Over the past week or two I've been helping an exchange grad student at the local university summarize articles for his Literature Review class. Doing so, I realized that it's entirely possible to get a seven page article down to a few paragraphs. Therefore, for several reasons--to save you time of finding articles, to save you time reading articles, and to save you from reading my opinions only--I've decided to start summarizing a few others' articles to give you a different angle on things.
Peter Cooper, writing for Arabian Money, posted an article on November 4 commenting on the surging gold price. The article give his predictions, views, and even a bit of investment advice.
Cooper (2009) states that with gold standing at $1080 at the time of writing, another jump in the gold price seems almost certain. However, saying now that gold will jump to $2000 might be similar to the Kremlin declaring in July 2008, when oil was $147 per barrel, that oil would jump to the $200-250 range. Gold, though, is not just on a temporary spike as oil was. For this to be a spike we'd need to see $1500 gold, or higher.
Cooper (2009) notes how that at the time of writing the dollar was somewhat of a safe haven, along with gold. Also, "increasingly it looks as though silver is also being treated as precious metal again rather than an industrial commodity, offering an interesting leverage play on the rising gold price" (Cooper, 2009).
It still seems that gold won't be going much higher as long as we have a strong dollar, Cooper says. Cooper also mentions the possibility of a global currency and the uncertainty of the dollar's future. However, in times of uncertainty, gold and silver will retain their value.
Finally, Cooper notes that holding gold is more a wise investment than holding dollars. He also notes the fact that the India is purchasing a lot of gold from the IMF.
Cooper, Peter (2009). What is the 'New Normal' for the Gold Price? Arabian Money. http://news.goldseek.com/PeterCooper/1257344245.php.
Tuesday, November 17, 2009
Saturday, November 14, 2009
Article Summary: $1160 is Gold's Next Target
For several reasons--to save you time of finding articles, to save time reading articles, and to save you from reading my opinions only--I've decided to start summarizing a few others' articles to give you a different angle on things. I will do this from time to time.
Daryl Guppy (5 Nov 2009) claims that the sudden rise in the gold price has been influence by the Indian Central Bank buying gold from the International Monetary Fund. He notes that many gold bugs seem to think gold will hit $2000. However, the four factors that influence the price of gold may not actually influence the price as much as gold bugs think it will.
1. Fear. Gold reached $1000 in March 2008 when the market was collapsing and then reached it again in September 2009 after the global market had recovered. This proves that fear is not as huge a factor as it may seem.
2. US Dollar Strength. The dollar began falling in March 2009, however gold also fell from $1000 to $850 at the same time; and then it rose back over $1000. Not much of a correlation.
3. Central Banks. The Indian buying pushed gold to its current all time high. However, transfering the gold from the IMF to central banks doesn't affect supply and demand, therefor any affect on the gold price will be short-lived.
4. Jewelry. Indians only buy gold around holidays. Also, jewelry demand is only steadily increasing worldwide, as it always has. This increase is not enough to affect gold's sudden jumps and retreats.
Guppy (2009) next states that gold has reached it's first plateau of $1080. Next it will be $1160, and then $1240. However, he also says that if China announces that they won't start buying from the IMF, gold could retreat to $1000; but if they announce they will start buying, gold could hit $1160.
Guppy states that the way money is made in the gold market deals with "suppliers of pick sand shovels, or steel for the mine pit heads and food for the miners that go on to build solid and sustainable businesses" and that profits would be in mining companies.
Guppy, Daryl (5 Nov 2009). $1160 is Gold's Next Target Level: Charts. CNBC. http://www.cnbc.com/id/33632775.
Daryl Guppy (5 Nov 2009) claims that the sudden rise in the gold price has been influence by the Indian Central Bank buying gold from the International Monetary Fund. He notes that many gold bugs seem to think gold will hit $2000. However, the four factors that influence the price of gold may not actually influence the price as much as gold bugs think it will.
1. Fear. Gold reached $1000 in March 2008 when the market was collapsing and then reached it again in September 2009 after the global market had recovered. This proves that fear is not as huge a factor as it may seem.
2. US Dollar Strength. The dollar began falling in March 2009, however gold also fell from $1000 to $850 at the same time; and then it rose back over $1000. Not much of a correlation.
3. Central Banks. The Indian buying pushed gold to its current all time high. However, transfering the gold from the IMF to central banks doesn't affect supply and demand, therefor any affect on the gold price will be short-lived.
4. Jewelry. Indians only buy gold around holidays. Also, jewelry demand is only steadily increasing worldwide, as it always has. This increase is not enough to affect gold's sudden jumps and retreats.
Guppy (2009) next states that gold has reached it's first plateau of $1080. Next it will be $1160, and then $1240. However, he also says that if China announces that they won't start buying from the IMF, gold could retreat to $1000; but if they announce they will start buying, gold could hit $1160.
Guppy states that the way money is made in the gold market deals with "suppliers of pick sand shovels, or steel for the mine pit heads and food for the miners that go on to build solid and sustainable businesses" and that profits would be in mining companies.
Guppy, Daryl (5 Nov 2009). $1160 is Gold's Next Target Level: Charts. CNBC. http://www.cnbc.com/id/33632775.
Thursday, November 12, 2009
Why the Gold Price Increase to $1,120 an Ounce?
Gold has been surging like we haven't seen it surge for years. This increase is significant because it continually reaches all-time highs, which today, has gold at $1120 per ounce.
The white metals are all well below their all-time highs, but are still following gold up the ladder: platinum is at $1370 per ounce, 60% of its all-time high. Palladium is at $350 per oz, 32% of its all-time high. And silver is trading at $17.50 per ounce, 35% of its all-time high.
Unlike gold, the white metals are used in manufacturing and used up. With the recessed economy they aren't in high demand, so their price jumps are not industrial, but rather, they're following gold as hedges.
Now let's look at some of the reasons gold has risen to $1120 an ounce.
India
Central banks are buying gold. Most notably India. Last week the central bank of India bought 200 tons of gold from the International Monetary Fund (IMF). India is reported to want to diversify it's financial hedges. The sale was an alleged US $6.7 billion.
Central Banks
Several other central banks are reported to be buying gold to hedge against the risks of a falling dollar. Sri Lanka and China are on the list, amongst others. These purchases not only increase the gold price, but influence individual investors as well.
Since buying has begun, it may continue, thus making investors rush to buy before the price increases more. This interest may shoot gold well past anticipated levels due to overbuying.
Matt Zeman of LaSalle Futures Group Inc. is quoted as saying, "The interest that central banks have shown for gold has really lit a fire under the market...People are questioning the value of not only the U.S. currency, but all paper currencis. Investors are moe comfortable holding gold" (cited by Ngyuen and Larkin).
China
A simple report by the Chinese government saying it will start buying gold is enough to shoot the price up another $100 or more. A swift upturn in the Chinese economy would have a similar, yet softer effect.
Falling Dollar
If the dollar falls, the price of gold will go up in dollar terms. However, if the dollar falls, since many other countries hold US debt, gold will rise in terms of other currencies as well.
The dollar has reached a 15-month low on the dollar index. This index compares the performance of the dollar against other main currencies. This shows some of the reason for gold's surge, however, gold is also at an all-time high measured in euros. It's currently trading at around 750 euros per ounce.
Inflation
The world is worried about the dollar. With the trillions of dollars spent this year in bailouts and stimulus packages, the dollar is being printed like never before. The Fed is hoping this will stimulate the economy, and it may, but it will also likely cause inflation.
John Hathaway of Tocqueville Gold Fund is quoted as saying, "Would they be able to retract the liquidity they put into place?...If they havce a hard time doing it, I htink we'll see inflation, and gold will go much higher (cited by Ngyuen and Larkin).
And again, it's not only the inflation that's causing the gold to go higher, it's also the anticipation of future inflation causing investors to hedge now before prices go higher.
Interest Rates
The Fed has kept interest rates low in hope of sparking the economy. Low interest rates means cheap loans for housing and month thrown back into the economy.
Zeman says, "The dollar is not going to get any firm footing with rates at zero...People are selling dollars and putting it in higher-yielding assest. All commodities are going higher" cited by Ngyuen and Larkin).
Goldman Sachs thinks that gold will reach $1200 with rates as they are. Also, since people are thinking rates will stay low longer, they're anticipating gold to go higher and buying more, thus increasing the gold price even more.
"Analysts said the dollar was smarting after Fed officials said on Tuesday that high unemployment and sluggish consumer spending were risks to recovery in the U.S. economy, which may keep the Fed funds rate low" (Tang and Harvey).
Other Factors
There are too many factors to list, but above are the main ones. Some others include the opening of the gold market back into Vietnam, spurred by investor demand. It was previously illegal to import gold into Vietnam.
The Chinese government has reportly encouraged citizen's to buy gold to hedge for inflation.
Gold Fields gold producer in South Africa is going on a labor strike. This just means less new gold coming out of the ground to sell.
Godt, Nick and Lesova, Polya. "Gold Hit Record Near $1,120 an Ounce." MarketWatch. November 11, 2009. http://www.marketwatch.com/story/gold-futures-climb-to-record-above-1117-2009-11-11
Tang, Frank and Harvey, Jan. "Gold Rises Towards $1,120 on Strong Sentiment." Reuters. November 11, 2009. http://www.reuters.com/article/ousivMolt/idUSTRE5A80MQ20091111?pageNumber=2&virtualBrandChannel=11604&sp=true
Nguyen, Pham-Duy and Larkin, Nicholas. "Gold Futures Rise to Record on Speculation Dollar Will Decline." Bloomberg.com. November 11, 2009. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJwZs1AweH_s
The white metals are all well below their all-time highs, but are still following gold up the ladder: platinum is at $1370 per ounce, 60% of its all-time high. Palladium is at $350 per oz, 32% of its all-time high. And silver is trading at $17.50 per ounce, 35% of its all-time high.Unlike gold, the white metals are used in manufacturing and used up. With the recessed economy they aren't in high demand, so their price jumps are not industrial, but rather, they're following gold as hedges.
Now let's look at some of the reasons gold has risen to $1120 an ounce.
India
Central banks are buying gold. Most notably India. Last week the central bank of India bought 200 tons of gold from the International Monetary Fund (IMF). India is reported to want to diversify it's financial hedges. The sale was an alleged US $6.7 billion.
Central Banks
Several other central banks are reported to be buying gold to hedge against the risks of a falling dollar. Sri Lanka and China are on the list, amongst others. These purchases not only increase the gold price, but influence individual investors as well.Since buying has begun, it may continue, thus making investors rush to buy before the price increases more. This interest may shoot gold well past anticipated levels due to overbuying.
Matt Zeman of LaSalle Futures Group Inc. is quoted as saying, "The interest that central banks have shown for gold has really lit a fire under the market...People are questioning the value of not only the U.S. currency, but all paper currencis. Investors are moe comfortable holding gold" (cited by Ngyuen and Larkin).
China
A simple report by the Chinese government saying it will start buying gold is enough to shoot the price up another $100 or more. A swift upturn in the Chinese economy would have a similar, yet softer effect.
Falling Dollar
If the dollar falls, the price of gold will go up in dollar terms. However, if the dollar falls, since many other countries hold US debt, gold will rise in terms of other currencies as well.
The dollar has reached a 15-month low on the dollar index. This index compares the performance of the dollar against other main currencies. This shows some of the reason for gold's surge, however, gold is also at an all-time high measured in euros. It's currently trading at around 750 euros per ounce.
Inflation
The world is worried about the dollar. With the trillions of dollars spent this year in bailouts and stimulus packages, the dollar is being printed like never before. The Fed is hoping this will stimulate the economy, and it may, but it will also likely cause inflation.
John Hathaway of Tocqueville Gold Fund is quoted as saying, "Would they be able to retract the liquidity they put into place?...If they havce a hard time doing it, I htink we'll see inflation, and gold will go much higher (cited by Ngyuen and Larkin).
And again, it's not only the inflation that's causing the gold to go higher, it's also the anticipation of future inflation causing investors to hedge now before prices go higher.
Interest Rates
The Fed has kept interest rates low in hope of sparking the economy. Low interest rates means cheap loans for housing and month thrown back into the economy.
Zeman says, "The dollar is not going to get any firm footing with rates at zero...People are selling dollars and putting it in higher-yielding assest. All commodities are going higher" cited by Ngyuen and Larkin).
Goldman Sachs thinks that gold will reach $1200 with rates as they are. Also, since people are thinking rates will stay low longer, they're anticipating gold to go higher and buying more, thus increasing the gold price even more.
"Analysts said the dollar was smarting after Fed officials said on Tuesday that high unemployment and sluggish consumer spending were risks to recovery in the U.S. economy, which may keep the Fed funds rate low" (Tang and Harvey).
Other Factors
There are too many factors to list, but above are the main ones. Some others include the opening of the gold market back into Vietnam, spurred by investor demand. It was previously illegal to import gold into Vietnam.
The Chinese government has reportly encouraged citizen's to buy gold to hedge for inflation.
Gold Fields gold producer in South Africa is going on a labor strike. This just means less new gold coming out of the ground to sell.
* * *
Sources
Godt, Nick and Lesova, Polya. "Gold Hit Record Near $1,120 an Ounce." MarketWatch. November 11, 2009. http://www.marketwatch.com/story/gold-futures-climb-to-record-above-1117-2009-11-11
Tang, Frank and Harvey, Jan. "Gold Rises Towards $1,120 on Strong Sentiment." Reuters. November 11, 2009. http://www.reuters.com/article/ousivMolt/idUSTRE5A80MQ20091111?pageNumber=2&virtualBrandChannel=11604&sp=true
Nguyen, Pham-Duy and Larkin, Nicholas. "Gold Futures Rise to Record on Speculation Dollar Will Decline." Bloomberg.com. November 11, 2009. http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJwZs1AweH_s
Wednesday, November 11, 2009
Jim Sinclair Says the Dollar is Dead
In his article "Motivation Behind the Countdown," precious metals specialist Jim Sinclair (August 14, 2009) gives us his view of the US dollar's fate for November, 2009. The prediction isn't pretty.
The reason for Sinclair making this assumption is that China requested a financial summit with the US. These things are seldom requested. Sinclair states a couple things he sees happening.
Sinclair closes with the following:
"All of this could have been fixed prior to the event of Lehman declaring bankruptcy. Now there are no PRACTICAL SOLUTIONS....Pandora’s Box is open, only to be closed by markets as the downward spiral goes to its practical end, a return to commodity money."
This has been a complete summary. To view the full article, click here.
Sinclair, Jim (August 14, 2009). The Motivation Behind the Countdown. Jim Clair's MineSet. http://jsmineset.com/2009/08/14/the-motivation-behind-the-countdown.
The reason for Sinclair making this assumption is that China requested a financial summit with the US. These things are seldom requested. Sinclair states a couple things he sees happening.
- The US need China to continue buying US debt, meaning the US needs China to continue lending it money
- The Chinese want the US to support a "Super Sovereign Currency as an offset to dependence on the dollar for international settlements and national reserves" (Sinclair, 2009)
- "The Chinese rightly feel that the greatest risk to their present dollar position’s valuation is quantitative easing. Or simply put, the monetization of one’s own debt by the electronic creation of money for funding yourself"(Sinclair, 2009)
Sinclair closes with the following:
"All of this could have been fixed prior to the event of Lehman declaring bankruptcy. Now there are no PRACTICAL SOLUTIONS....Pandora’s Box is open, only to be closed by markets as the downward spiral goes to its practical end, a return to commodity money."
* * *
This has been a complete summary. To view the full article, click here.
Sinclair, Jim (August 14, 2009). The Motivation Behind the Countdown. Jim Clair's MineSet. http://jsmineset.com/2009/08/14/the-motivation-behind-the-countdown.
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