Fed's Record Setting Money Supply Splurge Spurs Gold's Rally

Published in Market Update  Precious Metals Update  on 7 February 2012

By Mark O’Byrne


Gold’s London AM fix this morning was USD 1,720.00, EUR 1,308.98, and GBP 1,087.56 per ounce.

Yesterday's AM fix was USD 1,717.00, EUR 1,315.31, and GBP 1,090.85 per ounce.


Cross Currency Rates – Bloomberg

Gold rose $10 in Asian trading to reach $1,730/oz as investors nervously watch Greece. Just prior to European markets opening gold began to fall and has fallen below the lows in Asia and testing short term support at $1,712/oz.

The labyrinthine debt crisis rumbles on with European and Greek policy makers continuing to appear somewhat lost and lost for answers. 


Gold Spot $/oz – 5 Days (Bloomberg) 

The Greeks delayed their decision yesterday again. Greek party leaders face crunch talks again today to secure a new international bailout and avoid a chaotic debt default.   

European and Asian shares saw some looses as investor concern grows as to whether Greece would eventually be resolved or trigger contagion across the euro zone which already has many countries with increasingly shaky economies.

Investors are also awaiting a rate decision by Australia's central bank later today.  They are expected to keep with the loose money policy and ease interest rates. 

Major bullion banker, HSBC, said it was keeping its 2012 gold forecast for $1,850/oz due to central banks accommodative money policies. 

Platinum output in South Africa is likely to decline this year due to the increase of labour and safety stoppages, which supports the metal prices but increases the costs for producers.

While Chinese imports from Hong Kong were down sharply in December, the annual figures show a remarkable increase in 2011, Chinese gold imports from Hong Kong - tripled from 2010. There continues to be suspicions of Chinese official sector gold bullion buying.


Fed's Record Setting Money Supply Splurge Spurs Gold's Rally

The surge in the U.S. money supply in recent years has sent gold into a series of new record nominal highs. 

Money supply surged again in 2011 sending gold to new record nominal highs.

Money supply has grown again, by more than 35% on an annualized basis, and this is contributing to gold’s consolidation and strong gains in January. 

The Federal Reserve's latest weekly money supply report from last Thursday shows seasonally adjusted M1 rose $13.2 billion to $2.233 trillion, while M2 rose $4.5 billion to $9.768 trillion.

(Bloomberg) -- Gold may challenge and exceed $2,000 an ounce this year though it is unlikely to stay much above that level, said Tom Kendall, the head of precious-metals research at Credit Suisse AG’s securities unit.

The consensus estimate that gold will reach $2,000 this year prices in “bad outcomes” for the European and U.S. debt crises, Kendall said in a presentation at the Investing in African Mining Indaba in Cape Town today. 

(Bloomberg) -- Speculators raised bullish bets on commodities to a 12-week high on signs that global growth will boost demand at a time when shortages are forecast for everything from copper to palladium to cocoa.

Money managers expanded their combined net-long position across 18 U.S. futures and options by 11 percent to 823,917 contracts in the week ended Jan. 31, Commodity Futures Trading Commission data show. That’s the highest since Nov. 8. Gold wagers surged the most since September 2009, silver holdings rose for a fifth week and cattle bets climbed to a 10-week high.

(Bloomberg) -- BNP Paribas SA raised its 2012 price forecasts for palladium to $835 an ounce and for platinum to $1,770 an ounce.

Mine supply estimates were lowered for this year, with palladium output falling 1 percent, Anne-Laure Tremblay, an analyst at BNP Paribas, said in a report e-mailed today. Platinum will be in surplus this year while palladium is in shortage, she said. Palladium was previously forecast to be $725 an ounce this year and platinum was $1,610, according to the report. 

(Bloomberg) -- Azerbaijan natural gas flow to Turkey halted due to technical failures, according to state-run Anatolia news agency.

There was also a drop in the amount of gas coming from Iran, the news agency said. Breakdowns at compression stations in Azerbaijan and Iran triggered the shortages, Anatolia reported, without saying how it got the information.

Turkish Energy Ministry officials told the news agency that power plants using natural gas switched to diesel and fuel oil to generate electricity. There are no cuts in gas services to residential buildings or industrial plants, ministry officials said, according to Anatolia.

(Bloomberg) -- A policy of nationalizing mines would not be a “smart strategy” for South Africa and changes to taxes or ownership will only be made after extensive consultation with the industry, Trevor Manuel, the country’s planning minister, said.

While a study into nationalization of mines commissioned by the country’s ruling African National Congress has recommended against the policy, it has proposed increased taxes, a party official who has read the document said last week, declining to be identified because it hasn’t been publicly released. Manuel is a member of the ANC’s Economic Policy Committee, which has discussed the study.

“It doesn’t call for nationalization, it calls for new partnerships,” Manuel told the Mining Indaba conference in Cape Town today. “Given the long lead time the industry deserves policy certainty.”

The ANC commissioned the study after calls by it youth wing for nationalization because it said the country’s black majority isn’t benefiting enough from the industry that is the world’s biggest producer of platinum, chrome and manganese. Anglo American Plc, Xstrata Plc, BHP Billiton Ltd. and Rio Tinto Group own assets in the country

“If you want then to take away those property rights you’re going to have to pay for it and if you pay for that you’re not going to be able to pay for health, education or anything else,” Manuel said, adding that the constitution protects property rights. “The country does not have the resources. It clearly is not a smart strategy.”

While elements of the study could concern the mining industry, the proposals will undergo extensive debate before they stand a chance of becoming policy, he said.

“There are proposals in there that would worry many people,” he said. “It’s important not ever to confuse proposals with adopted policy.”

The ANC study will be discussed and may influence policy arguments at party conferences in June and December.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

SILVER 
Silver is trading at $33.35/oz, €25.41/oz and £21.09/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,615.25/oz, palladium at $690/oz and rhodium at $1,400/oz. 

NEWS

(Reuters) 
Hong Kong gold flow to China more than triples in 2011

(Reuters)
Gold snaps two-day slide; Greece eyed

(Economic Times)
HSBC maintains bullish 2012 gold forecast at $1,850 an ounce

(MarketWatch)
Gold falls on dollar strength, lower stocks

COMMENTARY
(KingWorldNews)
Greyerz - Gold Price to Hit $5,000 in 24 Months & Silver $166

(International Business Times)
Fed Reserve Branch Chief Warns of 'Looming Disaster'

(MarketWatch)
Stocks Hmmm — Gold Maybe?

(GATA)
Murray Pollitt's Final Commentary: Money Mountain

(KingWorldNews)
John Williams - Unemployment Rate at a Staggering 22.5%

(ZeroHedge)
As Falls Sarkozy, So Falls Europe: The Full Story Behind The Upcoming French Election

 


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