gold hovers near records on u.s. debt woes · 2011. 9. 19. · gold generally does well in times of...

A gold statue of a lion is displayed at a jewellery shop in Hong Kong REUTERS/Tyrone Siu

Gold Hovers Near Records on U.S. Debt Woes

SPECIAL PDF REPORT AUGUST 2011

• Bank of Korea buys gold as dollar, euro lose clout • Is central bank buying the sell signal for gold?:Clyde Russell • Striking S.Africa gold miners resume talks Tuesday • Asian investors stricken by gold fever on record price • Modest gold rally shows U.S. default unlikely • Spot gold four-week target $ 1,688/oz • Gold price forecasts rise as jitters intensify • Gold funds dominate top performers in Q2

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Bank of Korea buys gold as dollar, euro lose clout By Yoo Choonsik and Kim Yeonhee SEOUL, Aug 2 (Reuters)

S outh Korea spent more than a billion dollars in its first gold purchase in more than a decade, as uncertainty about global growth and sovereign debt push central banks around the world to diversify foreign reserves. A brittle global economic recovery and precarious debt conditions in the United States and Europe have boosted the

safe-haven appeal of gold, lifting bullion to a record high on Friday. The Bank of Korea said in a statement on Tuesday it bought 25 tonnes of gold over the past two months, raising its gold hold-ing to 39.4 tonnes, news that helped lift spot gold by around $6 from late Monday. Reserve currencies, like the dollar and euro, "have been losing their clout since the recent global financial crisis partly due to abnormal monetary policy adopted in many countries and fiscal deficit problems," said an official at the central bank who de-clined to be named because he was not authorised to speak to the media. Data on 27 major economies from the Bank for International Settlements shows the dollar's inflation-adjusted real effective value has dropped by 10 percent in the past two years and the euro has lost 6 percent, reflecting the sharp increase in the amount of each currency in circulation. South Korea's gold holdings remain far smaller than that of other Asian central banks, with China, which ranks sixth globally, the biggest with 1,054.1 tonnes by the end of May, according to World Gold Council data. Japan, No. 9 globally, has 765.2 tonnes of gold, or 3.3 percent of its total reserves, and 11th-ranked India has 557.7 tonnes, or 8.7 percent. "South Korea's central bank seems a little late to the party, but gold investors should continue to expect price support as cen-tral bankers around the world are underinvested in the yellow stuff," said Sean McGillivray, head of asset allocation at Great Pacific Wealth Management. "Investors and central bankers are looking to protect purchasing power, diversifying into the currency of last resort, gold." With prices hovering near historic highs, the central bank of Asia's fourth-largest economy said gold looked less lucrative as an investment, but it was the right time to buy the precious metal because its foreign reserves had risen above $300 billion. The news helped boost gold prices, with spot up 0.4 percent at $1,623.94 an ounce by 0528 GMT. Gold hit a record high of $1,632.30 on Friday. "Any news about central banks buying gold reassures consumers and other major players who are already looking at gold as an investment," said Jeffrey Pritchard, analyst at California-based commodities futures and options brokerage Altavest Worldwide Trading. CONDITIONS RIPE FOR GOLD PURCHASE The Bank of Korea said its latest gold purchase was valued at $1.24 billion. It did not say whether it had bought gold bullion or funds, or whether it plans to buy more gold. The purchase comes weeks before the central bank is due to face an annual parliamentary audit, expected in September, and after several South Korean lawmakers from both the ruling and opposition parties have re-peatedly called for it to boost holdings of gold to diver-sify reserves.

At 25 tonnes of gold, equivalent to 803,769 ounces, the average price paid comes to around $1,543 an ounce, based on Reuters calculations.

A BoK official said it was the bank's first gold purchase since at least the 1997-1998 Asian financial crisis when patriotic Koreans collected the precious metal as part of a campaign to boost the country's foreign reserves, when it was on the verge of a sovereign default.

"The country had too small an amount of foreign re-serves to diversify into gold before 2004 and was not able to buy gold between 2005 and 2007 due to con-cerns about the central bank's annual losses," the Bank of Korea said.

GOLD HOVERS NEAR RECORDS ON U.S. DEBT WOES AUGUST 2011

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"Now that our total reserves topped $300 billion and foreign exchange markets stabilised, we judged that conditions were ripe for us to increase gold holding."

The increased gold holding would put South Korea in 45th position in the World Gold Council's list of central banks holding gold, up from 56th previously, the Bank of Korea said.

The United States has the biggest gold holding in its reserves, at 8,133.5 tonnes, or 74.7 percent of total reserves, according to the WGC's July report. Germany is a distant second with 3,401 tonnes, or 71.7 percent of its total reserves.

The Bank of Korea declined to disclose the purchase price but said it had entrusted all of its gold holding to the Bank of Eng-land for possible use in gold lending and other related transactions.

Including the gold, South Korea's foreign reserves rose by $6.55 billion in July to $311.03 billion, equivalent to about 30 per-cent of the country's annual gross domestic product of just more than $1 trillion in 2010.

South Korea's foreign reserves ranked seventh in the world as of the end of June, the central bank said.

COLUMN-Is central bank buying the sell signal for gold?:Clyde Russell -- Clyde Russell is a Reuters market analyst. The views expressed are his own. --

By Clyde Russell

S INGAPORE, Aug 2 (Reuters) - Are central bank gold purchases the contrarian signal that the precious metal's rally is about over?

Certainly, if you had bought gold some 12 years ago when central banks engaged in massive selling, you would have made a great return.

And just as certainly, if you had bought the yellow metal at its last major peak in 1980, you would be extremely disappointed, notwithstanding the current rally.

South Korea's central bank became the latest official sector buyer, announcing the purchase of 25 tonnes over the past two months, its first foray into the gold market in more than a decade.

In the first half of this year, central banks were net buyers of just over 155 tonnes of gold, almost double the 87 tonnes of net purchases in 2010, World Gold Council data show.

Mexico and Russia have been leading buyers so far in 2011, the council data show.

But the trend of central banks in the developing world buying gold really got started in 2009, when China bought 454 tonnes in April and India 200 tonnes in November.

These purchases were viewed as adding to the bullish case for the metal, especially if China wished to increase the percentage of gold in its total reserves, currently just 1.6 percent compared to almost 75 percent for the United States.

China's reserves total 1,054.1 tonnes, making it the sixth largest holder, but still well behind the 8,133.5 tonnes held by the top-ranked United States.

Gold generally does well in times of economic uncertainty, such as have prevailed since the 2008 financial crisis.

Throw in sticky inflation, unimpressive equity returns and concerns over the fiscal health of developed world economies and it's no surprise gold has rallied.

In fact, there are definite parallels between the current situation and 1980, when gold reached a then record around $850 an ounce.

If you had bought $1,000 worth of gold in January 1980, it would be worth about $1,900 today. If you had instead invested $1,000 in the S&P 500 equity index, you would now have about $36,800, based on reinvesting dividends.

Gold hasn't beaten inflation since its 1980 peak, it would need to rise to around $2,400 an ounce to just break even in real terms. Conversely, the S&P 500 has returned an inflation-adjusted average of around 8 percent per annum since then.

Gold reached its nadir in August 1999 of around $251 an ounce, just months after the Bank of England and the Swiss National Bank decided to sell 395 tonnes and 1,300 tonnes respectively.

If you had bought $1,000 of gold then, it would fetch around $6,400 now, while $1,000 in the S&P 500 would be worth about $1,230.

So does this mean that buying gold when central banks are selling, and vice versa, is the winning strategy?

It would certainly appear so, but in doing these calculations I have had the luxury of perfect hindsight.

An investor in the current market doesn't know what the peak is going to be for gold.

Certainly, many analysts expect the precious metal will rally further, with targets around $1,800 to $2,000 an ounce by the end of the year not uncommon.


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There may yet be time to enter the gold market and profit, especially if central banks in developing nations continue to buy and the world economy is beset with concerns over sovereign debt and too-large government deficits.

But the further gold rises and the more bubble-like it becomes, the more tempting it is for developed world central banks to consider selling reserves and the more expensive it becomes for jewellery buyers.

Perhaps we are already entering the "greater fool" part of gold investing, when you are only buying it because you believe somebody else will be dumb enough to take it from you at a higher price sometime down the road.

Striking S.Africa gold miners resume talks Tuesday By Ed Stoddard

J OHANNESBURG, Aug 2 (Reuters) - South African gold mine workers and producers were to resume wage talks on Tues-day aimed at ending a strike that is costing the companies up to $25 million a day in lost output at a time when the pre-cious metal is fetching record high prices.

The National Union of Mineworkers (NUM) said no progress was made in talks to resolve the impasse with the country's main gold miners, AngloGold Ashanti , Gold Fields and Harmony Gold and a junior miner.

"The gold talks have ended, there was no progress. We will continue tomorrow," NUM spokesman Lesiba Seshoka said late on Monday.

A spokesman for the Chamber of Mines, which negotiates on behalf of the gold mines, also said talks would take place again on Tuesday.

Some 100,000 gold miners downed tools on Thursday and analysts have said a prolonged stoppage in the world's fourth larg-est gold producer could help the bullion price maintain its upward momentum.

It has been hitting new record highs on an almost daily basis as investors seek safe havens amid European and U.S. debt woes.

A week-long strike against South Africa's main coal mines ended on Monday when a wage deal was clinched.

The mounting impact of South Africa's annual "strike season", which has also hit the fuel, diamond and steel industries, is seen crimping growth and possibly pushing the continent's largest economy into contraction.

Coal firms that were affected included Anglo Thermal Coal SA , Exxaro , Optimum Coal and Xstrata Coal . If it had persisted it could have menaced exports and supplies to the country's power utility Esko.

The Chamber of Mines said most of the coal companies had agreed to increases of 8 to 10.5 percent in the first year and 7.5 to 10 percent in the second year.

In the gold talks, the NUM has been seeking a 14 percent pay rise while the gold mine companies have publicly offered rises of 7-9 percent.

GOLD HOVERS NEAR RECORDS ON U.S. DEBT WOES JULY 2011

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Gold hits record; US debt uncertainty grows By Rujun Shen

SINGAPORE, July 27 (Reuters) -

S pot gold hit an all-time high on Wednesday, for the sixth time in two weeks, as worries about whether the United States can avert a debt default grew while the country's two key political parties are still locked in a stalemate in debt ceiling talks.

Spot gold rose as high as $1,623.86, before easing to $1,620.66 by 0308 GMT. It was up in 16 of this month's 19 trading ses-sions so far. U.S. gold gained 0.3 percent to $1,621.20. It set a record of $1,624.3 on Monday.

The U.S. House of Representatives decided to postpone a vote on a plan to raise the debt ceiling until Thursday at the earliest, narrowing the chances for a deal to avert a debt default. "The same arguments about potential government bond fallout are still being made," said a Singapore-based trader, "but people are on the sidelines ahead of the August deadline waiting to see whether or not the U.S. is going to avoid a technical default." Investors have become increasingly cautious as great volatility is seen ahead of the Aug. 2 deadline though, he added.

Gold 24-hour technical outlook: ( http://graphics.thomsonreuters.com/WT1/20112707094909.jpg )

Turmoil in the currency market also helped gold attract some interest. The dollar touched a 4-month low against the yen, and dipped to its lowest against a basket of currencies since early May. "It's ambiguous what currencies are the so-called haven in the middle of all the problems in the West," the trader said.

A small majority of economists polled by Reuters said the United States would lose its top-notch AAA credit rating from at least one major rating agency. Dealers reported muted reaction on Asia's physical market to gold's rally, as buyers and sellers alike cautiously watch the unfolding U.S. debt talks.

"There has been some selling and very small volume of buying, and people wait to see if the U.S. will default," said Ronald Leung, physical dealer at Lee Cheong Gold Dealers in Hong Kong, adding that premiums for gold bars have fallen a little from last week to 50 cents to $1.1 per ounce over spot prices. Platinum group metals scored multi-month highs, tracking strength in gold. Spot platinum hit $1,810, its highest since June 13. It eased to $1,804.99, up 0.3 percent.

Spot palladium gained 0.8 to $838.50, after reaching a five-month high of $841.25 in the previous session. "As gold is at such lofty levels, we might see some substitute effect (in PGM). There is very strong potential that platinum group metals continue to move north," said the Singapore-based trader. Spot palladium had risen 11 percent so far this month, the second-best per-former after silver, which had gained nearly 18 percent in July. Platinum lagged behind other precious metals with a 4.9-percent month-to-date rise.

Gold has huge upside potential this year -Wang Tao SINGAPORE, July 19 (Reuters) -

S pot gold could rise as much as 21 percent in a sharp rally by the end of the year to stand around $1,940 per ounce, tech-nical analysis shows, Reuters commodities analyst Wang Tao forecast on Tuesday.

"The strong bullish momentum built in the past two weeks is likely to snowball into the future," said Wang Tao, naming the herd instinct of investors as the reason why gold prices have surged along with other com-modities in a big bull cycle that is expected to last the next sev-eral years.

His conclusion is based on Elli-ott wave theory, a powerful technical analysis tool that stud-ies patterns on price charts, which are believed to reflect social or crowd behavior trends, and Fibonacci ratio analysis, a method market technicians use to predict future movement of a trend based on preceding events.

Technical outlook chart:

( http://link.reuters.com/rab72s )


Gold turtles and toads are displayed at a jewellery shop in Seoul April 21, 2011. REUTERS/Jo Yong-Hak

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Wang Tao's interpretation of the chart pattern shows a big bull cycle could have originated from a 1970 low at $34.95, from which a subsequent rise to a high of $835 in 1980 only completed a big wave "A", the first part of an "A-B-C" wave cycle.

The next 20 years of retracement from the 1980 high to a 1999 low of $251.70 is labeled as the wave "B", with the current rally interpreted as a wave "C". In a long-term outlook in April, Wang said gold might peak around $1,545 per ounce or rise sharply towards $1,941 by the end of this year.

The two prices represent two 161.8 percent Fibonacci projection levels, based respectively on the length of the wave "A" and the rise from the wave "I" to the wave "III" peak of $1,030.80 in 2008, Wang explained.

Signals turned bearish after gold touched a high of $1,575.79 in May, about $31 above the projected $1,545 target, and the fol-lowing consolidation over one month ended with a sharp fall to $1,478.01 in July. "But the signals were too short-lived, and were totally reversed by a quick recovery of the drop," Wang added.

That's because once the 161.8 percent Fibonacci level is broken above, gold is theoretically heading towards the 261.8 percent level at $2,345 over the longer term. There are several explanations about the factors that are driving this crazy bull run, rang-ing from the weaker dollar to a disappointing interest rate level, but Wang says group psychology stands out over the rest.

For example, the charts of spot gold and the yield of the U.S. 10-year treasury note do not show a strong correlation:

( http://link.reuters.com/jeb72s )

While a comparison chart illustrates that the weaker U.S. dollar does contribute to stronger gold, that may not be the only force propelling gold to record highs:

( http://link.reuters.com/beb72s )

From a technical point of view, almost all markets are emotion-driven, Wang said, adding, "The most critical factor behind the bull run could be the herd instinct, or so-called group psychology."

** Wang Tao is a Reuters market analyst for commodities and energy technicals. The views expressed are his own.

No information in this analysis should be considered as being business, financial or legal advice. Each reader should consult his or her own professional or other advisers for business, financial or legal advice regarding the products mentioned in the analy-ses. **

South African strikes to spread to gold sector By Agnieszka Flak and Ed Stoddard

JOHANNESBURG, July 26 (Reuters) -

S outh African gold miners are gearing to join tens of thousands of workers seeking pay rises in widening strikes, threaten-ing to hurt output at a time when bullion is at record highs.

The gold strike on Thursday could see 100,000 workers down tools and take about 16,000 ounces a day out of global output, which could support a rally driven by European and U.S. debt jitters.

Hundreds of thousands of workers across the country have hit the streets in recent weeks, or are threatening to do so, seeking pay rises of double or triple the 5 percent infla-tion rate in mid-year bar-gaining known as "strike season" and denting investor sentiment in Africa's largest economy.

Strikes also loom in the key platinum sector in the world's biggest pro-ducer of the precious metal.

Coal miners walked off the job late on Sunday and Monday and Anglo American has halted operations at its South African coal mines which produced 58.5 million tonnes of coal in 2010.

SINGAPORE INTERNATIONAL ENERGY WEEK—SPECIAL PDF NOVEMBER 2010 GOLD HITS RECORD HIGH ABOVE $1,622/OZ JULY 2011 GOLD HITS RECORD HIGH ABOVE $1,622/OZ JULY 2011 GOLD HOVERS NEAR RECORDS ON U.S. DEBT WOES AUGUST 2011

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Unions said they would meet with the coal producers again for further talks Thursday.

The industrial actions have hit the wider economy with petrol workers in the third week of a strike and previous disputes in the engineering and steel sectors.

The powerful National Union of Mineworkers (NUM), with one eye on high prices, wants a 14 percent increase in wages from gold employers -- including AngloGold Ashanti , Gold Fields and Harmony , which have offered rises between 7 and 9 percent. It also wants 14 percent from the coal producers.

NUM's spokesman said on Tuesday it had given the gold mines a 48-hour strike notice and Harmony, the country's third big-gest gold producer, said it had been told its workers would walk off the job at 1800 local time (1600 GMT) Thursday.

The gold miners' share prices all fell sharply in Johannesburg on Tuesday with AngloGold leading the way as it shed over three percent.

The ripple effects were seen hitting other companies.

"A lot of our chemical customers are on strike now and a lot of our factories are on strike now ... It will definitely negatively im-pact the second-half earnings in some way," said Graham Edwards, CEO of AECI , a South African manufacturer of chemicals and explosives.

HOLDING GOLD

Traders are monitoring South African gold supply, particularly as the spot price of the precious metal is within striking distance of record highs scaled on Monday.

Spot gold hit a record high of $1,622.49 an ounce on Monday as U.S. President Barack Obama warned that failure to reach an agreement to avert debt default could cause a deep economic crisis.

"Declining mine supply, higher production costs, and less central bank selling are almost turning gold into a bit of a supply and demand commodity, even though 95 percent of its behaviour is still currency or investor-flow related," said Robin Bhar, an ana-lyst at Credit Agricole.

"But if you're holding gold you're not going to want to sell it against a background of strikes in South Africa, which is the fourth-biggest producer."

South Africa was once the world's largest gold producer, but in 2010 ranked behind China, Australia and the United States, Reuters' data showed.

SINGAPORE INTERNATIONAL ENERGY WEEK—SPECIAL PDF NOVEMBER 2010 GOLD HITS RECORD HIGH ABOVE $1,622/OZ JULY 2011

A visitor touches a mobile phone purse made of gold at the Jakarta International Jewellery Fair June 4, 2010. REUTERS/Beawiharta


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COAL AND FUEL TALKS

Should the coal strike be prolonged, it could hit the already strained power supply along with coal exports.

Utility Eskom, which has a virtual monopoly in South Africa and has tight supplies, said the strike posed no immediate danger to its coal-fired plants as it has extra stocks.

Employers over the past two years have struck wage deals averaging about 8 percent. Many companies view above-inflation settlements as a necessary cost of doing business in South Africa. They have also slashed jobs over the period to make up for the higher personnel costs.

Unions will also hold talks with employers in the fuel sector, hoping to end a strike which is into its third week and has left hun-dreds of pumps dry across the country.

Economists have said wage settlements well above inflation could hurt competitiveness and the long-term outlook by driving up the labour costs.

But unions argue the official inflation rate does not reflect the full impact of rising food and fuel prices on the incomes of their rank and file.

"When you see workers strike for higher wages, it signals that they are taking strain. Consumers are taking strain because en-ergy costs have gone up, like electricity, food prices are also up, that's where the problem lies," said Freddie Mitchell, an econo-mist at the Efficient Group.

U.S. and euro showdowns drive investors to gold (The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

By Ian Campbell

LONDON, July 25 (Reuters Breakingviews) -

I t's hard to make euro zone leaders look good, but America's leaders are succeeding. Global investors don't find it so amus-ing. The economies and currencies of the world's two most important economic blocs are being undermined simultaneously. That is why gold is likely to go higher still, together with the super-charged Swiss franc and the yen -- while stocks remain at high risk.

The U.S. and European crises are as different as their political systems and history, but both are the result of deep-seated prob-lems coming to a head.

The U.S. is flirting with debt default despite investors' continuing willingness to buy its overpriced debt. Yes, as the Republicans assert, the deficit must be reduced and the U.S. debt load must be prevented from rising inexorably. But to refuse higher taxes as part of the remedy is wrong.

According to the interna-tionally comparable figures of the OECD, the total tax take in the United States was 24 percent of GDP in 2009. In the UK the compa-rable figure was 34 percent, in Germany 37 percent. U.S. taxes are unusually low as a share of GDP, not high. And tax increases are normally part of any major effort to reduce a fiscal deficit. They are in the UK, where a gov-ernment that is cutting spending and wants to cut taxes is raising them in the near term -- to get the defi-cit down. The United States has to learn that it cannot be a high-spending global superpower and a low-tax economy simultaneously.

SINGAPORE INTERNATIONAL ENERGY WEEK—SPECIAL PDF NOVEMBER 2010 GOLD HITS RECORD HIGH ABOVE $1,622/OZ JULY 2011 GOLD HITS RECORD HIGH ABOVE $1,622/OZ JULY 2011

A man holds a sign outside a jewelry store in the diamond district of New York, July 19, 2011. REUTERS/Shannon Stapleton

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Gold price forecasts rise as jitters intensify By Jan Harvey

LONDON, July 22 (Reuters) -

A nalysts have boosted gold price forecasts for this year and next due to persistent concerns over the euro zone debt crisis, and fresh worries over the U.S. recovery and debt. Reuters' biannual poll of precious metals price forecasts found that just over half of the 52 respondents who returned gold views expect prices to average $1,500 an ounce or more this year,

against just over one in five who responded to a similar poll conducted in January.

"There are still strong funda-mental reasons why gold re-mains attractive to investors," said Ong Yi Ling, and invest-ment analyst at Phillip Futures in Singapore.

"They include persistent euro zone debt concerns, a weak dollar -- as monetary policy of the Fed remains loose -- and increased demand from emerging economies (and) central banks." The survey returned a median average price forecast of $1,510 an ounce, up from $1,453 an ounce in January, when many investors had hopes the global economy was on track to steadily recover.

Next year respondents expect prices to average $1,575 an ounce, against expecations for $1,425 in the earlier poll, continuing the metal's bull run for a twelfth successive year. Spot gold hit a record $1,609.51 an ounce earlier this week as investors wor-ried the debt crisis that hit Greece could spread to Spain and Italy, and over negotiations to raise the U.S. debt ceiling, failure of which could lead to default. "Even in the likely event Congress agrees to a debt ceiling rise, recent uncertainties are likely to reinforce central banks' ongoing efforts to diversify from the dollar into gold and other assets," said Peter Buchanan, a Toronto-based commodities analyst at CIBC World Markets.

For graphic on gold forecasts: ( http://r.reuters.com/xeq72s )

For graphic on silver forecasts: ( http://r.reuters.com/huq72s )

Reuters Insider coverage: ( http://link.reuters.com/tym72s )

OFFICIAL SECTOR BUYS

Further support will be lent to prices by the official sector, analysts said. Central banks have increasingly looked to hoard gold in recent years, with its status as a currency diversifier making it a valuable asset for them. According to the World Gold Coun-cil, central banks turned net buyers of gold in 2010 for the first time in 21 years, as banks in emerging markets added to reserves and sales by the European official sector dried up.

Global central bank gold reserves rose by more than 900 tonnes over the nearly three years to June 2011, a period that included the global financial crisis, according to the World Gold Council. Conversely, they fell by 1,283.6 tonnes in the three years to Sep-tember 2008 as banks sold off some holdings. Concerns over rising inflation in major developing markets such as China are also supporting gold, which is often seen as a safe store of value in an inflationary environment.

"Despite the debt issues which have been widely discussed recently and worries over an overheating economy, the Chinese gov-ernment has enough policy levers to keep growth proceeding well," said David Jollie, an analyst at Mitsui Precious Metals in London. "This may, though come at a cost of sustained real inflation, something that is likely to support the gold price."

Analysts were more cautious on silver prices, however, after they retreated sharply after spiking higher early in the year. Silver has fluctuated between just over $26 and nearly $50 this year, showing far greater volatility than gold.

It is expected to average $36.60 an ounce in 2011, with its stellar performance early in the year lifting that forecast from the $30.00 it stood at in January. Next year prices are expected to average $36.25 an ounce, well above January's estimate of $28 an ounce.

"Silver may be pulled higher, accompanying gold, but as the metal has surged and slumped in a short interval in 2011, it may take a while for the market to recover," said Koichiro Kamei, managing director at financial research firm Market Strategy Insti-tute in Tokyo.

SINGAPORE INTERNATIONAL ENERGY WEEK—SPECIAL PDF NOVEMBER 2010 GOLD HITS RECORD HIGH ABOVE $1,622/OZ JULY 2011 GOLD HITS RECORD HIGH ABOVE $1,622/OZ JULY 2011 GOLD HOVERS NEAR RECORDS ON U.S. DEBT WOES JULY 2011 GOLD HOVERS NEAR RECORDS ON U.S. DEBT WOES AUGUST 2011

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Gold funds dominate top performers in Q2 By Claire Milhench


G old funds dominated a league table of commodity managers in the second quarter, but amongst the broad-based funds, it was those seeking returns uncorrelated with commodity price direction that did well after markets sold off heavily in May.

PIMCO's CommoditiesPLUS Short Strategy fund topped a Lipper performance league table of more than 100 actively man-aged commodity funds, up 6.80 percent, whilst the DB Platinum V Hermes Absolute Return Commodity Fund came seventh, up 2.16 percent.

Nicholas Johnson, manager of the PIMCO fund, attributed the outperformance to its strategy of taking an inverse position to the long-only DJ-UBS Commodity Index. "It's a way for investors to either take a view on a commodity decline or hedge over-weight commodity exposures in other areas of their portfolio," said Johnson. "When commodities fall this fund will have strong returns."

The second quarter was tough for managers, with commodities selling off heavily in early May. The S&P GSCI ended the quarter down 7.94 percent, led by weakness in the energy and agriculture sectors, S&P said. The average actively managed commod-ity fund in the Lipper Global Commodity sector was down 5.12 percent for the quarter.

MARKET NEUTRAL

Apart from the gold funds, the strongest performers were those that tried to deliver uncorrelated returns, such as the DB Plati-num Hermes fund and the eighth-placed Equinox Market Neutral Commodity Strategy Fund .

"If you compare us to commodity hedge fund managers in the U.S., we enter into predominantly market neutral trades - there won't be a significant amount of directionality in the portfolio," said Colin O'Shea, head of commodities at Hermes.

The fund, which has some $120 million under management, also makes relative value trades within sectors and curve trades, which O'Shea said should do well in all market environments.

"In Q2 there were a lot of macro fears and commodity prices fell, and a lot of those funds with a relatively high beta to the mar-ket suffered as a result," he said.

"Our portfolios are very diversified, and so the small number of directional positions we might have had in our portfolio were largely offset by the market neutral element, and those market neutral trades performed very well."


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Equinox's market neutral fund, by its very nature, is not dependent on the direction of commodity prices for its returns, as it takes offsetting long and short positions. It also has a targeting mechanism that aims to maintain volatility of 6 percent per annum or less, compared with an average volatility of 25-30 percent for commodities over the last 5-10 years and 15-20 per-cent for equities.

This works by increasing exposure during times when volatility is low and reducing it when volatility is high. The top 10 rankings were dominated by funds investing in gold bullion, gold futures and gold miners, as investors returned to the traditional safe haven due to worries about the global economic recovery, eurozone sovereign debt defaults, negative real interest rates and the U.S. dollar. The S&P GSCI Precious Metals index was up 2.05 percent in the second quarter - the only sector in positive terri-tory.

Peter Sigg, manager of the fourth-placed LGT CF Dynamic Gold Fund , said an overweight position of 100-120 percent for the quarter helped the $72 million fund outperform. The fund, which invests in exchange-traded gold futures, uses a combination of qualitative and quantitative factors to adjust its exposure between 60 percent and 140 percent, including leverage.

"Due to a strong positive scoring from the quantitative side with a stable and consistent uptrend, and supportive fundamental factors such as strong official sector purchases from emerging market countries and positive investment flows, we had an over-weight position," said Sigg. He sees gold benefiting in either a bullish (inflationary) or bearish (flight-to-quality) global growth scenario.

LAGGING AGRICULTURE

Agriculture funds took a hammering in the second quarter, filling up the bottom end of the table after the U.S. Department of Agriculture said that farmers had planted the second-largest acreage with corn since World War II. Although this news came late in June, it still clobbered the agriculture-focused funds with large long positions, and the S&P GSCI Agriculture Index ended the quarter down 12.09 percent.

PIMCO's Johnson sees commodities like corn and wheat, which can have quick supply responses, among the worst performers in the second half of the year.

He expects commodities with supply constraints such as oil and copper to be among the stronger performers, whilst Her-mes' O'Shea also pointed to en-ergy. "We are operating at low levels of global spare capacity," he said.

Sigg said the recent sell-off driven by the unfailingly negative newsflow of recent months had brought investors' expectations back to more down-to-earth lev-els.

"It is from these more reasonable levels that we expect a modest appreciation for the remainder of the year," he said. He favours agriculture and energy over base metals, which he sees as more well-supplied.

The worst-placed funds were the Tuma Commodities fund , a hy-brid fund that invests in com-modities futures and commodity-related companies, and the Ali-quot Agriculture (UCITS) Fund , which invests predominantly in agriculture commodity-related futures.

The Tuma fund was down about 18 percent for the quarter, and the Aliquot fund was down 13.76 percent. Both funds are up over the 12 months to end-June.


Highly pure molten gold for use in electronic devices is poured at a Tanaka Kikinzoku Kogyo factory in Kanagawa prefecture August 20, 2009. REUTERS/Michael Caronna


12

China Jan-May gold output at 132 T, up 3.67 pct SHANGHAI, July 12 (Reuters) -

C hina's gold output in the first five months of 2011 totalled 132.02 tonnes, up 3.67 percent from a year earlier, the Ministry of Industry and Information Technology (MIIT) said on its website on Tuesday.

Output for the month of May reached 28.791 tonnes, according to Reuters calculations based on official figures for the first four months.

The ministry had said on its website output for May was 8.791 tonnes. Despite repeated calls, the ministry could not be reached to clarify whether the discrepancy was due to a typographical error.

China is the world's biggest gold producer, with output at 340.880 tonnes in 2010, up 8.6 percent from 2009.

The ministry publishes output figures sporadically and in varying levels of detail. The following is a table of production so far in 2011, based on official figures from the ministry, Chinese media reports of February output, and Reuters calculations from the available data.

All output figures are in tonnes. Including : Mining production:

Smelting production:


Output pct change: Output pct change: (month) mo/mo yr/yr (ytd) yr/yr Jan 23.277 -28.36 6.73 23.277 6.73 Feb 23.919 2.76 13.22 47.196 9.92 Mar 26.216 9.6 -3.71 73.412 4.63 April 29.819 13.74 3.29 103.23 4.2 May 28.791 -3.74 1.69 132.02 3.67

Output pct change: Output pct change:

(month) mo/mo yr/yr (ytd) yr/yr Jan 19.296 -25.8 8.39 19.296 8.39 Feb 19.96 2.04 14.79 38.986 11.53 Mar 21.276 8.05 -4.76 60.262 5.18 April 25.13 18.11 4.75 85.392 5.05 May 23.738 -5.54 2.78 109.13 4.55

Output pct change: Output pct change: (month) mo/mo yr/yr (ytd) yr/yr Jan 3.981 -38.62 -0.62 3.981 -0.62 Feb 4.229 6.23 6.44 8.21 2.9 Mar 4.94 16.81 1.08 13.15 2.21 April 4.688 -5.1 -3.91 17.838 0.53 May 5.052 7.76 -3.13 22.89 -0.3


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Asian investors stricken by gold fever on record price By Manolo Serapio Jr and Rujun Shen


G old fever is gripping Asian investors and could spread to central banks as global growth uncertainties tarnish the appeal of other assets, putting bullion on course for more gains but also provoking fears about supply.

Spot gold surged more than $100 in 11 straight days to Tuesday, its longest winning streak in four decades, hitting a record $1,609.51 an ounce, as debt default fears in the United States and Europe drove investors to seek safety.

Gold stayed above $1,600 on Thursday as market watchers remained cautious about the debt situation on both sides of the Atlantic.

Asian giants India and China, the world's two biggest consumers of the precious metal, expect to see demand continue to climb for the rest of the year, as growing wealth and stubbornly high inflation make bullion an attractive asset.

"Record high prices won't scare away investors," said Shi Heqing, an analyst at Antaike, a state-backed metals consultancy based in Beijing.

"Investors are likely to chase the rally and continue to buy gold because paper money feels increasingly worthless and they are worried about inflation."

Shi expects China's gold demand to rise about 20 percent to near 700 tonnes this year from 570 tonnes in 2010 as Beijing struggles to tame annual inflation that hit a three-year high of 6.4 percent in June.

In India, the wedding season in mid-August is expected to drive up sales of gold, a fixture in dowry and gifts.

"The case for gold in the longer term is still very strong. Gold may appeal to new classes of investors who previously avoided the market in favour of more mainstream investments like bank deposits, bonds and equities," said a Singapore-based trader.

"Potentially there's a whole new market for small-sized physical gold bars if these investors lose faith in paper."

Technical charts point to gold hitting as much as $1,940 by the end of the year, given the strong bullish momentum in the past two weeks, Reuters market analyst Wang Tao says.

World's top official gold holders ( http://link.reuters.com/far62s )

World's top gold buyers and sellers since 2007 ( http://link.reuters.com/xej72s )

China's gold demand: ( http://link.reuters.com/fef72s )

Gold seen rising to $1,940 by yearend: ( http://link.reuters.com/rab72s )


A shopkeeper counts Thai baht banknotes as he buys gold from a customer in Bangkok's Chinatown April 21, 2011. REUTERS/Sukree Sukplang


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'$2-TRILLION, $3-TRILLION ELEPHANT'

Even central banks, until recently keen to disperse some of their gold holdings, could soon be sniffing around for more of the precious metal, analysts say.

In 2010 central banks became net buyers of gold for the first time in 21 years, as developed nations of Western Europe and North America reduced selling in the wake of the global financial crisis while emerging economies tried to diversify their hold-ings of foreign currencies, especially the dollar. Deepening worries about debt crisis contagion in the euro zone, uncertainties around U.S. growth in the second half and its impact on the greenback, are likely to increase central banks' appetite for gold.

"If you look at projections on debt for the United States and for some European countries enjoying triple A status, it's looking very likely that these countries are moving from triple A to something less shiny," said Philip Klapwijk, executive chairman at GFMS, a metals research consultancy. "And that's surely going to burnish gold's credentials for asset managers globally, par-ticularly central banks and some of the sovereign wealth funds." But central banks have to tread lightly, as sizable purchases could jolt the relatively small gold market.

On April 24, 2009 spot gold prices jumped more than 1 percent, when China announced an increase of 454 tonnes in its gold holdings, representing a jump of 76 percent from 2003, the only previous occasion it revealed the size of its gold reserves. Last year, global gold supply, including mine production and scrap, stood at 4,108.2 tonnes, which translates into about $210 billion at current price. Above-ground gold stocks stood at an estimated 165,000 tonnes, valued at more than $8 trillion.

By comparison, the amount of U.S. debt held by the public stood at $9.75 trillion by July 19, doubling from five years earlier -- adding nearly $1 trillion a year, based on data from the U.S. Treasury Department.

"Central banks have the will to increase gold holdings, but it is not a practical option and rather difficult," said Dong Tao, chief regional economist at Credit Suisse. "Gold supply simply doesn't grow as fast as China's foreign reserves. Only the increase in U.S. debt can match that." Central banks could raise gold holdings marginally, he said, but sizeable purchases could cause an earthquake in the market. "We can buy whatever with our money without causing price distortion, but a $2-trillion, $3-trillion elephant will certainly cause distortion."

China has the world's biggest foreign reserves, which stood at $3.2 trillion at the end of June. Gold holdings of 1,054.1 tonnes make up just 1.6 percent of its reserves, though China ranks sixth among the world's top official holders of gold.

INDIA, CHINA DEMAND

India and China together made up 57 percent of first-quarter global consumer demand for gold, the World Gold Council says. China's frenzy for gold prompted the central bank to step up sales this year of gold and silver Panda Coins.

The People's Bank of China plans to sell 500,000 1-ounce gold coins, or 66 percent more than its earlier target of 300,000. It also tripled sales targets for half-ounce, quarter-ounce, 1/10-ounce and 1/20-ounce gold coins to 600,000 each from 200,000 earlier. The increase in sales of these coins alone will represent a rise of 560,000 ounces in gold demand, or 17 tonnes. Com-mercial banks and fund houses are also cashing in with products to let investors buy more gold jewellery, coins and bars.

Two Chinese companies, Lion Fund Management Co and E Fund, have launched funds to invest in gold-backed exchange-traded funds overseas, the only two Beijing has allowed so far to do so. E Fund is also investing in gold mining stocks abroad.

India, also the No. 1 gold importer, bought 286 tonnes of gold overseas in the first quarter, up nearly 10 percent from a year ago, World Gold Council data show. The country imported 959 tonnes of gold in 2010, or an annual increase of 72 percent.

Rajesh Mehta, chairman and managing director of gold importer and retailer Rajesh Exports, said he expected his firm to import 130 ton-nes of gold in the year to next March, up 8 per-cent from the previous year.

"Indian gold jewellery demand is expected to show resilience in the face of higher price lev-els, with some oppor-tunistic buying on price dips," said Ajay Mitra, managing director for India and Middle East at the World Gold Council.


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Modest gold rally shows U.S. default unlikely --Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell


H ands up all of those who really believe the United States is about to default on its debt.

I can't imagine too many hands will be in the air, but commodity investors are among those positioning for an event few think will happen.

You could argue this is just sensible risk management, preparing for something that it is highly unlikely but would be poten-tially apocalyptic if it did happen.

If U.S. lawmakers fail to agree on raising the $14.3 trillion government debt ceiling by the Aug. 2 deadline, the flight from Treasurys would spread into every market.

In this case the only likely winners would be gold and safe haven currencies such as the Swiss franc.

So, if you really believed the U.S. was at risk of an unprecedented default, surely gold would be rallying far harder than it cur-rently is?

Spot gold did reach a record high early in Asian trading on Monday, climbing 1 percent to $1,622.49 an ounce.

While the record high may help fuel alarmist headlines, the broader context is that gold's gains have been modest in the past week, up only 0.8 percent by 0630 GMT on Monday since July 18, even as the rhetoric over the U.S. debt crisis has been ratch-eted higher.

This doesn't mean to say gold isn't poised for further gains, it more than likely will benefit from safe-haven flows for as long as the Americans don't come up with a solution.

And gold may continue to rally even when the U.S. politicians finally do agree to something, because it looks increasingly likely that any deal will be limited in scope and duration, setting the stage for another round of bruising talks.

Graphic of gold against New York oil in July: ( http://graphics.thomsonreuters.com/AS/1/CR_20112507134952.jpg )

However, a limited deal should see other commodities enjoy a relief rally.

New York crude oil dropped around 1 percent to below $99 a barrel after the weekend failed to produce a U.S. debt ceiling so-lution, while Shanghai copper fell slightly.

Even a weak deal to delay the U.S. debt ceiling issue for a few months should result in a return to risk assets, and provide a boost for oil and copper, two commodities that have benefited from the China growth story.

Despite a slowdown in China's crude imports in June, a rebound is expected in the second half in the world's second-largest crude importer, centred on expectations a soft landing will be achieved.

A soft landing for China will also boost copper and other base metals, as well as bulk commodities like coal and iron ore.

So, is the U.S. debt ceiling deadline set-ting us up for a simi-lar trading pattern like what happened with the concerns over European sov-ereign debt?

Gold gained about 7 percent from its close on July 1 up to July 21, when the European debt deal was announced.

It then steadied and is now rising again as concern mounts over the U.S. debt ceiling talks.

New York crude ral-lied after the Euro-pean debt deal,


16

climbing back above $100 a barrel for the first time since June 10 as investors sought out risk assets as worries eased that Greece's debt woes would spread across the region.

Even a limited deal on the U.S. debt ceiling will clear the path for crude to gains and for gold to take a breather.

But if all the politicians manage to do is delay the problems for a few more months, as may be the case with Europe's debt deal, gold will remain the commodity of choice until the issues are more fully resolved.

Perhaps politicians should be given the last word.

Vince Cable, the British business secretary, told the BBC that "right-wing nutters" preventing a deal in the U.S. were a greater threat to the world economy than the European debt crisis.

But a far greater British leader, Winston Churchill, said "Americans can always be counted on do to the right thing ... after they have exhausted all other possibilities."

It may take a while yet, but even Cable's so-called nutters are likely to prove Churchill correct.

Buy gold on Europe woes or copper on China growth?: Clyde Russell --Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell


I t seems incongruous that gold and copper can be both rallying at the same time.

Gold reached a new record high just below $1,600 an ounce on Monday as investors sought a safe haven from the European debt crisis and worries the U.S. government may default amid the failure of squabbling politicians to agree on how to cut the

deficit.

Copper is up about 14 percent since its low this year of $8,504.50 a tonne reached in May and is getting within shouting dis-tance of its record high of $10,190, reached in February.

Basically, buying gold is a bet that the world economy is pretty much stuffed and the debt/deficit problems in Europe and the United States won't be solved any time soon.

Buying copper is a bet that China's economy will achieve a soft landing and continue to expand, driving demand for base met-als.


17

Can both views be right?

On the surface, the answer has to be no. At some point either Europe and the U.S. will sort of out their problems, lifting the cloud over the economies, or they won't and the world will tip back into a recession that even China will feel.

Graph of gold's correlation to copper: ( http://graphics.thomsonreuters.com/AS/1/CR_20111807124230.jpg )

If Europe and the United States can resolve their problems to the market's satisfaction, a key leg of the bullish gold story is re-moved.

Taking away safe haven demand doesn't necessarily mean gold will lose its lustre, but it does mean any price gains will be more dependent on demand from central banks and for jewellery fabrication.

In this scenario it's hard to see gold making strong gains above its current level, although valuing the precious metal has always been a little tricky.

Gold is currently still well below its inflation-adjusted peak of around $2,400 an ounce, according to Capital Economics.

This was reached on January 18, 1980, at the height of the U.S.-Iran hostage crisis, Russia's invasion of Afghanistan and a slump in output from then top producer South Africa.

There's no slump in gold output currently, in fact most forecasts focus on higher production next year.

However, there are heightened geopolitical tensions, ironically involving Iran again, this time over its nuclear programme, and of course the United States is now the invader in Afghanistan.

Capital Economics also produces some correlations on gold, pointing out that the precious metal averages 16 times the price of a barrel of Brent crude, but the current ratio is 13.5.

Gold would be $1,870 an ounce if it was priced according to its long-run Brent ratio.

But gold is slightly overpriced against equities, Capital Economics says, with the long-run average of the Dow Jones Index to gold being 10, but the current ratio is only 8.

Turning to copper and there is of course more to the current price than just expectations of Chinese demand.

The industrial metal is vulnerable to supply disruptions, as shown by the recent strike at Freeport McMoRan's Grasberg mine in Indonesia, and rain disruptions in Chile, the world's biggest exporter.


Workers stand beside machinery in a tunnel in the Kumtor mine in Kyrgyzstan June 1, 2011. With around 100 sizeable gold fields mapped -- but never tapped -- by Soviet geologists, the country is ripe for a mining boom. REUTERS/Vladimir Pirogov


18

While worries over supplies certainly help place a floor under the copper price, it is the expected seasonal second-half demand from China that is driving bullish expectations. The forecast is that the Chinese will once again turn to imports, having de-stocked inventories during the first half of the year, as construction and industrial activity ramps up. An early indicator of this was June imports rose 280,000 tonnes, up 9.9 percent from the year-earlier month.

Whether this is continued will be seen from what happens to stocks held in warehouses linked to the London Metal Exchange, especially those in South Korea, from where China typically draws supplies.

It seems there are fairly solid reasons to be both bullish gold and copper, at least for now.

A graph of gold's correlation to copper since 2005 shows while both can rise at the same time, copper normally outperforms gold unless there is a crisis of sorts. They decoupled quite markedly in the second half of 2008 and the first half of 2009 as the global recession struck.

And in the good economic times of 2006 and 2007 copper did better than gold.

The current correlation is starting to weaken, but it's too early to tell whether this is because the world is heading for a repeat of 2008 or whether growth is about to accelerate.

Spot gold four-week target $1,688/oz SINGAPORE, July 25 (Reuters) -

S pot gold is expected to touch $1,688 per ounce in four weeks, after it hit a record on Monday, based on a its long-term chart and a price range of $1,462.40-$1,575.79.

The big bull cycle of the metal could have originated from a low in 1970 at $34.95, from which a subsequent rise to a high at $835 in 1980 only completed a big wave "A", the first part of an "A-B-C" wave cycle.

For a long-term chart analysis, click: ( http://link.reuters.com/byt72s )

The subsequent 20-year retracement from 1980 to a 1999 low of $251.70 is labeled as the wave "B", and the current rally is a wave "C".

Based on a Fibonacci ratio analysis, the wave "C" would travel to $2,345, the 261.8 percent level, in a long run, as gold has suc-cessfully surpassed a pivotal resistance at $1,545, the 161.8 percent level.

On the daily chart, gold has stood firm above a resistance at $1,575.79, the May 2 high, and based on a range of $1,462.40-$1,575.79, a target for the next four weeks could be $1,688.

Support is at $1,575.79, a fall below which will temporarily violate the bullish outlook.

A weaker dollar may have contributed greatly to the surge of gold. The dollar index has failed to reverse a long-term down-trend, after a false break above the upper channel line of a falling channel, and chances are high for the index to decline further within the channel.

For technical outlook on the index, click: ( http://link.reuters.com/zut72s )

Gold hits record high of $1,578.50 on debt worries LONDON, July 13 (Reuters) -

G old prices hit a record at $1,578.50 an ounce on Wednesday as concern over the euro zone debt crisis deepened, and after minutes to the Federal Reserve's June meeting suggested some members were pondering the possible need for additional easing.

Below are analyst comments:

ALEXANDER ZUMPFE, TRADER, HERAEUS METALS, HANAU

"The recent talk by EU politicians about a Greek default has fuelled the recent rally. This comes together with potential trouble for Italy, Spain etc. We are seeing good demand by retail investors for gold bars with gold playing its traditional role as safe haven.

"As long as the current situation persists -- and not to forget the ongoing US debt limit discussion -- I can't see why the bullish environment for the metal shouldn't persist for the time being."

GRAHAM DELLER, ANALYST, CRU GROUP

"You have to think that things can't get much worse than they are for the next six months. It's a battle between rising supply and unspectacular demand in the real world and investors having nowhere to put their money. We'll see occasional rallies to new highs, but we would expect prices essentially to range more or less sideways through to the end of the year. The peak of the cycle is likely to come in the first half of next year."


19

MICHAEL WIDMER, ANALYST, BANK OF AMERICA-MERRILL LYNCH:

"The rise is medium term from where we are standing right now. Gold will keep rising for the next five years even if it has some crests and troughs. Those holding gold should hold onto it, while others should probably get their hands on it as it is going to be on an upward trend.

"The sovereign debt crisis is helping the gold prices rise but even if it is addressed in the short-term, the developed countries are in so much debt that it will continue to drive gold up for the next 10 years."

GNANASEKAR THIAGARAJAN, DIRECTOR, COMMTRENDZ RESEARCH, MUMBAI

"The rally is basically due to euro zone crisis. Gold priced in euro has hit a record. This says people in the euro zone have sold their euro holdings and converted it to gold. The other important factor is Federal Reserve's statements that hinted at a possi-ble QE3. Silver will play a catch-up now.

"Outlook is that prices could test $1,605 in the near-term or even higher to $1,645. Declines will get supported at $1,545-50 now."

OLE HANSEN, SENIOR MANAGER, SAXO BANK

"We've moved above the $1550 level and we should probably see some consolidation. It is tough trying to buy at record highs, but in order for the big guys to put their money back into it, or apply additional money, they want to see how it behaves now once we've broken above $1550.

But right now it is difficult to come up with any argument for a sale, that is for sure. "We saw the dollar strength over last cou-ple of days, which was primarily from the euro weakness, did not have an impact.

The only impact it had was driving euro/gold to record highs. So that is not a factor either to worry about. It's finding support from all different corners now and that will stay with us for the foreseeable future I think.

Can we gain this foothold above $1550? There's no reason we shouldn't see $1600 fairly soon. But we are in the summer dol-drums, so we could have a $50-dollar move one day move in either direction, because liquidity starting to dry out a little bit and it's not exactly the time of year when you have a great deal of physical demand. So it will have to be the investment community that drives it."

WILL ADAMS, ANALYST, FASTMARKETS:

"I think we're probably heading higher. Given the situation in Europe and the U.S. debt ceiling people are worried. I think it is heading for $1,700 and aiming for $2,000, but not in a hurry, just a gradual creep higher."

PRADEEP UNNI, SENIOR ANALYST, RICHCOMM GLOBAL SERVICES:

"Bullish tint for the precious metals is coming from multiple fronts with Fed minutes showing biasness for more fund stimulus and debt contagion fears in EU zone. Investors are weighing which is worse amongst the two; the EUR or the USD. Markets will be closely monitoring the comments by Fed later today for any clues for QE-3."

Gold set fair as debt focus widens to United States By Jan Harvey


G old prices have soared to record highs this year on concerns over the euro zone debt crisis, and the metal could be set for another leg higher if the world's biggest economy, the United States, also starts to struggle with its debt repay-ments.

Gold hit a record $1,575.79 an ounce in May as Ireland and Portugal struggled with unwieldy debt levels and Greece faced fears of default, and it returned to within $20 of that level this week on concerns Italy and Spain could also be affected.


20

But behind these fears, unease is mounting over the U.S. debt burden. The U.S. Treasury says it will be forced to default on its obligations if Congress does not raise the $14.3 trillion debt ceiling, which caps how much it can borrow, by Aug. 2. Participants say a deal should be in place by July 22.

The prospect of a default is seen as unlikely, but the wrangling over the debt ceiling has highlighted the problems the United States will face in cutting its deficit.

"If the U.S. debt ceiling is not extended in time and the United States were to default even briefly, or if they had to find work-arounds to pay their short-term expenses, that has got to be positive for gold," said David Jollie, an analyst at Mitsui & Co Pre-cious Metals.

"But if they extend the debt ceiling without agreeing any cuts to expenditure or tax increases, you have to say that is inflation-ary, and therefore positive for gold as well."

Raising the debt ceiling is not an unusual move, having been done 10 times in the past decade. But this time around, Republi-can Congressmen have said they will not approve such a move unless the Democrats commit to cutting the U.S. deficit.

The Democrats favour doing so via tax increases, among other measures, but this proposal lacks support of Republicans, who are pushing for cuts to spending.

A 75-minute meeting at the White House on Sunday was marked by testy exchanges. Obama and top lawmakers from both political parties will hold their third meeting in as many days at the White House on Tuesday to hammer out a deal.

HAVEN FROM RISK

Arguments that gold is overvalued at current levels are gaining little traction in the current environment. The metal rolled back some gains in May and June as the end of the U.S. quantitative easing programme stoked expectations conditions for the metal would deteriorate, but it has quickly bounced back.

A successful resolution of the debt ceiling issue could take the heat out of prices in the short term, but as long as talks go on, the mere threat of a default is helping support the current euro zone debt-driven rally in prices.

While a default is unlikely and would at worst be short term, it could seriously undermine confidence in the dollar as the world's reserve currency, which could drive up interest in gold as an alternative store of value.

Standard & Poor's said it would cut the U.S. credit rating if it misses an Aug. 4 debt payment, potentially undermining the ap-peal of U.S. Treasuries as investors' haven of choice.


A sign in front of a jewellery store offers instant cash for all kind of gold in Zurich July 14, 2011. REUTERS/Arnd Wiegmann


21

"If we don't come to an agreement and the United States goes into default, the prospects would be very bullish for gold, be-cause its great competitor as a safe haven is U.S. Treasuries," said HSBC analyst James Steel.

"If Treasuries are less than a perfect safe haven, that would be very much for the benefit of gold."

For the moment, Treasuries are being supported by a flare-up in the euro zone debt crisis, but if there is no breakthrough in talks on the debt ceiling, they could come under pressure.

If the default threat drives up Treasury yields, that might be expected to weigh on gold. Low U.S. yields have been a major sup-port for gold, a non-interest bearing asset, in recent years. But in this scenario, a rise in yields would not necessarily be negative for gold.

"The high yields you have on Irish bonds, Greek bonds, Portuguese bonds haven't hurt gold prices in euro terms," said Tobias Merath, an analyst at Credit Suisse.

"It really depends why yields are up. Is it because the economy is doing well and capital is getting scarce? Is it because the cen-tral bank is addressing inflation? That would be the sort of yield increase that is really bad for gold."

"If yields go up because your risk-free rate is no longer that risk-free, this is not something that would really hurt gold," he said.

DIFFERENT BEAST

A successful resolution to the debt ceiling issue could temporarily pressure gold prices, but U.S. debt concerns are unlikely to stop there.

The U.S. economy is a different beast from those on the euro zone periphery, but it suffers from the same malaise -- too much borrowing in the good times, not enough paying back in the bad.

"The way the issue hit the headlines is slightly different, but the underlying problem in terms of containing debt growth and ultimately reducing it is very similar in the United States and Europe," said Michael Widmer, an analyst at Bank of America-Merrill Lynch. "How you manage that is positive for gold."

Heavy debt burdens on both sides of the Atlantic are likely to curtail spending from levels in the early part of the 21st century, he said. The resulting curb on growth may limit developed economies' scope to raise interest rates, keeping down the opportu-nity cost of holding gold.

In the absence of higher rates, inflation may well keep rising, while the United States is also likely to focus on keeping the dollar low against other major currencies. Gold can hardly fail to benefit.


A shovel with gold jewelery is placed next to the melting furnace at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna February 28, 2011. REUTERS/Lisi Niesner


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Gold stocks to outsparkle gold in post-QE2 world By Amanda Cooper


G old's performance has eclipsed that of gold mining stocks this year, but gold equities now are likely to take the upper hand as the flow of cheap U.S. cash slows and miners boast juicy margins and good growth prospects.

Gold's status as a quasi-currency and safe haven has helped pushed the price of the metal up about 20 percent since the start of the year to above $1,520 an ounce, making it one of the top performing asset classes of 2011.

That compares with an 8 percent drop in the ARCA Gold Bugs index, which includes shares in some of the world's largest gold miners.

The U.S. Federal Reserve's $600 billion bond-buying programme, which has kept down interest rates and the dollar; the disas-ter in Japan and the violence in the Middle East, which have shaken investor confidence; and evidence of sluggish U.S. growth and concerns about China have all boosted gold but dented global stocks. And gold shares have not been immune.

Now that the Fed's easing programme has come to an end, Japan is recovering and China has managed to stave off some of the biggest fears about price pressures, there is some doubt that gold can keep up that strong performance.

Gold stocks, meanwhile, are supported by a gold price near record highs and may benefit from improving sentiment for equities markets. They also appear relatively cheap at the price. Catherine Raw, who helps manage BlackRock's $4.7 billion Gold & General Fund, said the rise in the gold price has outpaced cost inflation in the industry, meaning that gold miners are likely to see their margins and their profits increase this year.

"I, as an investor, would say that in the end, given that I believe the world isn't going to collapse, while there may be a good few months of volatility left, if you're prepared to be patient, then I would see now as a very good buying opportunity," she said.

"The fundamentals of gold companies have improved, and yet their shares have fallen, and you've seen valuations now much more comparable to the rest of the mining sector. So you're not having to pay a ridiculous premium as you would have done say five or six years ago, and yet margins are growing significantly, in a way that they weren't five or six years ago," Raw added.

VALUE SHINES

Shares in Barrick Gold , the world's largest gold miner, trade at nearly 14 times anticipated earnings, while second-largest New-mont and third-largest AngloGold Ashanti trade at roughly 12 times expected earnings.

This compares with base metal producer BHP Billiton , which trades at nearly 17 times expected earnings, or Anglo American , which trades at 40 times earnings. HSBC Global Asset Management, which recently unloaded most of its holdings of physical gold in favour of gold shares, said gold equities are two-thirds shares and one-third gold price. An environment of uncertainty, negative real interest rates and turbulent stock markets will cause gold equities to underperform, even while they benefit from a rise in the gold price, HSBC said.

Historically, gold has outperformed gold mining shares in times of financial market stress and instability. The ARCA Gold Bugs fell by 29 percent in 2008, the low-point of the global financial crisis, while the gold price rose by 6.05 pct.

The index fell 44 per-cent in 2000, when the dot.com bubble burst, while spot gold fell by just 6.3 pct in that time.

But over the past 10 years while gold has been consistently rising, for a gain of over 400 percent, the Gold Bugs index has risen by 770 percent.

Daniel Sacks, who co-manages In-vestec's $750 million Global Gold Fund, said gold miners are generally looking much healthier than they did in 2008, because many have issued equity to can-


23

cel out debt.

He added that gold miners, as a rule, tend to avoid taking on debt as their lenders encourage them to hedge their future pro-duction as some form of guarantee.

"They still don't compare to high-yielding industrial or financial stocks, but compared to their history, gold shares are yielding a lot more than they used to. It's just an indication of the width of their margins," Sacks said.

Sacks said gold equities tend to outperform in the northern hemisphere summer months, largely because of the lull in con-sumer buying of physical gold. This was not the case last year when the eruption of the euro zone debt crisis prompted an in-vestor push into gold and out of equities.

In summer 2009, however, gold rose 7.7 percent compared with a 31 pct rise in the Gold Bugs index. In 2007, as the extent of the credit crunch was becoming apparent, gold rose 12.6 pct between June and September, while gold stocks gained 18 per-cent.

"After a rip-roaring 2010 as the metal went mainstream, gold has become the gift that has stopped giving for some investors," said JPMorgan Chase in a recent note. "We feel gold still has a very significant role in portfolios. However, it has become appar-ent that the metal and the equities act differently."

The U.S. bank added, "Gold equities will remain under pressure while investors remain fearful. Once investors feel that the risk of another leg down in general markets passes, or after a downswing in the markets, we feel the gold equities will do some catching up."

IEA move could add to storage, gold appeals By Claire Milhench


T he IEA's decision to release some 60 million barrels of oil from its strategic reserves could lead to more people buying oil to store it, said Robert Farago, head of asset allocation at Schroders Private Banking.

"Their action doesn't seem to make sense to us or the market," Farago told Reuters as tenders for the International En-ergy Agency's release got underway. "By taking oil from stocks they are satisfying current demand, but creating more demand in future. That is why we haven't seen much of a shift in price at the long end of the curve, but you've had quite a dramatic move


People are reflected on the window of a jewellery shop where gold bangles are on display in Istanbul July 26, 2011. REUTERS/Murad Sezer


24

at the short end."

He said that the U.S. crude forward futures curve is in a very steep contango, which could encourage people to buy oil and store it. "In which case, releasing more from stocks will just feed those people with storage capacity," he said.

His cross-asset portfolios are currently exposed to the oil complex through energy equities, added in autumn 2010 when energy was lagging other commodities. Schroders was also worried about inflation, and historically oil has been a good hedge against this.

"We felt equities were on attractive valuations and in the 1970s, when there were broader inflation worries, energy equities out-performed," he said. On a three-year time horizon he saw little spare capacity in the oil market as demand growth in emerging markets will eat away at it. "Looking beyond that, the market will be tight and that should be good for energy equities," he said.

STRATEGIC ROLE

Farago believes that oil and gold have a strategic role in investors' portfolios but agricultural commodities do not. "Oil is an essential driver of modern society and in a number of forms is irreplaceable," he said. Gold is seen as a strategic investment because it acts as a store of value and alternative currency.

Spot gold is currently trading at around $1,546 an ounce as investors worry about the spreading eurozone debt crisis. "It is quite hard to justify the current price but the long term upward trend is unlikely to change until we see a significant change in policy direction that leads to greater confidence in fiat currencies," Farago said.

He attributed some of the current high price to a lack of confidence in the U.S. being able to tackle the federal budget deficit, with the Democrats and Republicans still slugging it out.

"I think it will take a crisis to get them to change direction and gold is likely to do well in a crisis. We haven't had a proper cur-rency crisis yet."

About 7 percent of his balanced portfolio is in gold bullion ETFs, but he is also holding some gold mining shares within the eq-uity allocation.

"Gold shares have been disappointing performers. They have suffered as the oil price has gone up, which puts downward pres-sure on their margins. Now the oil price has come off but they haven't recovered, so we think that's an opportunity," he said. "The relative valuations look attractive."

He argued that the drivers for agricultural commodities are cyclical, due to bottlenecks in supply, and so there are less compel-ling reasons to hold them. "We are already seeing a significant supply response to the increase in prices," he said.

The U.S. Department of Agriculture said at the end of June that farmers had planted the second largest acreage with corn since World War II. Inventories are also 11 percent higher than expected.

The news pushed corn to three and a half month lows. Schroders Private Banking had some 16.4 billion pounds ($26.29 bil-


Bars of 50 and 100 gram (front) fine gold are displayed at the branch of Istanbul Gold Refinery in Istanbul July 19, 2011. REUTERS/Murad Sezer


25

lion) under management at end-March 2011.

Put 5 pct in gold to shield against price swings-study LONDON, July 11 (Reuters) -

I nvestors seeking protection from both inflation and deflation should allocate 5 percent of their portfolios to gold, according to a report released on Monday by analysts Oxford Economics and commissioned by the World Gold Council.

The study, titled "The impact of inflation and deflation on the case for gold", found the 5 percent allocation was the optimal one in a base long-term economic scenario featuring 2.25 percent growth and 2 percent inflation, although this allocation would rise as either inflation took hold or price pressures retreated along with a contraction in growth.

The gold price , which has risen by 9 percent so far this year, hit a record high of $1,575.79 an ounce in early May, driven in part by investors whose key concerns were unrest across the Arab world and the threat to growth in both the developed and emerg-ing markets from inflation.

"(The study) suggests that, in an optimal portfolio, you should have 5 percent in physical gold and that will come as a surprise to some investors," Marcus Grubb, managing director of investment, the World Gold Council, told Reuters.

"A number of investors think that if the world returns to a more normal interest-environment, a more normal fiscal and mone-tary environment and growth environment, that gold will lose its relevance and what the study proves is that is not the case."

One of the key pillars of support for gold over the last couple of years has been the weakness in the dollar relative to currencies such as the euro, the pound or the yen.

This, coupled with the strategy of the U.S. Federal Reserve, the European Central Bank and other policy-makers of keeping in-terest rates exceptionally low to boost economic growth has made gold, which tends to perform well in a low-interest rate envi-ronment, more attractive.

"Because of its lack of correlation with other financial assets, the report shows that gold has an important role to play in stabi-lising the value of a portfolio, even where the conservative assumption of a modest negative real annual return is made," said Jens Tholstrup, managing director, UK of Oxford Economics. "In addition, gold offers protection against extreme events such as high inflation and financial market distress."

Spot gold was trading 0.7 percent higher on the day at $1,553.00 an ounce on Monday, just 1.2 percent shy of May's record after investors punished the euro as fears grew over the potential spread of the euro zone debt crisis, which has forced Greece, Por-tugal and Ireland to seek emergency funding to stay solvent.


A general view of the Kumtor mine in Kyrgyzstan May 31, 2011. With around 100 sizeable gold fields mapped -- but never tapped -- by Soviet geologists, the country is ripe for a mining boom. REUTERS/Vladimir Pirogov


26

Mali holds a treasure trove for gold investors By Josie Cox

FRANKFURT, July 11 (Reuters) -

G old mines in Mali are an underexploited treasure trove for commodity investors, the supervisory board chairman of Ger-man-listed Pearl Gold told Reuters in an interview.

"Mali is certainly one of the most promising locations for gold mining at present," Robert Goninon said.

"Other countries like Guinea, Ivory Coast, Burkina Faso, Mauritania and Ghana offer lucrative gold mining opportunities too, but Mali's political stability and legal framework sets it apart from its neighbours," he added.

Regulation in Mali ensures that both nationals and non-nationals can exploit deposits under the same conditions -- a privilege not always granted to foreign investors. Pearl Gold, a holding company listed on the Frankfurt stock exchange at the end of 2010, focuses on investments in West African exploration and mining corporations, especially in the field of gold and other pre-cious metals.

It has a market capitalisation of around 230 million euros ($334 million).

The group already holds a 25 percent stake in Malian company Wassoul'Or S.A, which operates the Kodieran mine that it be-lieves to contain about 1.75 million ounces of recoverable gold. "Our short-term aim is to start industrial-scale gold production in Kodieran," Goninon said. Pearl Gold is also eyeing other mines as acquisition targets, he said, but declined to name specific mines or companies.

Goninon said the company aims to climb into the more regulated sector of the bourse, the General Standard, by the end of the year and is also weighing the option of a capital increase.

"We chose Frankfurt as a trading platform because of its reputation for efficiency," he said.

If Pearl Gold successfully passes into the General Standard, it would be the first natural resources company on that index in Frankfurt. Goninon said the rally in the gold price is not likely to end.

"Gold has looked like a bubble a number of times in the past, but it has always been able to consolidate," Robert Goninon told Reuters on Friday. Unlike the Swiss franc , which has similarly lured investors as the euro wilts due to the continent's peripheral debt crisis, gold will not lose value due to its immunity to inflation, Goninon said.


A gold necklace creation for the 3rd AuDITIONS China gold jewellery design competition is displayed in Beijing April 7, 2011. REUTERS/Jason Lee


27

"Money can just be printed, while gold is a finite resource, meaning it will retain its value," he added.

Gold milestones on the road to record high SINGAPORE, July 25 (Reuters) -

G old prices hit record highs above $1,620 an ounce on Monday, as stalled U.S. budget talks fueled fear of a default and drove investors to seek haven in bullion.

Here are key dates in gold's trading history since the early 1970s:

* August 1971 - U.S. President Richard Nixon takes the dollar off the gold standard, which had been in place with minor modifi-cations since the Bretton Woods Agreement of 1944 fixed the conversion rate for one troy ounce of gold at $35.

* August 1972 - The United States devalues the dollar to $38 per ounce of gold.

* March 1973 - Most major countries adopt the floating exchange rate system.

* May 1973 - U.S. devalues dollar to $42.22 per ounce.

* January 1980 - Gold hits record high at $850 per ounce. High inflation because of strong oil prices, Soviet intervention in Af-ghanistan and the impact of the Iranian revolution prompt investors to move into the metal.

* August 1999 - Gold falls to a low at $251.70 on worries about central banks reducing reserves of gold bullion and mining companies selling gold in forward markets to protect against falling prices.

* October 1999 - Gold reaches a two-year high at $338 after agreement to limit gold sales by 15 European central banks. Mar-ket sentiment towards gold begins to turn more positive.

* February 2003 - Gold reaches a 4-1/2 year high on safe-haven buying in the run-up to the invasion of Iraq.

* December 2003-January 2004 - Gold breaks above $400, reaching levels last traded in 1988. Investors increasingly buy gold as risk insurance for portfolios.

* November 2005 - Spot gold breaches $500 for the first time since December 1987, when spot hit $502.97.

* April 11, 2006 - Gold prices surpass $600, the highest point since December 1980, with funds and investors pouring money into commodities on a weak dollar, firm oil prices and geopolitical worries.

* May 12, 2006 - Gold prices peak at $730 an ounce with funds and investors pouring money into commodities on a weak dol-lar, firm oil prices and political tensions over Iran's nuclear ambitions.

* June 14, 2006 - Gold falls 26 percent to $543 from its 26-year peak after investors and speculators sell out of commodity po-sitions.

* Nov. 7, 2007 - Spot gold hits a 28-year high of $845.40 an ounce.

* Jan. 2, 2008 - Spot gold breaks above $850.


Austrian gold Vienna Philharmonic Bullion planchets are seen at the Mint's headquarters in Vienna March 11, 2009. REUTERS/Leonhard Foeger


28

* March 13, 2008 - Benchmark gold contract trades over $1,000 for the first time in U.S. futures market.

* March 17, 2008 - Spot gold hits an all-time high of $1,030.80 an ounce. U.S. gold futures touch record peak of $1,033.90.

* Sept. 17, 2008 - Spot gold rises by nearly $90 an ounce, a record one-day gain, as investors seek safety amid turmoil on the equity markets. * Jan-March 2009 - Gold-backed exchange-traded funds report record inflows in the first quarter as financial sector insecurity spurs safe-haven buying. Holdings of the largest, the SPDR Gold Trust , rise 45 percent to 1,127.44 tonnes.

* Feb. 20, 2009 - Gold rises back above $1,000 an ounce to a peak of $1,005.40 as investors buy bullion as a safe store of value as major economies face recession and equity markets tumble. * April 24, 2009 - China announces it has raised its gold re-serves by three-quarters since 2003 and now holds 1,054 tonnes of the precious metal, boosting expectations it may add fur-ther to its reserves. * Aug. 7, 2009 - European central banks opt to renew their earlier agreement to limit gold sales over a five-year period, setting the sales cap at 400 tonnes a year.

* Sept. 8, 2009 - Gold breaks back through $1,000 an ounce for the first time since February 2009 on dollar weakness and concerns over the sustainability of the economic recovery. * Dec. 1, 2009 - Gold climbs above $1,200 an ounce for the first time as the dollar drops.

* Dec. 3, 2009 - Gold hits record high at $1,226.10 an ounce, with dollar weakness and expectations for central banks to diver-sify reserves into gold driving prices higher. * May 11, 2010 - Gold reaches fresh record high above $1,230 an ounce as fears over the contagion of debt issues in the euro zone fuel safe-haven buying.

* June 21, 2010 - Gold jumps to a new high at $1,264.90 an ounce as underlying fears over financial market stability and sover-eign risk combine with dollar weakness to push the metal through resistance at its previous high.

* Sept 14, 2010 - Gold climbs back to record highs, this time at $1,274.75, as global markets reflect renewed uncertainty on the economic outlook. * Sept 16-22, 2010 - Gold hits record highs for five successive sessions, peaking at $1,296.10, as investors flock to bullion after the Fed signals it may consider further quantitative easing, weakening the dollar and raising fears over future inflation.

* Sept 27 - Spot gold prices touch the $1,300 an ounce mark for the first time. * Oct 7 - Gold rallies to a record high above $1,360 an ounce as the dollar comes under pressure from building expectations for the U.S. Federal Reserve to take extra measures to keep interest rates low and prop up the economy.

* Oct 13 - Gold jumped to record highs near $1,375 an ounce as the dollar continued to languish, with the U.S. unit coming un-der pressure after minutes from the Fed's September meeting signalled the U.S. economy may need further stimulus. * Nov 8 - Gold prices break through the $1,400 an ounce mark for the first time as haven buying prompted by renewed budget problems in Ireland more than offset a sharp dollar bounce.

* Dec 7 - Gold reaches a fresh record high above $1,425 an ounce, driven by fund buying ahead of year-end, jitters over the euro zone debt crisis and speculation for further U.S. monetary easing. * January 2011 - Gold prices fall more than 6 percent in their worst monthly performance in over a year as a revival in risk appetite diverts investment to higher-yielding assets.

* March 1 - Gold recovers to hit a record high at $1,434.65 an ounce as unrest in Tunisia and Egypt spreads across the Middle East and North Africa, boosting oil prices.

* March 7 - Gold extends record highs to $1,444.40 an ounce as oil prices hit their highest in 2-1/2 years after protests are quashed in Saudi Arabia and as violence in Libya rages.

* March 24 - The resignation of Portu-guese prime minister Jose Socrates pushes the euro zone debt crisis back to centre stage, lifting gold prices to a re-cord above $1,447 an ounce.

* April 7 - Gold prices extended their re-cord highs towards $1,465 an ounce after the European Central Bank cast doubts over expectations for interest rate rises, while unrest in the Middle East encour-aged safe-haven buying.

* July 18 - Gold broke above $1,600 for the first time on its eleventh straight day of gains, on persistent worries about a euro zone debt crisis spreading and a growing threat of a U.S. government default.

* July 25 - Gold resumed a record-setting


A Japanese ornamental "hina" doll symbolising the Empress is displayed at the Ginza Tanaka store in Tokyo February 23, 2011. REUTERS/Yuriko Nakao


29

How to invest in gold and key price drivers LONDON, July 13 (Reuters) -

G old prices surged to a record $1,578.50 an ounce on Wednesday as fears grew over the euro zone debt crisis and after minutes to the Federal Reserve's June meeting suggested some members were pondering the need for additional monetary easing.

Following are key facts about the market and different ways to invest in the precious metal.

HOW DO I INVEST?

SPOT MARKET

Large buyers and institutional investors generally buy the metal from big banks.

London is the hub of the global spot gold market, with more than $33 billion in trades passing through the city's clearing sys-tem each day. To avoid cost and security risks, bullion is not usually physically moved and deals are cleared through paper transfers.

Other significant markets for physical gold are India, China, the Middle East, Singapore, Turkey, Italy and the United States.

FUTURES MARKETS

Investors can also enter the market via futures exchanges, where people trade in contracts to buy or sell a particular commodity at a fixed price on a certain future date.

The COMEX division of the New York Mercantile Exchange is the world's largest gold futures market in terms of trading volume. The Tokyo Commodity exchange, popularly known as TOCOM, is the most important futures market in Asia.

China launched its first gold futures contract on Jan. 9, 2008. Several other countries, including India, Dubai and Turkey, have also launched futures exchanges.

EXCHANGE-TRADED FUNDS

Media coverage of high gold prices has also attracted investments into exchange-traded funds (ETFs), which issue securities backed by physical metal and allow people to gain exposure to the underlying gold prices without taking delivery of the metal itself.


A general view shows an open-pit gold mine which belongs to Boro Gold mining Ltd. on the outskirts of Ulan Bator May 15, 2010. REUTERS/Zeev Rozenberg


30

Gold held in New York's SPDR Gold Trust , the world's largest gold-backed ETF, rose to a record high of 1,320.436 tonnes in June 2010. The ETF's holdings are equivalent to nearly half of global annual mine supply and are worth some $62 billion at today's prices.

Other gold ETFs include iShares COMEX Gold Trust , ETF Securities' Gold Bullion Securities and ETFS Physical Gold , and Zu-rich Cantonal Bank's Physical Gold .

BARS AND COINS

Retail investors can buy gold from metals traders selling bars and coins in specialist shops or on the Internet. They pay a pre-mium for investment products of 5-20 percent above spot prices, depending on the size of the product and the weight of de-mand.

KEY PRICE DRIVERS:

INVESTORS

Rising interest in commodities, including gold, from investment funds in recent years has been a major factor behind bullion's rally to historic highs. Gold's strong performance in recent years has attracted more players and increased inflows of money into the overall market.

FOREIGN EXCHANGE RATES

Gold is a popular hedge against currency market volatility. It has traditionally moved in the opposite direction to the U.S. dollar as weakness in the U.S. unit makes dollar-priced gold cheaper for holders of other currencies and vice versa.

This link sometimes breaks down in times of widespread market stress, however, as both gold and the dollar benefit from risk aversion. Their ratio turned positive in late 2008 and early 2009 after the crisis following the Lehman Brothers failure.

Despite another drop in the usual strong correlation between gold and the euro-dollar exchange rate, the currency market still plays a major long-term role in setting gold's direction.

Analysts say gold's strong performance last year was largely driven by concerns over the stability of all currencies, though pri-marily the dollar, as major economies have moved to dampen strength in their currencies to safeguard exports.

OIL PRICES

Gold has historically had a correlation with crude oil prices, because the metal can be used as a hedge against oil-led inflation. Strength in crude prices can also boost interest in commodities as an asset class. More recently this correlation has weakened, with gold prices hitting a series of highs in the past two years while oil prices retreated from record peaks, though both have been boosted this year by Middle East unrest.


Gold bullion coins known as Krugerrands are pictured in the mint where they are manufactured in Midrand outside Johannesburg October 3, 2008. Picture Taken October 3, 2008 REUTERS/Siphiwe Sibeko


31

FISCAL AND POLITICAL TENSIONS

The precious metal is widely considered a "safe haven", bought during uncertain times in a flight to quality.

Financial market uncertainty, as currently seen in the case of burgeoning debt problems for Greece and other euro zone coun-tries, tends to boost inflows to gold. Major geopolitical events, such as the recent outbreak of unrest across the Middle East and North Africa, can also induce price rises.

CENTRAL BANK GOLD RESERVES

Central banks hold gold as part of their reserves. Buying or selling of the metal by the banks can influence prices. On Aug. 7, 2009, a group of 19 European central banks agreed to renew a pact to limit gold sales, originally signed in 1999 and renewed for a further five years in 2004.

Annual sales under the pact are limited to 400 tonnes, down from 500 tonnes in the second agreement, which expired in late September 2009. Sales under the new pact have been low, however. More recently, central banks, chiefly in Asia, have shown a tendency to add to their gold reserves, with Mexico and Russia some of the most recent countries to purchase bullion. This has also provided a major support to prices.

HEDGING

At the beginning of the 21st century, when gold prices were languishing around $300 an ounce, gold producers sold a part of their expected output with a promise to deliver the metal at a future date. But when prices started rising, they suffered losses and there was a move to buy back their hedging positions to fully gain from higher market prices, a practice known as de-hedging.

Significant producer de-hedging can boost market sentiment and support gold prices. However, the rate of de-hedging has slowed markedly in recent years as the outstanding global hedge book has shrunk. The world's biggest gold miner, Barrick Gold , cut its gold hedges by about 3 million ounces to eliminate its entire hedge-book in the fourth quarter of 2009, while An-gloGold Ashanti, also a major producer, closed its hedgebook last year.

SUPPLY/DEMAND

Supply and demand fundamentals generally do not play as big a role in determining gold prices as those of other commodities because of huge above-ground stocks, now estimated at around 167,000 tonnes -- more than 60 times annual mine produc-tion. Gold is not consumed in the same way as copper or oil. Peak buying seasons in major consuming countries such as India and China exert some influence on the market, but other factors such as the dollar and financial risk carry more weight.


Gold is poured into a mould during processing at the PT Antam Tbk. precious metal refinery in Jakarta . REUTERS/Beawiharta


32

Monthly changes in precious metals ETF holdings LONDON, July 4 (Reuters) -

H oldings in the world's largest gold exchange-traded fund, New York's SPDR Gold Trust, declined for a second month in June, data from the trust showed, while those of the main silver ETF, the iShares Silver Trust, fell by more than 4 per-cent.

Overall, holdings of the seven main gold exchange-traded products monitored by Reuters edged up by 385,000 ounces last month as the outflow from the SPDR was balanced by inflows into smaller U.S., Swiss and UK-based funds.

Holdings of the major silver ETPs declined by more than 2 percent or nearly 10 million ounces in the same period, as silver was heavily sold by investors worried that the metal's price rise to all-time highs had been overdone. Following is a list of the main exchange-traded products backed by precious metals, and their holdings.

Top 50 official sector gold holders March 23 (Reuters) -

T otal official sector gold holdings stood at 30,534.5 tonnes by the end of January, the World Gold Council said in a report dated March 2011, down 1.1 tonnes from 30,535.6 tonnes from a similar report in December.

The largest changes in terms of tonnage came from the Philippines, which cut its gold holdings by 21.8 tonnes to 154.1 tonnes, and from Russia, which raised its gold reserves by 14 tonnes to 789.2 tonnes.

The WGC's data is mainly taken from the International Monetary Fund's December International Financial Statistics report, which is two months in arrears, so holdings are as of October for most countries and September or earlier for late reporters.

The United States remained the biggest official sector holder of gold, followed by Germany and the IMF. Below are details of the top 50 official sector gold holders.


31/05/2011 30/06/201 Change (oz) Change 1 (%) SPDR Gold Trust 38,926,644 38845889 -80,755 -0.21 ETF Securities gold funds (excluding U.S.) 8,352,434 8488048 135,614 1.62 ZKB Physical Gold 6286363 6322167 35,804 0.57 Comex Gold Trust 4,424,241 4638616 214,375 4.85 Julius Baer Physical Gold Fund ** 3006003 3067503 61,500 2.05 Sprott Physical Gold Trust 1037605 1037605 0 0 ETFS Physical Swiss Gold Shares 899200 918659 19,459 2.16 TOTAL 62932490 63318486 385,996 0.61 0 iShares Silver Trust 319,621,251 306610335 -13,010,916 -4.07 ZKB Physical Silver 67673306 68787071 1,113,765 1.65 ETFS Securities silver funds (ex-U.S.) 26707473 28148674 1,441,201 5.4 ETFS Physical Silver Shares 17804970 17800037 -4,933 -0.03 Julius Baer Physical Silver 11803756 12626965 823,209 6.97 TOTAL 443610756 433973083 -9,637,673 -2.17 ETF Securities platinum funds (ex-U.S.) 454846 454392 -455 -0.1 ETFS Physical Platinum Shares 431557 431311 -246 -0.06 ZKB Physical Platinum 364004 363844 -160 -0.04 TOTAL 1250407 1249547 -861 -0.07 ETFS Physical Palladium Shares 1011928 1001510 -10,418 -1.03 ETF Securities palladium funds (ex-U.S.) 583279 568527 -14,752 -2.53 ZKB Physical Palladium 432769 416842 -15,927 -3.68 TOTAL 1016048 985368 -30,680 -3.02


33

Source: World Gold Council

* Bank of International Settlements ** West African Economic and Monetary Union


COUNTRY HOLDINGS PERCENTAGE/ (TONNES) TOTAL RESERVES 1 United States 8,133.50 73.8 pct 2 Germany 3,401.80 69.8 pct 3 IMF 2,814.00 -- 4 Italy 2,451.80 68.0 pct 5 France 2,435.40 64.8 pct 6 China 1,054.10 1.6 pct 7 Switzerland 1,040.10 17.4 pct 8 Russia 789.2 7.0 pct 9 Japan 765.2 3.0 pct 10 Netherlands 612.5 57.3 pct 11 India 557.7 7.9 pct 12 European Central Bank 502.1 29.2 pct 13 Taiwan 423.6 4.5 pct 14 Portugal 382.5 81.3 pct 15 Venezuela 365.8 55.7 pct 16 Saudi Arabia 322.9 3.2 pct 17 United Kingdom 310.3 15.4 pct 18 Lebanon 286.8 29.1 pct 19 Spain 281.6 38.1 pct 20 Austria 280 53.5 pct 21 Belgium 227.5 36.3 pct 22 Algeria 173.6 4.3 pct 23 Philippines 154.1 11.2 pct 24 Libya 143.8 5.8 pct

COUNTRY HOLDINGS PERCENTAGE/ (TONNES) TOTAL RESERVES 25 Singapore 127.4 2.3 pct 26 Sweden 125.7 11.1 pct 27 South Africa 124.9 11.7 pct 28 BIS* 120 29 Turkey 116.1 5.6 pct 30 Greece 111.5 79.0 pct 31 Romania 103.7 9.8 pct 32 Poland 102.9 5.0 pct 33 Thailand 99.5 2.4 pct 34 Australia 79.9 8.4 pct 35 Kuwait 79 13.9 pct 36 Egypt 75.6 9.2 pct 37 Indonesia 73.1 3.4 pct 38 Kazakhstan 68.9 9.4 pct 39 Denmark 66.5 3.7 pct 40 Pakistan 64.4 15.1 pct 41 Argentina 54.7 4.4 pct 42 Finland 49.1 20.2 pct 43 Bulgaria 39.9 10.2 pct 44 WAEMU** 36.5 12.2 pct 45 Malaysia 36.3 1.4 pct 46 Belarus 35.3 29.9 pct 47 Peru 34.7 3.5 pct 48 Brazil 33.6 0.5 pct 49 Slovakia 31.8 63.2 pct 50 Bolivia 28.3 13.0 pct

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gold hovers near records on u.s. debt woes · 2011. 9. 19. · gold generally does well in times of...

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