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Record demand for gold coins

May 24 2009 10:21

Johannesburg - The demand for gold coins has hit an all time high, the SA Gold Coin Exchange said on Friday.

"The rapidly growing demand for gold coins strongly suggests that the gold bull market is well set to extend itself strongly into the future," said chairperson Alan Demby in a statement.

An increasing number of analysts and commentators were predicting strong gold price advances, Demby added.

He said during the course of 2008, the value of the exchange's sales of gold coins, primarily Krugerrands, was a substantial 80% higher than in 2007.

"I accept that exchange has grown its market share, but this has played no more than a minor role in our headlong revenue growth, which I am convinced emanates from a belief that gold is the ultimate hedge against the uncertainty generated by the global financial meltdown," Demby said.

In the past few weeks the legendary Warren Buffet had expressed himself strongly in favour of investing in the yellow metal.

Furthermore, Demby said, UBS Investment Research forecasts gold to hit $2 500 an ounce in the next five years as prospects of either deflation or inflation become more extreme.

He added that Citigroup analysts Alan Heap and Alex Tonks had raised their gold forecast to an average $925 an ounce in 2010, from a previous estimate of $900.

Demby also noted that in the fourth quarter of 2008 compared with the equivalent 2007 quarter, total bullion demand in India, the world's largest gold market, was up 84%.

He added that gold demand in Greater China was up 21% while demand in Thailand soared over 100% and Middle Eastern gold bar and coin demand rocketed 139%.

"Record demand has also spilled into the first quarter of this year, sending total global demand for gold in the form of exchange-traded funds (ETFs), coins, bars and futures past the $100bn mark - for the first time ever," Demby said.

Moreover, gold demand via ETFs shot up by 469 tons - a full 223% over the previous record set in the third quarter of 2008.

According to Demby, coin and bullion demand was expected to be just as strong as the 396% surge in the fourth quarter of 2008. "It should be no surprise, then, that the price of gold continues to trade above its 1980 high of $850 - and rising.

"All the data clearly reveal that we are looking at a bull market more powerful than almost anyone is ready to admit - so powerful that it would not come as a surprise if the price hit US2 000 before the end of next year," Demby said.

[Fin24]

Alan Demby on CNBC 22/05/09

Gold supported by weak dollar

May 22 2009 09:24

Tokyo - Gold held steady on Friday near a two-month high, with investors turning to the safe-haven asset as the dollar remained weak and as US data on jobless claims and business conditions dented hopes for a quick return to growth.

Gold has risen about 2.6% this week, and traders said its upside was likely to become more limited as current prices prompt investors to take profit while wary investors halt investment in gold-backed exchange-traded funds.

Spot gold was steady at $952.65 per ounce at 02:42 GMT, little changed from New York's notional close of $953.40. Gold rose as high as $955.95 on Thursday, its highest since March 23. In March, gold prices rose as high as $966.

US gold futures for June delivery edged up 0.2% to $953.40 per ounce from $951.20 on the COMEX division of the New York Mercantile Exchange on Thursday.

Speculators have been boosting their holdings in US gold futures, another reason the market may be getting a bit stretched given that buying has been driven by external factors such as the currency and stocks, said a senior dealer at a Japanese trading house.

"The market is now at a level where technicals will set the direction, with traders watching if stop-loss orders above the highs for March will be hit," the dealer said, saying trend-following commodity trading advisers (CTAs) have been placing such orders at various levels.

The dealer said while players may wait to take action until the June gold futures contract rolls over next month, the dollar's further slide or sharp stock losses could hit the technical triggers.

Gold's relative strength index (RSI), a measure of whether the metal is overbought or oversold, stood at 76 at Thursday's close. The market views an RSI of 30 or less as oversold and 70 or more as overbought.

The Obama administration is preparing to steer General Motors into bankruptcy next week, The Washington Post reported on Thursday, citing sources familiar with the discussions.

Traders said the US automakers' bankruptcy, a factor which would normally spur more safe-haven buying of gold, was likely to have been factored in by market players and could even trigger profit taking given gold's current high price.

They also said gold had been weighed down by selling from India, the world's largest gold consumer, and Vietnam, when prices jumped.

But supportive of gold was data on Thursday suggesting that the US economic recovery, when it arrives, will be a long slog, with a key factory index showing only marginally less weakness and unemployment tipped to hit double-digit levels. Markets were also slammed by suggestions of the unthinkable - that the United States could lose its coveted triple-A credit rating.

Also buoying bullion was the dollar, which fell to its weakest in almost five years against a basket of currencies as concerns about growing US government debt prompted investors to sell dollar assets from stocks to bonds.

Cash flowing into the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, has paused since rising on May 13 for the first time since they began declining after hitting a record high on April 9. Its holdings were unchanged at 1 105.62 tonnes on May 21.

- Reuters

[fin24.com]

Gold coin demand soars

Fri, 22 May 2009 10:27

The demand for gold coins has hit an all time high, the SA Gold Coin Exchange said on Friday.

"The rapidly growing demand for gold coins strongly suggests that the gold bull market is well set to extend itself strongly into the future," said chairman Alan Demby in a statement.

An increasing number of analysts and commentators were predicting strong gold price advances, Demby added.

He said during the course of 2008, the value of the exchange's sales of gold coins, primarily Krugerrands, was a substantial 80 percent higher than in 2007.

"I accept that exchange has grown its market share, but this has played no more than a minor role in our headlong revenue growth, which I am convinced emanates from a belief that gold is the ultimate hedge against the uncertainty generated by the global financial meltdown," Demby said.

In the past few weeks the legendary Warren Buffet had expressed himself strongly in favour of investing in the yellow metal.

Furthermore, Demby said, UBS Investment Research forecasts gold to hit US$2500 an ounce in the next five years as prospects of either deflation or inflation become more extreme.

He added that Citigroup analysts Alan Heap and Alex Tonks had raised their gold forecast to an average $925 an ounce in 2010, from a previous estimate of $900.

Demby also noted that in the fourth quarter of 2008 compared with the equivalent 2007 quarter, total bullion demand in India, the world's largest gold market, was up 84 percent.

He added that gold demand in Greater China was up 21 percent while demand in Thailand soared over 100 percent and Middle Eastern gold bar and coin demand rocketed 139 percent.

"Record demand has also spilled into the first quarter of this year, sending total global demand for gold in the form of exchange-traded funds (ETFs), coins, bars and futures past the $100-billion mark – for the first time ever," Demby said.

Moreover, gold demand via ETFs shot up by 469 tons – a full 223 percent over the previous record set in the third quarter of 2008.

According to Demby, coin and bullion demand was expected to be just as strong as the 396 percent surge in the fourth quarter of 2008.

"It should be no surprise, then, that the price of gold continues to trade above its 1980 high of $850 – and rising.

"All the data clearly reveal that we are looking at a bull market more powerful than almost anyone is ready to admit – so powerful that it would not come as a surprise if the price hit $2000 before the end of next year," Demby said.

Sapa 

[Via Iafrica]

Gold to trade above $1,000 next year - Mark Cutifani, AngloGold

| Tue, 19 May 2009 11:01In an interview on ClassicFM @ 18.15 on 15 May[miningmx.com] -- AngloGold Ashanti believes it delivered on its promise to give shareholders a leverage to the gold price in its financial results and CEO Mark Cutifani is optimistic about the future of the yellow metal.

"We’ve come off a big year of restructuring and we promised that shareholders would see leverage to the gold price. They’ve seen it with a significant increase in realised gold price itself and so from our point of view, a big change in earnings so we’re very happy to report that leverage we’ve been promising," Cutifani said on ClassicFM's Classic Business.

He said there have been significant improvements in the gold holdings in exchange traded funds. "Demand for our product has been significant. People are now starting to recognise that if you don’t have gold in your investment portfolio, you’ve made a big mistake," Cutifani said.

AngloGold has seen a strong gold price, despite it traditionally being the weakest part of the year.

"We’re very optimistic about gold and I wouldn’t be surprised to see gold trade above $1,000 consistently next year," Cutifani said. 

[mining mx]

German firm to install Gold ATMs

This post is a little more offbeat than our usual posts, but totally amazing! 

German firm plans gold ATMs to feed explosive growth in physical gold demand

A German asset management firm plans to set up 500 gold automatic teller machines across Germany, Austria and Switzerland as appetite for physical gold surges.

Author: Peter Starck
Posted:  Wednesday , 20 May 2009 

FRANKFURT (REUTERS) - 

Private investors should hold up to 15 percent of their wealth in physical gold, according to a German asset management company which plans to set up 500 "Gold-To-Go" ATMs in Germany, Switzerland and Austria this year.

A gold-dispensing automatic teller machine (ATM) was on display at Frankfurt's main railway station for a one-day marketing test on Tuesday.

A one-gram (0.0353 ounce) piece of gold, the size of a child's little fingernail and about as thin, cost 31 euros ($42.25) -- a 30 percent premium to the spot market price.

The flat rectangular piece, bearing the imprint of Belgian metals and speciality materials firm Umicore (UMI.BR: Quote), came out of the cash-only ATM in a tin box, including a certificate of authenticity.

"This is more than a marketing gimmick," said Thomas Geissler, chief executive of TG-Gold-Super-Markt.de, the company planning to set up the 500 gold ATMs at a cost of 20,000 euros apiece.

"It is an appetizer for a strategic investment in precious metals. Gold is an asset everyone should have, between 5 and 15 percent of your liquid assets in physical gold," he told Reuters in an interview.

DEMAND

Private investor demand for gold is on the rise in Germany and elsewhere as a result of the financial markets crisis, which has made many investors wary of holding traditional assets such as equities, bonds or mutual funds investing in such securities.

"In absolute numbers, the demand for physical gold is still tiny in Germany," Geissler said. "But in relative terms, the growth is explosive, inquiries have been doubling every six weeks," Geissler said of the trend in recent months.

TG-Gold-Super-Mark.de's main precious metals business idea is based on online commerce.

The gold ATMs to be set up at central locations such as airports, railway stations and shopping malls are intended to gradually accustom people to the idea of investing in physical gold, Geissler said.

The ATMs will dispense 1-gram, 5-gram and 10-gram pieces of gold as well as Krugerrand gold coins. Each ATM can hold up to 1,500 pieces, he said.

The company's internet website (www.gold-super-mark.de), through which investors can purchase units between 1 gram and 1,000 grams, is updating precious metals prices every 10 minuntes.

The ATMs will be equipped with technology ensuring that the prices charged by the ATMs keep pace with those on the website.

TG-Gold-Super-Markt.de is a subsidiary of German online investment fund company INFOS GmbH founded in 1994. INFOS now manages 170 million euros worth of assets on behalf of about 5,000 customers.

© Thomson Reuters 2009. All rights reserved.

[via mineweb] [pics from goldismoney.info]

Gold Demand Surges 38% on Investment, Council Says (Update1) 

By Claudia Carpenter

May 20 (Bloomberg) -- Gold purchases rose 38 percent in the first quarter, led by investment demand that exceeded usage by jewelers for the first time since at least 2004, according to the World Gold Council.

Global demand increased to 1,015.5 metric tons, from 733.9 tons a year earlier, the London-based council said today in a report based on figures from research company GFMS Ltd. Investment purchases more than tripled to 595.9 tons while jewelry demand fell 24 percent to 339.4 tons.

Gold rose to an 11-month high of $1,006.29 an ounce on Feb. 20 as governments spent trillions of dollars to fight recession, sparking speculation inflation will accelerate. In India, the world’s largest gold buyer last year, jewelry demand was the lowest in at least 20 years and net retail investment turned negative for the first time as holders sold metal for recycling, the council said. Chinese demand was six times that of India.

“In the current environment, investment demand is part of the diversification of assets in portfolios and therefore is less sensitive to price than jewelry demand,” said John Meyer, research director at Fairfax IS in London.

Investment demand for coins, bars and exchange-traded funds was the highest since at least 2004, when GFMS began tracking them, and “could well be” a record, GFMS senior metals analyst Philip Newman said. Jewelry demand had accounted for about two- thirds of gold demand in the past 30 years, he said.

Investment Flows

“Investment flows in the first quarter of this year were unprecedented and, based on an analysis of the past 30 years of the gold market, probably unsustainable in the long term,” UBS AG analyst John Reade wrote in an e-mail. Concerns about inflation and currencies “are likely to continue for the next year or so and this should keep investment flows strong, if not perhaps at the super-strong levels seen in the first quarter.”

The U.K. Royal Mint used 75 percent more gold in the first quarter than a year earlier and the U.S. Mint’s sales of 1-ounce American Eagle gold coins more than quadrupled in January.

Gold for immediate delivery climbed $2.98, or 0.3 percent, to $928.04 an ounce by 8:24 a.m. in London.

Total demand from India fell 83 percent to 17.7 tons, from 107.2 tons a year earlier. In Thailand, total usage was a negative 16.9 tons, compared with net demand of 2.1 tons a year earlier. Purchases in China rose 1.8 percent to 105.2 tons from 103.3 tons. In the U.S., demand rose 15 percent to 55.2 tons.

‘A Bigger Role’

“Certainly over the long run, you’re going to see China permanently taking a bigger role,” said Rozanna Wozniak, London-based investment manager at the council. “Across the world, there has been an increase in recycled gold sales, due to a combination of profit taking and distress selling due to difficult economic conditions.”

Demand in Germany for bars and coins expanded fivefold in the first quarter to 59 tons, according to the report.

“Throughout the western world, the safe-haven motive to buy gold was very strong due to economic uncertainty,” Wozniak said. “In Germany, it also appears to be motivated by inflation.”

Owners of gold sold a record 558 tons of metal back into the market, with net retail investment a negative 17 tons in India and 19.9 tons in Thailand, according to the report.

Gold mine production rose 2.9 percent to 560 tons from 544 tons. Central bank sales slumped 55 percent to 35 tons from 77 tons.

To contact the reporter on this story: Claudia Carpenter in London atccarpenter2@bloomberg.net

Last Updated: May 20, 2009 03:52 EDT 

eGOLI report 18 may 2009

By David Levenstein

Although many gold commentators including myself have been expecting to see the gold price soften in the short-term, the price of the precious metal has been extremely resilient over the last few weeks, and is showing signs of good support at prices around $900. Each time gold has dipped below $900 it has recovered very quickly, even though there are certain fundamental reasons which should, under normal circumstances, put pressure on the gold price

Despite the fact that certain central bankers have indicated that there are some encouraging signs of a recovery and despite the fact that risk appetite for equities has made a comeback over the last several weeks, gold has remained steady. Often, investors tend to sell gold to raise cash when they expect higher returns in other markets, such as equities and currencies, there has not been any evidence of any major selling of gold.

On Thursday 07, 2009 US Treasury yields soared after a 30-year government bond auction saw poor demand, highlighting the balancing act facing central banks seeking

to keep interest rates low while selling record amounts of debt. The lukewarm investor response to the sale of $14bn of US Treasury debt came after European central banks intensified efforts to combat recession. The European Central Bank cut its main interest rate by a quarter percentage point to 1 per cent, the lowest yet, and announced plans to buy €60bn of covered bonds, which are backed by mortgages or public sector loans. Separately, the Bank of England said it would pump a further £50bn ($75bn) into the

UK economy through its programme of quantitative easing.

What has this got to do with gold? Well, yields influence the value of currencies which in turn influence the price of gold. Right now, as the yields offered by most major industrialised countries are close to zero, investors are looking at equities as an alternative. This is one of the reasons we have seen a rally in global equities.

The latest jobs report which came out last week gave a mixed picture of employment in the US, leaving investors without any clear sign that the economy is improving. The pace of layoffs slowed in April when employers cut 539,000 jobs, the fewest in six months. But the unemployment rate climbed to 8.9 percent, the highest since late 1983, as many businesses remain wary of hiring given all the economic uncertainties. And, later in the day, the Euro gained more than 200 pips against the dollar, which boosted gold prices. The precious metal is used as a hedge against inflation, which can be triggered by a weak currency, so it often moves opposite the dollar.

In the meantime latest reports show that the demand for gold coins in the UK have soared to unimaginable levels. The UK mint, which is based in Wales, used 75 per cent more gold in the opening three months of 2009 than it did a year previously. It produced 28,496 ounces of gold coins in the first quarter, compared to 16,317 ounces in the same period in 2008, while production last year also increased 30 per cent. 

Technicals

The Gold market continues to remain in a pivotal position from last week, warning for a positive turn from its sideways congestion. Short-term traders might well be using this range ($875 -$935) to trade but in the mid-term, a close over $929.90 on the June contract will fully turn this market back to the bull camp projecting up to $950.00. Only a close below $910.00 will void the bullish bias. But any drop to $875 - $885 should be used to add to your positions. However, it appears that the downward channel has been broken and the trend is beginning to turn positive.

With gold showing new signs of strength and as it is probable that the Rand will weaken, it is time to include/add krugerrands in you investment portfolios.

If you would like to speak to a broker for more information about Investing in gold, or how to structure a gold coin portfolio contact 011 784 8551 or email  online@sagoldcoin.com

FALSE GREEN SHOOTS?

Be wary of the markets - gold still offers the best insurance

Past major bear markets have seen false new dawns which have tended to be short lived and the recent big uptick in stock markets could be another of these, so don't disinvest from gold yet.

Author: Lawrence Williams
Posted:  Monday , 11 May 2009 

NEW YORK  - 

In a week that has seen global stock markets continuing to perform positively, gold has done remarkably well given that many experts are predicting the start of a new bull market. There has been little, if any, disinvestment from gold over the period, which suggests there are many out there continuing to hedge their bets.

And indeed they may well be wise to do so. Major bear markets of the past have seen big upswings during their progress, sucking investors back in, only for the upturns to end dramatically as some further major financial collapse spooks the markets again and prices tumble.

The global economy remains unstable enough for there still to be some nasty events out there which could do this. The duration of these upswings in past major bear markets has tended to be for periods of between five and seven weeks, which suggests we could be near another major downturn if history repeats itself - as it frequently does.

The global debt position is still an enormous cause for concern and many of the noises coming from politicians talking of "green shoots" and "safety nets" seem to be little more than hot air designed purely to try and build general confidence. In itself this is perhaps a justifiable position, but the whole deck of cards can equally come crashing down when a single significant event occurs belying the political rhetoric.

So gold, which thrives on economic uncertainty, should continue to play a major part in wealth preservation. It thus makes sense for at least a significant portion of one's wealth to be invested in gold and gold stocks - and maybe also in silver which tends to follow gold, but in a more volatile pattern.

Remember silver came back a huge amount more than gold as both fell back from their peaks, and it could thus increase in value faster than gold. (But also bear in mind that silver investment tends to be riskier than gold because there is a much greater industrial element in silver demand and usage than for gold and industrial growth is currently flat to negative in most parts of the world.)

At the moment the US dollar is holding up reasonably well in relation to other currencies, and inflation is proving to be minimal, but the whole system of pumping money into the economy at unprecedented rates developed to shore up world economies has to be inflationary sooner or later - and may even become hyperinflationary in some countries. Should the dollar start to fall back and inflation pick up, this would be a double whammy in terms of boosting the gold price and this could soar while the purchasing value of other investments, of salaries - and of pensions in particular - could dive dramatically. This may be almost a doomsday scenario, but one does need to protect oneself against such an eventuality.

There has also been some talk of revaluing gold as a neat way of boosting global monetary reserves and stabilising the global economy, but this may be politically a nightmare and probably won't come about. But again, if more and more people turn to gold amidst continuing economic shock and uncertainty the markets alone could make this revaluation fact and save the politicians from having to try and push through what could be a perhaps unacceptable move.

Overall, therefore, gold looks to have more of an upside potential than a downside. Maybe one should sell one's stock market investments in May and go away as the old adage advises, but it may be foolish to sell your gold!

[mineweb]

Warren Buffett's good news for gold

Warren Buffett's good news for gold

OMAHA - 

In the 44 years he's been building a reputation as the world's savviest investor, Warren Buffett has rarely offered any good news on gold. Until now.

The two key messages he delivered to 35,000 shareholders at Berkshire Hathaway's AGM in Omaha over the weekend were inflation is coming back; and the US Dollar is headed lower. Both predictions, if fulfilled, are powerfully positive for gold.

Buffett, who has delivered compounded returns exceeding 20% a year to shareholders for more than four decades, did not mention gold by name. But that will matter little to the yellow metal's continuously growing group of supporters. They are sure to interpret this as further evidence that gold's best days lie ahead.

After dabbling in precious metals in the 1960s, Buffett ignored them until a well publicized (but poor) trade in silver between mid-1997 and early 1998. The decision to accumulate 130m ounces was based on factors specific to silver's supply and demand at the time.

Once he'd closed out the position, Buffett jokingly describing it as "the perfect trade - except that we bought too early and sold too late." Since then he has publicly and consistently shunned precious metals, mainly because he prefers assets which generate dividends.

Despite his gloomy forecasts for inflation, Buffett hasn't exactly signed up to gold-supporting groups like GATA. Rather, he suggested to Berkshire shareholders their best protection was "invest in yourself; and as a second option, buy stock in a well run company."

Buffett explained that in the wake of the global financial sector meltdown, State officials have been forced to take the world into uncharted territory. Nobody knows the exact impact of unprecedented bailout and stimulation packages.

But he is convinced of one definite consequence: "You can bet on inflation." History suggests that higher inflation is an important trigger for a rise in the gold price.

During Saturday's six hour question and answer marathon, Buffett (78) and Berkshire Hathaway's vice chairman Charlie Munger (85) once again belied their advanced years through sharp wit and focused minds. They also referred often to their view that the US Dollar is headed south - another bull factor for gold.

Buffett believes US Government Bonds are one of the poorest choices for investors today, especially non-Americans. As he put it: "Anybody who holds (US) Dollar obligations from outside this country is going to get back less in purchasing power in future."

In his view the US is following policies that are bound to have inflationary consequences. Heading these is the heavy borrowing from, especially, the Chinese to fund the bailout and stimulus packages.

Says Buffett: "It's wrong for politicians and others to keep saying they're using (US) taxpayers money. My taxes haven't gone up and neither have yours. What we aredoing is borrowing from the rest of the world and building up Government debt. The classic way of reducing the impact and cost of foreign debt is by reducing the value of the dollars you're going to repay them with."

He added: "The people who are really going to pay (for the bailouts) are those who are buying fixed interest (US) Government bonds that will be worth less when they redeem them. The AIG bonuses," he quipped, "were actually paid by the Chinese."

While warning that shareholders should expect to see "plenty of inflation", Buffett said there was no need to despair: "The best protection against inflation is your own earning power. If you are the best at what you do, you will get your share of the national pie no matter what inflation does. The second best protection is owning a wonderful business that does not need capital. With these guidelines, I'd say invest in yourself. It's always been the best investment you could make."

Alarm bells ring for gold

Johannesburg - Investment in gold will be the driver to push the price to $1 100 or more this year, further damaging an already battered jewellery sector and increasing scrap supplies into the market. Prices will come off over the next five years as that investment dries up and retreats, says GFMS CEO Paul Walker.

It's difficult to be too definitive about what will happen in the gold market, with a number of variables feeding into forecasts for the price. What benefits one side of the equation has a negative consequence for the other.

Investment in gold in a period of tremendous economic upheaval pushes the price up to record highs but the consequence is that a "bedrock" sector of the market, the jewellery making and retail business, takes a pounding as buyers look for cheaper alternatives or stay out of the market until prices come back down.

"Over the last two or three years, the only thing that sustained the gold prices we've seen has been investment demand," Walker said. "Investment demand has been strong and consistent enough to take metal off the market to sustain those prices."

Indian scrap sales have been modest on expectations of higher rupee gold prices, but there have been relatively heavy flows in the Middle East, North America and Europe, made up of distress selling or people needing to raise cash, and from trade stocks, Walker said.

"This is where we start to sound the alarm bells for the long-term sustainability of high gold prices because the supply chain for gold jewellery, which is still the bedrock of this market, is slowly but surely being eroded by these high prices," he said.

GFMS, the London-based metals consultancy, forecasts that scrap, which has increased substantially in the year-to-date, will most likely be higher for the full year compared to 2008.

According to GFMS data, scrap supply in the first quarter of 2009 has surpassed the sharply lower amount of gold used in making jewellery, the first time in nearly 30 years.

"That tells you that jewellery fabrication has contributed negative demand for the first quarter. It's a remarkable and frightening prospect. Does this continue or doesn't it? If you're forecasting where the market is going you have to make a judgment call on this particular dynamic," Walker said.

Wall of scrap

"What's happened in the first quarter of 2009 is an absolute phenomenal wall of scrap coming back onto the market. It's come from everywhere," Walker said. "It does start to sound the alarm. Is this a once off?"

"I think the second quarter will be very revealing if we see the gold price move back over $1 000 and above. It's absolutely critical as to what happens to scrap as to what the sustainability of this is."

Stripping out scrap flows into the gold market, Walker argued that there was not enough demand - be it jewellery fabrication or industrial offtake, which has taken an "absolute kicking" - for the gold currently being mined and that the excess was being mopped up by investors seeking out a safe haven for value.

"I believe investment will be a key feature in this market for the balance of this year and possibly 2010," Walker said. "But when that turns there is only one thing that brings that brings this market into equilibrium."

He said prices would have to drop - something that is likely if investment demand stops growing and becomes neutral if sentiment towards equities and bonds changes - to bring in physical demand for the metal to return to the market to equilibrium. "There lies the challenge for gold. It's not the story for the next year or two but the next four to six years."

He argued that gold prices will be "a lot lower" than they are now in the next four to five years, which raises the possibility of the Chinese government diversifying its massive reserves to incorporate gold. It is thought to have largely held off doing so because of the high gold price and for fear of disrupting the gold market.

The large flow of scrap gold is generally ending up in vaults, predominantly in London, Walker said, estimated the private holdings over the past eight years have grown to be twice that of the 1 600 tonnes held in gold-backed exchange-traded funds.

He told an anecdotal story of JP Morgan advising a client in Japan that it was restricting silver storage to one container per day. "There's a wall of silver coming back into London," he said.

GFMS forecasts mine production will rise this year by between 20 and 30 tonnes, mainly on increased output from Australia, Asia and West Africa.

Central bank gold sales are expected to remain weak this year, with the International Monetary Fund sales of 403 tonnes of gold through the Central Bank Gold Agreement, which caps official sector sales at 500 tonnes, not expected before 2010.

"The IMF sales are already priced in and they don't really concern me. I don't think it will have that much of a price effect and won't be massively influential," Walker said.

He said he expects the Central Bank Gold Agreement, which expires in September this year, to be renewed and for the cap of 500 tonnes a year to remain in place. "I'd be extremely surprised if it's not renewed."

- Miningmx.com

G20 supports IMF's plan to sell 403 tons of gold

Endorsement signals plan likely to be approved by member countries this year

NEW YORK (MarketWatch) - Leaders from the Group of 20 nations Thursday endorsed the International Monetary Fund's plan to sell 403 tons of gold to raise funds to support the world's poorest countries.

The announcement from G20 leaders helped add pressures to Thursday's gold trading. Gold futures fell $20.30, or 2.2%, to $905.80 an ounce in recent trading on the Comex division of the New York Mercantile Exchange. See Metals Stocks.

The G20 vowed in its statement to "use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries." Read more on G20.

The endorsement suggests that the IMF's gold sales plan is likely to be approved by its member countries later this year.

The IMF has been planning to sell gold since as early as 2007 to diversify its revenues and strengthen its balance sheet. But the plan needs to be approved by an 85% majority vote from its 185 members.

The U.S., which has 17% voting power in the fund, essentially holds veto power. The U.S. government has informed the IMF that Congressional authorization by law is required before it is able to support the plan.

The U.S. Treasury announced last year that it will seek authority from Congress.

Hussein Allidina, an analyst at Morgan Stanley, said in a note Thursday that he expects the IMF to implement the sales over the next few years, "but do not believe that this presents a strong negative risk to gold prices - as it will be 'orderly' and maybe even off market."

The US administration has seemed supportive, both for expanding the IMF's role as well as helping its long-term funding challenges. This makes the proposed IMF gold sales much more likely, as the US Congress effectively has a veto on this decision, with the US having a 17% vote on an IMF decision that needs 85% to pass.

Minimize market impact

The IMF, which holds more than 3,200 tons of gold, is the third-largest holder in the world after the U.S. and Germany.

Most of the IMF's gold holdings come from the fund's member countries, which are required to commit 25% of their quota in gold. The fund can't sell those holdings into the markets.

But an additional 403.3 tons of gold the fund acquired through off-market transactions in 1999 and 2000 - such as interest payment from countries that received IMF loans - are not subject to the restriction.

If member countries approved the gold sales, the IMF can find ready buyers in countries with low gold reserves, especially Russia and some Asian countries such as China, Taiwan, and India.

China, with less than 1% of its $2 trillion reserves held in gold, has expressed interest in buying more gold, crude oil, and other strategic commodities.

According to the IMF's plan, the gold selling will be implemented in coordination with major central banks to minimize the impact on the market.

The European Central Bank said Wednesday it had completed the sale of 35.5 tons of gold.

The gold sales were in full conformity with the second Central Banks Gold Agreement, which was signed in 2004 by the ECB and other European major official gold holders.

The second CBGA, which caps total gold sales of the signatories at 500 tons a year, expires in September. Some analysts expect a third CBGA to be signed before September.

Moming Zhou is a MarketWatch reporter based in New York.

Gold in line for a run

Gold set for 'decisive move' 
March 26, 2009

Johannesburg - Gold is poised for a decisive move upwards, the SA Gold Coin Exchange (SAGCE) said in a statement on Thursday.

The SAGCE said the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund had identified a chart pattern showing that gold's short-term downtrend was about to clash with its intermediate-term uptrend.

The clash pointed to a decisive near-term price move - either up or down.

"We’ve noticed a similar picture on our charts," said Alan Demby, executive chairman of the SAGCE.

He added that it was his prediction that the gold price would move up.

Several factors, he said, prompted such a decision.

This included the fact that the intermediate-term uptrend has been tested on two occasions - in November last year and mid-January this year - with the likely result that it would hold again on this occasion.

Demby said there had been an unprecedented surge in demand for gold coins, which had resulted in the US Mint having had to stop producing its 2009 American Gold Eagle coin for collectors, reflecting determined global buying.

Demby said that as a proven inflation hedge, gold was starting to offer itself as a safe haven from the trillions of fiat dollars that had been created by the world's leading central banks. - Sapa

It is clear now that central banks are buying gold for their reserves.   Here is a brief history leading to today and the present position of central banks as they turn to buying gold.

 

Massive Gold Sales!

From the early 1980’s and for the next 20 years gold was under the threat of massive sales from the world’s central banks.  Many commentators reported that the overhang of gold above the ‘open’ market was so great that such sales would eventually lead to central bank reserves in the developed world having no gold at all.   Central Banks had further worsened the situation by loaning gold to mining companies, through the bullion banks, allowing them to finance gold production to a far greater extent than warranted by the price of gold during that time.   This acceleration in the production of gold allowed the gold price to be pressed down $850 to $275, the point at whichBritain, at the instruction of the current Prime Minister Gordon Brown instructed that Britain sell the bulk of its gold reserves.   From the turn of the millennium this perspective changed dramatically.

 

Limitation of gold sales by central Banks!

In 1999, through the establishment of the Washington Agreement, the signatories announced to the world that it need not fear uncontrolled sales of gold reserves for the next 5 years.   While the U.S. and Japanwere not signatories, they gave tacit agreement to such a limitation.  Since then neither of them have sold gold on the open market. Following the end of the ‘Washington Agreement’, a second agreement, called the Central Bank Gold Agreement, extended the situation for another five years.   This agreement ends on the 26^th September this year.  Sales were limited to the sales previously announced by the signatories, with the exception of Belgium and Spain who made no prior announcement to their sales. Under the Washington Agreement these were limited to 400 tonnes a year.   Under the second Agreement the sales were limited to 500 tonnes a year.   These limitations have not been met under the second agreement as sales are below this limit so far.

 

The halting of Central Bank Gold Sales!

Of great significance has been the actual slowing of gold sales from European banks, which appear to have lost all appetite for gold sales.  Indeed France was an unwilling seller, but under Presidential instruction has done so.   Italy has had no plans to sell any of its gold.   Germanyhad the option to sell 600 tonnes but has not taken this option up.  Switzerland took some of this but has ceased selling now.   It would be surprising if the signatories sold more than 150 tonnes of gold let alone the ceiling amount of 500 tonnes by the 26^th of September this year.  And next year, we expect no such sales [the I.M.F. sales are potential sales that  are not part of a central bank gold selling policy] from central banks.

 

Central Bank buying of gold for reserves!

Just as the tide turned from damming gold in the monetary system in 1999 it appears we are rapidly approaching another watershed in the history of gold in the monetary system.

 

Countries not seen as an important part of the global monetary system have, in the last few months, turned buyers of gold.   Ecuador [28 tonnes - 920,000 ounces - doubled its reserves from 26.3 tonnes], Venezuela bought gold [ 240,000 ounces - 7.5 tonnes - taking it up from 356.4 tonnes] , but this is not deemed of great significance.  

 

Russia at last, after talking about it for over one year has begun to buy gold.  It was reported that Russia has bought as much as 90 tonnes of gold for its reserves, lately [Previously it held 495.9 tonnes].   This is much more significant as it is a large figure in the small gold ‘open market’.   Prime Minister Putin is reported to have said thatRussia wants to see gold forming 10% of Russia’s reserve.   The slow process of getting them up to that level could have begun.   Even soRussia has little influence on global central bank thinking, so such increase are not thought to directly influence the principles behind gold as a reserve asset.     So as not to minimize such purchases, if Russiawere to keep up this pace of acquisition, it would be able to buy 360 tonnes a year and have a very significant impact on the gold price.

 

But the principles behind gold, as a reserve asset, are affected far more by the following news.   Last week the European Central Bank reported that one signatory to the Agreement purchased gold [which for the first time we have seen them do it], because the purchase was not simply of gold coin [which has happened before – seemingly for good housekeeping reasons] but simply “of gold”.  In other words the ranks of central bank selling in Europe have been broken and one has turned buyer!

 

We feel more positive now in our belief that European Central Banks are unhappy sellers and are inclined to change their views to the buy side.   The very fact that one central bank in Europe has turned buyer confirms this.   There is little doubt in our minds that there are conflicting views now amongst the heads of the leading European central banks on gold now.  

 

 

Major changes taking place in central bank policies on gold!

According to the World Gold Council’s new chief Executive AramShishmanian, in the Middle East the new monetary union there intend to have “gold play a prominent role in Gulf CC economies.”  He said, “It may play a role in that basket of currencies on which the GCC common currency will be pegged”.  Of course, please bear in mind that the inclusion of gold in a basket of currencies, would simply be for valuation purposes and does not, of itself, imply that these central banks will buy gold for their reserves.  

 

He continued, “Gulf central banks, along with the central banks ofBrazil, Russia, India and China are expected to increase their gold reserves.   Central banks with low reserves of gold are looking to increasing their reserves. They are trying to analyze what the right balance should be.   They are becoming aggressive.   Currently the belief is that if more than 20% of a central bank’s reserves are in gold, it is overweight, but this perception is changing!   The metal is becoming an assert class in the region and Gulf investors are looking at long-term investments in gold as a hedge against inflation.”    We are certainly not in a position to contradict what he says.   After all he has the resources and contacts to be authoritative on the matter.  

 

However after nearly 30 years of opposition to gold by central banks ands occasionally governments, it is a remarkable turnaround that tells us that gold is returning to the monetary arena again!  [The gold world has expected this for so long it feels a bit like seeing an oasis in the desert.]

 

If right, expect to see both Russian and Chinese gold production go straight into those countries reserves and not even reach the open market.   That will account for nearly 600 tonnes of supply disappearing.   Now add to that the halting of sales from European central banks, a perceived 500 tonnes a year.   If this trend continues gold, as an investment, will be fully rehabilitated.

 

Institutional demand will follow!

But this is by no means the largest effect that this change of heart will bring about.   The recognition by central banks that gold has a role in the monetary system will influence investors, both institutional and individual.   Should that happen and say 5% of funds placed in gold by funds such as Pension funds, then an amount of $920 billion, in the States alone, could head gold’s way.  Only a five figure gold price could accommodate that volume of money in the gold market.   Now add to that the same inclination in the rest of the world.   Any such rise in price will stunt the demand for sure, but be certain that gold is not simply in a bull market.

 

If the World Gold Council’s CEO is correct, then he will have confirmed that 2009 and 2010 will be the year that heralds the return of gold to the global monetary system!

 

 “Gold is always accepted and is the ultimate means of paymentand is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.”

 

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