got gold?

[jk]

if you have qualms about gold, let me recommend john hathaway's [manager of the tocqueville gold fund] piece at:

http://www.gold-eagle.com/editorials...way103106.html

some excerpts follow

Gold's recent sharp correction as well as its earlier sharp run up in the first half of this year is a case of mistaken identity. Perhaps hundreds of billions of new institutional money has flowed into the commodity sector. Proponents have billed it as an "alternative asset class," and imply the returns would somehow be uncorrelated with financial assets. In most cases the mandates have provided for passive adherence to an agreed upon commodity index. This money flow was anticipated and front run by hedge funds and other aggressive managers.

Approximately two months ago, Wall Street fashionistas decreed that "hard assets" were out and "paper assets" were in. In the space of a few weeks, prophesies of insatiable China-driven demand for "stuff" were replaced by scenarios of a goldilocks soft landing, tame inflation, interest rate hikes on hold, and new highs for equities and bonds. The shift caused leveraged bets on commodities to unwind in a short space of time. Gold was caught in the cross fire, and suffered a steep 20% correction from its peak above $720/ounce in early May.

++++++++++++++++++

Until gold broke above the 350 Euros/oz barrier that had contained it for four years, conventional wisdom held that the currency was a superior way to hedge dollar weakness because it had both yield and liquidity in its favor. In our March, 2005 website article, "Euro Trash," we noted that the relaxation of the stability pact which was supposed to underpin the integrity of the currency was good news for gold. Within two months, gold broke above the supposedly impenetrable threshold, and signaled a new advance of nearly a year in which gold attained new highs against all currencies. Gold's current identity crisis will be resolved when it breaks to new highs against a basket of commodities.

++++++++++++++++++++++

Much, and probably most, of ETF gold is in very strong hands such as pension funds, endowments and individuals who are thinking in generational terms. Despite the 20% decline in the gold price since its 2006 high in early May, holdings of the gold ETF have increased from 11.5 mm ounces to 12.4 mm oz. at the end of September. In contrast, the net long position represented by futures contracts declined 36% in the third quarter.

+++++++++++++++++++++++++++++++++
What we can and do know is that, should fear revisit the financial markets, buying power for gold is without precedent. While the gold mining industry struggles to produce 2500 tonnes per year, an amount that would increase the above ground stock of gold by a paltry 1.7%, the financial system continually spews out a blizzard of new financial assets, all of which represent potential claims for liquidity and safety.

In the bleak days of 1935, the market cap of above ground gold equaled 15% of US financial assets. In 1980, when bonds were dubbed "certificates of confiscation" and good quality equities traded at 6x earnings and 6% dividend yields, that same percentage was 29%. In today's carefree world, that percentage is only 3%. The price of gold can double or triple in the absence of catastrophic outcomes simply as more investors attempt to position the ETF.
++++++++++++++++++++++
A rise in the price of gold is equivalent to a fall in the value of financial assets. The strength in the metal is a sign of distrust in the ability of present day financial instruments, including paper currencies, to preserve capital over time. The global bid for physical gold is potentially immense. It will be generated not by ephemeral and flaky speculative interests seeking instant gratification, but rather by the considered actions of capital interests with a long term perspective driven primarily by the desire to convey present day wealth to future generations.

[blazespinnaker]

Re: got gold?

I wonder if there is a short term buying opportunity here.

I tried really hard to find people to load me up on nymex options but no one could do it. Grr!

Anyhow, I think gold might jump (already has, I guess) but in the end I see the fed coming to the rescue.

[jk]

Re: got gold?

I wonder if there is a short term buying opportunity here.

i think the real opportunity has passed. there may well be another opportunity. i can see gold selling off for a while when the stockmarket does the same.

[jk]

the dollar, gold, china

http://www.minyanville.com/articles/index.php?a=11589


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. China to Shed Dollar Risk
China should spend some of its $1 trillion dollars in foreign exchange reserves to buy strategic resources instead of maintaining a risky foreign exposure, particularly to US assets, a delegate to China's legislature said last night, according to XFN-Asia.

• Qin Chijiang, a Beijing-based professor and National People's Congress delegate, said last night that China's current foreign exchange reserve management policy of buying US treasuries or financial assets in other countries is "stubborn and too simple."
• Taken alone that's not such a big deal. He and other Chinese lawmakers have made similar comments over the past few weeks.
• However, what makes them unique in this case is that they were made to the the PBOC (People's Bank of China)-backed Financial News.
• Moreover, they follow upon yesterday's gold and currency markets-moving comments from PBOC governor Zhou Xiaochuan that, "We [China] have had a very clear diversification plan for several years."
• Zhou also said that China's central bank is "considering lots of instruments (for diversification)."
• Immediately following Zhou's comments yesterday, the first time a member of China's central bank had explicitly noted a plan for diversification of China's currency reserves, the U.S. dollar fell to a two-month low and gold and other commodities spiked higher.

2. What's the Big Deal? What's the big deal about China's currency reserves, why would diversification affect commodities markets and the U.S. dollar?

• First, China reportedly has nearly 70% of its reserves in U.S. dollars.
• A plan for diversification away from U.S. dollars would create a significant level of dollar supply and possibly depress the dollar against other currencies.
• Why would they do that, though? Wouldn't a decline in the dollar negatively affect the value of the dollars they decide to hold?
• It would, which is one reason some believe China is essentially caught between a rock and a hard place.
• Nearly a year ago Minyanville Professor John Succo said his firm believed it would take China about two years to amass enough gold so that if the dollar dropped 50% they would come out whole with the corresponding jump in gold prices.
• "This would put them in a position to abandon their U.S. dollar policy (lending to the U.S. consumer to buy their stuff) if they perceive the U.S. slowing to the point where their exports would stagnate anyway," he said.
• A crucial problem for China, and one reason the country has been so slow to revalue the yuan despite pleas from U.S. lawmakers and the Treasury Department, is that exports make up about 40% of GDP and domestic demand remains too weak to take up the slack created by a dip in exports.
• Revaluing the yuan would make China's exports less competitive.
• Meanwhile, China reportedly has 600 tons of gold, roughly worth about $12.2 billion, according to the Wall Street Journal.
• If the Chinese diversification plan includes accumulating more gold then doing the math suggests a rather significant floor in gold prices.
• Minyanville Professor Lance Lewis' excellent piece, "Goldilocks Dies," notes that it is practically impossible for China to diversify into other currencies without straining already tenuous trade relationships.
• "The logical choice for China to diversify its dollar reserves into is the only other widely recognized reserve asset held by central banks around the world and the only reserve asset held in any size by the US Federal Reserve, gold," he noted.

3. Fundamentally, the Dollar...

So, China notwithstanding, what is the fundamental case for a decline in the U.S. dollar?

• PIMCO's November "Global Perspectives" piece outlines a clear three-part fundamental case for the dollar to resume its structural decline.
• First, says PIMCO, the Fed's decision to pause its interest rate hikes should dissolve any support the dollar has been receiving from higher interest rates in the U.S. relative to other countries.
• Moreover, although PIMCO doesn't mention it specifically, central banks around the world are continuing to raise short term rates. Yesterday the Bank of England raised short-term rates to 5%. The European Central Bank is expected to raise its benchmark short-term rate in December. The Bank of Japan has indicated it would prefer to raise rates sooner rather than later.
• Second, PIMCO notes that the share of dollars in global central bank currency reserves has begun declining.
• Third, PIMCO says that one of those privileges the U.S. enjoys today is the ability to maintain a very large liability position that is not directly impacted by exchange rates.
• "The U.S. has a very large liability position because foreigners own more U.S. assets than the U.S. owns of their assets, to the tune of about $2.5 trillion," according to PIMCO.
• "However, almost all of that liability is denominated in the U.S. dollar, which means dollar depreciation does not, by itself, increase the value of this debt. Instead, dollar depreciation increases the dollar value of U.S. assets abroad, and thus tends to slow the growth of the U.S. net international investment liability."
• From PIMCOs standpoint, as one of the world's largest fixed income managers in the world, one of the investment implications of a weaker U.S. dollar is the significant erosion of purchasing power of investor returns from a fixed income stream.

[bart]

Re: the dollar, gold, china

Meanwhile, China reportedly has 600 tons of gold, roughly worth about $12.2 billion, according to the Wall Street Journal.

That is what the People's Bank of China (China's central bank) admits to also. That's approximately 19.3 million ounces, and is also quite low when compared to other major central banks.

Second, PIMCO notes that the share of dollars in global central bank currency reserves has begun declining.

PIMCO is *way* behind on this one - they've been declining since about 2001 per the numbers from the IMF.

[jk]

Re: got gold?

bart, any data on what reserve assets are growing? i just went over to your site and note that over the last 3.5 years or so, the u.s. dollar dropped 6% in its percentage of reserves, euros are roughly flat, while "unallocated" has grown about 8%. since overall gross reserves are likely growing rapidly, it looks like "unallocated" would make a great investment! where does it trade?

[bart]

Re: got gold?

bart, any data on what reserve assets are growing? i just went over to your site and note that over the last 3.5 years or so, the u.s. dollar dropped 6% in its percentage of reserves, euros are roughly flat, while "unallocated" has grown about 8%. since overall gross reserves are likely growing rapidly, it looks like "unallocated" would make a great investment! where does it trade?

You get the rimshot of the day award:
http://www.nowandfutures.com/grins/rimshot.mp3 ;)

Your comment reminded me that I needed to add in an explanation, and I just did:

Note: "unallocated" in this context means that the central banks have not reported where the full amount of their reserves are located. As of mid 2006, about 33% of their total reserves is secret and undisclosed.

Your guess is as good as mine on where its actually going but its virtually certain its not going into dollars. Do also note that China's reserves are not in those totals - they do not report that data to the IMF as of the last time I checked last year.

[jk]

Re: got gold?

one of the pieces i read over at minyanville, written a year ago, said that the chinese would need about 2 years to accumulate enough gold so that the gain on the gold would offset the losses on their dollar positions if the u.s. market for their exports dried up and they stopped supporting the dollar.

i doubt that the growth in "unallocated" has been in polish zlotys.

[jk]

Re: got gold?

just found this in the pimco article. still some "other" to think about.

this chart is interesting, too.

[bart]

Re: got gold?

one of the pieces i read over at minyanville, written a year ago, said that the chinese would need about 2 years to accumulate enough gold so that the gain on the gold would offset the losses on their dollar positions if the u.s. market for their exports dried up and they stopped supporting the dollar.

i doubt that the growth in "unallocated" has been in polish zlotys.

Was that a Polak joke? ;) (getting back in my cage now)

I recall that gold estimate too, and have also seen it estimated as significantly longer than two years. I would also not put it past any central bank to be buying gold or whatever and not reflecting it on their balance sheet or flow of funds statements. The last official gold purchase by the PBoC was in late 2002.

There's also the various issues surrounding geopolitics and China or whomever that might be totally willing to take a reserves hit for political... and then there's also the black hole of derivatives. It would not be terribly complex for China to offset any losses in that market, while delivering a good sized whack to western banks.

[spunky]

Re: got gold?

Like too see chart number 4 in tonnes or at, least thousands of troy ounces. A dollar figure on that is misleading.

China needs to build up its strategic oil reserves with american greenbacks, which if done to quickly drives up the price of oil, and will take gold along with it.


Can japan spend that much on Gold if they are going to build their own modern military to protect themselves ????


I can see the arab states flush with all that cash, buying Gold; it still is only costing them 12:50$ a barrel to pull crude out of the ground.

I have seen estimates from several oil industry " watchers" that 60$ a barrel is where OPEC wants oil to be and what oil companies deem as profitable for them to go " exploring " for new sources ???

[metalman]

Re: got gold?

anyone know anything about these guys? itulip's listing them...

http://www.bullionvault.com/from/itulip

does the fact they're based in the uk and your gold's in zurich, does that mean no 28% tax?

[spunky]

Re: got gold?

Here is a most excellent article:

To me this really explains the recent decoupling of gold to crude


http://gold.seekingalpha.com/article/20586



Sorry if I wasnt supposed to post this link:confused:


I dont know metalman. I would find a local dealer who takes cash and invest in a good safe.

[metalman]

Re: got gold?

Here is a most excellent article:

To me this really explains the recent decoupling of gold to crude


http://gold.seekingalpha.com/article/20586



Sorry if I wasnt supposed to post this link:confused:


I dont know metalman. I would find a local dealer who takes cash and invest in a good safe.

still digging around re tax implications but i gotta say, it's a cool service. on top of being a way to own gold offshore... if you're in the states... it's also a slick trading platform.

you open an account, it starts you off with 1 gram of gold (approx $20) in your account that you can trade with the other bullionvault members. it’s fun. the trades settle instantaneously... was playing that little dip to $217 this am. Sold at $223, bought back in at $217, thinking I may sell at $225, then i'm up a couple of bucks on both sides of the trade. if it works over a period of time, maybe i'll do it with REAL money.

use the itulip url so they get a commission...

http://www.bullionvault.com/from/itulip

[Finster]

Re: got gold?

Here is a most excellent article:

To me this really explains the recent decoupling of gold to crude...

This is like Groucho asking you why you've stopped beating your wife. What makes you think gold and crude were ever "coupled" to begin with?

It's purely a monetary illusion. The "price of crude" = value of barrel of oil / value of dollar. The "price of gold" = value of ounce of gold / value of dollar.

Both have the same denominator.