Gold eases to one-week low on greenback strength
Wednesday, June 23rd, 2010Gold futures fell to a one-week low on speculation the US dollar’s rally will erode demand for the precious metal as an alternative asset.
Posts Tagged ‘Greenback’
Gold: Inflation-Proof Deflation Hedge
Monday, May 24th, 2010The case for inflation-proof gold amid asset-price deflation…
USELESS for pretty much everything except storing wealth (its economic value is social, not industrial), gold acts as inflation-proof money when investors need it most – right in the middle of an asset-price deflation.
Or at least, that’s how people choosing to Buy Gold amid today’s global deflation in risk assets see it. Why else do you think German coin and small-bar dealers are being emptied, even at 5% (and worse) premiums to "melt" value? Why else did gold-hoarding deliver secure, rising purchasing power amid the Great Depression of the 1930s…?
Given central banks’ default response to any level of financial stress, it’s a unique and appealing attribute. Because rather than leaving cash hoarders alone, sub-zero real rates of interest – plus the ever-present threat of massive devaluation – force sleepless nights on cautious savers. (The risk of banking collapse is an extra, but non-government-inspired threat.)
So when there’s a dash for cash, it’s little wonder that "worried wealth" finds gold better even than Dollars. Because gold cannot be inflated, nor destroyed. And it has 5,000 years of human use as a secure store of value behind it.
Yes, this month’s flight from everything into cash (which still means US Dollars worldwide) has knocked the Gold Price 6% off its recent record high vs. the greenback. But compared with all other assets bar Treasuries, however, gold shows phenomenal strength so far. Oil is down 20%. Platinum is 15% off. Aussie Dollars have dropped 10%, despite paying 450 basis points above cash deposits at the US Fed.
And should the slump continue, investment demand for physical gold is likely to put a floor under gold prices much sooner than other "risk assets" find their floor, just as it did during the Lehmans Crash…
Amid financial stress, physical gold hoarding creates a source of deep and widening demand that no other asset class enjoys. Not even silver comes close, because institutional and high-net worth buyers would rather get gold’s significantly deeper wholesale liquidity and much lower storage costs.
Indeed, it’s hard to class all "precious metals" together – in terms of price behavior – when the inevitable hits the fan.
Gold, unlike platinum and Silver, commands a "safe haven" premium that industrial commodities can’t – a critical point when credit dries up and risk assets are converted back into cash.
Compare gold’s price-action with any other raw material, in whatever currency. When confidence and economic demand sink, gold attracts capital. Whereas crude oil, copper, soybeans, even silver and platinum…they’re all vulnerable to risk aversion, because their bull markets tend to rely on economic growth, whether or not it’s fed by money-supply inflation.
Gold, in short, is not merely the "inflation play" that most analysts and journalists think (if, indeed, they’re thinking at all). Hoarding physical metal may not seem a "sophisticated" reaction to current events. Hedging your move into cash may not even outperform an all-Dollar position, short or long term. But it is perfectly normal, historically evidenced, and sane response.
It also remains a minority sport at present.
Looking to Buy Gold today? Make it simple, secure and cost-effective by using BullionVault…
Gold-Oil Ratio Redux
Saturday, May 22nd, 2010Priced in gold, a barrel of oil is sinking fast…
AREN’T GOLD and oil both measures of inflation? asks Brad Zigler at Hard Assets Investor.
Because if so, then why is gold up and oil down? Shouldn’t the gold-oil ratio – the cost of one ounce in barrels – stay pretty static?
Well, generally speaking – and that’d be very generally indeed – gold and oil do move in tandem. But wrinkles in the relationship develop because of differing fundamentals and because of differing fears. As the gold oil ratio shows, we’re living in a fear-driven market now and that’s where gold really, um, shines.
As the Greek debt crisis unfolded and fear of Continental contagion spread, capital streamed to safe-haven investments like the greenback and gold. Meanwhile, the prospect of a further meltdown in aggregate demand tilted an already-glutted oil market – for WTI crude, at least – downward.
Put simply, oil got cheap, not only in Dollars, but also in terms of Gold Bullion. Recently, as the gold-oil ratio below tells us, an ounce of gold could buy as few as six barrels of crude to as much as 25 barrels…
The gold-oil ration’s most recent high followed six months of frantic de-leveraging and was itself followed by basing at the 14-times level as economic fixes were instituted and fears eased
Take a look at the chart, though. We’ve had a vertical ascent in the ratio this month. We’re pushing on the 18-times level now.
The question for traders is whether this is a repeat of the late-year 2008 move or just a short-term blip.
The consensus – a thoroughly unscientific poll as it happens – seems to line up with the blip notion. For now, at least.
Source:Gold-Oil Ratio Redux
Global Gold Index – Higher Again
Monday, April 5th, 2010The world’s top 10 currencies have dropped 75% vs. gold in the last 10 years…
WE’VE SAID IT BEFORE, but that’s never stopped us saying anything again in the past.
The bull market in gold starting 10 years ago is about much more than the Dollar – a fact that investors and savers worldwide might want to consider in 2010 if the US currency continues to rally.
And given G7 interest rates averaging 0.4% too (on Reuters‘ maths), gold looks likely to keep drawing strong bids worldwide, too.
BullionVault’s Global Gold Index tracks the price of gold against the world’s top 10 currencies.
Weighted by each issuing state’s GDP, its 2010 make-up is based on the latest IMF forecasts. Meaning that the basket is led, as always, by the US Dollar (32%), with the Euro (27%) in second place. Behind that, China (12%) overtakes Japan (11%, down from 18% a decade ago) for the first time this year.
The GGI then includes the price of gold in British Pounds (5%), Russian Roubles (3%), Brazilian Real (3%), Canadian Dollars (3%), Indian Rupees (3%) and finally Mexico Pesos (2%)…thus covering well over two-thirds of the global economy and more than half its population.
Its value? Think of the GGI as gold minus the noise. The index is significantly less volatile on a daily basis than the Gold Price in Dollars, Euros or Sterling alone. It shows you what’s happening to the price of metal overall – rather like you might track the Dollar Index to see how the greenback’s doing – instead of focusing solely on one single pairing.
And it’s telling us…?
- The GGI outperformed global equities in Q1, rising 4.28% from the close of 2009. The MSCI Barra World Index (local prices) added 4.16%;
- The index has yet to fall for two consecutive quarters since the start of 2000;
- To date, the GGI shows the world’s money en masse shedding very nearly three-quarters of its value in gold since the start of 2000.
Our guess here at BullionVault is that this loss of purchasing power in cash and bank-savings worldwide would require strong, positive real rates of interest – after inflation – to reverse it.
Our second guess? There’s fat chance of that worldwide anytime soon.
Looking to Buy Gold today? Make it simple, secure and cost-effective by using BullionVault…
China's Gold Investment
Sunday, March 14th, 2010How can China build its gold reserves if it doesn’t Buy Gold…?
"A FEW FACTORS limit our ability to increase [our] Gold Investment," said China’s chief foreign exchange manager, Yi Gang, in a speech this week, notes Steve Sjuggerud in his Daily Wealth email.
Western investors have long speculated China will start Buying Gold and selling its hoard of US Dollars at some point. (China’s hoard could be literally trillions of US Dollars.) It would be the first step in a "Doomsday" scenario for the greenback.
Just imagine – China trades in its Dollar reserves for Gold Bullion. The value of the Dollar crashes…and US interest rates soar, as China is no longer willing to buy US government Treasury bonds.
Some investors have said China has a perfect way to do it, available right now. The International Monetary Fund (the IMF) has a near-200-tonne hoard of gold that it wants to unload.
But if China actually used all its Dollar reserves to Buy Physical Gold, it would completely overwhelm the market. It would end up trying to buy about a third of all the gold ever mined in the history of the world. There’s no way it could get all that gold without sending the price to outrageous levels.
It seems Mr. Yi recognizes that. He essentially said gold is too volatile, the historic returns aren’t that great, and any gold buying by China would "certainly" increase Gold Prices.
If Mr. Yi is to be taken at his word, in short, China doesn’t have plans to Buy Gold in the open market. And Mr. Yi’s comments are in line with recent comments from the China Gold Association, who told the China Daily newspaper that it is "not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility."
So how would China acquire gold if it doesn’t buy it? This is where it gets interesting…
An official from the China Gold Association told the China Daily that rather than acquiring Gold from the IMF, China would Buy Gold directly by buying gold mines "abroad". Rather than buying physical gold in the open market (where China would be the 800-pound gorilla in the room), China plans to buy future production instead.
If that’s true (and there is some sense to it), then how should you play it? Dennis Gartman reported on this yesterday, in his Gartman Letter:
Perhaps we are to begin owning gold mines rather than Gold Futures or Gold ETFs. We have avoided owning mines for years, preferring the "purer" play of owning gold rather than the mines, for we fear being exposed to poor mine management, or accidents in a mine that might do damage to the equity while gold itself moves higher. But if the Chinese authorities want to own mines, perhaps we have to consider doing so also…
I’ve done more than consider buying Gold Mining companies. In the latest issue of True Wealth, my subscription newsletter, I recommended Buying Gold mines as the best way to have exposure to gold right now.
The reason is simple. This chart sums it up…
Gold is up 70% since the summer of 2006. Meanwhile, gold stocks (as measured by the Gold BUGS Index) have done nothing.
Usually, a 10% move in gold would mean a 20% move in gold stocks. But this relationship broke down in the financial crisis. Now, either the price of gold needs to crash… or the price of gold stocks needs to soar to correct this anomaly.
The timing might be just right. Gold mining stocks are down, and it’s just coming to light that the Chinese authorities could prefer acquiring gold mines – which give the country a permanent supply – over Buying Gold in the open market.
Building your personal gold reserves today? Make it cheap, safe and simple by using BullionVault…
Source:China's Gold Investment