Gold and silver rose slightly Friday (gold closed at $881.20 up $6.80 while silver closed at $13.38 up 19 cents). They were thus higher (gold by 2% and silver by 8%) for a second consecutive week which is very bullish from a technical basis and with momentum and the trend now up it looks like the sell off is over and we should reach $1,000/oz in the coming weeks.
Gold has come under pressure overnight in Asia and early European trading as the dollar has once again very counter intuitively rallied sharply for no fundamental reason whatsoever (from over 1.45 to EUR to nearly 1.43) and oil fell a further 3%. However, stock markets in Europe are plummeting again this morning and this will likely see a safe haven bid re-emerge today.
Both technically and fundamentally gold is looking as good as it has ever done and prices are set to surge in the coming months. Informed speculation is that once the election is over on November 4th we will see fireworks in these markets and a price surge akin to that seen in the late 1970s. In the four years after the election of Jimmy Carter, gold surged by more than 700% and given the confluence of even more bullish factors in this election year, we are likely to see a similar price surge.
It appears we are witnessing a broad based flight to safety internationally with increasing retail, hedge fund, institutional and even central bank buying of gold. The price would appear to be artificially capped at the $900/oz level for the moment but given the extent of the growing demand, any short term manipulations will be just that as the long term fundamentals will see markedly higher prices.
Institutional and Retail Demand to Create "Perfect Storm" for Gold
Reuters reports that 'Private banks rethinking gold, seen next big buyers.' "Private banks could be the next big buyers in the global gold market, helping drive prices higher as they consider restocking bullion bars that were sold off in calmer times, the top HSBC gold trader said on Monday.
Jeremy Charles, chairman of the London Bullion Market Association and global head of precious metals trade at HSBC Bank, also said he expected central banks around the world to put the brakes on their plans to sell down gold reserves as they see other assets deteriorate, lending further support to prices."
"I think the institutional investors and private banks in particular will all be reconsidering their strategy. My belief is they are likely to want to own some gold again, "he told Reuters on the sidelines of the LBMA's annual conference. The current generation of private bankers destocked their gold holdings in the 1980s and 1990s to pursue higher-return investments in recent years, but are now seeing the wisdom of the previous generation's gold holdings, he said.
Wisdom has been uncommon in the financial markets in recent years but that is liable to change rapidly in the coming months as deleveraging, risk reversion and the merits of a prudent allocation to the safe haven asset are realised once again.
Barclay's Capital See "Perfect Storm" for Higher Gold Prices
A near "perfect storm" has reformed in the gold market that should drive bullion to new record highs within the next six months, fuelled by a mix of anxious uncertainty and a weaker dollar outlook, a Barclays Capital official said on Monday. A reconsideration of gold's merits should propel it beyond the March record of $1,030.80 an ounce, says Jonathan Spall, a director in BarCap's commodities division. "We should be in a perfect storm for gold."
"I was always very sceptical of the argument of gold as a safe haven, but that has changed dramatically for me and for others - now it's financial institutions themselves that are under threat," he said.
$1,000 is an extremely conservative estimate and hardly a perfect storm. A perfect storm is indeed increasingly likely and would involve gold at thousands of dollars per ounce.
Institutions are Becoming Increasingly Bullish on Gold
Goldman Sachs has in recent months and days been reducing its short position on the Tokyo Commodity Exchange (TOCOM). The TOCOM is one of the few exchanges where institutional investors positions must be declared and there is transparency. Gold on the TOCOM now has the lowest net short position that Goldman Sachs has ever held in the 33 months (see chart) and informed speculation is that they may soon be net long. Interestingly and not surprisingly, GS tends to time the market well and short term lows in their short position have often coincided with short term lows in the gold price.
Citigroup are also extremely bullish due to obvious macroeconomic and systemic risk but also fears regarding a possible derivative meltdown, concerns regarding monetisation of debt and the impact that would have on the dollar and the likelihood of competitive currency devaluations. The analysts are surprised gold has not reached $2,000/oz yet and say they believe it will in the coming months.
Retail Demand Update - Bullion Premiums to Surge Further
Some of the largest wholesalers in the US and in the world are out of all bullion product except for exchange bullion product - 100 ozt and 400 ozt gold bars and 1,000 ozt silver bars.
They cannot supply South African Krugerrands, American Eagles and Buffalos, Canadian Maples, Austrian Philharmonics, Chinese Pandas, Australian Nuggets (all 1 ozt). They cannot supply 1 oz or 10 oz gold bars or 1, 10 and 100 oz silver bars and 90% and 40% silver bags. And I have confirmed they cannot sell any European or world gold coins such as British sovereigns, francs, marcs, Mexican pesos etc. etc.
Three large wholesalers have confirmed that there is little or no physical supply forthcoming from the primary marketplace - large refiners and government mints. Worryingly they are being informed that this is not a temporary problem and there are no supply side commitments and there is nothing in the pipeline for the foreseeable future due to excessive and unprecedented demand.
Secondary supply from the public and retailers is nearly nonexistent as there are nearly no sellers and nearly all are buyers.
It appears that the demand is so large for bullion internationally and increasingly from institutions that the precious metals refineries are using all their resources to create larger gold bars (used by jewellery manufacturers, high net worth individuals, institutions and central banks and thus they have greatly curtailed their production of gold and silver bars in the smaller retail investor formats (gold 1 and 10 ozt and silver 1, 10 and 100 ozt).
Thus, gold and silver prices will have to rise dramatically in the coming weeks and months in order for sellers to be incentivised to come back into the secondary marketplace in order to fill the void caused by the failure of the primary marketplace (refiners and government mints) to be able to supply the unprecedented demand.
Already premiums on bullion coins and smaller bars have increased dramatically (from low single digits to double digits) and we may be witnessing a new pricing structure whereby gold and particularly silver bullion in smaller formats always attracts a higher premium than does gold and silver bullion in large bar format.
In the same way that jewellers have massive mark-ups of hundreds of percent on their jewellery products (often only 9 and 14 carat purity), gold and silver bullion coins (22-24 carat) may soon attract a far higher premium to both buyers and sellers.
Despite the wildly bullish fundamentals, gold remains taboo in most of the financial press. It is rarely covered and when it is covered, it is done superficially and more often than not negatively and sometimes even inaccurately. Some stockbrokers and purveyors of other financial products (most of whom never predicted any of the recent financial and economic developments whatsoever and never warned of possible macroeconomic and systemic risk) have lost much of their clients’ wealth and yet continue to spout nonsense about gold.
They will be found out in the coming months and many questions will rightly be asked regarding what purported to be personal finance and wealth management advice in the coming months. Questions will especially be asked of those of who failed to inform the investment community of the very bullish fundamentals driving the gold market. Some have deterred investors from making an essential diversification into gold, one of the few asset classes that will protect and even increase wealth in the coming months.
It appears we are witnessing a broad based flight to safety internationally with retail, hedge fund, institutional and even central bank buying of gold having increased in recent days.
Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252. Registered for VAT under number 6397252A. Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator
Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors’ interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.
All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.
Fair Use Notice: This newsletter contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of financial and economic significance. At all times we credit and attribute the copywrite owner and publication.We believe this constitutes a 'fair use' of any such copyrighted material as provided for in Copyright Law. The material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for economic research purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
Mission Statement Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth. We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.
Gold and Silver Investments Ltd. have been awarded the MoneyMate and Investor Magazine Financial Analyst of 2006.
The content on this site is protected
by U.S. and international copyright laws and is the property of GoldSeek.com
and/or the providers of the content under license. By "content" we mean any
information, mode of expression, or other materials and services found on GoldSeek.com.
This includes editorials, news, our writings, graphics, and any and all other
features found on the site. Please contact
us for any further information.
Live GoldSeek Visitor Map | Disclaimer
The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy
or completeness of the information (including news, editorials, prices, statistics,
analyses and the like) provided through its service. Any copying, reproduction
and/or redistribution of any of the documents, data, content or materials contained
on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC,
is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be
liable to any person for any decision made or action taken in reliance upon
the information provided herein.