Gold has remained robust despite the potentially negative short term implications for safe haven demand due to Bin Laden’s murder. This suggests that market participants do not believe that Bin Laden’s death is of any great importance or that participants realise that the global economy faces greater challenges than that of Bin Laden and al Qaeda.
Cross Currency Table
Gold’s robustness also suggests that some participants believe that while Bin Laden’s death is of no great importance, there is a continuing geopolitical risk posed by global terrorism, state-sponsored terrorism and war.
US relations with nuclear armed Pakistan look set to deteriorate after Osama’s demise on Pakistani soil. Tensions with Pakistan and the already unstable situation in the Middle East and North Africa should see continuing safe haven demand for gold.
Gold in USD – 3 Day (Tick)
The Bin Laden death will likely prove to be a brief, but welcome, distraction for the Obama administration and other governments who are confronting an extremely difficult economic situation with deepening inflation, the euro zone debt crisis and the deteriorating economic situation and nuclear catastrophe in Japan.
Gold is a barometer and is sensing that Bin Laden’s death and burial at sea is a mere sideshow when compared to the real macroeconomic, monetary and geopolitical risk facing the world today. Even at these price levels, demand for gold remains robust, particularly in India (see News), China and Asia.
Silver in USD – 20 Day (Tick)
Silver remains vulnerable to further short term weakness and the concentrated shorts may attempt to press their advantage after the CME raised margins once again. However, the very sound supply and demand fundamentals mean that long term physical buy and hold buyers will continue to be rewarded.
Leveraged speculation should as ever be avoided with gold and particularly silver as intervention and manipulation can result in short term sharp price drops which can wipe out those trading with margin or leverage.
Bullion buyers buying with cash and not debt are not subject to these losses and are thus “strong hands” who can ride out price pullbacks and be rewarded for their long term prudence.
Gold is trading at $1,545.65/oz, €1,044.60/oz and £938.08/oz.
Silver is trading at $43.83/oz, €29.62/oz and £26.59/oz.
Platinum Group Metals
Platinum is trading at $1,857.00/oz, palladium at $767/oz and rhodium at $2,250/oz.
(Bloomberg) — UBS Gold Sales to India Yesterday Were Second Highest This Year
UBS AG’s physical gold sales to India yesterday were the second highest this year, Edel Tully, a London-based analyst at the bank, said today in an e-mailed report to clients.
(Reuters) — Gold steadies after bin Laden; silver stabilizes
Gold steadied on Tuesday after hitting record highs above $1,570 an ounce the previous day following the death of al Qaeda leader Osama bin Laden, and silver recovered from its biggest one-day drop in 29 months.
Gold shrugged off the potentially negative impact of a slightly stronger dollar, which edged up 0.2 percent against a basket of major currencies .DXY.
But the longer-term prospect of an extended period of low U.S. interest rates kept the dollar index around three-year lows and helped gold stabilize following Monday’s 1.2 percent drop.
Spot gold was virtually flat at $1,543.89 an ounce by 0955 GMT, having hit a record $1,575.79 an ounce on Monday.
COMEX gold futures were down 0.8 percent at $1,544 an ounce.
"The U.S. dollar is significant in the price development of the precious metals," said Quantitative Commodity Research analyst Peter Fertig.
"With the divergence of monetary policy in the U.S. and the euro zone in particular, I expect the dollar is going to weaken further in the medium term," he said.
Low U.S. rates allow gold to compete more effectively against other asset classes, as it bears to yield of its own and draws strength from weakness in the U.S. currency.
The death of al Qaeda’s leader accelerated spot gold’s drop to $1,540.39 from a record high of $1,575.79 on Monday, although Fertig said the impact of bin Laden’s death would be limited.
"I don’t expect this to be a lasting factor, terrorism remains a threat to Western society and for that reason, there is no convincing argument to abandon gold as a safe-haven if one has bought it as a safe-haven against terrorism," he said.
Gold might have lost some safe-haven appeal after bin Laden’s death, but the bullish trend is intact as fundamentals of the market remain supportive, said traders and analysts.
"The underlying facts supporting gold are still intact, such as the ultra-loose monetary policy of the U.S. Federal Reserve," said Ong Yi Ling, an analyst at Philip Futures.
Concern over rising global inflation and ongoing unrest in the Middle East and North Africa may also continue to attract investors to bullion.
Flows of metal into the world’s major exchange-traded funds tracked by Reuters staged their second monthly increase in April, rising 2.35 million ounces, or 3.74 percent, bringing the net flow for 2011 into positive territory, up 77,932.5 ounces.
Last week also marked the eighth consecutive week of net inflows into the gold ETFs.
Market participants are waiting for the key U.S. non-farm payrolls data due on Friday, which should offer evidence of the ability of the economy to generate jobs, something which the Federal Reserve has flagged as a key concern.
Silver rose by 1.9 percent to $44.71, after having staged its biggest one-day fall in almost 2-1/2 years on Monday to hit two-week lows.
The CME Group Inc (CME.O) raised margin requirements on COMEX silver for the third time since last Monday. It increased maintenance margins for speculators by 11.6 percent to $12,000 per contract from $10,750 effective Tuesday, May 3.
Silver is still one of the top-performing commodities of the year, having risen by almost 45 percent so far in 2011.
But investors remained wary of a market in almost chronic surplus and a highly volatile price.
Some of this discontent has been reflected in the futures market, where COMEX speculators cut their long position by the biggest amount in two years last week., while ETF holdings of silver fell nearly 4 million ounces.
Platinum and palladium were both largely steady, with platinum down 0.2 percent at $1,851.24 an ounce, while palladium was up 0.2 percent at $770.72.
(Bloomberg) — Turkey Imported 2.19 Metric Tons of Gold in April, Exchange Says
Turkey’s gold imports rose to 2.19 metric tons in April, from 903 kilograms the month before, the Istanbul Gold Exchange said in a report on its website.
The country imported 60.94 kilograms of silver in April, little changed from a month earlier, the data show.
(Bloomberg) — Silver Futures Decline for Second Day as CME to Raise Margins
Silver futures dropped for a second day after exchange owner CME Group Inc. raised the cash deposit for trading with effect from the close of business today.
The so-called initial margin increases 12 percent to $16,200 per contract from $14,513 and the maintenance margin rises the same percentage to $12,000 from $10,750 per contract, the exchange said in an e-mailed statement. Silver futures dropped as much as 13 percent yesterday after the bourse raised margins by 13 percent from the close of business April 29.
Silver for July delivery fell 3 percent to $44.72 an ounce on the Comex at 8:17 a.m. in Singapore, extending a 5.2 percent decline yesterday. Gold for June delivery declined 0.8 percent to $1,544.10 an ounce.
(Bloomberg) — Morgan Aligned With Commodity Bulls as Goldman Says Sell
Money managers are making near-record bets on higher commodity prices, aligning themselves with Morgan Stanley after Goldman Sachs Group Inc. said investors should reduce most of their holdings.
Funds held a net 1.49 million futures and options in 18 commodities by April 26, 57 percent more than a year earlier, according to U.S. Commodity Futures Trading Commission data compiled by Bloomberg. The Standard & Poor’s GSCI Total Return Index of 24 commodities beat bonds, stocks and the dollar every month since December, the longest in at least 14 years. It rose in April for an eighth month, the best stretch since 2004.
The surge in everything from oil to corn to gold has yet to crimp demand, inventories are still tight, and getting out now would be “premature,” Hussein Allidina, the head of commodity research at Morgan Stanley in New York, said on April 29. Prices may no longer reflect supply and demand, and they are likely to drop in the next three to six months before rebounding, Goldman said in reports April 11 and April 15.
“The underlying demand, based on global growth and supply constraints, makes that kind of call dangerous,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, and correctly predicted a decline in commodity prices two years ago, before the S&P GSCI began a 15 percent drop.
“As an investor, I would rather focus on fundamentals, and fundamentals are still positive,” Hellwig said. “The trend will be higher over the next three months.”
Goldman, the most profitable securities firm in Wall Street history before converting to a bank in 2008, recommended Dec. 1 that investors buy a basket of commodities consisting of crude, copper, cotton, platinum and soybeans. The research team, led by Jeffrey Currie in London, said on April 11 that investors should close that trade after it returned 25 percent.
There are signs U.S. oil demand is weakening, speculators are betting the most ever on higher prices, and there may be less chance of violence spreading from a civil war in Libya, Africa’s third-largest crude producer, the team said in an April 15 report. Higher energy costs and manufacturing disruptions caused by an earthquake in Japan on March 11 may mean less consumption of copper and platinum, the bank said.
Goldman also advised clients to end a separate bullish bet on copper, which it had recommended in October, after prices rose 23 percent, and one on platinum, made in July 2009, after a 36 percent advance. Investors should still buy European gasoil, soybeans and gold, the bank said, reiterating advice in October and November. The New York-based bank recommends being “underweight” commodities in the next three to six months.
The S&P GSCI Enhanced Total Return Index, Goldman’s benchmark for commodities, rose 0.4 percent since the note to clients on April 11. The team expects the gauge of 24 raw materials to rise 10 percent in 12 months, less than the 14 percent previously forecast.
Copper fell 9.1 percent from the record $10,190 a metric ton reached Feb. 15, and cotton slumped 29 percent from the all- time high of $2.197 a pound set March 7. At the same time, oil advanced 24 percent this year, and gold futures reached a peak of $1,577.40 an ounce yesterday, heading for an 11th consecutive annual gain.
Morgan Stanley, operator of the world’s largest brokerage, is still “very long” crude and corn, and favors wheat and gold, Allidina said in an April 29 telephone interview. Since Dec. 15, 2009, when the bank advised investors to buy the oil for delivery in December 2011 on the New York Mercantile Exchange, that contract has gained 38 percent. The firm is bearish on sugar, natural gas, cotton and coffee, he said.
Betting on lower commodity prices, “broadly speaking, right now is not a good idea, because you do have tight inventories,” Allidina said. “You need to ration demand. You are not doing that at current prices.”
Investors held a record $412 billion of raw-material assets by the end of March, almost 50 percent more than a year earlier, Barclays Capital estimates.
Net-long positions held by managed-money funds are within 4.8 percent of the record 1.56 million contracts reached in October, CFTC data show. Open interest in 17 of 19 commodities tracked by the Thomson Reuters/Jefferies CRB Index reached 8.2 million contracts, data from the CFTC show. That compares with an all-time high of 8.6 million on Feb. 18.
The rally means record profit for BHP Billiton Ltd., the biggest mining company, and the second-highest earnings ever for Exxon Mobil Corp., the largest publicly traded oil producer, analysts’ estimates compiled by Bloomberg show. Nestle SA, the top food company, said in February that its commodity costs will rise as much as a record $3.4 billion this year. Gap Inc., the leading U.S. apparel chain, is contending with cotton prices that rose 92 percent last year.
Driven Into Poverty
The surge in commodities has wider implications. Global food prices tracked by the United Nations reached an all-time high in February. The World Bank says the increase contributed to 44 million people falling into poverty in the past year. Inflation is accelerating worldwide, spurring central banks from China to the euro region to increase interest rates, potentially curbing economic expansion.
Rising oil prices could be “sowing the seeds of future demand destruction,” the Paris-based International Energy Agency said April 12. China, the world’s biggest copper user, imported 43 percent less metal in March than a year earlier, customs data show. Holdings in exchange-traded funds backed by gold fell 1.3 percent this year.
“Commodities are in the process of peaking, and will come down in the next three to six months,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $340 billion. The S&P GSCI index rose 27 percent since Paulsen predicted Dec. 1 that raw materials would continue to rally.
Copper May Rise
The most-accurate forecasters tracked by Bloomberg over the last eight quarters expect more records this year. Copper may rise 11 percent to $10,250 a ton within six months, according to
Christin Tuxen, an analyst at Danske Bank A/S in Copenhagen.
Gold will advance 13 percent to $1,750 an ounce, according to Jochen Hitzfeld, an analyst at UniCredit SpA in Munich. Corn is likely to gain 9.4 percent to a record $8 a bushel, according to Commerzbank AG, last year’s most-accurate forecaster.
Crude will rise 28 percent to $145 a barrel, near the record $147.27 set in July 2008, said Michael Pento, the senior economist at Euro Pacific Capital Inc. in New York who correctly predicted the collapse in commodity prices in 2008, the rebound in 2009 and last year’s rally in gold.
Pento is bullish because he expects the dollar to weaken, making dollar-denominated commodities cheaper for those holding other currencies. The U.S. Dollar Index, a gauge against six major trading partners, fell 7.6 percent since the beginning of January, the worst start to a year since 1995. The Dollar Index has a negative correlation of 0.86 to the S&P GSCI Index. A figure of 1 would mean they move in lockstep.
The dollar weakened as the Federal Reserve maintained record-low U.S. borrowing costs and began pumping $600 billion into the economy by buying Treasuries. The gauge may drop to the lowest since July 2008 by the end of the year, estimates compiled by Bloomberg show.
Fed Chairman Ben S. Bernanke signaled April 27 the Fed will maintain the record monetary stimulus when its bond purchase program ends in June.
Demand for commodities may also be bolstered by investors hedging financial assets against inflation. The cost of living in the U.S. rose at its fastest pace since December 2009 in the 12 months ended in March, the same month in which Chinese consumer prices rose by the most since 2008.
Global demand for energy, metals and crops is outpacing supply “at an alarming rate,” spurring a “permanent shift” in the value of natural resources, said Jeremy Grantham, the chief investment strategist for Boston-based Grantham, Mayo, Van Otterloo & Co., which manages $107 billion in assets.
“The world is using up its natural resources at an alarming rate, and this has caused a permanent shift in their value,” Grantham, who correctly predicted the trough in U.S. equities in 2009, said in a report April 25. “We now live in a different, more constrained, world in which prices of raw materials will rise and shortages will be common.”
(Bloomberg) — ‘Alarming’ Commodity Use Spurs Permanent Shift, Grantham Says
Global demand for energy, metals and crops is outpacing supplies “at an alarming rate,” spurring a “permanent shift” in values of natural resources, said Jeremy Grantham of Grantham, Mayo, Van Otterloo & Co.
The rising global population, growing consumption in China and smaller supplies of available land are slashing reserves of finite commodities, said Grantham, a co-founder of Boston-based GMO, an investment-management firm. The Thomson Reuters/Jefferies CRB Index of 19 raw materials is up 32 percent in the past year, sending food prices to a record in February. Yesterday, crude oil reached a 31-month high.
“From now on, price pressure and shortages of resources will be a permanent feature of our lives,” Grantham, the firm’s chief investment strategist, said in a quarterly report posted on GMO’s website. “This will increasingly slow down the growth rate of the developed and developing world and put a severe burden on poor countries.”
Adjusted for inflation, most commodity prices declined about 1.2 percent annually over the previous century, before bottoming in 2002. Since then, “this entire decline was erased by a bigger surge than occurred during World War II,” Grantham said. Such growth is “unsustainable,” he said.
“Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed,” Grantham said. “There is in fact a paradigm shift, perhaps the most important economic event since the Industrial Revolution.”