Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Gold: Lagging Supply vs. Soaring Inflation

Commodities / Gold & Silver Sep 28, 2007 - 01:23 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis Article"...The gold mining industry just admitted that it lacks growth. The world's central bankers, in contrast, are expanding their production each and every day..."

SPOT GOLD PRICES just ended their sixth week of successive in London , peaking above last Friday's $740 peak and recording the highest Fix since 21st Jan. 1980 , the day of gold's all-time record spike to $850 per ounce.


Where next? On one side, long-term gold market bulls are calling for One Thousand Dollar gold and more. On the other, the sober market professionals awaiting a sharp pullback...any day now!

"We think after the large run we have seen since mid-August that a correction looks likely," said John Reade, head of precious metals analysis at UBS in London on Wednesday, "especially in light of the large net-long positions held in US futures market."

Reade advised his clients to switch out of gold and into platinum, pointing to the heavy build-up in speculative positions in Comex gold futures. By the end of last week, they represented a net-long investment equal to 545 tonnes of gold bullion.

The net-long position held by speculative Comex traders was barely half that size prior to the 12% surge in Gold Prices starting in mid-August – the very day the US Federal Reserve began slashing its interest rates.

And while the build-up in Comex longs might point to a near-term top, the Fed has continued to pump record quantities of extra liquidity into the New York money markets.

Barring the huge liquidity forced into the system by the Greenspan Fed in the aftermath of 9/11 (discounted from the chart above), the Fed has never made so much short-term money available as it has in Sept. 2007...nearly $203 billion.

The Fed's counterparts in Frankfurt are doing the same, and even the Bank of England is now offering short-term loans – and agreeing to accept mortgage-backed bonds as collateral – in an unprecedented series of auctions that both reverse the Old Lady's previous tough stance and that look highly pressured by the inept and amateurish UK Treasury.

"Investors have to look for assets which cannot multiply as fast as the pace at which the Fed prints money," said Dr.Marc Faber, editor of the Gloom, Boom & Doom report, at a CLSA conference in Hong Kong late last week.

Faber advises buying gold and agricultural land as a defense. And while they're certainly not making any more of the latter, the world's supply of gold bullion is also "facing headwinds" as the Toronto Globe & Mail reports.

Speaking at the Denver Gold Forum, president and CEO of Newmont Mining – the world's second largest gold mining company – Richard O'Brien said Wednesday that his total production costs are set to rise above his previous guidance of $400 per ounce.

Newmont's stock dropped 7% on heavy trading on the news. But the greater problem for the gold mining industry remains the lack of significant new finds.

BHP Billiton, the world's largest diversified mining group, was rumored at the start of this week to have found a huge "elephant deposit" at its Olympic Dam mine in southern Australia . BHP itself, however, yesterday upgraded reserve estimates for Olympic Dam by less than 10%.

"Year on year, we believe the industry is struggling for growth," Newmont's O'Brien went on in his presentation. "In fact we believe the industry is probably not growing. That is, there is a lack of growth in production."

Barrick Gold, the world's largest gold producer, also told Denver delegates this week that its cash-costs are rising. Third-quarter mining costs will be the highest so far in 2007, warned vice-president of investor relations Deni Nicoski, driven by Barrick's recent buy-out of Placer Dome and current mine-stripping expenses.

Ironically, the surging Gold Price is also adding to Barrick's costs, he added, as it increases royalty fees.

"No doubt it is getting harder to replace reserves and resources at mature properties," added senior vice-president Alex Davidson – a hard fact of world gold-mining right now, not least given the sector's own view of where gold is headed.

"I think before the end of the year we'll see $800," Barrick's CEO Greg Wilkins told reporters in Denver yesterday.

On the other side of the trade, meantime, that historic auction of three-month money at the Bank of England actually met with zero demand on Wednesday. Charging a "penalty rate" of 6.75% annualized, fully 100 points above the BoE's main base rate, the auction failed to find any takers at all.

"It's clearly good news," reckons Ben Broadbent of Goldman Sachs, because it implies that everyone now seeking short-term funds in London is judged to be credit-worthy by their open-market lenders. Indeed, the City's three-month interbank lending rates pulled back sharply on the news, dropping to 6.32%.

No more Northern Rock 's hiding here, right?

But does the lack of bids really mean London 's banks are happily getting the cash they need inside the Square Mile? The US Fed added another $5 billion in short-term liquidity to the New York market on Thursday; that took the sum total lent in Sept. so far above $198 billion. Most of these loans were overnight only, but London banks applying through their US subsidiaries could have picked up Thursday's offer of 14-day cash more than 150 basis points below the Bank of England's penalty rate.

London banks were doing exactly this in Frankfurt earlier this month, according to a report in the Financial Times Deutschland. And on Wednesday this week – just as the Bank of England's auction at 6.75% was deserted – the European Central Bank lent €3.9 billion ($5.5bn) at a rate of 5%, its largest one-day auction in nearly three years.

Priced fully 100 points above the ECB's key target interest rate, that auction still came at a 1.75% discount to the Old Lady's short-term loans. Nor has the ECB said which banks asked for the money, leaving analysts to guess who might still need a helping hand from the official sector because they're struggling to raise funds in the open market – whether in London or Europe.

"No-one knows where the bodies are buried," says Stuart Thomson, manager of $46 billion in bonds at Resolution Investment. And for as long as the Bank of England holds its penalty rate 1.75% above the equivalent charge in Frankfurt , then the Old Lady's auction room will remain empty.

Accepting help at the highest price charged by G5 central banks would be a sure admission of impending doom. Just look what it did to Northern Rock!

As for Dr. Marc Faber, "he recommends holding physical gold bullion in gold-friendly countries such as Hong Kong , India and Switzerland ," reports Finance Asia magazine. "He counsels against holding gold in the US for fear that it might be nationalized by the government."

Should the idea of owning Gold Bullion – outright in your name – securely in Zurich , Switzerland appeal to you, be sure to consider the low-cost option of buying Swiss gold at BullionVault .

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules