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Positives for Gold

    January 06, 2010

Indian Gold 010610Gold is trending back up as we receive news of greater gold demand and higher inflation risk.

The Bombay Bullion Association says India imported far more gold in 2009 than previously thought. The new figure is 300 to 350 metric tons, compared to the original estimate of about 200 metric tons.

India has historically been the world’s largest market for gold, but its buyers are extremely sensitive to price. It could be a good sign going forward if Indians are strong buyers – they may be thinking that the current price range is here to stay.

I spoke to Josh Lipton at Minyanville this week about my recent trip to India, where economic activity is bustling as confidence returns to the market. Regarding gold, I suggested to him that November’s huge gold purchase by India’s central bank may have played a big role in lifting retail confidence.

Josh also asked me about gold stocks and I said what I always say – the key factors to watch for mining companies are (1) growth in production per share, (2) growth in reserves per share and (3) growth in cash flow per share.

Today’s upward move in gold was credited to rising inflation fears as the U.S. economy recovers. A report came out saying that private-sector job losses in December were the lowest since early 2008, signaling that perhaps the economy is getting better and that inflation could be coming.

We’ll learn more later in the week after the official employment numbers come out, along with the minutes from the latest Fed meeting that may hint toward higher interest rates, which may be a risky move given how fragile the current recovery appears.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link above, you will be redirected to Minyanville.com. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The following securities mentioned in the Minyanville article were held by one or more of U.S. Global Investors family of funds as of September 30, 2009: Randgold Resources Ltd., Goldcorp Inc., Yamana Gold Inc.

 

Gold’s Long-term Rally Intact

    December 07, 2009

Gold IngotsThere’s a lot of speculation in the market that gold has gone up too far too fast and is destined for a sharp correction.

We have said publicly on a number of occasions that no one should be surprised if gold goes up or down one standard deviation over 60 trading days. Statistically speaking, movement within that range would be interpreted as normal, with roughly 70 percent of all data points being within that range.

For the past 10 years, one standard deviation for gold is plus or minus 7.3 percent.

In dollar terms, using the peak London closing price of $1,212.50 per troy ounce on December 2, that percentage works out to plus or minus $88.50, or a range from $1,124 on the low end and $1,301 on the high end.

Basically, any price between that high and low is no cause for alarm – it’s just the market being the market.

We see today’s pullback in gold and related equities as a speculative correction following the release of the latest U.S. employment numbers. The better-than-expected job results spurred a rally in the dollar, which nearly always moves in the opposite direction from gold.

In our view the dollar’s strength will be temporary, given its significant headwinds—near-zero interest rates, massive injections of stimulus money and gaping federal deficits.

We believe gold’s longer-term uptrend is still well intact, with weakness in the sector over the past couple of days likely to prove a buying opportunity. 

We continue to expect the Federal Reserve to maintain its accommodative stance, given that unemployment is still critically high despite the positive surprise last week.

On top of that, as the economic recovery takes stronger hold, inflation fears will also strengthen, and this would be a further positive for gold price appreciation. 

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Gold, precious metals, and precious minerals funds may be susceptible to adverse economic, political or regulatory developments due to concentrating in a single theme. The prices of gold, precious metals, and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unpredicted international monetary and political policies. We suggest investing no more than 5% to 10% of your portfolio in these sectors.

 

Top Gold Producer is Top Consumer, Too

    December 04, 2009

Top Gold Producer 120409Already the world’s largest gold producer, China has replaced India as the world’s top gold consumer.

According to numbers from metals consultancy GFMS, China will consume 432 metric tons of gold this year from jewelry and investment demand. That’s about 10 metric tons more than India, which has long been the top consumer.

Central bank purchases are not included in these demand figures. India’s central bank recently purchased 200 metric tons worth nearly $7 billion from the International Monetary Fund, but China’s central bank has also been a net buyer this year.

With 1,054 metric tons of gold reserves already in its holdings, China’s central bank has the sixth-largest amount of gold reserves. Some forecasters say China plans to build its reserves to as much as 10,000 metric tons over the next decade.

China’s government has indirectly encouraged its citizens to purchase gold by reducing import taxes on gold jewelry and allowing some commercial banks to sell gold bars.

GFMS says gold appetite in India has been suppressed this year, likely due to high prices. If prices fall significantly, GMFS says, there is “huge latent demand in India and it will explode,” which could again put India on top among consumers.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-845

 

Money Supply on Fire, Spreads to Gold

    November 24, 2009

Frank at Market Watch 112309While in San Francisco to speak at the Hard Assets Investment Conference, I sat down with Dow Jones MarketWatch reporter Laura Mandaro to discuss the topic on a lot of investors’ minds these days — gold. I highlighted some factors for Laura, including the effect rising money supply can have on gold prices.

Money supply is on fire in the E-7 and G-7 — they’re just printing away…Unless money supply shrinks dramatically in the G-20 countries and interest rates rise dramatically in the G-20 countries, I think gold is going to go through its 1980 inflation-adjusted price levels.

E-7 is a classification we’ve created for the emerging world’s most-populous countries – the well-known BRIC countries (Brazil, Russia, India and China), plus Indonesia, Pakistan and Mexico. We believe that demographics are a key growth driver for developing countries, and that by monitoring the E-7, we gain valuable insights and can be early in spotting important new trends.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-821

 

Demand for Gold Rising in China

    November 20, 2009

Demand for Gold Rising China 112009FBYou can add gold demand to the list of items being supported by China. China was the sole market to see positive growth in consumer demand for gold, rising 12 percent from a year ago the World Gold Council reports.

Demand for Gold Rising China 112009Total gold demand in China reached 120 tonnes, nearly double the amount from just four years ago.

Overall, gold demand was off 34 percent from 2008 but that is largely the result of exceptionally high demand increases during the darkest time of the financial crisis. On a year-to-date basis, gold demand is only down 6.3 percent.

China’s improving economy has made consumers less price sensitive than those in India and the Middle East who have not fully adjusted to gold prices at current levels.

Jewelry demand in India fell 42 percent on a year-over-year basis but Indians haven’t abandoned their strong cultural connection to gold. Exchange activity among consumers—where old pieces are swapped for new ones—has spiked.

The WGC says this “suggests a strong desire by consumers to remain attractive in the [gold] market.”

BMO doesn’t believe that the downtick in demand is a symptom of a long-term trend. In a research note, they write that “the combination of a strengthening economy, modest supply growth, central-bank buying and concerns surrounding the U.S. dollar and inflation should continue to support gold demand and prices into 2010.”

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. #09-819

 

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