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What do May’s new closing highs for gold mean for investors in 2010…?

IT’S PRETTY RARE for gold to make a new monthly high for the year in May, let alone for all time.

But when it does (or so history suggests), new buyers might expect better-still prices come Christmas – and gold in 2010 just happened to finish May with a new record monthly close against all major currencies bar the Japanese Yen and Australian Dollar.

Only 10 previous Mays since 1968 have finished with the best monthly close of the year-so-far. More typically, the "summer doldrums" had already begun, with prices peaking in March or April, before dipping or moving sideways and then picking up as autumn drew on.

After seven of those 10 previous May highs – all but one of which (1993) came during longer-term bull runs in gold – the Dollar gold price rose again to hit new month-end highs for the year by the end of December. Overall, the average year-end gain for May’s buyers in those 10 years currently stands above 14.7%.

Note: That’s skewed by the blow-out jump of 1979 – gold’s final blow-out during its prior bull run – with a near-94% rise.

What with Bullion Vault users growing their privately-owned hoard above 20 tonnes of gold bullion last month – as well as German coin dealers being emptied, the US Mint enjoying a record month for Gold Eagles, and London’s wholesale market having to cope with a one-day purchase of 30 tonnes by the SPDR Gold Trust – it’s little surprise that May 2010 also finished with a new record high monthly close on Bullion Vault’s Global Gold Index.

Beginning at 100 on 4th Jan. 2000, the GGI prices gold against a weighted basket of the world’s top 10 currencies by GDP. The Global Gold Index thus removes currency noise and replaces it with a deeper "paper vs. metal" growl. It shows the (entirely notional) price of gold for those 2.5 billion people who account for over two-thirds of world economic activity…

As you can see, the GGI doubled between Jan. 2000 and the start of 2006, and has since doubled again. Last month, the GGI rose 5.2% from the end of April 2010.

The constituent Gold Prices – in descending order of GDP weight in the index – are shown below next to their May 2010 gains.

Most telling, perhaps, is that jump against the Euro. Long considered a serious challenger to the US Dollar’s status as world currency No.1, the Euro is in fact the world’s most heavily-issued currency…used by 330 million people across 16 of the world’s richest nations…and accounting for around one-third of emerging-market central bank reserves.

If, like Iran today and Russia last month, those Asian central banks decide to reduce their Euro exposure, they’ll no doubt raise their Dollar holdings. We’d expect them also to add a little more gold to their comparatively small stashes, too.

Buying Gold today…?

Source:Gold's Record-Breaking May

Is the Eurozone just one U-turn away from a 20-fold rise in the value of Gold…?

HAPPY SELLERS a decade ago – back when Gold hit rock-bottom – might the Eurozone states now facing financial meltdown sell gold at all-time highs to help settle their debts.

Doubt it. Here’s why…

Lumped together, the 16 Eurozone nations, plus the supra-national European Central Bank, hold almost 11,000 tonnes of gold between them. That’s more than three times the central-bank hoard in Asia (3,008 tonnes all told). It’s greater again than the United States’ world-beating stash of 8,133 tonnes.

But even at today’s record-high prices, selling the Eurozone’s entire 10,797 tonnes of gold would raised some €338bn. That’s not enough to cover the first €440 billion they’ve pledged to each other in cross-border loan guarantees. And it would barely dent the real problem – the union’s €7 trillion national debts…

Had the 16 Eurozone states, together with the ECB, placed an order through their London dealers to "sell at the Fix" on Wednesday afternoon, gold’s new record high would have helped, but not much.

Wednesday saw the London Gold Fix in Euros hit a record €974.41 an ounce. But at that price, even the Eurozone’s collective gold hoard – the world’s largest, remember –would have equaled less than 4.7% of the Eurozone’s collective  €7 trillion in debt.

Going alone, Portugal would do best (9.3%). The Big Three (of Germany, Italy and France) could settle just over 5% of their respective debt burdens.

Outside the Eurozone – but inside the EU-27, and thus exposed to the Eurozone’s debt crisis – Bulgaria and Romania (40 and 103 tonnes) might think their gold hoards better used as cash than as metal (23% and 11.5% of national debt respectively). Whereas the United Kingdom, despite being Europe’s sixth-largest gold hoarder, joins the Czech Republic, Estonia, Hungary, Ireland, Malta and Slovenia in being able to pay less than 1% of its national debts with its gold reserves.

Please note: This is all entirely frivolous, of course. Desperate leaders may do desperate things, but selling gold at a time of crisis won’t be one of them – especially when, as shown above, it would prove futile…and especially after they made a policy, a decade ago, of selling at the bottom instead.

Perhaps, as BullionVault suggested to TheStreet last week, the Eurozone might pledge its gold as collateral for IMF loans – a move that would, in fact, only accelerate the re-monetization of gold…mobilizing its value, not denting it, by pawning it rather than selling.

But to pay off Europe’s debts in full, the Gold Price in Euros would need to reach above €20,344 an ounce. And such a 20-fold gain would most likely mean the ECB had taken that final U-turn, agreeing to swap newly-printed money for government bonds and thus devaluing the currency to devalue its debt.

The equivalent Dollar gold price, by the way, needed to settle the US Treasury’s debts with its current gold hoard, would be $47,080 an ounce. And again, selling gold to repay the national debt would require the same expedient first:

Runaway inflation in Gold Prices, fuelled by ever-more money creation.

Ready to Buy  Gold…?

Source:Selling Gold to Save the Euro

Emerging-market nations hoarded new gold reserves at a near-record pace in 2009…

SEEING WASHINGTON’S belligerence over how Beijing pegs the price of its Yuan, three unsettling facts are buried amongst the latest central-bank gold data compiled by the World Gold Council…

• Central banks worldwide grew their physical gold reserves at the fastest pace since 1965 in 2009, adding bullion for the first time in two decades as a group;
• Emerging economies added a near-record volume of metal to their official reserves, putting more than 21% of all the gold held by sovereign states outside the control of developed-world OECD members;
• Western central banks, in contrast, shrank their reserves by more than 1% last year. Since the end of 2004, they have sold almost twice-as-much gold as non-OECD members have acquired (1881 vs. 994 tonnes).

As the gold-bug’s Golden Rule says, "He who has the gold makes the rules" – an historic fact proven by the United States’ own dominance of world finance and politics since the end of WWII.

And now that Congress is threatening trade sanctions against China for under-valuing its currency, the Yuan, Washington might want to take note of how its Dollar came to be the world’s No.1 currency.

Last year marked a "changing pattern" says the World Gold Council, pointing to slower West European sales and "accelerating" purchases by emerging-economy states.

But even noting Moscow’s frantic expansion of its gold reserves – primarily bought from domestic mine output, and taking Russia to 9th position in the sovereign league table – the WGC’s comments underplay the deeper, political shift of monetary intent, if not power.

In full-year 2009, emerging-economy states grew their reported reserves by 17.8%, adding 868 tonnes of bullion to build a new record hoard of 5738 tonnes. Yes, China’s announcement in April that it had added 454 tonnes to its reserves over the previous six years accounted for a big chunk of that move. But Beijing and the Kremlin weren’t alone in Buying Gold. By the end of 2009, non-OECD members held half-as-much gold again as they did on average over the previous six decades.

Trying to force fresh Dollar-devaluation on today’s Treasury bond holders is only likely to spur this underlying trend still further.

Ready to Buy  Gold…?

Source:"He Who Has the Gold…"

How 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

How 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