Capital Gold Group Report: Gold Prices Firm as Rising Oil Price Fuels Inflation Fears

Thomson Financial News
Metals – Gold prices firm as rising oil price fuels inflation fears
05.19.08, 10:40 AM ET

LONDON (Thomson Financial) – Gold was higher in the early afternoon as oil rose back towards last week’s record high, fueling buying of the precious metal as an inflation hedge and as the dollar languished after earlier touching a two-week low against the euro.

Rising fears over inflation have helped buoy gold prices in recent days, analysts said.

‘Inflation hedging and safe haven buying is reemerging on both the surging oil price, inflationary pressures and with much of the economic data being very negative last week, especially the appalling consumer sentiment numbers which showed consumer confidence falling to their lowest levels since 1980, 28 years ago,’ said analysts at Ireland’s Gold Investments in a note.

Concerns about the ongoing health of the dollar, despite what many see as a short-lived bounce in recent weeks, are also helping sentiment towards gold, they added.

The currency hit a two-week low against the euro in the morning, although it has since recovered some ground. Weakness in the greenback supports buying of gold, which is typically seen as an alternative investment to the U.S. currency.

At 2:14 p.m., spot gold was trading at $908.53 per ounce against $899.70 in late New York trade on Friday.

Among other precious metals, platinum prices reached an intraday high of $2,171 per ounce after Johnson Matthey released a report predicting prices will post a ’strong performance’ this year, with 2007’s market deficit seen continuing in 2008.

The white metal could reach a high of $2,500 an ounce this year, with a floor in prices seen at $1,775, the metals consultancy said.

The platinum market swung to a deficit of 480,000 ounces in 2007 from a surplus of 355,000 ounces the year before, Johnson Matthey said, as South African supply was cut by labor disruptions, accidents and equipment failures.

Overall supply fell by 4.1 pct last year to 6.55 million ounces, with South African supply down 4.9 pct, or 260,000 ounces, to 5.04 million ounces.

Investment demand hit 170,000 ounces last year, against disinvestment of 40,000 ounces in 2006. Investment buying was buoyed by the launch of two exchange-traded funds in London and Switzerland, which accounted for new demand of 195,000 ounces in 2007.

While prices initially edged higher on the news, with a positive report from Johnson Matthey already largely priced into the market earlier into the day, platinum prices later slipped back from highs to trade at $2,155 against $2,121 in late trade on Friday.

Meanwhile platinum’s sister metal, palladium, eased to $442 per ounce against $446, while silver rose to trade at $17.04 per ounce from $16.92.

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Gold Group News: Gold Strong – US Economic Data Weak

By John Jameson on May 15, 2008 9:49 AM | Permalink

Gold futures rise on lackluster U.S. economic data

Prices tap $888 an ounce even as dollar fluctuates, oil prices turn lower

By Myra P. Saefong, MarketWatch

Last update: 4:48 p.m. EDT May 15, 2008

Gold for June delivery surged $13.50 to close at $880 an ounce on the New York Mercantile Exchange. It reached an intraday high of $888.

The price of the contract fell $3.10 on Wednesday. It dropped $19.30, or 2.2%, between May 9 and Wednesday.

“Gold surged initially on technical buying and short covering prior to weak data in the form of Empire and Philly Federal Reserve indices, industrial production, weekly jobless claims and the TICs data — all of which were neutral to negative, which exacerbated the move to the upside” for gold, said Mark O’Byrne, a director at Gold and Silver Investments Ltd.

The U.S. Treasury released its monthly TICS capital flow data Thursday, which showed that net overall capital flows reversed “sharply” in March to show an outflow of $48.2 billion after a revised $48.9 billion inflow in February, he said. The data was “dollar bearish and gold bullish.”

Dollar mixes it up

In other economic news, the Labor Department reported that the number of people filing for first-time unemployment benefits rose 6,000 to 371,000, on a seasonally adjusted basis, in the week ended May 10.

The four-week average of initial claims, which smoothes out one-time factors such as bad weather or holidays, fell 1,000 to 365,750.  “The initial jobless claims were higher than expected, while New York area manufacturing activity came in lower than anticipated,” said Jon Nadler, senior analyst.

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Gold Group News:Midas’ President Gold Forecast – $1,200 by Year’s End

By John Jameson on May 13, 2008 10:34 AM | Permalink

May 6, 2008

Thomas Winmill, President of Midas Management Corporation, sees gold rising to $1,200 by year’s end and possibly $1,500 by the end of next year.

“We think the longer term stimulus that has brought gold to this point are still in effect,” Winmill stated in an interview with Betty Liu on Bloomberg Television.

View the complete interview by clicking here or cut and past the following URL into your browser:

http://www.bloomberg.com/avp/avp.asxx?clip=mms://media2.bloomberg.com/cache/vuNT5waaCO7k.asf

 
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Gold Group News: Gold a Safe Haven Investment Against Market Volatility

By John Jameson on May 13, 2008 10:29 AM | Permalink

 

by Ruth Sullivan,

The Financial Times

May 07, 2008, 00:36
Gold is holding its attraction as a safe haven for investors attempting to navigate the choppy waters of volatile equities, a falling dollar and a worsening macroeconomic outlook in the US.

Natalie Dempster, investment research manager at the World Gold Council, says: “The ongoing credit crisis and increased market volatility in the first quarter caused investors to seek safe haven investments, pushing up the price of gold to a new all-time high.”

An appetite for gold last month drove the price to a record nominal high of $1,011 an ounce, though it has since slipped. “Although the gold price did not escape the volatility of the markets entirely, it did remain less volatile than other asset classes,” adds Dempster.

Investment demand for gold has risen from nine per cent of total demand in 2001 to 20 per cent last year and is displacing jewellery demand, which has fallen from 77 per cent to 68 per cent in the same period, according to GFMS, the precious metals consultancy.

Inflows to gold exchange traded funds have been a key driver of rising prices. In the first quarter, investors bought 72 tonnes of gold in exchange traded funds (ETFs), taking total holdings to 943 tonnes, valued at $28 billion by the end of March, says the WGC.

The strong performance of the gold market has helped the BlackRock Gold & General fund, a unit trust, return 40.8 per cent in 2007 and 6.39 per cent in the first quarter of this year.

“Gold has a long history of providing a hedge against inflation, the weak US dollar and geopolitical tension,” says Graham Birch, the fund manager.

He believes the price is underpinned by strong fundamentals such as limited supply and demand from investors and consumers.

In inflation-adjusted terms, gold does not look so expensive, argues Birch. “Putting today’s price in perspective, it is worth noting that the previous high of $850 an ounce, set in January 1980, would be equivalent to approximately $2,279 in today’s dollars.”

Ian Henderson, fund manager at JPMorgan’s Natural Resources fund, an open-ended investment company, has increased exposure to gold this year. Last year, the weighting was below 20 per cent but by the end of March it had increased to 28.6 per cent.

“Investor appetite has been robust over the past year but has been momentum driven by the high price [of gold] and will continue to be. If the price goes down investor interest will follow.

“Gold shares had a good run from August to January but they have been a bit disappointing in share price performance since then,” he says. Nevertheless, he prefers to invest in companies that are leveraged to the gold price than to invest in ETFs.

Keeping an eye

Asset managers that are exposed to mining companies are keeping a wary eye on production problems. In South Africa, an energy crisis is triggering blackouts. Issues over the safety of mine workers are also adding to costs, leading fund managers to look at companies in China, South America and Russia.

A scaling back of exploration and the rising costs of extracting the metal are adding to problems.

Supply is not keeping up with burgeoning investment demand. During the 1990s, the price of gold was kept low by central banks selling off chunks of their reserves, adding to supply in the market.

As prices fell, mining companies reduced spending and industry investment has not kept pace with the subsequent rise in the price.

Mine production peaked in 2001 and is falling slowly, by three per cent in 2006 and one per cent last year. Barrick, the gold producer, forecasts mine supply will fall 10-15 per cent over the next five years because of a lack of new production coming on line.

In the near term, Henderson sees “real opportunities in Russia where there is a lot going on in mine development”. He also sees prospects in Ghana and Bolivia. Some fund managers, such as BlackRock’s Birch, have shifted asset allocation from South Africa to South America, Russia and China, helping to bolster returns.

At Investec’s Global Gold fund, another Oeic, Daniel Sacks, the fund manager, is upbeat.

“The fund is up 10 per cent year-to-date in dollar terms and was up 18 per cent in the first two months but fell in line with metals in March.” The fund, which is invested primarily in equities with a 15 per cent exposure to precious metal ETFs, could see returns of 30 per cent this year, he believes.

Sacks also likes “gold shares [in companies] that have an ability to grow production and output”. He lists Rangold, Kinross and Gold Corp as among

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Gold Group News: Gold Beats U.S. Dollars and Euros

By John Jameson on May 12, 2008 9:11 AM | Permalink

by Bill Bonner, The Daily Reckoning Australia, May 12, 2008
The markets didn’t reveal anything very telling yesterday. The Dow rose 52 points. The dollar held steady. Oil remained near its all time record of $123. And gold went up $10.

So far, things have worked out more or less as we expected. The “war” between inflation and deflation has produced plenty of noise and casualties…but no decisive victory.

We guessed that the Fed would be far more interested in fighting a deflationary recession than in fighting an inflationary boom. America’s central bankers see their mission in three parts – to protect the value of the dollar…to protect the banks…and finally to make sure that all politicians are re-elected and all Fed governors are reappointed. This last part of their mission leads them to ignore the first part.

In order to help the career prospects of politicians and their Fed appointees, the latter must try to keep the economy moving forward – even to its own destruction. In the present context, that means holding off badly needed corrections. Consumers, government and business are all deep in debt. But none of them are going to cut back on spending unless they have to. A correction would force the issue; so, it is to be avoided at all costs. And the most direct and immediate cost is what is supposed to be the Fed’s number one priority…the U.S. dollar.

We guessed that inflation would push up commodity, oil, gold and consumer prices…more than it would help the real economy and stock prices. That seems to have happened too. Commodities, oil and gold have all soared. The economy, meanwhile, is growing more slowly than the population. And stocks rallied and retreated – and ended up about where they were 10 years ago.

But what about the kind of inflation people worry about? What about consumer price inflation? How come consumer prices have not gone up more?

Give it time…dear reader…give it time.

This week, both the Bank of England (BOE) and the European Central Bank (ECB) decided that it was more important to fight inflation than it was to try to boost economic activity. Both left their key lending rates where they have been – at 5% for England, 4% for Europe – or two to two-and-a-half times the Fed’s rate.

Naturally, each of the 7 rate cuts in the United States made the U.S. dollar less attractive; who wants to hold a deposit in dollars paying 2% when he can shift his money to euros and earn twice as much? [CGG Comment:  Or shift his money into gold and earn ten times as much, as gold has been averaging annually since 2001?]

Speculators saw the trend coming and sold the dollar down below $1.60 per euro – and sent gold over $1,000. Then, they saw what looked like the end of the line for this trend too. The Fed only has 200 basis points left. And it has warned that there may not be any more cuts coming soon. The dollar strengthened. Currently, it is at $1.53 per euro. Gold also retreated…and yesterday stood at $882

Meanwhile, Claude Trichet, head of the ECB warns that we may be in for a “rather protracted period of high inflation.” The BOE also says it has to try to keep a lid on inflation. The Daily Mail came out with one of its shocker stories two days ago, saying inflation had so raised the cost of necessities in Britain that the average household now has less discretionary spending money than it had 17 years ago. In effect, the typical family is poorer than it was in 1991.

We have not seen comparable numbers for the United States, but we suspect they will show the same thing: that by the time a family has finished paying for food, fuel and medical care it has less money left over than it had before Bill Clinton’s first term. Why? Because inflation is doing its work – it is reducing Americans’ real wealth.

But so far, it has come in like a black cat at midnight…on paws so silent hardly anyone has noticed. The U.S. government even claims it is not there at all. “Core” inflation is still under control, say the feds.

What was amazing about the last 20 years was that the dollar-based monetary system worked as well as it did. You would have thought – and we did think – that once the link with gold was severed in 1971, there would be no stopping inflation. Instead, inflation went down…to levels that hadn’t been seen since Eisenhower. Why? Because there were so many things holding consumer prices down – 2 billion new workers in the labor pool, Wal-Mart’s Everyday Low Prices, just-in-time inventory systems, computers, globalization, deregulation, and the rise of modern capitalism worldwide. But now, the benefits from those trends seem to have reached their limits.

Labor rates are going up rapidly in China and India. Commodities are soaring…governments are re-regulating…modern capitalism has been weakened by its own excesses…and inventories are at 40-year lows.

Inflation – like everything else in the financial markets – has been globalized. And soon, inflation will come in – not as a little kitty, but as a mean panther…
 

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Gold Group News: Gold Price Has More Than Tripled

By John Jameson on May 11, 2008 11:34 AM | Permalink

The Price of Gold Has More Than Tripled

Bill Bonner, The Daily Reckoning Australia, May 5, 2008

Friday, the Dow rose a big 189 points. Gold fell a big $14.

Readers will note that these trends are opposite to the way we think things ought to be going. For the entire decade, we’ve been long gold and short stocks. We’re going to stay in that position for the rest of the decade too – unless we lose all our money or think of a convincing reason to change.

So far, neither has happened. The price of gold has more than tripled. Stocks have mostly gone nowhere. And nothing has happened to make us think that the fundamentals are different today than they were in 2000.

The debt bubble has been only partially deflated. Americans are still living beyond their means. And the people who run America’s central bank and its central government are still numbskulls.

What then, to make of yesterday’s price trends? Maybe the Bernanke Fed and the Bush feds have won the battle; maybe they’ve succeeded in keeping the economy growing. Maybe the dollar will strengthen. Maybe gold will continue its death march, back down to where it began the decade – under $300. Maybe we’re the numbskulls.

Yes, and remember the feds “rebate” program? This week they began sending money they don’t have to people who didn’t earn it. It’s supposed to encourage consumers – who’ve been spending too much already – to spend more. Maybe it will work after all.

 

And the Fed’s latest interest rate cut – down to 2%…maybe that will work too.

And maybe enlightened public officials really can improve the world. When people have made errors – as they inevitably do – the feds can somehow make the errors disappear. They can pass laws and jiggle policies…and abracadabra, instead of suffering a correction…the whole thing is forgotten and it’s on to bigger and better things.

Which makes us wonder what went wrong in ancient Rome and modern Japan. The Romans tried every trick – from price controls to inflation to giving away bread (similar to the ‘tax rebate’ program). Still, the economy deteriorated. From the period which Gibbon considered the happiest and most prosperous of man’s history – the age of the Antonine Caesars – the empire slipped and slid…and finally collapsed into the Dark Ages, which lasted nearly a thousand years. Of course, the Romans did not have modern central banking. But the Japanese did. Their central bankers read the same books as ours do. They believe the same theories and have the same wrenches and pliers in their tool belts. How come they couldn’t fix whatever ailed Japan Inc.?

We don’t know. But yesterday, it looked like the U.S. authorities had things in hand. The U.S. economy is still growing, though barely. General Motors’ stock rose…and Citigroup found that it could raise even more money than expected.

Gold, meanwhile, continued its correction.

“What the wise man does at the beginning the fool does at the end,” says Warren Buffett. No doubt, the wise man bought gold below $300. But were they fools who bought over $900? We don’t think so. As near as we can tell, we are not at the end…we are still at the beginning of a monumental trend.

The credit bubble developed a major leak last year. Banks wobbled. Credits plunged. Hedge funds went broke. And the feds panicked. Bernanke and Co. pushed $200 billion in new cash and credits into the marketplace…and cut rates seven times. It was clear that the authorities had no interest in protecting the value of the dollar; they were desperately trying to avoid a serious correction. Naturally, gold went up.

Then, the markets calmed. It began to look as if the Bernanke & Bush team might win. Martin Feldstein, head of the National Bureau of Economic Research and a close friend of Ben Bernanke, said on television that 2% would probably mark the end of the Fed’s rate cuts. With no more rate cuts in sight…and an economy that seemed to have survived the crisis…speculators thought it was time to lighten up on gold. Silver too.

But what has changed? Oil is still over $100. The Chinese economy is still booming – with the manufacturing sector reportedly expanding at a record rate. Emerging market demand is so strong, it is holding key commodity prices up – even as demand from the United States eases off. In America, people are switching to smaller cars…but in other places, they’re buying so many new cars that gasoline use is still going up.

Which puts Americans in an even tighter jamb. A slowdown in the U.S. economy used to bring a bit of relief. Americans earned less…but prices fell too. For example, when Paul Volcker put up rates in the early ’80s, it caused a major recession. But it brought good news too – the higher rates rewarded savers. Higher rates also attracted money to the dollar; the greenback rose, which lowered prices.

Now, unemployment in the United States has reached a four-year high…but prices are still going up. Oh, dear reader, what have our geniuses really wrought? Americans’ earnings and assets are going down…while their consumer prices are going up – and their leaders congratulate themselves on having saved the economy from a correction.

A correction is just what the economy most needs, in our humble opinion…and what it is still going to get.
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Gold Group News: Gold Prices, A Good Time to Buy

By John Jameson on May 12, 2008 9:54 AM | Permalink

Jim Rogers, American investor and financial commentator, and co-founder, along with George Soros of the Quantum Fund, is a college professor, author, world traveler, economic commentator, and creator of the Rogers International Commodities Index.   He picked up and moved from the USA to Singapore, and courtesy of the China Post, offers his predictions on gold and oil:

- “Gold is in a correction right now. I suspect it could go down to US$800, who knows, or US$750. I’m terrible at market timing, but if gold goes down some more, I plan to buy some more.”

- “Oil in my view will certainly have to go above US$150 or even US$200 during a bull market. This is not a short-term view. We’ve not had a major oil field discovery anywhere in the world over 40 years.”

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Gold Group News: Gold’s Long Term Fundamentals Remain Intact

By John Jameson on May 6, 2008 9:40 AM | Permalink

In Gold’s Defense
by Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors, Inc.
May 5 2008 2:41PM

The price of gold has corrected by close to 20 percent since peaking on March 17. If you have been listening to the popular press and business TV, you may be convinced that the gold and commodity “bubbles” have popped.

Once you back away from the day-to-day noise and put things into perspective, we believe this correction in gold, while painful in the short term, is just another pause in a long-term secular bull market. As it has been said, bull markets climb a wall of worry.

Over the past year, gold bottomed around $640 per ounce in late June. As the financial crisis unfolded, it staged a spectacular rally, surging more than 60 percent to $1,032. Gold has since pulled back, but given that the long-term fundamentals remain intact, we believe it is setting the stage for the next leg up.

Here are some of the reasons why:

Negative real interest rates

The macro environment for gold is still supportive based on negative real interest rates. The one-year Treasury bill is offering just 2 percent, while the official inflation rate is around 4 percent.

Negative interest rates make gold look more attractive compared with other safe investment alternatives, such as T-bills and certificates of deposit.

We believe the Federal Reserve will keep interest rates below the rate of nominal economic growth in order to support a fragile economy in an election year.

Negative real rates between mid-2001 and spring 2005 powered gold’s biggest bull run in decades, with prices rising from $255 to $455 per ounce.

Real inflation is underreported

The official inflation rate is around 4 percent, but when you include the rapidly rising prices for food and energy and understated housing costs, the real inflation rate is even higher.

One of the best ways to protect yourself against inflation is to participate in it by investing in commodities such as oil and agricultural products. Historically, gold also has proven to be a viable hedge against rising inflation because it maintains its purchasing power.

We agree with those who estimate that the actual inflation rate is close to double digits due to the Fed’s massive injection of new money into the economy to avert a recession. MZM (money zero maturity), the amount of money in the economy that’s easily accessible for spending, is up 15 percent compared with the same time last year.

ETF redemptions

The current correction in gold has been led by sizable ETF redemptions.

The StreetTracks Gold Shares ETF (ticker GLD) lost 1.3 million ounces of gold over the past two weeks, with nearly a third of that amount being redeemed this Tuesday alone. This may mark the first-ever ETF-led gold correction.

This correction is not surprising, given the strong acceleration in the first quarter of 2008 and typical seasonal trends. Some short-term profit-taking is likely, along with speculation that prospects have improved in financials and technology.

But in our opinion, this move out of gold is not indicative of the smart money, as momentum investors chased performance on the way up. The price action appears to be signaling a rotation from weak gold holders, perhaps back into the broader equity market.

Other factors

On top of the factors above, there are other fundamental factors that we believe will drive the price of gold higher over the longer term.

Declining output from existing mines, particularly in South Africa, and a virtual absence of large new discoveries will reduce the supply of gold available in the market.

At the same time that gold supply is falling, demand is increasing due to rising wealth levels in China, India and other nations with cultural affinity for gold.

In addition, history suggests that jewelry demand, which fell off when gold surpassed the $1,000 mark, is likely to pick up again during a gold-price retrenchment.

It’s easy for investors to get swept up in the emotion of a strong rally or a significant correction. In these volatile times, we suggest that investors protect themselves from suboptimal decision-making by not losing sight of their long-term asset allocation strategy.

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Gold Group News: Investors Buying Back Gold in Dips

By John Jameson on May 4, 2008 9:20 AM | Permalink

Investors previously holding long positions in gold who sold at peak prices to secure profits are buying back in.

 

Silver prices also moved up in line with the gold. Gold futures regained some ground on Friday as participants bought back previously sold positions, a dealer said.

 

 

June gold rose by $7.10 to $858 an ounce on the Comex division of the New York Mercantile Exchange.

The yellow metal rose amid “a general short covering rally in commodities,” with a rise in crude oil leading the way, he added.

Silver also benefited from short covering as it followed gold. Comex July silver rose 26 cents to $16.465 an ounce.

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3 May, 2008, 1611 hrs IST, PTI

MUMBAI: Gold prices recovered on fresh demand from stockists in the bullion market on Saturday in view of higher advices from New York.

Gold Group News: Forbes.com’s Curtis Hesler – Gold to $1,600

By John Jameson on May 3, 2008 9:30 AM | Permalink

by Curtis Hesler

Forbes.com Newsletters

 

WHY BUY GOLD?    Gold is underbelieved, but it is finally gaining serious investor attention.  China still wants to be a global player.  In order to come up to speed with the rest of the central banking world, it is estimated China needs to purchase 2,000 to 3,000 tons of gold.  China’s sovereign wealth fund has over $1 trillion to invest, and it has been stockpiling commodities – including gold – all the while the Chinese and Indian middle classes have been accumulating gold like mad. 

Deep problems are developing in the U.S. credit markets.  The housing industry is crashing while debt problems are infecting the general economy.  Consumer demand is beginning to suffer.  Consequently, the U.S. is entering a recession that may well last longer and run deeper than most think.  The average citizen is being hoodwinked about the seriousness of these problems by media sound bites while the purchasing power of their dollars dwindles.  However, knowledgeable investors are not so easily distracted, and gold is becoming more enticing as a financial safe haven and inflation hedge. 

One thing you can count on is that as long as the Fed continues to push interest rates below the true rate of inflation and balloons the money supply, gold will be attractive as an inflation hedge.  While demand for precious metals is increasing on a global scale, supply is being severely curtailed due to played-out reserves and South African production being shut down for a lack of power.  South African mines will not be up to full production again for several more years, and they account for a full 20% of the world’s gold supply.   

At the root of it all – underlining gold’s continued advance to $1,600 is the declining value of the U.S. dollar.    Essentially, when you see some high school kid get a multi-million dollar contract to play basketball, you know that your dollars are becoming worthless.  As the U.S. dollar falls, gold will rise; and the dollar is about to be taken out and shot … again.

 

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