Gold And Silver Capped Until After U.S. Election?

Published in Market Update  Precious Metals  on 12 October 2012

By Michael O’Brien


Today’s AM fix was USD 1,767.00, EUR 1,362.80, and GBP 1,101.35 per ounce.
Yesterday’s AM fix was USD 1,767.25, EUR 1,371.45 and GBP 1,103.29 per ounce.

Silver is trading at $33.96/oz, €26.27/oz and £21.21/oz. Platinum is trading at $1,679.50/oz, palladium at $648.80/oz and rhodium at $1,205/oz.

Gold edged up $4.60 or 0.26% in New York yesterday which saw gold close at $1,767.50. Silver climbed to a high of $34.33 and then fell off and finished with a marginal loss of 0.12%.

Gold has seen volatile and choppy trading overnight in Asia and in Europe this morning with the price being capped at $1,772/oz and in a tight range between $1,767 and $1,772/oz. 


Cross Currency Table – (Bloomberg)

Gold remains robust in euro terms at €1,364.50/oz and remains less than only 1% away from new record highs in the single currency (see chart). 

India and China are embarking on their peak consumption season which may create a boost to the physical market.

The far from resolved debt crisis in Greece, Spain and most countries in the western world means that this is another correction and investors and store of wealth buyers should continue to accumulate on the dip.

Prices may remain contained until after the U.S. election but we expect that soon after the election (we expect Obama to be re-elected), precious metal prices will again surge. Indeed, from November into the early months of 2013, we could see one of the largest upward price movements in gold and silver so far in their bull markets.

U.S. election years tend to see gold underperform vis-à-vis other years and this was seen in 2004 (+4.7%) and 2008 (+5%) when gold saw only marginal gains compared to the 17% annualised dollar returns seen in that decade.

Post election years saw stronger gains – with a 22% in 2005 and a 25% return in 2009.

This is likely due to the governing administration, often in conjunction with the Federal Reserve, doing all it can in order to artificially boost the economy and maintain power.


Gold in Euros – 1 Year (Bloomberg)

Indeed, given the degree of intervention in markets today, it is possible that the Working Group on Financial Markets has been intervening in order to maintain orderly markets and “investor confidence” - as is their function. This can often artificially boost stock markets and often see a bout of dollar strength.

We believe that macroeconomic and monetary conditions are far worse than is being acknowledged by the White House, the Washington elites and Ben Bernanke and that once the election is over there will be significant revisions to data and the economic data will decline considerably.


Gold in Euros – 30 Day (Bloomberg)

There are historical parallels with the 1933 election when Roosevelt was re-elected and there was subsequently an admission that economic conditions were far worse than people had been previously led to believe. 

This creates the real possibility of significant volatility and dislocations in markets in the coming months.

Buyers should use this price dip and any further dips in October to accumulate physical gold and silver in the safest way possible.

UBS have lifted their full-year 2012 forecast to $1700, from $1680 previously. For 2013 UBS now has price targets on the average gold price of $1900, raised from $1725 previously.

Smart money internationally continues to diversify into gold. Some of the wealthiest and most astute managers of money in the world today remain bullish on gold due to the very favourable macroeconomic, geopolitical and monetary fundamentals. 

The Financial Review (Australian) points out how Soros, Paulson and now Ray Dalio, founder of Bridgewater Associates, the world’s biggest hedge fund are all diversifying into gold (see commentary).

Warren Buffett is one of the few wealthy individuals in the world to have absolutely rejected the idea of owning gold as a hedge or safe haven asset and has indeed criticised those who own gold.

Indeed, the recently made bizarre comments regarding gold saying he would rather buy caves than gold. He suggested that owning caves would be better than owning gold in the event of currency devaluations.

Buffett is massively exposed to man US dollar denominated stocks and to the U.S. banking sector and appears to be either talking about his book or is simply very misguided.  

His reputation as the most successful investor of all time will be questioned in the coming years.


Gold in USD – 30 Day (Bloomberg)

As the Financial Review states:

“Financial planners and super fund managers have come around to holding bullion, previously viewed as too speculative with no investment return, because it diversifies a portfolio and moves independently of shares and other markets.”

There is also academic research showing how gold is a proven hedging instrument and safe haven asset.

In 2013 we are all going to need to own safe haven assets and the safe haven money that is gold.

NEWSWIRE
(Bloomberg) -- Gold Gains on Renewed Europe Debt Concern After Spain Downgrade
Gold rose for the first time in five days, snapping the worst losing run in more than two months, on speculation Europe’s debt crisis will boost demand for a protection of wealth.

Standard & Poor’s cut Spain’s debt rating yesterday to one grade above junk on mounting economic and political risks in the region. The U.S. Dollar Index, a gauge against six counterparts, rose today to the highest level since Sept. 11. Investment holdings of the metal rose to a record as buyers sought to safeguard their wealth.

“Gold is being supported by the risk of the eurozone debt crisis intensifying with the focus again on Spain,” said Mark O’Byrne, executive director of Dublin-based GoldCore Ltd., a brokerage that sells and stores everything from quarter-ounce British Sovereigns to 400-ounce bars.

Gold for immediate delivery rose 0.4 percent to $1,770 an ounce by 9:14 a.m. in London. Gold for December delivery rose 0.4 percent to $1,771.40 an ounce on the Comex in New York.

London-traded bullion declined 1.6 percent in the past four days and touched $1,757.10 yesterday, the lowest price since Sept. 27.

Holdings in gold-backed exchange-traded products rose for a 10th day to 2,582.97 metric tons yesterday. Investors looking to store wealth should buy on dips, Euro Pacific Capital Inc. Chief 

Executive Officer Peter Schiff said in a speech at a conference in Chicago. ETP holdings have risen 9.6 percent this year as central banks boosted stimulus to revive economic growth.

Silver for immediate delivery rose 0.8 percent to $34.255 an ounce. Platinum gained 0.4 percent to $1,679.75 an ounce. Palladium advanced 0.7 percent to $654.50 an ounce.

(Bloomberg) -- Miners Reject South Africa Gold Producers’ Wage Plan, Union Says
Members of South Africa’s biggest union rejected a proposal by the nation’s largest gold companies to raise wages and end strikes that have crippled the industry.

Employees who belong to the National Union of Mineworkers didn’t accept the offer, spokesman Lesiba Seshoka said in a text message in response to a query today.

AngloGold Ashanti Ltd., Gold Fields Ltd. and Harmony Gold Mining Co. had offered an additional 2 percent raise and Harmony 1.5 percent in categories four through eight this year, Elize Strydom, the chief negotiator at the Chamber of Mines, an industry body that represents the companies in wage talks, said yesterday. Category three, the entry level, would be eliminated in the proposal, meaning the lowest-paid workers would get a wage at the higher category.

About 41 percent of South Africa’s gold output is idled, including all of AngloGold’s mines. Two Gold Fields sites were halted after workers walked out without heeding resolution procedures set out by labor laws, while miners have been absent from Harmony’s Kusasalethu operation since at least Oct. 3.

AngloGold erased earlier gains, retreating as much as 0.8 percent to 295.37 rand and trading at 297.61 rand by 11:12 a.m. in Johannesburg. Harmony lost 0.2 percent to 69.36 rand.

Gold advanced 0.4 percent to $1,768.50 an ounce in London.

(Bloomberg) -- Gold Imports by China From Hong Kong Drop as Price Deters Buyers
Gold imports by China from Hong Kong fell 29 percent in August from a month earlier amid a seasonal slowdown and as higher prices deterred buyers.

Mainland China bought 53,508 kilograms (53.51 metric tons), including scrap and coins, compared with 75,842 kilograms in July. Shipments were 23 percent more than the 43,660 kilograms a year earlier, data from the Census and Statistics Department of the Hong Kong government show.

Gold is in the 12th year of a bull run, 13 percent higher this year, as investors seek to hedge against weaker currencies and the threat of rising consumer prices. Holdings in gold- backed exchange-traded products expanded to an all-time high and Bank of America Corp. and Deutsche Bank AG are among banks forecasting that the price will rally to a record. The metal climbed 4.8 percent in August, the most since January.

“The slowdown was mainly seasonal and because the jump in prices in the latter part of the month put off buyers,” said Liu Xu, analyst at Capital Futures Co.

Shipments more than tripled to 512,136.5 kilograms in the first eight months from 146,750 kilograms a year earlier, Bloomberg calculations show. China doesn’t publish such data.

“China’s demand for the metal may increase over the rest of the year as central banks in the U.S., Europe and Japan have, more or less, demonstrated their penchant for the monetary easing,” said Liu. Gold for immediate delivery was little changed at $1,762.35 an ounce at 7:13 p.m. in Singapore.

Exports of gold to Hong Kong from China were 26,497 kilograms in August, down from 30,038 kilograms in July, according to a separate statistics department statement. The exports were more than the 7,118 kilograms a year ago. They were 200,391.5 kilograms in the first eight months from 61,541 kilograms a year earlier, according to Bloomberg calculations.

(Bloomberg) -- South African Miners Trapped in Web of Debt, Watchdog Says
South African miners were the victims of predatory lending that eroded their earnings in the run-up to violent strikes in recent months, the country’s credit watchdog said.

Seven out of eight credit providers raided at the Marikana mining complex, where a strike began in August, appear to have been acting unlawfully, said Zweli Zakwe, head of investigations at the National Credit Regulator.

“Our impression is that the credit providers have not done affordability assessments, so miners are trapped in an extensive web of debt,” Zakwe said in a phone interview today from Buffelspoort, west of Johannesburg. “The primary purpose of the raids is to look at three main issues: the cost of credit, affordability assessments and the unlawful retention of bank cards and identity documents.”

The first illegal strike began at Lonmin Plc’s Marikana operations on Aug. 10 and labor action has spread to other platinum and gold mines. As many as 46 people died before Lonmin agreed to wage increases of up to 22 percent.

With more than 16 credit providers operating in Marikana, many miners took on loans with interest charges of as much as 30 percent that they struggled to repay, resulting in the lenders making deductions directly from miners’ salaries, according to the regulator.

Reckless Lending
“Definitely the debt was on their shoulders, and it’s one of the elements that may have led to the strikes,” Zakwe said. “For now we are focusing on the small micro-lenders, but we will expand and we have been looking at the Capitecs and African Banks of this world. There are retailers as well.”

The National Credit Act, introduced in 2006, aimed to reduce so-called reckless lending and protect borrowers. In the past three years credit providers have increasingly offered unsecured loans to low-income earners to maintain and boost profit margins. Interest charges on these loans can reach 60 percent, with Capitec Bank Holdings Ltd. offering customers unsecured loans of as much as 230,000 rand ($26,000).

“Many have interest charges of 30 percent,” Zakwe said of the credit providers in Marikana. 

(Bloomberg) -- China August Exports of Gold to Hong Kong 26,497 Kilograms 
Hong Kong government announced August gold imports data on its website today.

(Bloomberg) -- IShares Silver Trust Holdings Unchanged at 9,920 Metric Tons 
Silver holdings in the IShares Silver Trust, the biggest exchange-traded fund backed by silver, were unchanged at 9,920.18 metric tons as of Oct. 9, according to figures on the company’s website.

================================================================================

                 Oct. 9     Oct. 8     Oct. 5     Oct. 4     Oct. 3     Oct. 2

                   2012       2012       2012       2012       2012       2012

================================================================================

Million Ounces  318.941    318.941    318.941    318.941    318.941    318.941

 Daily change         0          0          0          0          0   -610,059

--------------------------------------------------------------------------------

Metric tons    9,920.18   9,920.18   9,920.18   9,920.18   9,920.18   9,920.18

 Daily change      0.00       0.00       0.00       0.00       0.00     -18.98

===============================================================================

(Bloomberg) -- ETF Securities Gold ETP Inflows Were $260 Million in Week 
ETF Securities Ltd.’s gold exchange- traded products had inflows of $260 million last week, the company said in a report e-mailed today.

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

NEWS
Gold Gains as Investor Demand Increases ETP Holdings to Record - Bloomberg

Gold futures rise as dollar pulls back – Market Watch

Gold flat, but on course for biggest weekly loss in two months - Reuters

Gold Best of Biggest ETFs as Traders Seek Haven: Riskless Return - Bloomberg

COMMENTARY
IMF Fears 'Credit Shock' in Spain If Rajoy Blocks Rescue – The Telegraph

UBS' Cashin Offers A Huge Lesson On Weimar Hyperinflation, And The Roots Of Today's Crisis – Business Insider

The Case For A 40% Drop In The Markets – Market Watch

Gold Short Squeeze ... May Lead To "Move In Gold That Will Leave Breathless” – King World News

Did COMEX Gold Futures 'Glitch' Hint At The Future Awaiting Us? – Zero Hedge

Video: Global Debasement to Boost Gold Prices – Bloomberg

The Currency Collapse That’s Happening Right Now – Uncommon Wisdom

Three of the World’s Four Richest Investors Are Buying Gold – Financial Review

 

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