Morning Gold Fixing: Geopolitical Instability In Middle East - Gold Today Like Gold In The 1970s?

Tyler Durden's picture

From GoldCore

Geopolitical Instability in Middle East - Gold Today Like Gold in the 1970s?

Spot gold and silver fell 6% and 9% respectively in January. The January price fall looks very much like another price correction and consolidation and is to be expected after the 30% rise in dollar terms seen in 2010. Absolutely nothing has changed with regard to the fundamentals of the gold and silver market and investors should use this sell off as another opportunity to diversify into the precious metals.

Correction: Yesterday our market update said that gold bar premiums in Hong Kong were at 17-year highs. They are in fact at 7-year highs, their highest level since 2004.

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Gold in USD – 1 Year (Daily)

Gold’s 150 day moving average is at $1,310/oz and as can be seen in the chart above this has provided strong support in recent months. Interestingly, gold fell some 1.5% in January 2010 and continued to fall in February before bottoming after the first week in February (08/02/10). Gold then rose slightly in February, consolidated in March and rose strongly in April, May and June. July saw another correction prior the strong gains seen from August to December.

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Gold in USD and British Sovereigns in USD – 30 Day (Daily) – Sovereign Premiums Rise

Nothing has changed regarding tight supply and robust demand and indeed, the geopolitical events in Tunisia, Yemen and Egypt and tensions in the Middle East provide another important catalyst for higher gold prices in 2011. With all the attention on Egypt, the risk of war between Iran and Israel and possibly the U.S. has been forgotten about – for now.

There is a concern that we could see geopolitical contagion and the crisis spreading to the undemocratic oil rich states of United Arab Emirates, Kuwait and Saudi Arabia. This could lead to an oil crisis and at the very least it will likely lead to higher oil prices and most likely a sustained period of higher oil prices. This will lead to even higher trade deficits and inflation in oil importing countries - especially the U.S. which is one of the most oil dependent countries in the world.

The Middle East remains very unstable with real tensions between Israel and its Arab neighbours and Iran. The IMF's Managing Director, Strauss-Kahn, warned in Singapore overnight that "as tensions within countries increase, we could see rising social and political instability within nations -- even war."

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Gold in USD – 1971-2011 (Weekly)

The two oil shocks of the 1970s saw gold prices rise by more than 24 fold (2,300%) in just 9 years - from $35/oz to $850/oz see chart above).

To put that in perspective, today gold's rise has been far more gradual and it has risen some 5 fold (430%) in 11 years - from $250/oz to $1,330/oz. In this regard it resembles gold’s rise from $35/oz in 1971 to nearly $200/oz in late 1974 – a six fold increase.

Given the significant macroeconomic, systemic, monetary and geopolitical risks of today gold is likely to perform again as it did in the 1970s. A 20 fold increase from trough in 1999 to peak sometime in the coming years would see gold rising to over $5000/oz .

This may seem outlandish to those unaware of gold's fundamentals but the very small supply of gold internationally, increasing demand (particularly from investors and central banks), the sovereign debt crisis in the EU (soon to spread to the U.S.) and the debasement of the dollar, the euro and other currencies internationally makes this increasingly possible.

Those who buy this price dip in gold and silver will likely be rewarded again. As ever rather than trying to predict the future price movement of any asset class investors and savers today need to diversify and protect themselves from the significant macroeconomic, systemic, monetary and geopolitical risk in the world today.

NEWS

(Wall Street Journal) --Barrick CFO: Central Banks May Shift More Reserves Into Gold
The world's biggest gold producer expects central banks will likely shift more of their monetary reserves into gold this year, as they worry about soaring stockpiles of U.S. dollars. Jamie Sokalsky, chief financial officer of Canada's Barrick Gold Corp., said there has been a "sea change'' in the past year, with central banks that had stocked up on U.S. dollars starting to buy more gold to diversify their holdings. Many forecasters say that trend will continue this year, since global currency reserves are approaching the $10 trillion mark—the bulk of it in U.S. dollars— even as a faltering economy and climbing debt load look set to depress the value of those dollars, said Mr. Sokalsky, in an interview with The Wall Street Journal.

(Bloomberg) -- Rand Refinery to Upgrade Refining to Boost Coins, Bus. Day Says
Rand Refinery Ltd. of South Africa will spend 500 million rand ($70 million) over the next five years to upgrade its gold and silver processes, Business Day reported, citing Managing Director Howard Craig.

The company will work with commercial banks to encourage retail buying of gold coins, the Johannesburg-based newspaper cited Craig as saying. The smelter’s capacity will double to 8,000 metric tons a year and production of refined silver will increase fourfold, it said.

(Bloomberg) -- Gold Gains as Inflation Concern, Egyptian Protests Boost Demand
Spot gold climbed, rebounding from the biggest monthly drop since 2009, on speculation that rising food and oil prices will increase the metal’s appeal as a hedge against inflation. Protests in Egypt also boosted haven demand.

(Bloomberg) -- Commodities Overtake Stocks, Bonds After Two-Day Gain on Egypt
The biggest two-day rally in commodities since December pushed raw materials past stocks, bonds and the dollar for a second month, after Egyptian riots drove oil, wheat and rice higher.

The S&P GSCI Total Return Index of 24 raw materials gained 3.1 percent in January and rose for a fifth month, the longest streak since 2004, according to data compiled by Bloomberg. The MSCI All-Country World Index of equities climbed 1.6 percent including dividends. The U.S. Dollar Index, a gauge of the currency against six counterparts, fell 1.6 percent. The Global Broad Market Index for corporate and government bonds lost 0.2 percent as of Jan. 28, Bank of America Merrill Lynch data show.

Commodities have beaten stocks for three months, the longest stretch since June 2008, after the Federal Reserve pledged to buy $600 billion of Treasuries and demand for clothes and food lifted cotton, cocoa and copper. Equities were poised to break the streak until Jan. 28, when concern Egyptian President Hosni Mubarak will be ousted sent the MSCI gauge to its biggest retreat since November and boosted food and fuel.

(Bloomberg) -- Gold’s Biggest Gain in 12 Weeks Is ‘Capitulation’ End (Update1)
The “capitulation” in gold that drove the metal to its worst January in 14 years may be ending as escalating violence in northern Africa spurs demand for a haven and after a key technical indicator held.

Futures traded on the Comex exchange in New York jumped 1.7 percent on Jan. 28, the most since Nov. 4, as thousands of people took to the streets of Egyptian cities to protest the 30- year rule of President Hosni Mubarak. Gold earlier rebounded off its 150-day moving average, an indication the metal may surge 21 percent to a record by the end of June, according to technical analysis by the Hightower Report.

(Bloomberg) -- Mexico Gold Output Rose in November, Silver Declined (Update1)
Gold production in Mexico rose 3.3 percent in November to 5,264 kilograms from 5,095 kilograms in the year-ago period, the National Statistics Agency, known as Inegi, said today in a statement on its website.

Silver production declined 3.3 percent to 256,767 kilograms compared with 265,536 kilograms in 2009, Inegi said.

Copper production rose 4.6 percent to 19,291 tons in November compared with 18,449 tons in the same month a year ago, the national statistics agency said.

Overall, mining production in November rose 1.1 percent, Inegi said.

(Reuters) -- Policymakers see dollar losing reserve currency allure
The U.S. dollar's role as a reserve currency will diminish in the coming years as Asian economies like China grow and countries seek to diversify their monetary holdings, policymakers said on Friday.

The U.S. Federal Reserve's policy of quantitative easing -- essentially printing money -- and a call by France to look at ways to wean the world off the dollar as the sole reserve money have put the U.S. currency in the spotlight.

 

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gold mining ceos are idiots's picture

Somebody tell the gold mining stocks that gold is 1300. Newmont is trading just above its 2003 high. 

You bet there is a deliberate attempt to kill these stocks.

Hephasteus's picture

Well seriously. Gold and silver is nanoseconds in geographic time from standing up and kicking the banks right smack in the nuts. Of course they are trying to beat it down with everything they have.

 

 

unwashedmass's picture

 

i wouldn't get all excited about this. Jamie has complete air cover and taxpayer cash to make sure that gold goes nowhere.

the hysterical part of this is the ONLY sector in the market place trading with a faint hint of normalcy is the gold/silver sector.

Hephasteus's picture

Ya. I mean if i were the gold and silver market right now. I'd be really really trying to act like normal, like i'm all cool and shit. You know what I mean.

Adj. 1. hysterical - characterized by or arising from psychoneurotic hysteria; "during hysterical conditions various functions of the human body are disordered"- Morris Fishbein; "hysterical amnesia"
DosZap's picture

unwashed,

The hysterical part, is that Jamie does not have the cover of the taxpayer.

We will get screwed in the end, middle, now, previously.

But the shit their calling money is not money, and the taxpayers will never pay one more cent toward their insanity.

Game Over..................we have a copy of the test.

Math Man's picture

Would you invest in an industry where companies are removing their hedges *after* a 400% increase in price?

There is good reason for metals and mining stocks to underperform.

bullionbaron's picture

Gold and Silver are still buys at these levels, but will likely head into a bubble much like they did in the 80s. In my opinion we are entering the 3rd phase of the bull market: http://www.bullionbaron.com/2011/01/goldsilver-entering-3rd-phase-of.html

Will instability in the middle east add to the price of the metals? It seems likely.

ColonelCooper's picture

PLausible scenario??  - Gold will head into a bubble, then correct.  Prices will enter the stratosphere, blow up and land somewhere around.... lets say $3000 just for fun. 

Meanwhile all the longs who were in at the 7-1200 range will be ridiculed by trolls for having bought into a bubble............... 

JW n FL's picture

Got Guns? Check.

Got Ammo? Check, Check and Check.

Got Food? Check.

Got Medicine? Check.

Got a Water Source? Check.

Got a Power Source? Check...

 

Well then spend that paper on whatever you want other than leaving it in Paper Form to be printed away by the Ben.

 

Just buying something is better than it sitting in the Bank while Ben adds 30% more money to the supply (thru printing) thusly de-valuing the monies in your Bank account by however much he Prints, 30%? YTD?

ColonelCooper's picture

+7.62x51

My point was that in the comparison to the 1970's the trolls only seem to ever be able to point to the people who bought at the top, right before the blowoff.  Those who bought at 200, and were sitting on a nice stack at 600 when the dust settled were spittin' feathers IMO.

ColonelCooper's picture

Good list, BTW.   I'm checked off to redundancy.  Weren't you figuring on riding this shit out in a boat, or on an island or something?   Still working on it?

JonNadler's picture

but JW, you can't eat food!!.....oh sorry, it's just the force of habit

DosZap's picture

No, we are not entering Phase 3.We are in Phase 2.

95% of Americans never have given ONE seconds thought to Gold or Silver.

When everywhere you go, people are talking it up, then we will be in 3.

All the dudes in ETF's are traders, and not investors.

Math Man's picture

Stages, shmages. 

Those hot money hedge funds and traders in the ETFs could crush gold at any minute.

They've bought some much damn gold it's not even funny.

ETF holdings are almost as large as annual mine production.

If they puke, so will the Gold price.

Math Man's picture

ETFs already showing signs of indigestion.

http://www.kitco.com/ind/nadler/feb012011.html

Puking could start sooner than we think.

bullionbaron's picture

Hey DosZap, in my opinion we are in the transition now. I am not suggesting we are right at the peak, I'm saying we're sitting at the start of 1978 and about to head parabolic...

Chances are even at the peak of the bubble only a small percentage of the entire population will be involved. Did you read the link I posted? I discussed the possibility that the actual rush to Gold may occur elsewhere due to the poor savings rate that western societies have now compared to the last bull market.

 

Quintus's picture

Oil shock?  The only thing that shocking about Oil is that despite all the geopolitical uncertainty and the rapidly falling dollar, the price of WTI is going down today.

It's almost as if (perish the thought!) somebody was intervening to keep the price far lower than, say, Brent Crude, and continuing to fall despite all the drivers for higher prices being in place.  Is that the heavy hand of The Bernanke I sense?  

michigan independant's picture

Black Gold http://www.justice.gov/opa/pr/2011/January/11-enrd-110.html

 one of the 10 largest refineries in the world and has the capacity to refine more than 525,000 barrels of crude oil per day.

Meanwhile, The raw materials price index jumped from 43 to 62, reaching its highest level since mid-2008. The share of manufacturers who saw an increase in input costs surged to 64 percent, compared with only 2 percent who saw a decrease. Finished goods prices rose for the third month in a row, although the great majority of respondents continued to note no change. Sixty percent of respondents anticipate further increases in raw materials prices over the next six months, while 40 percent expect higher finished goods prices."

Egypt must listen to the future since Uncle Hugo cannot compete anyway. I like gold but in the long run one ounce is a very good suit...

Temporalist's picture

So when a suit costs $3000 because of the rising price of materials, wages, transportation you will be okay with that.  I guess $5000 suits will be okay too.

RafterManFMJ's picture

Who wear suits in a FEMA camp?

Hugh_Jorgan's picture

In the long run maybe, but who cares. In the really long run we could be back on a gold standard and the price of your gold will not be inflated anymore. Between now and then, a few ounces could pay off your mortgage.

DosZap's picture

I like gold but in the long run one ounce is a very good suit...

Yep, but you cant eat suits, and no jobs, no suits.

One ounce of Gold may be enough to feed your family for 6 mos.

 

DosZap's picture

Quintus,

Wait till the ENTIRE ME gets tunrned into radical Islamic states.

The ones protesting now have a right, and reason.

But they haven't seen shit till they get rulers like Iran.

They will be WISHING for Mubarack.

PS: SO will we, because the price of crude, will go so high, we will be forced to go to a global war.

China once again has shown its longrange thinking and planning has trumped the entire world.By Stockpiling billions of barrels, at cheap prices, and every other comodity needed to sustain their peoples livlihoods(i.e.) not starving.

luk427's picture

They just gave us a buying oppurtunity.

lunaticfringe's picture

Dude, I'm buying anything ur selling.

ageofreason's picture

A fool and his gold has just parted.....

topcallingtroll's picture

Afraid the intermediate top is in for now. Record outflows in january from the gld etf. I love gold by the way, but I'm calling a top here. Nothing looks good right now. Maybe the stock market has further to run. I cant find much of anything to get enthusiastic about. I am still long and lonely cuz I am not enthusiastic about cash, maybe POT? Fertilizers? Farm equipment makers? BIDU? Just kidding on that last one.

Quintus's picture

Ah yes.  The old 'Record outflows from GLD' misunderstanding.  Have a read of FOFOA for a detailed explanation of how GLD actually works, and what these outflows mean.

 

http://fofoa.blogspot.com/ 

VFR's picture

was about to say the same. Very interesting

william the bastard's picture

"Page not found".

Even if GLD were a scam (which it is not), investors selling GLD are also selling gold.

EscapeKey's picture

Shouldn't you be doing something more enlightened, like posting copypasta telling us PMs are poor investments?

Quintus's picture

Must be some hidden characters in the address I pasted in.

Try:

http://fofoa.blogspot.com/

Temporalist's picture

There was a space at the end...

ColonelCooper's picture

You really need to do some homework.  The good trolls at least understand the paper/physical relationship and make the argument that it is irrelevant as "price is price", the paper will drag down the physical, etc...

Your last comment was almost as ignorant as claiming gold was a bad investment because it has outpaced inflation 9 to 1.

Maybe you should stick to pasting Birther comments. 

h3m1ngw4y's picture

investors redeeming GLD is different to investors selling GLD. The first drains gold liquidity from the market

Silversinner's picture

one men sale is an other men buy.

only important thing is gold is moving

from the weak hands to the strong hands.

Chinese and Russian CB I consider strong

hands.They just want the physical stuff,

Chinese like to play the paper hedging

game,but make no mistake;they just

use this game to aquire as mutch gold

as they can,before the shithouse burns down.

 

VFR's picture

the point is they are not selling they are taking delivery. And even if they were selling who are they sellig to as gold is gold. It doesn't go away therefore bizarrely investors can't be selling gold as in reducing interest as there is a buyer. The selling corrosponds with net outflows of gold bullion. The papermarket is kaput. 

A better link. At present rate in 18 months GLD will have no phyisical gold.

http://fofoa.blogspot.com/2011/01/who-is-draining-gld.html

topcallingtroll's picture

Holy shit bidu is up 8 percent. Maybe that is the place to be.

luk427's picture

There is a record outflow because people are learning etf's are a scam. If SHTF you will be standing in line with your peice of paper like a fool.Why do you think the director does not own a single share.

Temporalist's picture

That "story" has been debunked.  The director and management do own the ETF.

Henry Chinaski's picture

Topcalling troll:  Good point.  Having trouble deciding on what to do with some extra cash.  Already diversified in stocks, PMs, RE, and are prepped, locked and loaded etc...  Nothing looks so great right now as an investment and cash seems like a liability.  Finally I concluded on a good used roller-skate (economy car) in case gas prices take off. 

eddiebe's picture

Troll, surely you have considered the fact that by holding dollars you are betting on that lame horse? Maybe top calling isnt such a great strategy.

jus_lite_reading's picture

Middle East tensions are bullish for the global economy. The Bernank said we will see more revolutions, riots, and chaos around the world because this is the result of strong economic recoveries.

Every recovery from a recession has seen 9% real inflation in the US, 20% real unemployment coupled with record PM prices. The Bernank knew this. He is god. A Jewish god. A god for the Jews. The Bernank is the messiah the Jews have been waitin for for the past 2000 years. He has arrived.

Oh regional Indian's picture

Gold is definitely the one to watch.

Because Silver will be doing crazy things on the side. Still see Gold Vs. Silver commentary art a 10:1 ratio, even here on the hedge.

This tells me that Silver is a far better buying opportunity than gold, though for the near-mid term, both will gain, appreciably.

Still, not the response one would expect to so much crisis.

The beach ball is swelling and being held down harder.

And meanwhile, foodstocks are shrinking and grainbaskets are flooded or frozen.

Hard asset investing is the easy choice.

Buy Silver. Even at the expense of gold.

ORI

http://aadivaahan.wordpress.com/2011/01/31/then-again-people-choose-yoga-over-gurdjieff/