Feb. 9 (Bloomberg) — Mongolia, the Asian nation with some of the world’s largest untapped mineral resources, is considering setting up separate companies owning the country’s gold, copper and coal reserves and using investment banks to sell shares to global investors, the prime minister said.
Source:Mongolia Considers Selling Stakes of Copper, Coal, Gold Assets (Bloomberg)
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Is Washington's tax exemption on bullion a gold mine?
Seattle Times The break applies to gold, silver and other precious metals sold as coins or bars, such as Krugerrands or vintage silver dollars. By not taxing those items, … and more » |
Source:Is Washington's tax exemption on bullion a gold mine? – Seattle Times
Turning paper into Gold Bullion at the emerging-world’s central banks…
CENTRAL BANKS are becoming modern-day alchemists, says Christopher K. Potter, principal of Canadian-focused hedge fund Northern Border Capital Management Inc., which he founded in 2002.
India’s big gold purchase late last year was a game-changer, Potter here tells the Gold Report, and more and more central banks will follow suit – he believes – successfully managing to turn the paper money their countries accumulate into Gold Bullion…
The Gold Report: Just after the Reserve Bank of India (RBI) bought 200 tonnes of gold last November, you wrote an article entitled Game Changer, highlighting previous transactions such as China’s Central Bank 99-tonne purchase gold in ‘02 and Argentina’s 55 tonnes in ‘09. Since no other central bank has stepped forward in the months since India’s announcement, was that really a game changer?
Chris Potter: I think so. For as long as I can remember, gold bears have warned that central bank gold is a massive source of supply that is capable of overwhelming any conceivable demand scenario. They said that this would make it very difficult for the Gold Price to rise significantly. It’s been an easy argument to make because one fifth of all the gold ever mined is sitting in central banks’ vaults.
But what we’ve seen over the last nine years is that argument being steadily dismantled, piece by piece. Year after year, signatories to the Washington Agreement have sold less than their quota of gold. We’ve also seen various central banks add and talk about adding to their gold reserves. Then when the world became aware that the International Monetary Fund – which I think is the third largest holder of gold – was a potential seller of 400 tons, there was all kinds of speculation that this would have a very detrimental effect on the Gold Price.
Well guess what, the opposite happened when the Reserve Bank of India announced that it not only bought 50% of what was for sale but bought it at market prices! All of a sudden people realized that central banks might be net buyers rather than net sellers of gold. This was a big development. We still haven’t heard about who is going to buy the other 200 tonnes but the market no longer seems concerned that a buyer will be found. You mentioned that no other central bank has bought gold since the Reserve Bank of India announcement – well, we don’t know that that is the case. If you were a central bank interested in increasing your gold reserves, you would not likely telegraph to the market that you were doing that until you were finished buying.
TGR: Is the IMF actively trying to sell the other 200 tons?
Chris Potter: They reported that they planned to sell 400 tonnes so I see no reason to believe that they have changed their minds about the remaining 200 tons. It had been rumored that the central bank of China was going to buy the whole piece and that is why the Indian announcement was such a surprise. Perhaps China buys what’s left.
We’ve heard that the Chinese Central Bank has been a consistent buyer of gold over the last several years, but we haven’t heard anything officially. I suspect that they do not want to signal that they have a lot of gold to buy, because that would just drive the price up. If they are negotiating with the IMF for the remaining 200 tonnes, we won’t hear about it until the deal is done.
TGR: Could China just be buying it in such small increments that it might take them a year to buy it but they wouldn’t have to report it?
Chris Potter: I’m pretty sure that the US Federal Reserve is required to report purchases and sales of gold and other assets. I’m not familiar with the reporting requirements in other countries, but I would take any lack of disclosure about Chinese purchases of gold with a large grain of salt. In other words, just because they have not announced that they have been Buying Gold does not mean that they have not been.
TGR: Jon Nadler, Kitco’s senior investment products analyst, suggests that central banks’ acquiring gold is no more than re-balancing their portfolios. It’s part of a natural course of events since their portfolios are growing, and in that case, it shouldn’t affect the price of gold one way or another. What do you think of that view?
Chris Potter: By purchasing 200 tonnes of gold, the Reserve Bank of India increased its gold holdings by 50% – I would hardly call that rebalancing. But what is even more important than the amount of gold that central banks are buying is the realization that they are buying and not selling. This is a brand new idea and completely alters market perception about supply and demand. This kind of change in perception can have a very meaningful impact on price. So no, I do not agree with Jon Nadler’s suggestion.
TGR: So how do you look at it?
Chris Potter: If I were running a central bank and I had the ability to create money at virtually no cost and I could then exchange that costless money for one of the earth’s scarcest resources, why wouldn’t I do that all day long? Why not exchange something that costs me nothing for something that is incredibly rare and incredibly valuable?
TGR: It’s not a central bank’s role to print money for the purpose of Buying Gold, though. Creating more money creates other negative trends in the economy.
Chris Potter: Sure, it’s inflationary. But take the example of India buying 200 tonnes of gold. That’s a very large amount of gold, but relative to the amount of money that they are creating for other purposes, it has a very minor inflationary effect.
TGR: I’ve always had the impression that central banks were held to a higher standard to do what’s best for the economy.
Chris Potter: Well, maybe what they’re doing is best for their economies. If you’re a central bank and you’re observing that around the world vast amounts, unprecedented amounts, of new money is being created, you have to realize that somewhere down the road every one of those currencies is going to take a big hit. So, how do you distinguish you currency and your economy from your neighbors’?
Well, one thing you can do is Buy Gold. So maybe the Reserve Bank of India is being proactive about their economy. They are saying, "Look, we can Buy Gold now for $1000 an ounce and five years from now, when we are all swimming in newly printed money, gold might be $5000 an ounce. We can increase our wealth without inflating our currency to the same extent as other nations." Essentially they are hedging against a decline in their currency and that is good for their economy.
TGR: A lot of financial advisors tell investors they should have assets that include 10% to 15% precious metals as "insurance." Are the central banks looking at this as an insurance policy, too, or in some other way?
Chris Potter: I suppose you could call it an insurance policy and that is the way a lot of people think about gold. But that is not the way I think about it. I view gold simply as a currency whose supply and demand characteristics are vastly superior to other currencies. Perhaps that is a more accurate explanation for why central banks are exchanging their paper for gold.
TGR: Gold’s been trading around $1100 for the past few weeks. There seems to be some resistance at that level. Some gold bugs say gold will be at $2000 before the end of the year. Where do you project as a trend for the physical Gold Price through 2010?
Chris Potter: I have a much stronger view of where the Gold Price will be in two or three years than I do over the next few months. It’s had a good run so I am not surprised that it is taking a breather here. If I had to guess I’d say we’ll see new highs before the end of the year. I just think that the path of least resistance is up because the amount of debt that continues to mount around the world is staggering – a lot of that has to be monetized.
Everyone talks about deleveraging but the US ran a budget deficit of $1.4 trillion or $1.5 trillion last year, and it looks like we’re going to do something similar this year. I think I just read we’re trying to increase the debt ceiling here by $1.5 trillion Dollars to $14 trillion. These numbers would have been unheard of a couple of years ago. I think back to a speech that Bernanke gave in January of 2007, in which he worried that the US budget deficit would approach 9% of GDP by the year 2030.
TGR: Oh, we’re way beyond that already, and 2030 is still 20 years away!
Chris Potter: Absolutely. Last year at $1.5 trillion, our budget deficit was more than 10% of GDP. Bernanke’s great fear about what the budget deficit might do occurred 20 years early and it happened not because of our unfunded Social Security and Medicare liabilities that he worried about but because of the global financial meltdown. When we layer on the unfunded liability issues we have a really gigantic problem that will be extremely difficult to grow our way out of, despite what Washington tells us. That is why I say that the path of least resistance – the solution to this – is to inflate these liabilities away.
That requires printing money. It requires a lot of new Dollars, a lot of new Renminbi, a lot of new Yen, a lot of new Euros, a lot of new Roubles. I think you’re going to see all of those currencies depreciate against other assets, and probably most against gold. I imagine that will continue this year, but anyone who has been involved in the gold market over the last seven to nine years knows to expect some scary rides up and down.
TGR: You’ve laid out a compelling argument about all governments increasing their money supplies and we’ll have inflation worldwide. How much higher do you think gold can go?
Chris Potter: It’s always difficult to put a number on it, but the inflation-adjusted Gold Price, depending on your assumptions and in which year you start, is somewhere between $2200 and $3100 per ounce. I’ve run a number of different models to see where the Gold Price could go and have come up with anything from $1500 to $3500 an ounce. In the end it’s anyone’s guess as to what the ultimate high will be, but as I said, the path of least resistance seems to be up.
TGR: If you follow the gold patterns, the summer months have historically been relatively low, with prices picking up again for the holiday seasons, particularly in India. Given that more gold is being bought as an investment or as insurance now, do you see that seasonality coming into play over the next two to three years?
Chris Potter: As you point out, more often than not we’ve seen a rise in the Gold Price in October and November, which coincides with the Indian wedding season. I have no particular expertise here, but I’ll guess that that seasonal pattern will continue. Ultimately though it is not a primary driver of the Gold Price If you look at a nine-year price chart, those seasonal moves are just blips.
TGR: Should investors be looking at physical gold, the majors, the juniors? How should they play what you see as upward trends in Gold Prices over the next several years?
Chris Potter: My strategy is to own both physical gold and mining stocks. I focus on the smaller capitalization gold companies, the exploration companies, the early-stage producers just because if you get those right, they have a lot more leverage to a rising price for the metal.
The problem with owning only Gold Mining equities, and no bullion, is that in a market sell-off, they can go down with everything else. I know people who were managing gold funds who had a very difficult time in 2008 despite the fact that the Gold Price was up. As we saw, gold mining companies were decimated. Many of those equities were down by 50% to 90% in 2008, and the Gold Price was actually up.
TGR: So is the combination of physical and equities a kind of a hedge against each other?
Chris Potter: I wouldn’t characterize it as a hedge. I would just say that it gives you a greater chance of participating in a rising gold market under various market scenarios.
TGR: As I understand it, you consider the Canadian market somewhat less efficient than the US market, thus making it easier to uncover attractively valued companies. What do you think accounts for the discrepancy, and is it specific to small caps or also true of large caps?
Chris Potter: It’s really true of both large caps and small but it’s not a permanent discrepancy. It’s more of a lag. What I mean is that US investors take a lot longer to recognize and buy high quality Canadian companies than US listed ones. I used to be concerned that this lag would somehow be arbitraged away, but I’ve been doing this now for 12 or 13 years, and it has not.
There are a lot of reasons behind that. For one thing, there seems to be an apathy or ignorance on the part of US investors about almost everything Canadian. There’s also a perception that the Canadian securities laws are lax, that its investment community is run by mining promoters, and that US investors won’t get a fair shake up there. While there are certainly landmines to look out for when investing in Canada, they are no more dangerous than those in the US
To characterize the entire Canadian investment scene as corrupt because of the Vancouver mining community and the Bre-X Scandal in the late ’90s ignores the fact that the US has had plenty of its own investment scandals such as Enron and a banking system that perpetrated the greatest financial fraud in history this past decade.
But I can’t tell you all of the reasons for the valuation lag that I continue to see between US and Canadian companies.
TGR: Thanks so much for your time, Chris. This has been great.
How best to Buy Physical Gold today? Go to BullionVault, and slash your costs "dramatically" (Financial Times), using the "most secure way to invest in Physical Gold" (Daily Telegraph)…
Source:21st Century Alchemy
Take a look at this long term chart of the Gold Price…
GOLD REMAINS "real money" and wealth insurance, writes Brian Hunt for Steve Sjuggerud’s Daily Wealth.
So you can’t value it the way a stock buyer says, "I’ll pay 10 times earnings for this company," or the way a real estate investor says, "I’ll pay eight times annual rent for this house."
This "hard to value" component makes the metal fluctuate wildly within its long-term trend as investor sentiment ebbs and flows…
Don’t be surprised if the next "fluctuation" is toward lower Gold Prices. The Dollar is rallying from a deeply oversold condition, which likely means lower gold.
But even if that occurs, instead of panicking over your Gold Investing, take the long term view…and look at the five-year picture.
As you can see, the Gold Price could fall all the way down to $850 and still remain in the confines of its long-term bull trend.
How best to Buy Gold today? Slash your costs but get the utmost security by using BullionVault…
Source:Gold's Long-Term Picture
What will longer-term investors make of the current sharp fall in Gold Prices…?
The GOLD MARKET has fallen dramatically in the last few days, writes Julian Phillips of the Gold Forecaster.
Where will the Gold Price go now? Investors will soon have a large amount of chart-based technical commentary to hand, and the bulk of this will point downwards. Is that enough to make the market follow the technical analysts’ predictions?
Technical analysis is a vital part of Gold Investment information, especially amongst institutional traders. The US gold market, whether it be Comex Gold Futures or gold exchange-traded funds, have dominated the short-term trends of the Gold Price itself over the bull market to date – and these markets place an overriding emphasis on the technical picture.
Major buyers follow these short-term forecasts, carefully picking to time their own actions in the light of the short-term picture. They can dominate the short-term Gold Price through their actions.
But we need to stand back to see clearly the shape of the gold market. An analogy we have often used is that the gold market is similar to the sea shore. Because you have the moment-to-moment wave action. On a daily basis, you also have two tides indicating longer term averages that influence short-term prices. Then you have the currents that completely dominate the sea. But short term, it is the noisy reactive movements of the waves that attract the most attention. While they can become frothy in reaction to the wind and extend their moves in and out every seven or so waves they are subject to the tides and currents. Tides are simply more forceful expressions of waves but currents always dictate sea moves.
The parallel in the gold market? Traders are the short-term players chasing quick profits, with larger, weightier players again chasing the bigger, slightly longer-term profits. The very biggest players, however, don’t play for profits in the gold market, but invest to retain value over the longer term.
For most of man’s history, gold has served as a reliable measure of value as true money. The currency experiment of the last 40 years has been a departure from that, but in the last 10 years we have seen the return of respect for gold amongst the biggest investors in the gold market. We believe that this respect will continue to grow, and that such investors will quietly and unobtrusively dominate the Gold Price going forward. A big dip serves them well.
So what do the three sides of the gold market tell us now?
How far still remains to be seen. But this makes the Gold Price look weak and dangerous. And in the short-term the speculators may still have their way.
What of the big long-term investors from all over the world…the sea currents? What do they feel about the Gold Price and how will they act in this market?
To see this one has to realize that the bulk of the world’s gold is not dealt inside the USA, but outside it. The US has to go there to get the bulk of its physical gold too. The loud and noisy short-term US markets such as Comex are heard all over the world, but have little real power.
For instance, if President Obama gets his way and prevents US banks from proprietary dealing (using their own money to trade markets), then their presence on New York’s Comex Gold Futures exchange will have to diminish. What is that presence now? They hold an overwhelming number of "short positions" on Comex that they will have to close. Comex has always had an extremely low number of physical deliveries taking place, for each contract represents a future delivery time and so is matched against the opposite number of opposing trades disappearing before delivery must take place.
So buying and selling simply takes net profits or losses, but usually doesn’t pay more than a 10% margin or so for the privilege. Yes, Comex should hold sufficient gold to deliver the net amount of selling over buying and vice versa, but this is a relatively small amount.
For a major bank such as J.P.Morgan to be made to deliver on its "short" contracts, this would mean that they would have to go out and Buy Gold first, so they could deliver it to the market. COMEX does not hold that amount of gold in stock. The fact that President Obama has put this on the table must have J.P.Morgan trying to cover itself and want to unload into the market. If long-term speculators take long positions in the hope that the huge short covering will take place and hold the Gold Price up, then the amount of short covering deals will far outweigh the de-hedging we’ve seen over the last few years. Is there enough gold out there for them to do that?
Now go overseas and look at the large players. Russia bought 24 tonnes of gold in December as part of a persistent buying program which we believe China is doing surreptitiously too. That’s apart from individuals from Mumbai to Shanghai, in large numbers, Buying Gold as part of their long-term savings plan. The demand for physical gold is ignoring potential interest rate rises in the US; they simply Buy Gold as financial security. And this deep current of money knows nothing of technical price action, except to look for a floor to reassure them that when they buy, the price won’t fall again.
Most of all, this long-term Asian gold investing does not buy for a future profit. The cultural difference between Western and Eastern investors is enormous and telling!
Just think of it – half the world is getting richer by the day and steadily buys gold. They ignore the day-to-day wave action and look at the tides, to get the right entry points. Like a current they are unstoppable. This type of demand, like a sea current, gives solid support to the Gold Price and ensures that the upward trend stays in place. It doesn’t chase prices and doesn’t take profits, except rarely. It absorbs supplies.
What is the future of the importance of the US futures and options markets to the Gold Price? It has to wane in the face of the current of new investment money and investment of new wealth gained from the Western developed world. Gone already are the days when it could take the Gold Price from $300 to $390 then back to $326 at their whim. Now they too, have to read the market with a vision wider than the Technical picture.
Is the gold market solid in the face of these realities? Yes, indeed, telling us that any heavy fall in the Gold Price will invite long-term investors of all shades into the gold market. Lighter falls will invite those already waiting to enter the market. The distance the Gold Price has come is relevant to a profit seeker, not one buying to hold as financial security.
Source:Gold Price Plunges