Geopolitical Headwind Continue To Lift Gold Prices

Elizabeth Kraus

With the UN finally voting for a no-fly zone over Libya, it looks like the U.S. is now committed to getting involved in the conflict in Libya. While storing millions of gold bullion in his banks and calling the world against him as Nazis, Qaddafi refuses to budge defying demands to withdraw his military from Libya. Blatantly issuing warning to President Obama and other leaders to back off from military action against him, in the tone of his letters — one addressed to Obama, a second to French Minister, Sarkozy, another to Prime Minister David Cameron of Britain and finally to Secretary General Ban Ki-moon of the United Nations—had suggested that Colonel Qaddafi was leaving himself little room to back down. “Libya is not yours. Libya is for all Libyans,” he wrote in one letter, and had it read to the news media by a spokesman. “This is injustice, it is clear aggression, and it is uncalculated risk for its consequences on the Mediterranean and Europe. You will regret it if you take a step toward intervening in our internal affairs.”But the world did not heed his threats, and a coalition intervened Saturday with unusual speed. On the wake of U.S., France, Britain, Canada and Italy launching strikes on Libya designed to cripple Muammar Gaddafi’s air defenses, oil and gold prices surged. Gold prices had benefited as investors assessed the current risk levels of the global crisis and economy, and purchased gold as protection against the continued uncertainty in Japan as well as U.N. airstrikes against Libya. While President Obama declared, “The people of Libya must be protected and in the absence of an immediate end to the violence against civilians our coalition is prepared to act and to act with urgency,” a proud Italian soldier yelled to the press, “the last time we fought a good battle like this was before the Romans fought the Huns! Onward against Gaddafi! ”

As those statements and actions manifested throughout the world, the other shoe dropped in world oil markets this week with crude oil prices to increase $10 a barrel. So far in March, Brent has risen just 2 percent with gains limited by expectations of lower demand from Japan after the deadly earthquake just over a week ago, and oil exports from Libya have dried up to almost nil since the rebellion started. Brent crude oil shot above $116 a barrel on Friday on news of an airstrike in Libya near an oil terminal, while gold hit a record high as investors rushed into a safe-haven trade. World stocks slipped, while on Wall Street, stocks pulled back from session highs to trade modestly higher.

Investors were nervous that political instability could spread to major oil producer Saudi Arabia, a central U.S. ally in the region. As investors made their flight-to-safety bids, the dollar fell to a record low against the Swiss Franc. U.S. Treasury debt prices declined, but trimmed some losses as demand rose. The basic reasons for owning gold and silver for currency protection, inflation hedge, store of value, calamity insurance, many of which are becoming clichés even in mainstream articles, and when tossing in the supply and demand imbalance, you’ve got the basic arguments for why one ought to hold gold for the foreseen future as an intelligent investing option. Irrespective of the corrections each of the previously mentioned catalysts will force gold’s price higher and higher within the years ahead, especially because of the currency issues.

But there’s an additional driver of the price that escapes many gold watchers and definitely the mainstream media. And I am convinced that as soon as this sleeping giant wakes, it could ignite the gold market like nothing we have ever witnessed. The funds management business handles the bulk of the world’s riches. These institutions consist of insurance businesses, hedge funds, mutual funds, sovereign wealth funds, etc. However the elephant in the place is pension funds. These are institutions that offer retirement income for both public as well as private plans. Global pension assets are estimated to be $31.1 trillion. No, that is not a misprint. It’s much more than twice the dimension of last year’s GDP within the U.S. of $14.7 trillion. Now here is the fun part. Let’s say fund managers as a group understand that bonds, equities, and real estate have become poor or risky investments and so decide to improve their allocation to the gold market. In the event that they doubled their direct exposure to gold and gold stocks – which might still represent only 0.6% of their overall assets – it might amount to $93.3 billion in new acquisitions. Just how much is that? The investments of GLD total $55.2 billion, so this amount of money is 1.7 times larger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, only one-tenth of that extra allocation. Regal Assets team of analyst stated on Tuesday “There is no doubt that gold is becoming the safe haven and flight to safety for investors. Pensions plans have already started to shift their direction of investing and it will not be long before they gain major exposure to precious metals.”

The marketplace cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry might see a 40% increase in new money to the sector. Its marketplace cap would increase two times if pension institutions allocated just 1.2% of their assets to gold. However what if currency problems spiral spinning out of control? What if bonds decline and die? What if real estate takes a decade to recover? What if inflation becomes a barking dog like it has each and every other time in history when governments have watered down their currency to this level? If these funds allocate just 5% of their resources to gold – which would amount to $1.5 trillion – it would certainly overwhelm the system and rocket costs skyward.

And also let’s not forget that this is just one class of institution. Insurance businesses have about $18.7 trillion in assets. Hedge funds handle approximately $1.7 trillion. Sovereign wealth funds manage $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors worldwide like you and me and we are looking at $100 trillion of feasible new invested funds. Sovereign debt dangers are far from over. The U.S. dollar along with other currencies will lose considerably much more value against gold, interest rates will most definitely rise in the years ahead, and inflation is just getting started. These kinds of forces are in place and building, and if there’s a thinking shift in how these kinds of managers view gold, look out!—Because as soon as fund managers enter the gold marketplace in mass, this tiny sector will catch on fire with blazing speed. With the situation in the world, Gold and silver “could be poised for further gains as investors seek to diversify towards safe-haven asset types with a mix of fresh buying and short covering potentially leading gold [and] silver to retest recent highs,” says James Moore, research analyst for FastMarkets.

Source: http://goldcoinblogger.com/geopolitical-headwind-continue-to-lift-gold-prices/#more-2914

Gold Prices Rise Against The Resultant Devaluation Of ALL Major Global Currencies

Elizabeth Kraus

With the United Nations military action during the week, while not a big surprise to the market place, add to the overall instability in the Middle East, it was bullish for the gold market. Reports say the military action has severely crippled Gadhaffi’s military. However, the market place is now asking, “What comes next?” That’s the uncertain part of the equation that has boosted the crude oil market and keeps gold a safe-haven demand asset. Between Australian floods, cyclones, bush fires, New Zealand earthquake, North African and Middle Eastern states erupting into civil disorder leading, in some cases, to government overthrows and now the Japanese mega-earthquake, tsunami and possible nuclear disaster and the attack on Libya, the whole global chaos is a bit like the term sometimes used as the Black Swan itself. (Not the Natalie Portman film.) In any case, hardly anyone used the expression (which describes a completely unforeseen circumstance or event) up until a few years ago, now everyone’s talking about them! Obviously a currently over-utilized expression so I’ll try not to mention Black Swans again.

”In some scenarios this succession of critical events would have gold escalating through the roof, followed, and probably being overtaken by, silver and why this has not happened, at least not yet, might bear some examination” stated Regal Assets president Ron Fricke this morning in response to raising silver prices. As Julian Phillips pointed out in a recent article that some factors which might be thought to move the price of gold had typically not as fast. Disasters on the Japanese scale have mixed effects with some seeing gold as a protection against such horrendous calamities, while others will need to sell to survive and rebuild. The net effect is that sales may serve to cancel out purchases just leading to a steady-state equilibrium which is what seems to be happening to the gold price at the moment. The main driver at the moment does seem to be the U.S. dollar – when the dollar falls gold picks up and vice versa and at times of immense disasters the dollar may be being seen as the more readily tradable safe haven in the short term. One interesting fact which seems to have emerged from the Japan situation is that in the West of the country – virtually untouched by the quake and far from the tsunami is that gold bars and coins are attracting premiums which were not there only a week or so ago, suggesting there is a demand for the yellow metal to help protect against, and alleviate, such horrific disasters.

Almost certainly the biggest recent driver in gold demand has been China, but with the authorities there tightening economic controls we could see some of this demand fall away – but then the biggest sellers have been the Americans of late, or so it would seem, and there are also indications that lower gold prices – and perhaps the realization by almost anyone living on the West Coast of the U.S.A. or Canada that they could be subject to an earthquake of similar magnitude and possible tsunamis – are bringing high-wealth individuals back into the gold market again. These rapid successions of events, hopefully not a precursor of Armageddon, are having a serious financial impact on an already shaky global economy. The real long term instability lies initially with the profligacy of the commercial banks and then with the even greater profligacy of Governments and Central Banks pumping out more and more fiat money in an attempt to restore even a smidgeon of growth to their domestic economies.

The gold price thus is being raised by the resultant devaluation of ALL the major global currencies in concert – notably the dollar, the Euro, the Pound and the Japanese yen – due to the release of huge un-backed volumes of new money into the global economy – a position which is now being exacerbated by the Japanese Central Bank having to release billions more yen into its own tsunami-stricken economy to try and shore it up. And not only is this Central Bank profligacy effectively devaluing these key currencies, but it is also stoking the fires of related inflation all around the world. gold remains the key protector against declining wealth caused by inflation. In many views, if not necessarily those of academic economists, gold is the constant in this process. It’s not that gold is actually rising in value; it is that everything else is falling against gold and the more these unpredictable events occur, the more the pressures on so-called global reserve currencies will escalate. The downwards spiral is hard to control once it starts to move in earnest – hence recent talk of hyperinflation, even if the actual point at which plain inflation becomes seen as hyperinflation remains obscure in the proponents’ prognostications.

Lessons can always be learned from history. It is an oft-spoken truism that history repeats itself – (or better yet, its man who repeats history,) however, even though it would seem that economic drivers nowadays are seemingly totally different from those which may have affected our forefathers, analysis of the patterns of the past shows that gold buying recurred over and over through time. It will similarly continue once again to retain gold’s position in people’s hearts and minds, as the best form of wealth protection. Thus as the major global currencies continue on their downwards value spiral, in terms of these currencies gold will continue to move upwards. The recent price correction should thus be seen as an opportunity rather than the beginning of a burst bubble. One thus sees the future path of the gold price as upwards – but not necessarily in any kind of smooth pattern. It will likely remain volatile in its continuing rise which has to carry on as long as currencies continue to be devalued by enormous increases in money supply, or until some new reserve currency system (which could even include gold as an important element of it) emerges from the current global economic mire.

Source: http://goldcoinblogger.com/gold-prices-rise-against-the-resultant-devaluation-of-all-major-global-currencies/

Will Rising Rates Skyrocket the Gold Price? History says YES

The great Gold Bull Market of the 20th Century is said to have started in 1972, just after Richard Nixon announced on August 15, 1971, he was taking the United States off the Gold Standard.  At that time Nixon realized foreign countries were hoarding more gold and silver-backed currency than could actually be redeemed by the precious metal's reserves we held.

Once again, gold could be traded freely allowing the market to determine its fair value.  At the outset, gold prices were fixed at $42.22 per ounce but by February 1972, moved to $48.26 as trading began.  From there a steady rise would ensue to levels 17 times greater than this initial trading price.  On January 21, 1980, the gold spot price reached $850 an ounce.  

Removing us from the gold standard did not come without an anticipated backlash.  As the dollar was no longer backed by tangible assets, its value in the world markets was sure to decline and it did.  Hence runaway inflation.  In pre-emptive fashion, the Federal Reserve began to raise interest rates to protect the dollar.

At the same time gold trading began to spool up, the prime interest rate was at its lowest level in 12 years at 4.5%.  The Fed Funds rate was 5%.  These levels marked the bottom for interest rates during the period when gold began trading in earnest in 1972 - levels that would not be seen again for decades.    

From that point on, both interest rates and the gold price rose steadily.  By the time the gold price peaked at $850 an ounce, the Prime Interest Rate was 15.25%, 3.4 times its level when gold trading began.  And the Fed Funds Rate at 15% was 3 times greater in the same period of time.

With interest rates rising some 10 percentage points in 8 years, we learn the correlation between the rise in gold prices was a compounded 33% for every rise of just one point in interest rates.  It must be noted, during the same period stocks rose a mere 1%.

If we now flash forward to find the next time interest rates reached an undisputed bottom, we find ourselves at a time just before Christmas 2008.  On December 16, 2008 the Prime Rate moved from 4% to its current low of 3.25%.  On the same day, the Fed moved its target Fed Funds Rate off of 1% to 0.00% - .25%.  Where was the gold price at this key point in time?  Precisely and ironically, gold was $850 an ounce. 

Since December 16, 2008, both rates remain unchanged with no immediate signs of increase.  Gold, on the other hand has risen from $850 an ounce to levels solidly above $1400 an ounce accounting for an annual compounded gain near 26%.  

Looking back to 1972, we see rates and the gold price rose in lock-step with inflation.  Today, we find ourselves in a lively debate over whether we are in an inflationary cycle or deflationary cycle.  I will submit, as the markets express uncertainty over even this, the move higher in gold prices, since rates bottomed in December 2008, is more likely attributed to a safe-haven play than it is to inflation fears and rising interest rates. 

Now a case can easily be made that the real gold bull market has not yet begun and will not until such time as rates begin a decided move higher.  With interest rates locked in at these bottoms, there is only one way for them to go and that's up.  And once that process begins, the real interest rate/inflation play can commence.  So where is gold headed from here?

If history repeats, we can, once again, make the case that for each point rates rise we could see a 33% corresponding move higher in the gold price.  If gold is $1400 an ounce at that time, just a 3% move higher in interest rates could see gold at $3290 an ounce based on current levels.   A 4% rise would only be equal to a 12-month retracement of falling rates from December 2007 to December 2008.  A repeat of such a retracement could put gold at $4375 an ounce or up 200% in just 12 months. 

From there every added point to interest rates could become an explosion of its own as one single point higher in interest rates could see gold rise above $5,000 an ounce. 

Is this possible? 

In June of 2003, we find an example where the theory holds.  As the country found itself digging out of the hole left by the Dot Coms of the 90s, interest rates had fallen to extreme lows.  The Prime Rate was 4%, the Fed Funds Rate was just 1% and gold was $345 an ounce. 

Again, in anticipation of inflation, the Fed began to raise rates.  By June 2006, Prime was 8.25% and Fed Funds were 5.25%.  Gold rose from $345 an ounce to a June 2006 high of $641.80. That translated to a 23% annualized return.  As rates stopped rising and held for the next 15 months, the rise in gold price slowed to a more tempered but still pleasing, 12% annual rate.  A clear indication that this move, from 2003 to 2006, could be attributed more to rising rates and inflation fears than any other impetus.      

Any way you look at it gold now has several ways to win.  Rising debt, falling dollar, default, war, weak housing, stumbling markets and yes . . . rising interest rates.   

Since April 2001, when gold prices hit a 22 year low of $255.95 an ounce, the gold price has risen some 400% as the gold market reacted to a myriad of various stimuli at different times.  We have seen gold behave as a commodity, as for a time the gold price rose along with oil.  We have seen gold prices rise in response to geopolitical unrest, 911 being case in point.  And as markets have floundered we have seen the pure safe-haven play as the economy and markets became engulfed in uncertainty over rising debt a falling dollar and fear of default. 

What we have yet to see is a sustained battle against inflation.  A battle fought by raising interest rates.  An imminent battle as the entire world works to re-inflate a global economy.   When this occurs, the combined effect of rising rates, with any of the stimuli already shown to drive gold prices higher, could be explosive. 

Watch for signs that the second great gold bull market in history is about to begin.


Read more:http://community.nasdaq.com/News/2011-03/lear-capital-will-rising-rates-skyrocket-the-gold-price-history-says-yes.aspx?storyid=65834

2014 Gold price At $5,000/oz

According to Rob McEwen, Chairman of Minera Andes and US Gold Corp, gold is in the middle of a super cycle and is likely to move toward $5,000 as demand from central banks and investors continues

Author: Polly Yam (Reuters)

HONG KONG (REUTERS) - 

The price of gold may hit $5,000 per ounce, nearly three times current levels, in three to four years, as demand from sovereign states, central banks and exchange-traded funds (ETFs) rises, the chairman of two Canadian gold mining companies said.

"Gold is used as insurance for bad governments," Rob McEwen, chairman and chief executive of Minera Andes Inc and US Gold Corp , told Reuters on the sidelines of the Mines and Money conference in Hong Kong on Wednesday.

Gold is traditionally used as a hedging tool against inflation and economic uncertainty. The yellow metal has also been a favourite investor hedge against loose monetary policies in the wake of the global financial crisis.

McEwen said gold was in the middle of a super cycle that could end by 2015, adding that the length of the gold super cycle and the $5,000 forecast were based on historical gold prices and the ratio of the Dow stock index against gold since 1970.

McEwen founded Canada's top gold miner Goldcorp Inc . He left the company in 2005, cashing in for a little over $200 million.

He said about 90 percent of his personal assets were in physical gold, adding the he owned a 31 percent stake in Minera and a 20 percent stake in US Gold, both headquartered in Toronto.

US Gold mines gold and silver in the United States and Mexico. Minera has a project in Argentina.

McEwen said he believed that countries such as China, Russia and India would buy gold as part of their foreign exchange reserves.

If China wanted the yuan to become an international reserve currency, the government may need to put 10 percent of its foreign exchange reserves in gold, he said.

The world's second-biggest economy, China holds less than 2 percent of its 2.85 trillion foreign exchange reserves in gold, which have stayed at 33.89 million ounces since April 2009 according to official figures.

He said, however, that global gold production would continue to be limited by high costs and tighter regulatory controls.

Spot gold was steady at about $1,427 per ounce at 0630 GMT on Wednesday, within striking distance of its record $1,444.40 per ounce set on March 7.

Nick Holland, chief executive of the world's fourth-largest listed gold miner Gold Fields Ltd , said on Tuesday that the gold could hit $1,500 and the industry was not making a huge amount of money at current prices. (Reporting by Polly Yam; Editing by Chris Lewis)

Source: http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=123489&sn=Detail&pid=102055

2012 Gold Price To Peak Near $1700

Top US investmernt bank, Goldman Sachs, sees gold at $1,480 in 3 months and hit $1,690 in 12 months ahead of a rise in U.S. interest rates it expects to see at around that time

NEW YORK (REUTERS) - 

U.S. investment bank Goldman Sachs Group Inc (GS.N) said it forecast gold prices rallying to a record $1,480 an ounce in three months on declining U.S. real interest rates.

The bank said in a note sent on Friday it still expects gold prices to reach a peak in 2012 as U.S. interest rates are set to rise with the economy continues to recover. Goldman has a six-month gold view at $1,565 an ounce, and a 12-month forecast at $1,690 an ounce.

"Given the decline in U.S. real interest rates, we see the recent retracement in gold prices as offering a good buying opportunity, and maintain our long gold trading recommendation as we expect gold to rally to our three-month price target of $1,480 an ounce," it said.

Bullion XAU= rose more than 1 percent Friday to $1,418 an ounce on lingering political uncertainty despite Libya's declaration of a cease-fire. It hit a record high of $1,444.40 an ounce on March 7.

"Optimism over the state of the global economic recovery at the start of the year, which drove U.S. real interest rates sharply higher, has been tempered by the ongoing events in the Middle East and North Africa and Japan...setting the stage for the next gold price rally," Goldman said.

(Reporting by Frank Tang; Editing by Marguerita Choy)

Source: http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=123232&sn=Detail&pid=102055

2011 Gold price At $1,500-$1,600/Oz

(Reuters) - U.S. gold miner Newmont Mining Corp (NEM.N) and Canada's Agnico-Eagle Mines (AEM.TO) said on Monday they expect increasing demand for gold as a monetary asset to send the price up to levels of $1,500 to $1,600 an ounce in the next 12 months.

Speaking in exclusive interviews at the Reuters Global Mining and Steel Summit, the companies' chief executives cited gold's use as a proxy currency, central bank gold purchases, rising demand from Chinese and Indian buyers, and an affinity for gold as an investment in developed economies as chief drivers leading the metal to $1,750 or even $2,000 an ounce in the next few years.

"If you had said 10 years ago that gold was going to be at $2,000, everyone would have agreed that the world would be in a total shambles and there would be chaos in the streets," said Agnico-Eagle Chief Executive Sean Boyd.

"You could see gold at $2,000 and you could see the world function the way it's functioning right now. And, I don't think that's a stretch," he added.

Unless governments take steps to stave off growing inflationary trends, Richard O'Brien, president and CEO of Newmont, the world's second largest gold miner, said gold's value as a protection against inflation could lead it to $1,750 an ounce or higher in several years, possibly by 2012.

"It just depends on how well governments respond to inflation, on whether there are counteracting activities that governments take to forestall the rise in inflation," he said.

O'Brien said, he thinks the pace of inflation is already picking up with governments increasing their currency balances over the last few years and higher food and fuel prices. It will only increase as construction of infrastructure picks up.

Historically, he said, governments have not been able to control inflation, so gold will be used as protection.

For 2011, the CEO of the Denver-based miner said he thinks volatility spawned by global currency movements and political turmoil in the Middle East will mean gold will trade in a range of $1,350 to $1,500 an ounce.

Agnico's Boyd said a gold price at $1,600 an ounce in the next 12 months would "not be a stretch," given its demand as a monetary asset, its desirability as an investment in developed countries, and jewelry purchases in China and India.

The higher gold price would mean silver could surge to $40 to $50 an ounce, he said, "And I don't think that's wild."

"We saw for the first time (in recent history) net central bank buying last year. I think that's going to continue."

On Monday, spot gold was higher around $1,427 an ounce, slightly off the record high of $1,444.40 set March 7.

Despite record gold prices motivating some miners to expand their capacity, O'Brien said the limited life of existing mines, as well as lack of accessible new sites and the extended time it takes a new discovery to go into production, would assure that new supply will have little impact on price gains.

Both chief executives said they do not hedge any top-line assets like gold, silver or copper. They added, however, that they do hedge some input costs, like oil and the Canadian dollar in the case of Agnico-Eagle.

Newmont sometimes uses hedging to lock in energy costs, or hedges the Australian dollar and other currencies in countries where it operates.

Source: http://www.reuters.com/article/2011/03/21/us-mining-summit-gold-price-idUSTRE72K66Q20110321