Gold Tops $1,800 in N.Y. as Europe Crisis Spurs Investor Demand
Nov. 8 (Bloomberg) — Gold futures topped $1,800 an ounce for the first time in almost seven weeks on concern that European leaders will be unable to contain the region’s debt crisis, fueling demand for the precious metal as a haven.
Italian Prime Minister Silvio Berlusconi failed to muster an absolute majority on a routine parliamentary ballot today, fueling more calls for his resignation. Federal Reserve Chairman Ben S. Bernanke signaled more monetary stimulus may be needed to cut unemployment, while the European Central Bank last week unexpectedly lowered interest rates. Gold has rallied more than 11 percent since the end of September.
“The turmoil in Europe has brought the fear trade back to gold,” Lance Roberts, the chief executive officer of Houston- based Streettalk Advisors, said in a telephone interview. “Also, a renewed wave of policy easing by central banks is helping gold.”
Gold futures for December delivery rose 0.5 percent to close at $1,799.20 an ounce at 1:47 p.m. on the Comex in New York, after touching $1,804.40, the highest since Sept. 21. Prices fell to $1,785.70 in after-hours trading.
Earnings growth in Europe will stagnate in 2012 as governments rein in spending and banks shrink their balance sheets, according to Gary Baker, the London-based head of European equity strategy at Bank of America Corp.
“Fundamentals are stronger than before, with the EU crisis more complicated than before,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report. “Retracements and corrections are possible as we climb above $1,800, but stay invested.”
Extended Rally
Berlusconi offered to resign as soon as Parliament approves austerity measures in a vote next week, Italian President Giorgio Napolitano said tonight in an e-mailed statement after meeting Berlusconi in Rome.
Bullion is in the 11th year of a bull market, and futures reached a record $1,923.70 in New York on Sept. 6 as investors sought to diversify away from equities and some currencies. The precious metal has gained 27 percent this year.
Silver futures for December delivery advanced 0.9 percent to close at $35.153 an ounce on the Comex, rising for the second straight day.
On the New York Mercantile Exchange, platinum futures for January delivery rose 0.9 percent to $1,673.10 an ounce. Palladium futures for December delivery climbed 2.3 percent to $677.25 an ounce.
-With assistance from Phoebe Sedgman in Melbourne, Adam Haigh and Nicholas Larkin in London. Editors: Steve Stroth, Daniel Enoch
To contact the reporter for this story: Debarati Roy in New York at [email protected].
To contact the editor responsible for this story: Steve Stroth at [email protected]
By Debarati Roy
Source: http://www.businessweek.com/
Recent sell-off sets up next gold rally
The following is a guest post by Lawrence Carrel, author of “ETFs for the Long Run” and “Dividend Stocks for Dummies.” The opinions expressed are his own. Full disclosure: The author has had 7 percent of his personal retirement account in a gold ETF for the past four years.
When the price of gold plunged 20 percent last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally.
“I can tell investors don’t sell off your gold,” says Martin Murenbeeld, the chief economist at DundeeWealth. “We’re at a crossroads here.”
During the summer, gold surged 29 percent to a record high of $1,920 a troy ounce. This jump caused the price to drastically detach from its 200-day moving average, an important trend line in technical analysis that the gold price had closely hugged for much of the last decade. Technical analysts considered this jump unsustainable and in September gold gave back most of these gains.
Gold fell to a low of $1,534.49, much to the technicians delight, and it bounced off the 200-day moving average’s support level of $1,527. While most gold watchers expect the metal to experience turbulence during the next few months, the world hasn’t changed much, and gold prices may climb higher because of its status as a safe-haven during turbulent times.
“Have the countries around the world solved the debt crisis?” asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. “Have the bailouts ended? Have their currencies stopped tanking?“ With the world already worried about Greece’s fiscal problems, gold summer’s rally was sparked by fears that the U.S. might default on its debt.
After Standard & Poor’s downgraded the U.S. debt, investors flocked to gold as one of the few safe havens left. This raised the specter of recession, which is never good for gold. The combination of increased collateral requirements for trading with falling commodity and stock markets, gold tumbled as investors sold it for liquidity amidst a flurry of margin calls.
Still many analysts think the gold market isn’t in a bubble and that the run-up is far from over. Analysts say a bubble is when an asset goes up exponentially 15 to 20 times.
Gold is up seven times during the last decade. Since its low on Sept.26, 2011, gold has jumped 9 percent. Most analysts expect the price to retest September’s low during the next few months. If it bounces again that would be the buy signal.
Ed Carlson, Chief Market Technician at Seattle Technical Advisors.com says gold could fall as far at $1,460. But even Carlson predicts a new sustained advance will begin after Thanksgiving.
The fundamental factors for being bullish are also compelling. Low interest rates are very good for gold. In August, the Federal Reserve promised to keep rates low for the next two years. Additionally, most analysts expect the European Central Bank (ECB) to stem the European debt crisis with a flood of new money.
“The relationship between gold and world liquidity is very direct,” says Murenbeeld. “If countries print money gold goes up.” Murenbeeld says there is a high probability that the ECB and the European System of Financial Supervisors (ESFS) will insert a significant amount of money into the system, anywhere from 1 trillion euros to 2 trillion euros.
“This liquidity will stabilize the banking sector so that it can withstand a default from Greece and speculation of default from other countries. All that plays into the hands of gold.” Murenbeeld recommends investors use a dollar cost averaging strategy here. “When they do the bailout that will dilute the currency, “ says Barisheff.
“The governments will be forced to print more money because politically that’s the least painful thing to do. And as they do the price of gold goes up.”
However, Barisheff warns that it’s easy for governments to lose control of their currency, which can send a country into hyperinflation. He says gold will stop rising when governments institute sustainable economic policies, but if inflation isn’t controlled, gold could rise as high as $10,000 in five years. “And there is no appetite to do anything sustainable.”
China’s Rare Earths Monopoly - Peril or Opportunity?
September 30, 2011 (Source: Market Oracle) — The prosperity of China’s “authoritarian capitalism” is increasingly rewriting the ground-rules worldwide on the capitalist principles that have dominated the West’s economy for nearly two centuries.
Nowhere is this shadow war more between the two systems more pronounced than in the global arena of production of rare earths elements (REEs), where China currently holds a de facto monopoly, raising concerns from Washington through London to Tokyo about what China might do with its hand across the throat of high-end western technology.
In the capitalist West, as so convincingly dissected by Karl Marx, such a commanding position is a supreme and unique opportunity to squeeze the markets to maximize profits.
Except China apparently has a different agenda, poking yet another hole in Marx’s ironclad dictums about capitalism and monopolies, further refined by Lenin’s screeds after his Bolsheviks inadvertently acceded to power in 1917 in the debacle of Russia’s disastrous involvement in World War One. Far from squeezing its degenerate capitalist customers for maximum profit (and it’s relevant here to call Lenin’s dictum that if you want to hang a capitalist, he’ll sell you the rope to do it), Beijing has apparently adopted a “soft landing” approach on rare earths production, gradually constricting supplies whilst inveigling Western (and particularly Japanese) high tech companies to relocate production lines to China to ensure continued access to the essential commodities.
REEs are found in everyday products, from laptops to iPods to flat screen televisions and hybrid cars, which use more than 20 pounds of REEs per car. Other RRE uses include phosphors in television displays, PDAs, lasers, green engine technology, fiber optics, magnets, catalytic converters, fluorescent lamps, rechargeable batteries, magnetic refrigeration, wind turbines, and, of most interest to the Pentagon, strategic military weaponry, including cruise missiles.
Technology transfer is the essential overlooked component in China’s economic rise, and Beijing played Western greed on the subject like a Stradivarius, promising future access to China’s massive market in return, an opium dream that rarely occurred for most companies. You want unimpeded access to Chinese RREs? Fine – relocate a portion on your production lines here, or…
Which brings us back to today’s topic.
Rare earths and investment – where to go?
China is riding a profitable wave, which depending on what figures you read, produces 95-97 percent of current global supply, and unprocessed raw earth earths ores are currently going for more than $100,000 a ton, or $50 a pound, which some of the exotica fetching far more (niobium prices has increase an astounding 1,000 percent over the last year). Rare earth elements like dysprosium, terbium and europium come mainly from southern China.
According to a United States Energy Department report, dysprosium, crucial for clean energy products rose to $132 a pound in 2010 from $6.50 a pound in 2003.
The soaring prices however have also invigorated many countries and producers to begin looking in their own back yards, for both new deposits and former mining sites that were shuttered when production cost made them uneconomic before prices went through the ceiling.
However, a number of unknown factors play into developing alternative sources to current Chinese RRE production. These include first prospecting possible sites, secondly, their purity and third, initial production costs, where modest Chinese labor costs are a clear factor.
The 17 RRE elements on the Periodic Table are actually not rare, with the two least abundant of the group 200 times more abundant than gold. They are, however, hard to find in large enough concentrations to support costs of extraction, and are frequently found in conjunction with radioactive thorium, leading to significant waste problems.
At hearings last week before U.S. House of Representatives Committee on Foreign Affairs Subcommittee on Asia and the Pacific, Molycorp, Inc. President and Chief Executive Officer Mark A. Smith stated that his company was positioned to fulfill American rare earth needs, currently estimated at 15,000-18,000 tons per year, by the end of 2012 if it can ramp up production at its Mountain Pass, California facility.
Which brings us back to foreign producers. A year ago Molycorp announced that it was reopening its former RRE mine in Mountain Pass, Calif., which years ago used to be the world’s main mine for rare earth elements, filing with the SEC for an initial public offering to help raise the nearly $500 million needed to reopen and expand the mine. Low prices caused by Chinese competition caused the Mountain Pass mine to be shuttered in 2002.
Mountain Pass was discovered in 1949 by uranium prospectors who noticed radioactivity and its output dominated rare earth element production through the 1980s; Mountain Pass Europium made the world’s first color televisions possible.
Molycorp plans to increase its capacity to mine and refine neodymium for rare earth magnets, which are extremely lightweight and are used in many high-tech applications and intends to resume production of lower-value rare earth elements like cerium, used in industrial processes like polishing glass and water filtration.
In one of those historic economic ironies, China was able to increase its RRE production in the 1980s by initially hiring American advisers who formerly worked at Mountain Pass.
The record-high REE prices are also underwriting exploration activities worldwide by more than six dozen other companies in the United States, Canada, South Africa, Malaysia and Central Asia to open new RRE mines, but with each start-up typically raising $10 million to $30 million, not all will succeed. That said, the future is bright, as almost two-thirds of the world’s supply of REEs exists outside of China and accordingly, China’s current monopoly of REE production will not last.
So where do investors look to cash in on the RRE boom?
First, do your homework.
Exhibit A is Moylcorp, which would seem to be in unassailable position as regards U.S. production, but which nevertheless on 20 September after JPMorgan Chase & Co. lowered its rating of the company, citing declines in rare-earth prices, causing its stock to plummet 22 percent in New York Stock Exchange composite trading, despite being the best-performing U.S. IPO in 2010 after beginning trading in July, more than tripling after rare-earth prices soared as China cut export quotas.
Is there money to be made in RREs?
Undoubtedly – but the homework for the canny investor needs to extend beyond spreadsheets to geopolitics, mining lore, chemistry and Wall Street puffery. That said, it seems likely that whatever U.S.-based company can cover the Pentagon’s RRE requirements is likely to see more than a minor boost in its bottom line.
Gentlemen, place your bets – but do your homework first.
Gold and Silver Imports in India Surge 222% Amid Worry Over Currency Devaluation
Gold was marginally higher in most currencies Tuesday and on the verge of making new nominal highs in dollars, euros and pounds.
It is holding near record highs as there is no quick end in sight to economic turmoil in Europe after Greece was told to approve brutal new austerity measures to avoid defaulting on its debt. This would threaten the solvency of many western banks and the European Central Bank’s Fernandez Ordonez (member of the ECBâs governing council) warned Tuesday morning that the Greek crisis could have “transcendent consequences”.
Further evidence of continuing very significant and robust demand from Asia and from China and India in particular was seen in massive Indian gold and silver imports. The figures released overnight showed a huge surge of 222% in May 2011, compared with May 2010.
Cross Currency Rates
Imports of gold and silver were a staggering $8.96 billion in May, a growth of 500% over the previous month and 222% over last year.
Official inflation rates in India have surged to 8.65% and people on the Indian sub continent are concerned about the devaluation of the rupee and the erosion of the purchasing power of their savings.
While the rupee has maintained its value against the beleaguered U.S. dollar it has fallen sharply against gold and silver and against oil and the other food and energy commodities.
Gold has always been seen as a store of value against currency debasement, inflation and hyperinflation in Asia. This is especially the case in India and we appear to be witnessing an acceleration in the recent trend of Indians opting to buy gold and silver bullion in order to protect their savings.
India’s central bank, the Reserve Bank of India, bought 200 tonnes of gold from the IMF in the months preceding an announcement in November 2009. Given its huge dollar reserves it is likely that it is continuing to diversify foreign exchange holdings and further announcements of increased gold reserves are likely in the coming months.
Despite the increase in reserves its gold holdings remain paltry when compared with the U.S. and European gold reserves.
Most creditor nation central banks in the world are now diversifying out of the major currencies, the dollar and the euro, and into gold. These include the People’s Bank of China, the Russian central bank and central banks in Sri Lanka, Bangladesh, Mauritius, Mexico, Iran and Saudi Arabia.
News came Monday that Russia’s central bank again increased its gold holdings to 26.7 million troy ounces last month, from 26.5 million at the end April. The Bank of Rossii said its gold reserves were valued at $41 billion as of June 1, compared with $40.7 billion a month earlier.
It is interesting that the Reserve Bank of India has granted licenses to seven more banks to import gold and silver bullion and this is indicative of the favorable view of gold and silver in India â both amongst the public and at the official level.
Indian banks are thus likely contributing to the massive increase in demand for gold and silver. Chinese banks are also catering to the increased demand of Chinese people for gold bullion for investment and savings purposes.
This is in marked contrast to their western banking counterparts, the vast majority of which, do not offer gold or silver investments at all.
As of the start of 2011, some 30 banks in India have been granted permission to import gold and silver. New additions to the list were Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore.
Since the start of 2011, India’s benchmark stock index, the Bombay Stock Exchange Sensitive Index, is down by more than 14% while gold in rupee terms is up 9%. The Sensex is essentially flat in the last year and the last 3 years despite soaring inflation.
The increased demand from India and wider Asia is sustainable and one of the fundamental reasons that gold and silver’s bull market remain very much intact.
Importantly, China was expected to surpass India as the world’s largest gold importer this year. After the most recent Indian import figures this is now not certain.
Chinese investors more than doubled their purchases of gold during the first quarter in 2011, compared with the same period last year. China invested $4.1 billion into gold bars and coins during this first quarter of 2011.
China’s investment demand increased to 90.0 metric tonnes (40.7 tonnes in the year prior), compared with India’s 85.6 tonnes.
Gold in Australian Dollars Breaking Out?
In a report Tuesday, the Australian Bureau of Agricultural and Resource Economics and Sciences conservatively estimated that bullion may average $1,500 an ounce this year. The metal has averaged $1,445 so far in 2011.
“Uncertainty about the ability of many developed economies to stimulate economic growth and control growing budget deficits is expected to encourage investment demand for gold as a lower risk, or safe haven, asset,”, the Canberra-based agency said.
Despite some calling the Australian dollar a “safe haven” currency, the Australian dollar has been sold recently and gold appears to be in the early stages of breaking out in terms of Australian dollars.
This is another indication of the global nature of gold’s bull market and the fact that all fiat currencies are now vulnerable to currency debasement and devaluation. Focusing on gold solely in U.S. dollar terms remains simplistic and misleading.
Gold’s consolidation in recent months in all currencies and gradual gains since late January suggest that we may be on the verge of a break out in all currencies and a powerful move upward in the next leg of the precious metal bull markets.
Why China’s Rare Earth Metals Matter
For several months, I have alerted readers to the potential supply crisis of critical rare earths (REMX), which are used in our most vital defense technologies (ITA) and high tech industries (QQQQ). The recent volatility in the equity markets have caused many investors to flee rare earth mining stocks in search of safe havens in gold (GLD) and long term treasuries (TLT). This trend should be transitory in nature. We may see a strong rebound in many of these rare earth stocks once the uncertainty regarding the ending of QE2 winds down.
The latest Chinese data indicate that rare earth exports are continuing to drop by more than half compared with last year’s output. In April, China exported only 1,819 tons of rare earths, a shortfall of 53% from the previous year.
High tech manufacturers outside of China must look elsewhere to satisfy their rare earth needs. Rare earth prices are soaring, but the rare earth mining stocks are not reflecting the elevated prices yet. This phenomenon will not last long as institutions will begin catching on to the divergence between rare oxide prices and undervalued rare earth miners. Prices are soaring, rising almost ten times in the past year, forcing manufacturers in Japan, South Korea, the United States and Europe to search for future supply for their survival. This should be a bonanza for rare earth developers down the road, once manufacturers dip their toe into the water and acquire some of these vital assets. Once one does, we may see a domino effect of consolidation. It’s within the realm of possibility that cash-rich manufacturers will be compelled to enter agreements and alliances with global sources of supply and potential miners.
It’s time for the affected industrialized nations to do their own heavy lifting in providing these vital elements so necessary for the very survival of their manufacturing base. We are talking here of an emergency process, which will take time to develop from mining to manufacturing. Advanced nations must think of urgent measures such as developmental fast tracking, financing and legislative expediting to bring these projects to fruition.
Noises are being made about taking China to court, namely through the World Trade Organization. It is questioned whether such a resort to complicated and lengthy legal procedures can be successful. Time is truly of the essence. Whether the proposed case has merit or not, modern industrialized nations must seize the high ground and move rare earth mining forward.
Development of the rare earth initiative is long past due. The Department of Defense requires it and the high tech industry demands it. The West has the expertise and the capability of recapturing the base that was once ours and was co-opted by the Chinese.
June 7, 2011 By Jeb Handwerger