter the market.
Second, although scrap has more than supplemented the fall in mine production, as I’ll show you in a moment, it’s still not enough to fully satisfy current demand, let alone any increase in buying.
Meanwhile, the third major source of gold supply is reversing trend. Until last year, central banks around the world had been selling gold, adding a reliable tributary to the flow of metal year after year. This has stopped. As recently as 2007, 17 million ounces came to market from central banks; last year they acquired 7 million ounces. The era of central banks as large net gold sellers has likely ended.
The conclusion we can draw from these signals is clear: known gold supply conduits will not deliver any significant new supply in the future. This will have serious repercussions. While it’s certainly bullish for the price, I think many investors have overlooked a critical angle:
If more and more people want to Buy Gold and the supply doesn’t increase, what happens to your ability to get it? You can’t turn a profit if you can’t own it. Realistically, though, how much more demand can we expect?
One way to estimate this is to compare today’s percentage of global assets in gold to the last great bull market…
While gold’s share of the global financial landscape has grown since 2001, a whopping 385% leap is needed to equal its 1980 peak.
Certainly some of that percentage could result from a decrease in the value of other assets. For example, residential and commercial real estate values will continue to fall as bad loans are unwound, and stock markets will adjust lower as global economies slow from cutbacks in government spending. But the gap is so enormous that investment in gold could easily increase significantly before this bull market is over.
Another way to measure potential future demand for Gold Investment is to look at today’s bar and coin demand compared to the last bull market. The following chart first looks at what portion investment in gold comprises of the total uses for gold (i.e., including jewelry and industrial uses). Then we look at the percentage coin buying represents today vs. the peak in 1979. The point is to see if we’ve already reached high investment levels in gold similar to the last bull market peak – or if there’s room for more.
When Gold Investment demand – whether for physical metal or bank buying etc – peaked in 1979, it represented 54% of all uses for gold that year, a far cry from last year’s 32%.
Of course, this is just arithmetic; lower jewelry demand could make investment demand look bigger as a share of total demand. But this data makes clear that an increase in investors wanting more gold could rise dramatically.
The picture is more striking when we look at Gold Coin demand. Coin buyers represented 36% of all gold investments in 1979; today it’s barely 14%. Coin demand would have to grow by 157% to match the last bull market peak. Yes, gold ETFs have and will continue to replace some of the demand for physical metal, but this shows there remains tremendous room for growth for investors wanting more Gold Coins.
Based on this data, I believe that despite the strong demand for gold investments we see today, it can go much, much higher in the coming years.
Here are some examples of coin demand straining current supply that you may find surprising…
- The Rand Refinery in South Africa, the world’s largest, forecasts it’ll sell 1 million Krugerrands this year. Sounds like a lot – until you consider that from 1974 to 1984, they sold 2.6 million ounces per year. And that was when the world’s population was roughly 35% lower than today;
- The US Mint has had difficulty meeting heightened demand when annual sales are only slightly above historical averages;
- So far this year, Gold Mining production in world No.1 China is up 5%, but demand for physical gold in the world’s No.2 market is up 30%;
- During two tense weeks of the Greek crisis in April/May, the Austrian Mint, one of the world’s five largest, sold a quarter-million ounces, an amount that exceeded all of first-quarter sales. And Pro-Aurum, one of Europe’s largest online precious metals traders, had to temporarily suspend sales due to a backlog of orders and insufficient supply. If Greek-style sovereign debt fears spread to other nations – something looking all but assured – rolling bullion shortages could resurface.
While all this is bullish for the price of gold, it’s alarming what it suggests might happen to the availability of physical gold.
So my question is this: if the Dollar is collapsing and gold is screaming to $5,000 an ounce, will you feel like you own enough?
Better get some now while you still can.
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Aug 20
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.
Aug 20
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.
Aug 20
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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