31
May
2012

Gold Rises $40 As Markets Fall Sharply – Safe Haven “Tipping Point”?

Gold’s London AM fix this morning was USD, EUR, and GBP per ounce.
Yesterday’s AM fix was USD 1,548.75, EUR 1,244.98, and GBP 995.41 per ounce.

Gold rose 0.38% or $6.00 in New York yesterday and closed at $1,564.80/oz. However the 0.38% gain does not convey the positive price action. This saw gold fall initially in unison with risk assets such as equities and commodities – including oil.


Gold in USD – 3 Day (Tick) – Bloomberg

Gold fell and tested support at $1,530/oz but then bounced very sharply and rose by nearly $40 from $1,532/oz to $1,570/oz. US stocks and commodities remained under heavy pressure and the benchmark S&P 500 ended down 1.43%.

Gold consolidated on yesterday’s gain in Asia and during European trading it is challenging resistance at $1,570/oz.Gold is set to incur its 4th month of losses which has not been seen in nearly 13 years. Interestingly while gold in dollar term is off 6% in May, the sharp fall in the euro means that gold has again risen in euro terms and is up 0.3% in euro terms in the month.

Meanwhile, stocks and commodities have had a torrid month with sharp falls seen and gold outperforming nearly all major equity indices.

Thus despite the continuing questioning of gold’s safe haven status by the less informed, gold was again a safe haven to investors in May – especially those in the Eurozone who are currently most in need of a safe haven.

Yesterday may have been a form of ‘tipping point’ for gold whereby it again starts to display its safe haven status as it did soon after the initial price falls at the time of the Lehman financial crisis.

The trading fundamentals look increasingly sound. The COT data is very bullish from a contrarian perspective with the net long position extremely low. Also, the large commercial traders are aggressively covering their gold and silver shorts which is always a good indication that the precious metals are close to bottoms.

Gene Arensberg of the Got Gold Report says that the COT data “suggests that dips for gold and silver should be exceedingly well bid just ahead.  Indeed, the structure of the COT is about as bullish as we have seen it for silver futures.”

The supply demand fundamentals remain very sound with gold demand expected to exceed supply again this year, according to the World Gold Council who have said that gold has bottomed or close to bottoming.

Gold will extend annual gains for a 12th year as bullion is “near” a bottom and demand will keep exceeding mine output, according to the World Gold Council.

Mine production will grow 3% this year from last year’s 2,800 metric tons, while demand may be unchanged or slightly lower from a record 4,400 tons, said Marcus Grubb, managing director of the WGC in an Bloomberg interview in Tokyo.

Mine supplies will remain in a deficit “for a foreseeable future,” Grubb said. 


Gold in USD – 2 Year (Daily)- Bloomberg

Bullion is “near to the bottom at current prices, indicating gold will move back up again,” he said. Recycling has risen to make up for the gap between demand and mine output, he said.

 “Some of the drivers of the increase in demand are structured, central banks for example, the rise of Chinese demand and the wealth increase in Asia, including India and China as well as smaller economies,” he said.

Central banks have increased gold purchases on concern about the dollar, the euro and the sovereign debts, Grubb said. The banks’ net purchases last year were the most since 1964. In 2010, they turned to a net buyer for the first time in 15 years.

About 50 percent of annual demand comes from India and China alone, Grubb said. “China is clearly the No. 1 market in 2012,” he said. Average world mine production costs are estimated at $960 an ounce, he said.

China’s demand, which rose to a record 255.2 tons in the first quarter, may gain to between 900 tons and 1,000 tons this year, from 769.8 tons in 2011, Albert Cheng, Far East managing director at the group, said May 17. Indian usage may be between 800 tons to 900 tons, from 933.4 tons, he said.

With the supply and demand fundamentals remaining sound and the trading fundamentals looking better by the day, gold’s bottom may have been seen or will likely be seen very soon.


Cross Currency Table – Bloomberg

Ireland’s government is confident of victory in today’s eurozone fiscal pact referendum as secret official polling forecasts more than 60% of Irish voters will tick the Yes box.

Polling stations will close tonight after the only popular vote to be held in the 25 European Union countries that have signed up to a treaty that enshrines eurozone austerity rules into national law and cedes budgetary and economic power to the European Union.

After a quiet but bad-tempered campaign government and European Union officials are hoping that widespread Irish fears of tougher times ahead if voters say No will beat popular anger over austerity measures demanded in return for EU loans.

Campaigners against the eurozone treaty have accused the government of scare tactics, including claims that a No vote would lead to a Greek-style banking collapse, cause a tripling of the country’s borrowing costs and plunge the country into national bankruptcy by 2014.

While a no vote is not expected, it is worth remembering that a no vote was not expected for the Lisbon or Nice treaties either and the Irish people voted no.

A no vote could create short term volatility in financial markets however the referendum’s outcome is of little significance to global markets as the Troika (ECB, EC and IMF) are likely to continue with their existing plans for Ireland no matter which way Ireland votes. 

Ireland, like many European countries, needs to burn European and international bank bond holders if it is to have achieve financial and economic recovery. This is the real issue facing the Irish people and one which is not addressed in the Treaty.

Market watchers await China’s Purchasing Manager’s Index on Friday, while US Q1 GDP figures and a US employment report out today will give a clue as to the state of the two largest economies.

OTHER NEWS

(Bloomberg) — Gold Limits Einhorn Loss, Draws in Investors 

David Einhorn’s emphasis on gold is not only attracting investors to his hedge funds at Greenlight Capital Inc., but also limiting his losses this quarter even though the metal’s price has fallen.

The CHART OF THE DAY illustrates this year’s performance of Greenlight’s five largest publicly disclosed holdings at the end of March, which Einhorn mentioned two days ago in a letter to investors. The precious metal was among them.

Gold for immediate delivery was 6.3 percent lower for the quarter as of yesterday. Only one of the firm’s other four top holdings — Apple Inc., the maker of iPhones and iPads — fared better. Shares of the Cupertino, California-based company had a 3.4 percent loss.

The performance contrasted with the first quarter, when all four stocks exceeded Greenlight’s 6.8 percent return after fees and expenses and spot gold essentially matched the gain.

Seagate Technology Plc, a computer disk-drive maker run from Cupertino, set last quarter’s pace by surging 64 percent. Apple followed with a 48 percent gain. Arkema SA, a chemical maker based in Colombes, France, added 31 percent in dollars. General Motors Co., a Detroit-based automaker, rose 27 percent.

Greenlight’s assets rose 6 percent during the quarter, according to the letter, which said new investments in dollar- denominated gold funds accounted for “a high percentage of the capital we raised.” The New York-based firm sold $131.1 million of limited-partnership interests last month in two of the funds, according to U.S. regulatory filings.

(Bloomberg) — Sterne Agee Sees Gold Hitting New Highs in 12-18 Months

Sterne Agee analyst Michael Dudas initiates precious metal stocks, sees gold hitting new highs in 12-18 mos.

●Says precious metal stocks attractive as current valuation discounts “much lower” realized prices

●Sees gold averaging $1,750-$1,800/oz in next 18 mos. (currently $1,555) w/ upside to $2,000

●Sees silver averaging mid-$30s (currently $27.72) w/ potential to hit new highs

(Bloomberg) — Russian 4-Month Gold Output Dropped 0.9% on Decline at Kinross

Russian gold output from mining and other production fell 0.9 percent in January through April, according to the Gold Producers’ Union.

Gold mining dropped to 44.96 metric tons from 45.4 tons in the first four months of last year as production fell at Kinross Gold Corp.’s mine in the Chukotka region in Russia’s Far East, the union said today in an e-mailed statement.

(Bloomberg) — India Gold Demand May Fall on Rupee, Slowing Economy: Rajesh  

Demand for gold and jewelry in India, the world’s biggest bullion importer, may drop after the rupee fell to a record, boosting local prices, and amid slowing economic growth, said Rajesh Exports Ltd.

“When the economy slows down, demand for gold and jewelry will also come down,” Chairman Rajesh Mehta said today in a phone interview. “With prices shooting up and the economy slowing down, we may see a little slackness going forward.”

(Bloomberg) — Turkey May Raise Gold Ratio in Banks Required Reserves to 30%

Turkey’s central bank may gradually increase the proportion of lira reserves lenders can keep in gold to as much as 30 percent from 20 percent, it said in its financial stability report in Ankara today.

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Mark OByrne