Capital Gold Group Report: Central Banks of the World Adding to their Gold Holdings – Above 40%, says WGC

INTERNATIONAL. Central banks may be justified in increasing their gold holdings to 40%-50% of their reserves, a senior executive of the industry-funded World Gold Council said on Thursday.

‘Central banks are justified in having high gold weightings. They are justified in having a 40%-50% weighting in gold,’ Marcus Grubb, WGC’s managing director of investment, research and marketing told delegates today at a conference organised by ETF Securities.

He said the current macroeconomic environment supported gold buying: ‘It is not only about the dollar, not only about diversification, but also about future inflation,’ he said.

There were signs that a number of Asian central banks were adding to their gold reserves, he added.

In 2008, Gold Investment demand accounted for 30% of overall gold demand, while jewellery demand contributed approximately 58% of the total.

Grubb explained that concerns over the global economy and a desire to diversify look set to reverse that trend.

Speaking last month at another ETF securities seminar in London, he said: “The structure of the gold market is changing. In the first quarter I think investment demand could be higher than 30%.”

“ETF investment is in its infancy, and so is gold investment,” he said. “Most allocations of gold are zero.”

“You would only need a small shift in allocations to gold in segments of private and institutional wealth where they’re not currently invested to have a major impact, when mining supply is only 2,400 tonnes a year.”

“People are worried about the financial system, they’re worried about credit, the issuance of paper, the bailouts… Many investors we talk to think that is going to create inflationary pressure in the world economy in the future,” he said.

“You need an inflation hedge in your portfolio, and that is causing people to buy gold.”

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Capital Gold Group Report: MAJOR INSURANCE COMPANY BUYS GOLD FOR FIRST TIME IN HISTORY AS “STORE OF VALUE”

By Andrew Frye

June 1 (Bloomberg) — Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”

Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York.

“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”

Policyholder-owned Northwestern Mutual, based in Milwaukee, ranks third by 2008 life insurance premiums according to data from the National Association of Insurance Commissioners. The data excludes annuities

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Capital Gold Group Report: Gold v. Buffett?

BLOOMBERG ARTICLE
By Claudia Carpenter
June 4

Berkshire Hathaway Inc. Chairman Warren Buffett is getting his “comeuppance” after rejecting gold as an investment four years ago, according to Marc Westlake, head of wealth management at Dublin-based bullion brokerage Gold & Silver Investments Ltd.

The chart of the day shows gold more than doubled since May 2005, while Berkshire Hathaway’s Class A shares gained 6.8 percent. Buffett said at the company’s annual meeting in May 2005 that he wouldn’t get rid of assets for “a hunk of metal which had no real utility other than to people that are fleeing the dollar.”

“The point is gold has preserved a chunk of wealth that would have been otherwise taken down with other financial instruments,” Westlake said by phone from Cork, Ireland, on June 1. Maybe what were seeing is Warren Buffett’s comeuppance.”

Buffett didn’t respond to a request for comment left with his assistant, Carrie Kizer.

Gold has climbed 9.4 percent this year as investors sought a haven from declines in the stock market and, more recently, the dollar. The Standard & Poor’s 500 Index of shares has climbed 2.6 percent this year.

Buffett transformed Berkshire Hathaway over four decades from a once-failing textile manufacturer into a $139 billion investment and holding company. While gold has doubled since 1988, shareholders in the company have seen the value of their investment surge almost 25-fold.

Graph of Berkshire Hathaway (A Shares) compared to spot price gold May 1999 to May 2009

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Capital Gold Group Report: “US COULD BE FACING KIND OF A LOST DECADE” – NOBEL PRIZE WINNING ECONOMIST KRUGMAN

Krugman Says No Signs of ‘V-Shaped’ Economic Recovery

By Dara Doyle and Louisa Nesbitt

June 5 (Bloomberg) — Nobel Prize-winning economist Paul Krugman said the world’s economy is showing “not a hint” of a “V-shaped” recovery marked by a swift decline and revival.

The economy is “stabilizing, not recovering,” Krugman, an economics professor at Princeton University in New Jersey, said today at a conference in Dublin. “Things are getting worse more slowly.”

Data this month showed that the contraction in Europe’s manufacturing and service industries is easing and confidence in the economic outlook is rising. The U.S. lost fewer jobs in May than forecast, a report today showed. The International Monetary Fund says its forecast for global growth of 1.9 percent next year is based on the premise of a healthy financial system.

“We have made the transition from sheer panic to chronic anxiety,” Krugman said, adding he’s has a “hard time” seeing what might drive a “full” economic recovery.

U.S. payrolls fell by 345,000 in May, the smallest decrease in eight months, after a revised 504,000 loss in April, the Labor Department said today in Washington.

The U.S. policy response to the economic crisis has been “extraordinarily aggressive,” Krugman said. “Unfortunately, it hasn’t been enough.” The country will need “some form of new taxes” to bring down its deficit, he added.

Service industries in the U.S. shrank at a slower pace in May while job losses mounted, indicating that any economic recovery will be slow to develop.

“The euro zone, like the United States, I fear, could be facing kind of a lost decade,” Krugman said.

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Capital Gold Group Report: GOLD SURGES TO NEAR RECORD TERRITORY

The metal gains ground as the dollar slumps and investors bet inflation will rebound. Analysts see $1,000 an ounce on the horizon.

By Ben Rooney, CNNMoney.com staff writer

Last Updated: June 4, 2009: 4:02 PM ET

NEW YORK (CNNMoney.com) — Gold prices charged higher Thursday, with another run at $1,000 an ounce looking increasingly likely, as the dollar remains weak and concerns about inflation boost demand for the metal.

Gold for August delivery rose $16.70 to settle at $982.30 an ounce after hitting an intra day high of $992.10 an ounce earlier this week.

The metal is up 11% from its mid April low of $869.50 an ounce as the U.S. dollar has tumbled against rival currencies. Gold and other commodities that are priced in dollars often gain ground when the greenback weakens.

The recent run up has raised bets that gold could top $1,000 an ounce for the third time ever. Gold rose to an all-time settlement high of $1,003.20 an ounce last year. It made another big push early this year, closing at $1001.80 an ounce Feb. 20.

In both cases, jittery investors flocked to the metal to preserve capital as the financial markets erupted in volatility.

Hiding in gold

//

This time around, however, gold is benefiting from concerns that the U.S. government’s efforts to rescue the economy will result in higher rates of inflation. In addition to being a safe-haven, tangible assets such as gold are considered a hedge against rising prices.

Tom Pawlicki, a precious metals analyst at MF Global, thinks gold could top $1,000 as investors fret over the “funding demands of the U.S. government.”

“Budget deficits create worries in the market that more money will have to be printed,” he said. “The dollar will suffer in this environment.”

The government has pumped billions of dollars into the economy to stabilize the financial system and revive the flow of credit, which has helped expand the nation’s budget gap to unprecedented levels.

While inflation remains relatively tame, many analysts worry that it will become a problem as the economy recovers and the massive amount of liquidity in the market will have to be absorbed.

Looking ahead, Pawlicki said the rally could have some staying power, since large investment funds have shown renewed interest in the gold market following a mass exodus last year.

“A lot of hedge funds are coming back into this market,” he said, based on, among other things, a higher level of open interest in gold futures. “That interest doesn’t turn on a dime,” he said.

Panning for gold in Happy Camp

//

Meanwhile, other analysts point to the uncertain economic outlook as a reason for the run up in gold prices, since many investors think hard assets are the best way to store wealth when the going gets rough.

“With continued economic weakness across the board, there’s a lot of uncertainty about what’s going to happen,” said Carlos Sanchez, precious metals analyst at CPM Group in New York.

Even as the economy has shown some signs of recovery and stocks have rallied broadly over the last few months, the market is still jittery about the possibility of more turmoil, he said.

At the same time, the gold market is very sensitive to geopolitical strife. Some market watchers say tension with North Korea and ongoing concerns about Iran have helped boost demand for gold recently.

“There are major problems going on right now,” Sanchez said. “In times like this, you have investors rushing towards safe haven assets like gold.”

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Capital Gold Group Report: WALL STREET JOURNAL: GOLD RUNS BACK TOWARD $1,000 AN OUNCE

Rising Global Buying and Inflation Fears Make a Mockery of Analysts’ Forecasts; an End in Sight?

By Carolyn Cui

Gold is reaping the benefits of both sides of the debate over whether the world’s central banks can stimulate the global economy without sparking a surge in inflation.

On Tuesday, gold settled at $983.20 a troy ounce, up 0.5%, and is now just 2% shy of its all-time high of $1,003.20 scored in March 2008.

Among the main drivers is the decline in the U.S. dollar — a result, many analysts say, of a conviction that the global economy is on the path to recovery, thanks to central banks’ stimulus efforts. Dollar-denominated commodities like gold typically rise when the dollar falls, as producers ask for higher prices and consumers outside the U.S. buy more. While the dollar has dropped 9% since mid-April, gold has gained 13%.

Reuters

Gold’s price rise is being driven both by the decline in the U.S. dollar and fears of inflation created by central banks’ stimulus efforts. Here, casting a fresh gold bar in Vienna on Tuesday.

Also fueling the rally has been the fear that the Federal Reserve and others won’t be able to control inflation once those stimulus efforts kick in. Hard assets like gold are seen as a good hedge against rising prices as they tend to retain their value.

The rally has caught many in the market off guard. Gold has averaged $910 this year, surpassing analysts’ forecast of $881, as calculated by the London Bullion Market Association.

HSBC in May raised its 2009 gold forecast by $50 to $875 an ounce; French investment bank Natixis recently said it expected gold to average $885 this year.

Though many believe the momentum will take gold across the $1,000 mark again, even the most bullish investors are predicting a pause in the metal’s ascent.

“I think we are getting into the final part of this particular rally,” said Philip Klapwijk, executive chairman of GFMS Ltd., a London metals-research house. His forecast for gold’s average price is $970, one of the highest among 24 analysts LBMA polled.

The higher price will further encourage scrap sales and depress jewelry demand, “which is not a good combination for gold,” he said. In the first quarter, jewelry demand for gold declined 25% and scrap supply rose 55%, according to the World Gold Council.

UBS AG’s metal strategist John Reade has a three-month target at $1,000, but warned of a short-term retrenchment.

“It’s all about dollar weakness,” he said.

Speculative positions in Comex gold reached the highest level in a year, indicating that gold is vulnerable to a change of sentiment, he said. At UBS, a major bullion bank, “physical buying of bars and coins has been quiet in the last month or so,” he added.

Another overhang is on the horizon. Congress is soon expected to approve the sales of 403.3 tons of gold by the International Monetary Fund to help the world’s poorest countries. The plan was announced in April and tanked the gold market, despite the fund’s pledge to sell over years and not to disrupt the market.

Big holders of U.S. debt, such as China and Russia, as well as oil exporter Venezuela, reported increases in their gold holdings. These countries are likely to buy more gold to further diversify their foreign-exchange reserves and hedge the exposure to the dollar. Individual investors have piled billions of dollars into gold exchange-traded funds, which command thousands of tons of the metal.

James Steel, chief commodities analyst at HSBC, said it normally takes a year for the effects of stimulus packages to show. “But,” he said, “I think the market may not be that patient.”

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Capital Gold Group Report: COER LOOKS TO HIGHER SILVER PRICES AHEAD

SILVER NEWS

SEPARATE ASSET CLASS

Coeur d’Alene Mines CEO, Dennis Wheeler, expects the silver price to maintain its upward path in 2009 on investor interest, recovering industrial demand and static output.

Author: Frank Tang
Posted: Tuesday , 02 Jun 2009

NEW YORK, (Reuters) -

The price of silver will rise further in 2009 following a sharp rally in May, fueled by a combination of rising investor interest, recovering industrial demand and flat industry output, the chief executive of Coeur d’Alene Mines Corp said on Monday.

“Silver is now being looked at as a separate asset class and as a safe haven, and some sense that the economy may be bottoming,” CEO Dennis Wheeler of the Idaho-based silver producer told Reuters in an interview.

“Silver is demonstrating its advantage both for investors and as a leading industrial metal,” Wheeler said.

In May, spot silver rose nearly 30 percent to over $15 an ounce, its biggest monthly gain in at least 10 years, thanks to the dollar’s weakness and gold’s rise. It was at about $15.60 on Monday.

Wheeler said that strong investment demand, reflected by the growth of silver-backed, exchange-traded funds, would further boost silver prices.

U.S.-based iShares Silver Trust and London-based ETF Securities currently hold a combined total of more than 310 million ounces of silver bullion, equivalent to nearly half of the annual industry output last year.

Industrial demand accounted for about half of the total fabrication in 2008, and silver investment was at just 7 percent, according to research firm GFMS.

Year to date, silver has risen about 40 percent, outperforming gold’s 11 percent gain during the same period.

“Silver has a stronger base because of its industrial demand feature. So, I am not surprised that we have seen this price performance for silver compared to gold,” Wheeler said.

SILVER TO RISE, VOLATILITY HIGH

Wheeler forecasts silver to rise to a range between $16 and $18 an ounce for the rest of 2009, with a degree of price volatility.

“This is an uncertain world that we are living in. Who knows what may trigger more investment into silver and gold as inflation hedges or secured asset buys,” Wheeler said. “You will undoubtedly see some price swings from time to time.”

Wheeler expected that both silver and gold to be supported by similar factors such as declining supply, very few new discoveries and shrinking reserves.

“Nothing on the horizon is going to change that (flat supply), so we are going to have silver deficits over the long term by a considerable margin,” he said.

The worst economic crisis since the Great Depression has forced many silver mines to shut due to falling demand and lower metal prices. Silver output is expected to drop further because of the loss as a by-product from base metal mines.

Mining analysts said the higher price of silver should help producers, which had overspent on expanding mines when silver hit a peak of over $21 an ounce in March 2008.

Asked if Coeur’s Palmarejo mine operation in Mexico was affected by the swine flu, Wheeler said “I think that issue is largely behind Mexico.”

Wheeler says he still expects the Palmarejo mine at full capacity to produce 120,000 to 125,000 ounces of gold, and 9 million to 10 million ounces of silver annually. (Editing by Christian Wiessner)

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Capital Gold Group Report: Sell Bonds and Buy Gold

SEEKING ALPHA.COM

April 28, 2009

After the Battle of Waterloo in 1815 when Britain, Austria and Germany beat Napoleon, the House of Rothschild made the equivalent of more than a billion dollars today by selling their gold and buying up bonds, precisely the reverse of the strategy they are probably employing now.

What happened in 1815 was that the Rothschilds had accumulated vast amounts of gold because they thought that with Napoleon back there would be a long war. The defeat of Napoleon therefore looked like a financial disaster for them as the price of gold would plummet without soldiers to pay.

But the patriarch Nathaniel Rothschild turned this strategic error to their advantage by swiftly buying up bonds – which had become depressed in price – and selling their gold. The gold price fell and bonds recovered sharply as the government no longer needed to keep issuing more of them to finance the war.

Buy gold, sell bonds

Now in modern markets, it is striking that exactly the reverse trade applies. Governments all over the world are about to flood the bond markets with paper to finance their bank bailouts and economic stimulus plans, and the final bill could amount to more than $6 trillion on some estimates and very much higher for a full derivatives rescue plan.

In effect the governments are about to need to raise the funds to fight another Napoleon. This massive new supply of bonds will depress the price of existing bonds, and indeed this is evident in the recent fall in 10-year bond prices and their rising yield.

Inflation of the money supply we also know to be a natural enemy of bonds which pay a fixed coupon and are thus extremely sensitive to any rise of inflation that will swiftly erode the coupon, and even make it negative in real terms. And we know governments all over the world have embarked on massive money creation. This can not be good news for bonds, although in the short term the brief return of deflation will help them.

Gold and inflation

On the other hand, inflation is the friend of gold because it has an almost fixed supply, and silver might well be better still as its supply is even tighter. Gold prices are also still relatively depressed compared to other commodity price movements over the past three decades, and silver is probably the most depressed commodity price of all.

Thus the modern Rothschilds might well be counselled to reverse their Waterloo bet and sell bonds and buy gold and silver. Timing is always a devil in financial markets – and the reversal of the recent bear market rally in stocks would give bonds another short lease of life – but getting the fundamentals right also works. That is how the Rothschilds made a billion after Waterloo.

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Capital Gold Group Report: Chinese Authorities Confirm Big Boost in Gold Reserves – Investors Follow Suit

Source: CCTV.com

04-27-2009 09:00

Gold prices in China have been on the rise led largely by 3 straight days of gains in the price of gold futures in New York. And with Chinese authorities confirming a big boost in its reserves of gold, many think this precious metal is now a good option for investment.

Gold prices in China have been on the rise led largely by 3 straight days of gains in the price of gold futures in New York.

The cost of China’s investment gold bullion has increased by around 5 percent, because of the continued rise in international gold prices.

Li Xiaodong, Deputy GM of China Gold Group Marketing Co. said “The price for investment gold bullion is related to the gold price of the Shanghai Gold Exchange. So the price has risen from 201 yuan per gram to 211 yuan.”

Although the price is rising, investors are becoming increasingly enthusiastic about this investment channel, especially after the news that China has increased its gold reserves.

One consumer said “I heard China has increased its gold reserves, so I think there is still space for further price rises. I bought some gold for investment.”

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Capital Gold Group Report: CHINA ADMITS TO BUILDING UP STOCKPILE OF GOLD – $30.9 BILLION

Alfred Cang and Tom Miles, Reuters Published: Friday, April 24, 2009

SHANGHAI/BEIJING – China revealed on Friday that it had secretly raised its gold reserves by three-quarters since 2003, increasing its holdings to 1,054 tonnes – or a pot worth about US$30.9-billion – and confirming years of speculation it had been buying.

Hu Xiaolian, head of the State Administration of Foreign Exchange, told Xinhua news agency in an interview that the country’s reserves had risen by 454 tonnes from 600 tonnes since 2003, when China last adjusted its state gold reserves figure.

The confirmation of its surreptitious stockpiling is likely to fuel market talk about Beijing’s ability to buy secretly and its ambitions for spending its nearly US$2-trillion pile of savings. And not just in gold: copper and other metals markets are booming thanks to China’s barely-visible hand.

Speculation has gathered speed over the last year, since the tumbling dollar has threatened to weaken China’s buying power – and give it yet more reason to diversify into gold, oil and metals.

Gold prices jumped on the news of Chinese buying and were up more than 1% on the day at US$912.05 an ounce at 0715 GMT. By a Reuters calculation, China’s holding of gold would be worth around US$30.9-billion at current prices.

That accounts for only about 1.6% of China’s total foreign exchange holdings and is little more than one-tenth of the value of the U.S. gold reserve, the world’s biggest. It also means gold has slipped as a share of China’s total reserves from about 2%, based on end-2003 prices.

Only six countries hold more than 1,000 tonnes, and China is ranked fifth, having leap-frogged Switzerland, Japan and the Netherlands with its announcement.

However, the International Monetary Fund and the SPDR Gold Trust exchange traded fund are even bigger, leaving China with the world’s seventh-biggest pot of gold.

Several gold market participants said they thought China had bought on the international market, helping to absorb hundreds of tonnes sold off by central banks and the International Monetary Fund in recent years.

“China has been buying via government channels from South Africa, Russia and South America,” said Ellison Chu, director of precious metals at Standard Bank in Hong Kong.

But Hu said the increase in China’s stocks was achieved by buying on the domestic market and from domestic producers.

China is the world’s largest gold producer and does not permit exports of gold ingots, only jewellery, leaving plentiful supplies for the domestic market.

China produced 282 tonnes of gold last year, meaning the state bought around one quarter of domestic production, assuming 454 tonnes increase in state purchases were spread out over the six years since China last reported a change in its holdings.

Despite the rumours, buying by the state was partially obscured by soaring demand for gold as an investment, especially after the bursting of the Shanghai stock market bubble last year.

Investment demand in China rose to 68.9 tonnes from 25.6 tonnes in 2007. But that was still less than one third of retail demand in India, where total bullion consumption topped 660 tonnes last year.

Hu said China recently reported the change in its gold holdings to the International Monetary Fund and would include the latest change in central bank reports and balance of payment statistics.

She did not say when China notified the IMF.

Although gold rose after Hu’s comments were published, the price move was not a huge one for the highly liquid market. Prices had jumped by US$13 in the space of an hour on Thursday.

Gold market participants said the news signalled likely further buying by China.

“The comments indicate that China will buy more gold as reserve to improve its foreign reserve portfolio. This is a trend,” said Yao Haiqiao, president of Longgold Asset Management.

Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tonnes.

“It’s not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis,” he said.

“The financial crisis means the U.S. dollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage.”

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