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The big picture for gold’s global supply-demand balance…

CENTRAL BANKS used to be steady of Gold Bullion, but switched in 2009 to being net buyers – as a group, worldwide – for the first time in two decades.

Here, Jason Toussaint – managing director of investments, World Gold Council – speaks to Hard Assets Investor about the outlook for central-bank gold buying…

HAI: How do you see emerging-market gold demand playing out from here?

Jason Toussaint, WGC: If we look at China, most importantly, there are two segments of the market which are important to look at: domestic citizens and their affinity towards gold, and also the central bank and government reserves. Now, when we compare China’s national reserves, they hold approximately 1.6% of their total reserves in Gold Bullion, as opposed to Western markets like the US and the UK, which hold anywhere between 65 and 80% of their assets in Gold Bullion.

The People’s Bank of China has just made statements as recently as this month that they are taking steps to make the markets more open for gold buying domestically. We will see, most likely, increased buying by the Chinese central bank, as well as domestic investors. And I think the key there – and you’ve hit it on its head – there is a very historical, very strong bond or affinity towards holding gold as an asset in the Chinese marketplace.

So what we see is that when the demographic changes from somebody who’s been, say, working outside the city and has accumulated some means of wealth, the first thing they want to do is accumulate gold. And that strong affinity is a huge factor for long-term gold demand. And that is also the same paradigm in India.

HAI: Does it worry you that this desire to boost gold reserves comes at a time when we’ve already seen a very substantial increase in the Gold Price? Adjusted for inflation, it still hasn’t surpassed the peak that it hit in 1980, thirty years ago…

Jason Toussaint: Well, times have changed, obviously. And I think one point that should be made is that central banks, before 2000, when they were selling their gold, they would basically come to the market and dump gold on the market, which would destroy confidence in the Gold Price.

So, if you were an investor and you came to the market, and then let’s say a central bank – the British central bank – comes out and sells X-hundred tons in the market in one day; you’ve just lost a lot of wealth. In late 1999, the World Gold Council was instrumental in negotiating what’s called the Central Bank Gold Agreement which Western central banks agreed to.

HAI: That limited those sales, right?

Jason Toussaint: Exactly, in terms of tonnage, but then also how they liquidate that gold on the marketplace so as to not disturb the underlying market by coming with outsized orders. It’s on its third renewal now.

HAI: Is there pressure among some of these European nations currently running deficits to sell gold as a means to cutting their debts?

Jason Toussaint: They could, but we’re not seeing that now. In fact, net-net, central banks have moved from a fairly large sustained source of supply, coming onto the market every year, to a slight six tonnes on the demand side. So in aggregate, Western central banks are slowing their selling. And then, we also have Eastern central banks. Obviously, we’ve had announcements from India, China, Maldives as well, small accumulation, that we think that trend is just continuing.

We would think that central banks may stay on the demand side for a bit of time.

HAI: On the supply side, a lot of new capital investment is going into Gold Mining production globally. How does that bode for the price picture going forward?

Jason Toussaint: There’s two things to look at there. One is what is the current rate of Gold Mining production. And, unfortunately, the older mines, the richest mines, if you will, in South Africa, some of those are three to four miles into the earth. And the ore grade that they are bringing to the surfaces is deteriorating. So, the amount of ounces per ton mined is slowing.

The other, more important aspect, is that gold is becoming even more scarce. It’s obviously a precious asset, and it has been for thousands of years. It’s becoming harder to find. So budgets, both in terms of mining itself and building new mines, is one thing. The more important factor is an explosion in exploration budgets; absolutely through the roof.

However, against that backdrop, mining, overall, is not finding new sources of gold supply. So the easy gold, if you will, has been mined off the Earth. And so it is becoming more and more precious.

One statistic I look at is, if we assume today that no further discoveries of gold are found, and we continue to mine at the rate we are mining today, we would mine all of the gold identified in 15 years.

HAI: Very informative. Thank you.

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Source:Gold Demand Up, Supply Flagging

Gold Bullion is money itself. The standard investment cycle may not apply…

WHAT IS a "bull" market? asks Julian Phillips of the GoldForecaster.

It is a market in an upward price phase, necessarily creating the expectation that it will be followed by a "bear" or downward phase. This mindset is common to all markets. Sayings like, "Everything the at goes up must come down" are standard, and taken as part of life itself.

But few examine if it is really true. Why should every asset price that goes up come down? For some years now, gold has been thought of as moving in the opposite direction to the US Dollar. So if gold goes up, only to come down, then the Dollar goes down only to come back up. Is that true?

The history of currencies in the last few thousand years tell us something quite different. Currencies have gone down and never come up again, just disappearing instead. Gold has always retained a monetary value. From the early Eighties to 1999, the Gold Price went down, and in this century has gone up. So we take issue with the saying, in the light of the history of gold.

Even though the ‘powers that be’ have tried to discredit gold and underlying money, the vast majority of central banks have retained most of their gold because they believed it to be a very valuable reserve asset.

What sort of market is gold? A very accurate saying is doing the rounds at the moment, it is that, "People Buy Gold not to make money, but because they have money to lose." This has always been true, because gold is the ultimate money! Unlike commodities, it is hardly consumed. Lost yes, but not consumed as other metals and commodities are. It is held as a measure of wealth by bankers, funds and individuals.

The gold market is important in the context of this subject too, because gold is different from any other. It comes into its own when trust breaks down, when fear rises and confidence falls. And pre-1971 it was always money. This is important because the Gold Price has been defined by a currency price since the early thirties.

Why do we say this? Before then, the price of a currency was defined by gold. Each note of currency at one time was described as the number of ounces, grains or grams it represented. It was a bill, a representation of the gold backing it. It was a gold "IOU" in short.

Then the mental switch came, somewhere in the murky monetary days between the dropping of the Gold Standard and the Nixon administration’s floating of the Gold Price four decades later. Where gold had previously backed currencies as the ultimate reserve asset, now it was priced in currency instead. But it remained the ultimate money – always accepted in extremis – unlike today’s unbacked paper.

The next question, then, is how can money be in a "bull" market? It is a misnomer because it conveys the wrong concept to investors. Gold is not in a "bull" market. It is rather money itself, and now in the long process of returning to center stage in the monetary system.

As this happens, prudent individual and institutional investors will continue acquiring it, while they can, ahead of the devaluing of un-backed currencies. We do not believe that the Gold Price is going to fall back below $300 an ounce and probably not below $1,000. Gold will not enter a bear market by falling as equity markets are prone to do today. It is not an item whose demand will fall away. We expect that once its rise does plateau at some point, it will remain at whatever level it reaches. Many do feel that the current Gold Investment demand will peter out once confidence returns to un-backed currencies. But we find it more than difficult to believe that as we watch monetary authorities from the corners of the world moving to acquire more for their long-term reserves while worrying about the future of the currencies they have in their reserves.

Central banks have started to re-acquire gold, while previous sellers of gold have stopped their disposals. Central banks are the very authorities that deemed Gold Bullion to be money before they invented un-backed currencies. As the world’s governments try to retain their international competitiveness by moving their exchange rates down, their role as a measure of value is being debauched. This gives rise to the need for something to measure currencies against.

It will happen eventually, we believe in a careful process. First we expect a basket of currencies to be used. In time, gold will be introduced into that basket, if not from the outset.

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Source:Gold: Not a Bull Market

The key factors driving Gold Prices, plus those less-important elements…

RIGHT NOW, it appears that the Gold Price is being linked to the state of global economic growth or lack thereof, writes Julian Phillips of The Gold Forecaster.

Is it? Or are there other factors that contribute to the rise in the demand for gold? A look at the different types of demand gives us perspective on the real influences on the Gold Price.

Start with China’s contribution to the Gold Price, because this week saw an announcement that China is now the second largest economy in the world as well as being the world’s largest exporter. This is a landmark announcement as this country is headed fast to be the world’s largest economy with the world’s largest foreign exchange reserves.

As a nation, we do believe China is Buying Gold, eventually for their reserves, from local production as well as in the market. Additionally, the government and its institutions are encouraging the rapidly swelling numbers of newly enriched middle classes to Buy Gold. It is hard to give you an accurate number on this because such growth has never been seen before.

But there is a brake on the relationship of the growth of this class as regards gold. The Chinese are savers and because of their skepticism, recent experience of being poor and inexperience, they are not quick to change from the simplest of saving-account deposits to other investments. But overall they are happy with gold as an investment and are moving across to it, particularly as they understand the benefits of a rising price. Their obedience to government directives is helping the process. They have the lowest per capita holding of gold in Asia. We attribute this firstly to the long history of hardly any disposable per capita in the country. This is changing fast.

The demand is not seasonal except that it reaches a high point at the Chinese New Year, a time for people to celebrate and give presents. After New York closes, Asian demand kicks in at the start of their day pointing towards Indian, Indonesian, etc. demand, including that from China. Watching the market right through to before London opens, also gives on insight into demand from there.

Please note, this demand does not take note of the state of European or US economic growth. Most Chinese gold buyers are not aware of Western economics, but want financial security through savings in Yuan and gold.

Chinese demand is going to be large enough to be a major Gold Price driver in 2010 and 2011 and beyond.

Indian demand is also crucial. The monsoon this year (south of Pakistan) has been plentiful and expectations are that the harvest will be a good one. As 70% of gold purchases used to come from the agricultural sector, this time of the year is significant still. But as India urbanizes, the seasonality of gold buying there is lessening. Because the disposable income of Indians in the countryside is limited, the tonnage of actual gold purchased by them is falling. On the other hand, the numbers of the middle class is increasing and so is their disposable income.

To a growing extent this is making up the volumes that could be bought. The volume purchased per annum has been as high as 850 tonnes but can fall to 400 tonnes a year. The monsoon has had as much to do with that alongside rapidly rising prices. Please note that this difference is the same as de-hedging demand from the major Gold Mining companies was at its height.

Although India is growing at 8% per annum, the Indian middle classes are not growing as fast as China’s middle class. The main restraint on Indian gold buying is the fear that the Gold Price will fall after they have bought it. This year we do expect them to be more enthusiastic because the Gold Price has been stable over the last year and more at around $1,200.

They usually start to buy just before or after the beginning of September. That’s in two weeks time. Indian demand goes on through the year to May of next year.

Indian demand has been a major gold demand sources and is going to be a growing force, in line with Asian growth in 2010 and for years to come. As with China, western economic growth or lack thereof, does not affect Indian demand.

Developed world jewelry demand will also play a role. With the northern hemisphere and developed world holidays slowing down to early September, manufacturers of gold jewelry there start to gear up for the year end festivities. They Buy Gold for this time in September so that it can be in the shops in November or earlier. This has, in the past been the largest source of demand for gold.

Developed world demand relates directly to developed world levels of disposable income. These are not good this year, so we expect no increase in demand from that source. Disposable income has been well down since the start of the housing crisis, which began towards the end of 2007. We don’t expect them to rise for at least one year. But the buying that will take place will begin round about the beginning of September and last through to November before it slows to the steady flow up to May of next year.

If the Gold Price does not rise by much this demand will rise in significance, but we feel that it will again be sidelined by rising prices soon.

Industrial demand, in contrast, doesn’t matter so much for Gold Prices. Intel’s recent results and following comments showed us that electronics have now joined the category of ‘necessary’ items for households and businesses. As electronics are the main use for gold in industry, we do not expect there to be any significant drop in demand from industry. Overall, industrial demand is not seasonal, but such demand is not a major factor in the Gold Price.

As for demand from Central Banks, we are of the opinion that the turn in the market, by central banks from seller to buyers, overall is a trend that has barely begun. Russia, China, Saudi Arabia, the Philippines and no doubt to be joined by others in the future, are buyers of gold. Previous sellers have now taken a firm grip on their remaining holdings. Last year central bank buying equaled over 400 tonnes.

The monetary crises that lie ahead in the next year or two will, we believe, will incite much more buying by central banks as confidence in the monetary system continues to decline.

The International Monetary Fund’s sale falls out of this category, but is a supplier at the moment. Of its 413 tonnes there remains around 150 tonnes. We expect to see this absorbed completely within one year. Once this has gone prices will rise to the point where dishoarding begins, so providing the market with supply.

Again this demand is non-seasonal. However, it not only leads investment demand, it has the capacity to absorb all available supplies. Further, once its persistent visibility is accepted, it will incite considerably more institutional investment demand. Central bank demand these days is aimed at giving central banks liquidity when its nation faces international monetary credibility problems. We expect to see this demand rise in 2010 and 2011.

Finally, Gold Investment demand. Apart from the huge demand we have seen for the shares of gold Exchange Traded Funds enormous demand for physical gold bullion has been present in the market place. It is persistent and large. However, it will not chase prices. It is professional and aims at buying certain amounts at particular prices. It ranges from small wealthy individuals through to institutions to Sovereign Wealth funds. You need to know how all these demand forces come together and impact the Gold Price!

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Source:What's Driving Gold Right Now?

Coin Update News

Chinese Gold Panda Coins Are Trending At Regal Assets PR Web (press release) Regal Gold Coins has seen a similar shift in American gold investors who are versed on global econimics. Chinese gold coins have gained in popularity over … United States American Eagle gold bullion coin price value today – Investing …Healthy Financial Habits Some Observations About the 2010 Boston ANA Coin ShowCoinLink Gold Up 1% in Week That Equities Fall 3.29%Christian Post (blog) Healthy Financial Habits -Coin Update News all 17 news articles »

Source:Chinese Gold Panda Coins Are Trending At Regal Assets – PR Web (press release)