Maple Leaf Steve
08-23-2005, 05:37 AM
Richard's Remarks
By Richard Russell
Dow Theory Letters
Monday, August 15, 2005
The chart below shows the ratio of gold to oil over the last 20 years. Oil's price has recently been surging to record highs, and gold in relation to oil has been declining to its lowest levels since the '80s. The chart suggests that gold is now "too cheap" in relation to record high-priced oil.
I've stressed the concept that gold is not an investment, and that gold is not a speculation -- gold is pure wealth. But unlike oil, gold is portable, eternal wealth. Gold does not tarnish, it does not spoil, and unlike oil which is used up in industry, gold is accumulated. Finally, gold can be hidden. Compared with oil or other tangibles, gold today is on the bargain table. And this is very important -- gold is extremely "underowned" by Americans.
Consider the unusual situation today. The US is running massive deficits in its budget, current and trade accounts. Ultimately, these deficits must be, and will be, addressed by the markets. No currency, much less a fiat currency, can retain its purchasing power under these conditions. The fact that the US dollar still remains the world's reserve currency adds to the absurdity of the situation.
On top of that, the US economy is being "levitated" by an unprecedented housing boom, brought on by artificially low interest rates plus ample liquidity. The current US prosperity is a result of people in the US selling houses to each other. Now, on top of everything else, the stock market rise since the 2002 lows is growing ancient, and the Dow today is where it was in late-1999.
Under normal conditions, seasoned investors would now be playing it safe by loading up on short-term Treasury securities. But in doing so, they risk the underlying danger of a dollar crisis, because in holding T-bills you are holding only dollar-denominated securities.
Ah, the irony. You can hold gold, you can put all your money in gold. But that's a rich man's play. Gold pays no interest, so only the rich man can sit back, place a large portion of his money in gold, and await developments. The rich man has other income (maybe a business, maybe he's receiving a fat salary) so he's in a position to hold all the gold he wants, and damn the lost income. He's not thinking of appreciation, he's thinking of ultimate safety.
Ironically, the writing is on the wall for all to see, but we're limited in what we can do about it. So we're forced to diversify. Diversifying is another way of saying, "I have no idea how things are going to work out, but in investing there's theoretical safety in spreading your bets around."
The power of the US lies in the rest of the world's willingness to accept US dollars. This cannot last, when the nation that issues the dollars is a nation that is running endless deficits. Gold always gravitates toward the powerful and the successful, both in individuals and in nations. Gold is now moving toward Asia.
Somewhere ahead the US economy will falter, then decline. That will be deflationary. The Federal Reserve will not tolerate deflation, since deflation renders the Fed impotent. To fight deflation, the Fed will open the floodgates of fiat money creation. They will send short rates to zero if need be. Under those conditions, gold will move into its third frenzied phase. Interest in gold will then be the opposite of the disinterest that we see now.
The primary bull market in gold that started in 2001 continues to be a hidden non-event as far as the great majority of investors are concerned. They don't know it exists. And the chart below shows you why. Gold has moved up in steps, each step followed by a "discouraging" correction. But when you view the big picture as seen in the chart below, you see that a primary bull market is very much in force.
The easiest and surest way to "play" this bull market is to buy bullion coins, and put them away. You don't worry about price, because you view these coins as pure wealth, and you are not holding them for appreciation, you are holding them for posterity, for your kids, for your spouse, for your estate. If gold rises to $1,000, you're not going to sell your gold coins. Sell them for what? More fiat paper?
The speculative part of the gold universe is the gold stocks. When you buy a gold stock you are hoping to sell it at a profit somewhere ahead. Gold stocks are not wealth, they are companies that mine wealth, and they will vary in their success. Buy the bullion coins for one reason, buy the stocks for a different reason.
The above information is redacted from Dow Theory Letters as they originally appeared o n August 15, 2005.
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Dale Doelling Says 'If You Aren’t Long Gold Now Then You Should Be'
By Jon Nones
Resource Investor
Monday, August 8, 2005
St. LOUIS - Dale Doelling, Chief Market Technician of Trends In Commodities…is a 20+ year veteran trader of the financial markets, father of the commodity advisory service Trends In Commodities and recent founder of LTD Investment Corporation.
JON NONES: After China revaluated its currency and delinked it from the U.S. dollar, we watched the price of gold surge. Is this just the beginning?
DALE DOELLING: The United States economy and our standard of living have been artificially elevated by foreign countries that have continued to buy our government debt. This has allowed us to continue to live way beyond our means. Five years from now we’ll probably look back at this event (China’s decision to peg its currency to a basket of currencies instead of solely to the U.S. dollar) as the beginning of the end for the U.S. economy and the beginning of the end for our current standard of living. We are about to enter an economic environment that few, if any, are prepared for and the end result will probably make the long-term deflation that Japan has experienced look like a walk in the park.
JON NONES: How will the revaluation affect gold in the short term?
DALE DOELLING: China new foreign exchange policy is going to become the starting point for the greatest advance in the price of gold and silver in history. I have been advocating LONG positions in gold and silver since the December gold contract was trading near the recent lows around $424-428. My analysis of the currency and metals markets points to an eventual dollar crisis and metals prices at all-time highs. I have no idea how long it will take but I believe that it will happen within the next 24 months.
I try not to dwell on the long-term effect that this scenario will have on our economy, but I believe that the eventual fallout will resemble the personal and economic strife that we experienced in the Great Depression. The combined forces from the crash in the dollar, the debt, both public and private…and the resulting crash in real estate and equity prices will push us into a prolonged deflationary cycle and it will probably take a decade for us to recover….
JON NONES: What will happen if China continues to revalue its currency?
DALE DOELLING: I believe that, like the bombing of Pearl Harbor changed the United States’ position on WWII, China’s change in policy regarding their currency is the event that will change the U.S. economy and our relationship with China forever.
JON NONES: Are there other aspects of China’s market affecting the gold price?
DALE DOELLING: The Chinese are just beginning to get their first taste of capitalism, and they will eventually become addicted to it. Look at the IPO of Baidu this past week. That should certainly tell us something.
JON NONES: What effect will China’s insatiable demand for oil and other commodities have?
DALE DOELLING: There’s no doubt that the escalation in China’s economy is going to continue to support commodity prices in general and I remain bullish on commodities across the board for the long term.
JON NONES: What will higher oil prices to gold?
DALE DOELLING: I’ll be the first to admit that I have been very surprised at the resilience in energy prices over the last year. Like copper and gold, the energy complex remains entrenched in a strong uptrend and there’s nothing to suggest that these trends are going to end any time soon.
JON NONES: What about increases in interest rates?
DALE DOELLING: The Fed is between the proverbial “rock and a hard place.” They are in a position that I don’t envy whatsoever. The Fed’s stance on higher rates simply confirms my belief that the end will be really ugly.
JON NONES: Where do you see gold at the end of the year and beyond?
DALE DOELLING: Trend followers avoid making predictions on where prices are going because nobody knows for sure. If they think they do then they are delusional. But, if you put a gun to my head, I’d tell you that gold will be north of $500 and, quite possibly, $600 by the end of the year. Eventually, I won’t be surprised to see gold trading at $1,000 and beyond.
JON NONES: Is now a good time to buy?
DALE DOELLING: If you aren’t long gold now then you should be. The question is, do you wait for a pullback since we’re at fairly overbought levels or do you just take a position now? That depends on the individual’s circumstances and resources. But, frankly, I believe everyone should have at least 10%-20% of their investable assets in commodities right now and a good portion of that should be in the precious metals markets.
The above information is redacted from the article as it originally appeared on Resource Investor on August 8, 2005.
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Gold May Rise on Growing Demand From China, India, Survey Shows
Bloomberg
Monday, August 1, 2005
Gold may rise for a third straight week on speculation that higher demand for the precious metal in China and India will exceed supply created from sales by European central banks, a Bloomberg survey showed.
Thirty-five of 46 traders, investors and analysts surveyed July 28 and July 29 from Melbourne to New York advised buying gold, which rose 1.1 percent last week to $435.80 an ounce on the Comex division of the New York Mercantile Exchange. Six recommended selling the metal, and five were neutral.
"What we're seeing in demand is very positive," Newmont Mining Corp. Chief Executive Officer Wayne Murdy said …July 27. "Once you get into the second half of the year -- into August and September -- the jewelry trade starts to build inventory for marriages in India and the Chinese new year."
Gold soared 4.8 percent in August last year as manufacturers geared up for increased jewelry demand during year-end holidays and the wedding season in India, the world's biggest buyer of gold. European central banks, which agreed to limit gold sales to 500 tons a year through September, had sold 415.4 tons through June 23, according to the World Gold Council.
Gold for December delivery rose $4.90 an ounce last week, meeting expectations of the majority of analysts surveyed July 21 and July 22.
"Gold prices will rise ahead of the festive demand in India," said Prithviraj Kothari, director of Mumbai-based Riddhi Siddhi Bullion Ltd.
Seasonal Lull
Gold prices fell 0.3 percent last month during a seasonal lull in demand. "June and July are usually cyclically the lowest month for the gold price," Newmont President Pierre Lassonde said on a July 27 conference call with investors and analysts.
"The gold price does not want to go below $420 even though a lot of mornings you look at the screen and it seems traders out there are trying to kick it down," Lassonde said. "It doesn't want to go down."
Fifteen central banks in Europe, including the European Central Bank, agreed last year to limit their gold sales to 500 tons annually for five years. The sales periods end each year in September.
The European Central Bank said last week three member banks sold gold worth 175 million euros ($212 million) in the week ending July 22. With gold averaging about 350 euros an ounce that week, that's equivalent to about 15.5 metric tons.
Central Bank Sales
Including other sales in the past month, the total is probably closer to 484 tons, according to Paul Yusem, an individual investor in Lombard, Illinois, who has traded gold futures for five years.
"There is only one way to temper this robust physical demand -- much higher gold prices," Yusem said.
From the seasonal low in July to its high in August, gold has rallied on average $26 during that period during the previous four years.
"Nothing points to this year being any different," said Gregory M. Orrell, president of Orrell Capital Management Inc. in Livermore, California.
Last year, gold rose $29 from the July low to the high in August. In 2003, the rally was $38.40. The low last month was $418.20 on July 15.
The rise in gold last week above the 200-day moving average for the first time since July 1 may trigger more buying by traders who follow charts and graphs, pushing prices to as high as $450 this month, said William O'Neill, a partner at Logic Advisors LLC, a commodity consulting company in Upper Saddle River, New Jersey.
Speculators Holdings
In the week ended July 26, speculators had the lowest net holdings of Comex gold futures since June 7, the U.S. Commodity Futures Trading Commission said July 29. Hedge funds and other large speculators bought 49,022 more contracts than they sold…the commission said.
"Hedge funds continue to have a bullish bias, and with each passing week, gold's role as an alternative asset increases," said O'Neill, former head of futures research at Merrill Lynch & Co. in New York.
Gold has climbed 12 percent in the past year as a decline in the dollar boosted the appeal of the precious metal as an alternative to U.S. stocks and bonds. Gold reached a 16-year high of $458.70 an ounce in December as the dollar fell to a record against the euro.
A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.
The above information has been redacted from the article as it originally appeared on Bloomberg on August 1, 2005.
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Gold executive sees tight supply keeping price high
Reuters
Wednesday, July 27, 2005
NEW YORK, July 27 - Gold supply constraints will prevent the price of the metal from falling below $420 per ounce in the short run and it will almost certainly rise again in September or October, a Newmont Mining Corp. executive said on Wednesday.
"June and July are usually the lowest for the gold price," said Newmont President Pierre Lassonde, also chairman of the World Gold Council. "But gold does not want to go below $420.
"If it does not want to go down, come September or October it will go up, given the supply situation. Gold is in a continuing rising period."
Lassonde, whose comments came during a conference call with analysts to discuss Newmont's second-quarter earnings, told the Reuters Mining Summit in June he saw gold selling for $525 per ounce within six months. It closed on the COMEX in New York on Wednesday at $424.90.
"It is very difficult to see a huge increase in supply (of gold) in the next few years," Lassonde said on the Newmont call. Unlike in the 1980s and 1990s, when there was a doubling of production and a rash of new mining and prospecting technology, there is little exploration going on today because of civil conflicts or government policies and longer lead times to obtain mining permits.
It now takes 7-10 years from exploration to production at a mine, compared with 4-7 years in past years. "But with time, production will start to go up," said Lassonde.
"On the other side of the coin, there is strong demand. It was up 23 percent in the first quarter and jewelry demand is up 11 percent in China. There is large investment demand."
Asked about the effect on gold prices of the revaluation of the Chinese yuan, Lassonde said it was "much ado about nothing. It was the smallest revaluation on record and what we expected."
But he said it might prove significant in the longer term, because it might permit other Asian currencies, like those of Malaysia and South Korea, to revalue.
"I bet you, dollar-for-dollar, that in 10 years time the RMB (Yuan) will be 60 percent higher than today. And it will have a significant impact on the gold market and commodities markets.
"With a stronger currency, they (China) will compete for oil and everything else they need," said Lassonde.
The above article originally appeared on Reuters on July 27, 2005.
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China Should Become the Largest Consumer of Gold in the World
Red Nova
Wednesday, July 20, 2005
China should become the largest consumer of gold in the world shortly, according to an estimate of analysts from 2005. China, which is the largest consumer of iron, copper, cement, steel and tin at the moment, will probably exceed the leading India in gold consumption shortly.
China must purchase 293 tonnes of gold/y under the current levels of growth to take the first position. This quantity costs roughly USD 4 bil. According to the agency Bloomberg, all the global gold mines would have to join their forces to mine this quantity for a period of over six weeks. The question is where to take new gold. The production of global mines decreased by 4.4% in 2004 compared to 2003. The consumption of gold in China rose by 11% to 224.1 tonnes in 2004 compared to 2003.
The above article originally appeared on Red Nova on July 20, 20
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$850 gold forecast out of Australia
By Peter Gonnella
Mineweb
Monday, July 18, 2005
PERTH -- Privately-owned Aussie-based research and financial advisory group, Fat Prophets, is tipping the price of gold will more than double over the next few years during which it expects real assets to outperform financial assets.
Set to precipitate the gold price increase to "well north of US$850" is a climate of further US dollar depreciation and soaring oil prices and concerns it may lead to a material slowdown in US and global economic growth.
As a result a softer economic growth scenario and weak US dollar may help fuel the flight to and improve the appeal of real assets such as gold.
According to Fat Prophets, the key catalyst of the predicted US dollar descent is the US debt-driven consumption spree, which has generated a whopping current account deficit and is unsustainable.
"America has witnessed a consumption boom financed by debt on an unprecedented scale," it stated. "History tells us that no country has been able to borrow indefinitely."
Many analysts feel the bursting of this bubble will be extremely damaging to the US dollar, which in turn may create a "significant source of instability for the world financial system".
"All bubbles end, and we believe the latest low interest rate induced asset bubble will prove no exception," foreshadowed Fat Prophets analyst Angus Geddes.
"For the US, when the music finally stops, the hangover will likely be considerable as the economy corrects the incumbent sizeable imbalances.
"This bodes dark tidings for the US dollar, and we anticipate that the greenback has much further to fall." (It has lost as much as one-third of its value since 2002.)
Similar to the 1970s, commodities or real assets have risen strongly this decade and Geddes claimed it appears "the rush has begun to convert US dollars into tangible assets" and "the case for investing in gold continues to grow".
"We believe real assets will outperform financial assets over the next few years... (and that) gold will rise well north of US$850 an ounce over the medium to longer term," forecast the Sydney-based analyst, who is one of the co-founders and a director of Fat Prophets.
If Geddes’ outlook for the gold price comes to pass, some gold equities are expected to enjoy a favourable flow-on effect. "[F]rom a longer term investment perspective, and as part of a diversified portfolio, we recommend maintaining an overweight exposure to gold and gold stocks."
Fat Prophets also holds the view that the record oil price will eventually drag gold upwards and that it has the potential to significantly boost gold investment demand.
"Middle Eastern nations are receiving record amounts of US dollars in exchange for oil, and this is clearly having a positive impact on demand as vast quantities of 'petro-dollars' are diversified into hard assets," it suggested.
"This last happened on a grand scale during the 1970s when a skyrocketing oil price contributed to gold hitting an all-time-high of US$850/oz."
But, the bullion price has lagged that of oil. "Based on historic ratios between gold and oil, with oil around US$60 a barrel, gold should be valued at well north of US$500/oz," Geddes pointed out.
"Oil and gold have historically been strongly correlated, with the relationship standing the test of time," he added. "We believe this time around should prove no different."
In addition, Asian nations are widely seen as having the power to become an even greater force in terms of influencing demand and price. Japan is already a major purchaser of gold (as a hedge against the risk of banks defaulting) and rapidly industrialising China (which now allows individuals to buy gold direct from banks) and India are sleeping giants.
The above information has been redacted from the article as it originally appeared on MineWeb on July 18, 2005.
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GOLDEN moment
By Liu Jie
China Daily
Monday, July 18, 2005
The stock market is bearish, interest rates are dismal and investment channels are limited. So which investment vehicle would help maintain the value of your assets? The answer could be "gold." It is a necessary ingredient in an investment portfolio because of its long-term value and as a hedge against risk, experts say.
According to a research report by the World Gold Council (WGC) and the Beijing Gold Economy Development and Research Centre released last month, it is prudent to pool 5-10 per cent of individual assets into the precious metal, either in physical or paper form.
"During market fluctuations, gold moves in a direction opposite to all investment tools, including stocks, bonds, securities, funds and foreign exchange," says Albert Cheng, managing director of WGC Far East.
It is among only a handful of financial assets that is not matched by a liability and can provide insurance against extreme movements in the value of traditional asset classes in times of instability, he says. WGC is a London-based non-profit organization that promotes gold consumption.
In times of uncertainties in the international market and a falling US dollar, gold supply cannot be cranked up in a short period because there are few new mines - which means it could be a golden moment to include the metal in an investment portfolio.
World gold prices reached an 18-year record high of US$455 per ounce late last year mainly because of the weak US dollar. Last week, they were hovering around the US$425 mark. "The price has not peaked, we believe," Cheng says.
The report indicates that though bank savings are the safest way to keep your assets, the rate of return is rather poor…given the low interest rate and the…interest tax.
Meanwhile, the stock market has been in the grip of bears for years; and the immature bond, securities and fund sectors highlight the value of gold.
Individual investment
China's individual gold investment is likely to surge in the coming years with market liberalization and more new products catering to consumers. The report points out that the favourable policies decreed by the central government may make ownership of gold as an investment easier.
The China Banking Regulatory Commission, the nation's banking watchdog, gave the go-ahead to the country's four biggest commercial banks - Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China - to operate individual gold investment business at the end of last year.
Bank of China launched its "Gold Treasury" on trial in late 2003 - the first paper gold product on the mainland - and China Construction Bank released "Account Gold" on February 28.
Agricultural Bank of China has tied up with Shandong Zhaojin, one of China's largest gold mine operators and processors, to provide a physical gold trading platform for individual investors from January 14.
Another investment form available to retail investors is commemorative gold bars or coins sold in department stores or specific gold shops.
Liu Shan'en, a researcher with the Beijing Gold Economy Development and Research Centre, cites the Lunar New Year gold bars issued every year since 2002 as an example.
"In 2003 and 2004, 1.25 tons of bars were sold each year; and to meet the supply-demand gap, 1.985 tons of bars were issued this year on the retail market," says Liu.
"When China's gold market is completely open, such derivative products [as gold options and swaps] may play an active role in the market."
Cheng indicates that the full liberalization of the currency system and the gold market will bring foreigners in, bringing with them sophisticated products and experienced marketing skills, which will benefit consumers.
China launched gold trading on October 30, 2002, with the establishment of the Shanghai Gold Exchange. But the nation's only gold exchange is closed to the individual investors and only registered members - 16 commercial banks, 101 gold exploration and processing enterprises and 11 retailers - are allowed to carry out transactions.
Consumption surge
Statistics from the WGC reveal that mainland gold consumption, including retail and institutional investment and sales of gold jewellery, increased 13 per cent and 21 per cent in volume and price respectively during the fourth quarter of last year compared to the same period in 2003. Growth was 1.7 per cent and 3.2 per cent in 2003 respectively.
Mainland consumer demand for gold reached 234 tons in 2004, up from 207.4 tons in the previous year.
Demand for gold as retail investment surged 53.1 per cent to 9.8 tons last year from 2003, much higher than the increase of institutional investment and jewellery consumption.
China is the world's third-biggest gold consumer after India and the United States.
"Consumption on the mainland is expected to maintain the growth momentum this year as a result of China's steady economic growth and bullish gold prices," says Cheng.
The WGC forecasts that growth in China's total consumption to be around 30-35 per cent in the next five years, with growth in retail investment expected to outstrip institutional investment and jewellery consumption.
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Merrill Lynch sees gold at $725
By Bloomberg
Financial Express
Wednesday, July 13, 2005
The price of gold may rise to $725 an ounce by 2010 as surging economic growth turns China into the world’s biggest jewellery consumer, said Graham Birch, who manages a Merrill Lynch & Co fund that has grown fivefold since 2000.
Rising demand in China and a weakening dollar pushed the price of gold in London to a 16-year high of $456.89 an ounce in December. Gold last reached $725 an ounce in January 1980. The metal traded at $423.85 as of 5 pm in London on Wednesday.
“The Chinese are getting richer, and have very high savings rates,” said Birch, who helps manage $8.5 billion in mining assets for Merrill Lynch in London, including the Gold & General Fund. “As they earn more money, they will spend more on things like jewellry.”
At current growth rates, Chinese consumers would have to buy at least another 293 tonne of gold a year to overtake demand in India, the biggest market on Wednesday. That tonnage is worth about $4 billion and equal to more than six weeks of global mine production.
The Chinese economy expanded 9.5% to about $1.65 trillion last year. The country’s 1.3 billion consumers are already the world’s biggest users of commodities such as steel, cement, copper, tin and iron ore.
Chinese retail sales of gold jewelry rose more than 11% to 224.1 tonne in 2004, according to London-based research group GFMS Ltd. Sales may increase to as much as 600 tonne within five years, Birch said. Indian consumers bought 517.5 tonne of jewellry last year.
“The question is, where is all that gold going to come from?” said Birch, 45, in an interview on July 1. Mine production fell 4.4% last year, according to GFMS.
Citigroup Inc said on May 19 the gold price this year will surpass the 16-year high reached in December. Fat Prophets, a privately owned financial-advisory company in Sydney, said on Wednesday gold may rise to $850 an ounce in as little as three years.
The above information is redacted from an article credited to Bloomberg as it was originally posted on Financial Express on July 13, 2005
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By Richard Russell
Dow Theory Letters
Monday, August 15, 2005
The chart below shows the ratio of gold to oil over the last 20 years. Oil's price has recently been surging to record highs, and gold in relation to oil has been declining to its lowest levels since the '80s. The chart suggests that gold is now "too cheap" in relation to record high-priced oil.
I've stressed the concept that gold is not an investment, and that gold is not a speculation -- gold is pure wealth. But unlike oil, gold is portable, eternal wealth. Gold does not tarnish, it does not spoil, and unlike oil which is used up in industry, gold is accumulated. Finally, gold can be hidden. Compared with oil or other tangibles, gold today is on the bargain table. And this is very important -- gold is extremely "underowned" by Americans.
Consider the unusual situation today. The US is running massive deficits in its budget, current and trade accounts. Ultimately, these deficits must be, and will be, addressed by the markets. No currency, much less a fiat currency, can retain its purchasing power under these conditions. The fact that the US dollar still remains the world's reserve currency adds to the absurdity of the situation.
On top of that, the US economy is being "levitated" by an unprecedented housing boom, brought on by artificially low interest rates plus ample liquidity. The current US prosperity is a result of people in the US selling houses to each other. Now, on top of everything else, the stock market rise since the 2002 lows is growing ancient, and the Dow today is where it was in late-1999.
Under normal conditions, seasoned investors would now be playing it safe by loading up on short-term Treasury securities. But in doing so, they risk the underlying danger of a dollar crisis, because in holding T-bills you are holding only dollar-denominated securities.
Ah, the irony. You can hold gold, you can put all your money in gold. But that's a rich man's play. Gold pays no interest, so only the rich man can sit back, place a large portion of his money in gold, and await developments. The rich man has other income (maybe a business, maybe he's receiving a fat salary) so he's in a position to hold all the gold he wants, and damn the lost income. He's not thinking of appreciation, he's thinking of ultimate safety.
Ironically, the writing is on the wall for all to see, but we're limited in what we can do about it. So we're forced to diversify. Diversifying is another way of saying, "I have no idea how things are going to work out, but in investing there's theoretical safety in spreading your bets around."
The power of the US lies in the rest of the world's willingness to accept US dollars. This cannot last, when the nation that issues the dollars is a nation that is running endless deficits. Gold always gravitates toward the powerful and the successful, both in individuals and in nations. Gold is now moving toward Asia.
Somewhere ahead the US economy will falter, then decline. That will be deflationary. The Federal Reserve will not tolerate deflation, since deflation renders the Fed impotent. To fight deflation, the Fed will open the floodgates of fiat money creation. They will send short rates to zero if need be. Under those conditions, gold will move into its third frenzied phase. Interest in gold will then be the opposite of the disinterest that we see now.
The primary bull market in gold that started in 2001 continues to be a hidden non-event as far as the great majority of investors are concerned. They don't know it exists. And the chart below shows you why. Gold has moved up in steps, each step followed by a "discouraging" correction. But when you view the big picture as seen in the chart below, you see that a primary bull market is very much in force.
The easiest and surest way to "play" this bull market is to buy bullion coins, and put them away. You don't worry about price, because you view these coins as pure wealth, and you are not holding them for appreciation, you are holding them for posterity, for your kids, for your spouse, for your estate. If gold rises to $1,000, you're not going to sell your gold coins. Sell them for what? More fiat paper?
The speculative part of the gold universe is the gold stocks. When you buy a gold stock you are hoping to sell it at a profit somewhere ahead. Gold stocks are not wealth, they are companies that mine wealth, and they will vary in their success. Buy the bullion coins for one reason, buy the stocks for a different reason.
The above information is redacted from Dow Theory Letters as they originally appeared o n August 15, 2005.
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Dale Doelling Says 'If You Aren’t Long Gold Now Then You Should Be'
By Jon Nones
Resource Investor
Monday, August 8, 2005
St. LOUIS - Dale Doelling, Chief Market Technician of Trends In Commodities…is a 20+ year veteran trader of the financial markets, father of the commodity advisory service Trends In Commodities and recent founder of LTD Investment Corporation.
JON NONES: After China revaluated its currency and delinked it from the U.S. dollar, we watched the price of gold surge. Is this just the beginning?
DALE DOELLING: The United States economy and our standard of living have been artificially elevated by foreign countries that have continued to buy our government debt. This has allowed us to continue to live way beyond our means. Five years from now we’ll probably look back at this event (China’s decision to peg its currency to a basket of currencies instead of solely to the U.S. dollar) as the beginning of the end for the U.S. economy and the beginning of the end for our current standard of living. We are about to enter an economic environment that few, if any, are prepared for and the end result will probably make the long-term deflation that Japan has experienced look like a walk in the park.
JON NONES: How will the revaluation affect gold in the short term?
DALE DOELLING: China new foreign exchange policy is going to become the starting point for the greatest advance in the price of gold and silver in history. I have been advocating LONG positions in gold and silver since the December gold contract was trading near the recent lows around $424-428. My analysis of the currency and metals markets points to an eventual dollar crisis and metals prices at all-time highs. I have no idea how long it will take but I believe that it will happen within the next 24 months.
I try not to dwell on the long-term effect that this scenario will have on our economy, but I believe that the eventual fallout will resemble the personal and economic strife that we experienced in the Great Depression. The combined forces from the crash in the dollar, the debt, both public and private…and the resulting crash in real estate and equity prices will push us into a prolonged deflationary cycle and it will probably take a decade for us to recover….
JON NONES: What will happen if China continues to revalue its currency?
DALE DOELLING: I believe that, like the bombing of Pearl Harbor changed the United States’ position on WWII, China’s change in policy regarding their currency is the event that will change the U.S. economy and our relationship with China forever.
JON NONES: Are there other aspects of China’s market affecting the gold price?
DALE DOELLING: The Chinese are just beginning to get their first taste of capitalism, and they will eventually become addicted to it. Look at the IPO of Baidu this past week. That should certainly tell us something.
JON NONES: What effect will China’s insatiable demand for oil and other commodities have?
DALE DOELLING: There’s no doubt that the escalation in China’s economy is going to continue to support commodity prices in general and I remain bullish on commodities across the board for the long term.
JON NONES: What will higher oil prices to gold?
DALE DOELLING: I’ll be the first to admit that I have been very surprised at the resilience in energy prices over the last year. Like copper and gold, the energy complex remains entrenched in a strong uptrend and there’s nothing to suggest that these trends are going to end any time soon.
JON NONES: What about increases in interest rates?
DALE DOELLING: The Fed is between the proverbial “rock and a hard place.” They are in a position that I don’t envy whatsoever. The Fed’s stance on higher rates simply confirms my belief that the end will be really ugly.
JON NONES: Where do you see gold at the end of the year and beyond?
DALE DOELLING: Trend followers avoid making predictions on where prices are going because nobody knows for sure. If they think they do then they are delusional. But, if you put a gun to my head, I’d tell you that gold will be north of $500 and, quite possibly, $600 by the end of the year. Eventually, I won’t be surprised to see gold trading at $1,000 and beyond.
JON NONES: Is now a good time to buy?
DALE DOELLING: If you aren’t long gold now then you should be. The question is, do you wait for a pullback since we’re at fairly overbought levels or do you just take a position now? That depends on the individual’s circumstances and resources. But, frankly, I believe everyone should have at least 10%-20% of their investable assets in commodities right now and a good portion of that should be in the precious metals markets.
The above information is redacted from the article as it originally appeared on Resource Investor on August 8, 2005.
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Gold May Rise on Growing Demand From China, India, Survey Shows
Bloomberg
Monday, August 1, 2005
Gold may rise for a third straight week on speculation that higher demand for the precious metal in China and India will exceed supply created from sales by European central banks, a Bloomberg survey showed.
Thirty-five of 46 traders, investors and analysts surveyed July 28 and July 29 from Melbourne to New York advised buying gold, which rose 1.1 percent last week to $435.80 an ounce on the Comex division of the New York Mercantile Exchange. Six recommended selling the metal, and five were neutral.
"What we're seeing in demand is very positive," Newmont Mining Corp. Chief Executive Officer Wayne Murdy said …July 27. "Once you get into the second half of the year -- into August and September -- the jewelry trade starts to build inventory for marriages in India and the Chinese new year."
Gold soared 4.8 percent in August last year as manufacturers geared up for increased jewelry demand during year-end holidays and the wedding season in India, the world's biggest buyer of gold. European central banks, which agreed to limit gold sales to 500 tons a year through September, had sold 415.4 tons through June 23, according to the World Gold Council.
Gold for December delivery rose $4.90 an ounce last week, meeting expectations of the majority of analysts surveyed July 21 and July 22.
"Gold prices will rise ahead of the festive demand in India," said Prithviraj Kothari, director of Mumbai-based Riddhi Siddhi Bullion Ltd.
Seasonal Lull
Gold prices fell 0.3 percent last month during a seasonal lull in demand. "June and July are usually cyclically the lowest month for the gold price," Newmont President Pierre Lassonde said on a July 27 conference call with investors and analysts.
"The gold price does not want to go below $420 even though a lot of mornings you look at the screen and it seems traders out there are trying to kick it down," Lassonde said. "It doesn't want to go down."
Fifteen central banks in Europe, including the European Central Bank, agreed last year to limit their gold sales to 500 tons annually for five years. The sales periods end each year in September.
The European Central Bank said last week three member banks sold gold worth 175 million euros ($212 million) in the week ending July 22. With gold averaging about 350 euros an ounce that week, that's equivalent to about 15.5 metric tons.
Central Bank Sales
Including other sales in the past month, the total is probably closer to 484 tons, according to Paul Yusem, an individual investor in Lombard, Illinois, who has traded gold futures for five years.
"There is only one way to temper this robust physical demand -- much higher gold prices," Yusem said.
From the seasonal low in July to its high in August, gold has rallied on average $26 during that period during the previous four years.
"Nothing points to this year being any different," said Gregory M. Orrell, president of Orrell Capital Management Inc. in Livermore, California.
Last year, gold rose $29 from the July low to the high in August. In 2003, the rally was $38.40. The low last month was $418.20 on July 15.
The rise in gold last week above the 200-day moving average for the first time since July 1 may trigger more buying by traders who follow charts and graphs, pushing prices to as high as $450 this month, said William O'Neill, a partner at Logic Advisors LLC, a commodity consulting company in Upper Saddle River, New Jersey.
Speculators Holdings
In the week ended July 26, speculators had the lowest net holdings of Comex gold futures since June 7, the U.S. Commodity Futures Trading Commission said July 29. Hedge funds and other large speculators bought 49,022 more contracts than they sold…the commission said.
"Hedge funds continue to have a bullish bias, and with each passing week, gold's role as an alternative asset increases," said O'Neill, former head of futures research at Merrill Lynch & Co. in New York.
Gold has climbed 12 percent in the past year as a decline in the dollar boosted the appeal of the precious metal as an alternative to U.S. stocks and bonds. Gold reached a 16-year high of $458.70 an ounce in December as the dollar fell to a record against the euro.
A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.
The above information has been redacted from the article as it originally appeared on Bloomberg on August 1, 2005.
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Gold executive sees tight supply keeping price high
Reuters
Wednesday, July 27, 2005
NEW YORK, July 27 - Gold supply constraints will prevent the price of the metal from falling below $420 per ounce in the short run and it will almost certainly rise again in September or October, a Newmont Mining Corp. executive said on Wednesday.
"June and July are usually the lowest for the gold price," said Newmont President Pierre Lassonde, also chairman of the World Gold Council. "But gold does not want to go below $420.
"If it does not want to go down, come September or October it will go up, given the supply situation. Gold is in a continuing rising period."
Lassonde, whose comments came during a conference call with analysts to discuss Newmont's second-quarter earnings, told the Reuters Mining Summit in June he saw gold selling for $525 per ounce within six months. It closed on the COMEX in New York on Wednesday at $424.90.
"It is very difficult to see a huge increase in supply (of gold) in the next few years," Lassonde said on the Newmont call. Unlike in the 1980s and 1990s, when there was a doubling of production and a rash of new mining and prospecting technology, there is little exploration going on today because of civil conflicts or government policies and longer lead times to obtain mining permits.
It now takes 7-10 years from exploration to production at a mine, compared with 4-7 years in past years. "But with time, production will start to go up," said Lassonde.
"On the other side of the coin, there is strong demand. It was up 23 percent in the first quarter and jewelry demand is up 11 percent in China. There is large investment demand."
Asked about the effect on gold prices of the revaluation of the Chinese yuan, Lassonde said it was "much ado about nothing. It was the smallest revaluation on record and what we expected."
But he said it might prove significant in the longer term, because it might permit other Asian currencies, like those of Malaysia and South Korea, to revalue.
"I bet you, dollar-for-dollar, that in 10 years time the RMB (Yuan) will be 60 percent higher than today. And it will have a significant impact on the gold market and commodities markets.
"With a stronger currency, they (China) will compete for oil and everything else they need," said Lassonde.
The above article originally appeared on Reuters on July 27, 2005.
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China Should Become the Largest Consumer of Gold in the World
Red Nova
Wednesday, July 20, 2005
China should become the largest consumer of gold in the world shortly, according to an estimate of analysts from 2005. China, which is the largest consumer of iron, copper, cement, steel and tin at the moment, will probably exceed the leading India in gold consumption shortly.
China must purchase 293 tonnes of gold/y under the current levels of growth to take the first position. This quantity costs roughly USD 4 bil. According to the agency Bloomberg, all the global gold mines would have to join their forces to mine this quantity for a period of over six weeks. The question is where to take new gold. The production of global mines decreased by 4.4% in 2004 compared to 2003. The consumption of gold in China rose by 11% to 224.1 tonnes in 2004 compared to 2003.
The above article originally appeared on Red Nova on July 20, 20
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$850 gold forecast out of Australia
By Peter Gonnella
Mineweb
Monday, July 18, 2005
PERTH -- Privately-owned Aussie-based research and financial advisory group, Fat Prophets, is tipping the price of gold will more than double over the next few years during which it expects real assets to outperform financial assets.
Set to precipitate the gold price increase to "well north of US$850" is a climate of further US dollar depreciation and soaring oil prices and concerns it may lead to a material slowdown in US and global economic growth.
As a result a softer economic growth scenario and weak US dollar may help fuel the flight to and improve the appeal of real assets such as gold.
According to Fat Prophets, the key catalyst of the predicted US dollar descent is the US debt-driven consumption spree, which has generated a whopping current account deficit and is unsustainable.
"America has witnessed a consumption boom financed by debt on an unprecedented scale," it stated. "History tells us that no country has been able to borrow indefinitely."
Many analysts feel the bursting of this bubble will be extremely damaging to the US dollar, which in turn may create a "significant source of instability for the world financial system".
"All bubbles end, and we believe the latest low interest rate induced asset bubble will prove no exception," foreshadowed Fat Prophets analyst Angus Geddes.
"For the US, when the music finally stops, the hangover will likely be considerable as the economy corrects the incumbent sizeable imbalances.
"This bodes dark tidings for the US dollar, and we anticipate that the greenback has much further to fall." (It has lost as much as one-third of its value since 2002.)
Similar to the 1970s, commodities or real assets have risen strongly this decade and Geddes claimed it appears "the rush has begun to convert US dollars into tangible assets" and "the case for investing in gold continues to grow".
"We believe real assets will outperform financial assets over the next few years... (and that) gold will rise well north of US$850 an ounce over the medium to longer term," forecast the Sydney-based analyst, who is one of the co-founders and a director of Fat Prophets.
If Geddes’ outlook for the gold price comes to pass, some gold equities are expected to enjoy a favourable flow-on effect. "[F]rom a longer term investment perspective, and as part of a diversified portfolio, we recommend maintaining an overweight exposure to gold and gold stocks."
Fat Prophets also holds the view that the record oil price will eventually drag gold upwards and that it has the potential to significantly boost gold investment demand.
"Middle Eastern nations are receiving record amounts of US dollars in exchange for oil, and this is clearly having a positive impact on demand as vast quantities of 'petro-dollars' are diversified into hard assets," it suggested.
"This last happened on a grand scale during the 1970s when a skyrocketing oil price contributed to gold hitting an all-time-high of US$850/oz."
But, the bullion price has lagged that of oil. "Based on historic ratios between gold and oil, with oil around US$60 a barrel, gold should be valued at well north of US$500/oz," Geddes pointed out.
"Oil and gold have historically been strongly correlated, with the relationship standing the test of time," he added. "We believe this time around should prove no different."
In addition, Asian nations are widely seen as having the power to become an even greater force in terms of influencing demand and price. Japan is already a major purchaser of gold (as a hedge against the risk of banks defaulting) and rapidly industrialising China (which now allows individuals to buy gold direct from banks) and India are sleeping giants.
The above information has been redacted from the article as it originally appeared on MineWeb on July 18, 2005.
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GOLDEN moment
By Liu Jie
China Daily
Monday, July 18, 2005
The stock market is bearish, interest rates are dismal and investment channels are limited. So which investment vehicle would help maintain the value of your assets? The answer could be "gold." It is a necessary ingredient in an investment portfolio because of its long-term value and as a hedge against risk, experts say.
According to a research report by the World Gold Council (WGC) and the Beijing Gold Economy Development and Research Centre released last month, it is prudent to pool 5-10 per cent of individual assets into the precious metal, either in physical or paper form.
"During market fluctuations, gold moves in a direction opposite to all investment tools, including stocks, bonds, securities, funds and foreign exchange," says Albert Cheng, managing director of WGC Far East.
It is among only a handful of financial assets that is not matched by a liability and can provide insurance against extreme movements in the value of traditional asset classes in times of instability, he says. WGC is a London-based non-profit organization that promotes gold consumption.
In times of uncertainties in the international market and a falling US dollar, gold supply cannot be cranked up in a short period because there are few new mines - which means it could be a golden moment to include the metal in an investment portfolio.
World gold prices reached an 18-year record high of US$455 per ounce late last year mainly because of the weak US dollar. Last week, they were hovering around the US$425 mark. "The price has not peaked, we believe," Cheng says.
The report indicates that though bank savings are the safest way to keep your assets, the rate of return is rather poor…given the low interest rate and the…interest tax.
Meanwhile, the stock market has been in the grip of bears for years; and the immature bond, securities and fund sectors highlight the value of gold.
Individual investment
China's individual gold investment is likely to surge in the coming years with market liberalization and more new products catering to consumers. The report points out that the favourable policies decreed by the central government may make ownership of gold as an investment easier.
The China Banking Regulatory Commission, the nation's banking watchdog, gave the go-ahead to the country's four biggest commercial banks - Industrial and Commercial Bank of China, Bank of China, China Construction Bank and Agricultural Bank of China - to operate individual gold investment business at the end of last year.
Bank of China launched its "Gold Treasury" on trial in late 2003 - the first paper gold product on the mainland - and China Construction Bank released "Account Gold" on February 28.
Agricultural Bank of China has tied up with Shandong Zhaojin, one of China's largest gold mine operators and processors, to provide a physical gold trading platform for individual investors from January 14.
Another investment form available to retail investors is commemorative gold bars or coins sold in department stores or specific gold shops.
Liu Shan'en, a researcher with the Beijing Gold Economy Development and Research Centre, cites the Lunar New Year gold bars issued every year since 2002 as an example.
"In 2003 and 2004, 1.25 tons of bars were sold each year; and to meet the supply-demand gap, 1.985 tons of bars were issued this year on the retail market," says Liu.
"When China's gold market is completely open, such derivative products [as gold options and swaps] may play an active role in the market."
Cheng indicates that the full liberalization of the currency system and the gold market will bring foreigners in, bringing with them sophisticated products and experienced marketing skills, which will benefit consumers.
China launched gold trading on October 30, 2002, with the establishment of the Shanghai Gold Exchange. But the nation's only gold exchange is closed to the individual investors and only registered members - 16 commercial banks, 101 gold exploration and processing enterprises and 11 retailers - are allowed to carry out transactions.
Consumption surge
Statistics from the WGC reveal that mainland gold consumption, including retail and institutional investment and sales of gold jewellery, increased 13 per cent and 21 per cent in volume and price respectively during the fourth quarter of last year compared to the same period in 2003. Growth was 1.7 per cent and 3.2 per cent in 2003 respectively.
Mainland consumer demand for gold reached 234 tons in 2004, up from 207.4 tons in the previous year.
Demand for gold as retail investment surged 53.1 per cent to 9.8 tons last year from 2003, much higher than the increase of institutional investment and jewellery consumption.
China is the world's third-biggest gold consumer after India and the United States.
"Consumption on the mainland is expected to maintain the growth momentum this year as a result of China's steady economic growth and bullish gold prices," says Cheng.
The WGC forecasts that growth in China's total consumption to be around 30-35 per cent in the next five years, with growth in retail investment expected to outstrip institutional investment and jewellery consumption.
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Merrill Lynch sees gold at $725
By Bloomberg
Financial Express
Wednesday, July 13, 2005
The price of gold may rise to $725 an ounce by 2010 as surging economic growth turns China into the world’s biggest jewellery consumer, said Graham Birch, who manages a Merrill Lynch & Co fund that has grown fivefold since 2000.
Rising demand in China and a weakening dollar pushed the price of gold in London to a 16-year high of $456.89 an ounce in December. Gold last reached $725 an ounce in January 1980. The metal traded at $423.85 as of 5 pm in London on Wednesday.
“The Chinese are getting richer, and have very high savings rates,” said Birch, who helps manage $8.5 billion in mining assets for Merrill Lynch in London, including the Gold & General Fund. “As they earn more money, they will spend more on things like jewellry.”
At current growth rates, Chinese consumers would have to buy at least another 293 tonne of gold a year to overtake demand in India, the biggest market on Wednesday. That tonnage is worth about $4 billion and equal to more than six weeks of global mine production.
The Chinese economy expanded 9.5% to about $1.65 trillion last year. The country’s 1.3 billion consumers are already the world’s biggest users of commodities such as steel, cement, copper, tin and iron ore.
Chinese retail sales of gold jewelry rose more than 11% to 224.1 tonne in 2004, according to London-based research group GFMS Ltd. Sales may increase to as much as 600 tonne within five years, Birch said. Indian consumers bought 517.5 tonne of jewellry last year.
“The question is, where is all that gold going to come from?” said Birch, 45, in an interview on July 1. Mine production fell 4.4% last year, according to GFMS.
Citigroup Inc said on May 19 the gold price this year will surpass the 16-year high reached in December. Fat Prophets, a privately owned financial-advisory company in Sydney, said on Wednesday gold may rise to $850 an ounce in as little as three years.
The above information is redacted from an article credited to Bloomberg as it was originally posted on Financial Express on July 13, 2005
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