Gold To Repeat July/August 2011 Gain Of Over 27 Per Cent?

[29]XAU/USD Currency Chart – (Bloomberg)

Gold dipped today despite Wall Street hopes that the US Fed will embark on more QE. As we have said for some time QE3, or a new term for electronic and paper money creation, is a certainty and this will lead to inflation hedging and safe haven demand for gold.

US economic data has been very poor recently which is leading to hopes by Wall Street that "Operation Twist" may continue beyond its June deadline.

Most on “Main Street” continue to be wary of ultra loose monetary policies and the real risk of currency devaluations and serious inflation.

G20 leaders will watch a European summit next week where finance officials will examine deeper integration in the Eurozone including the creation of a banking union.

There are hopes that something will be finalised by December however political obstacles mean the banking and fiscal unions will be nearly impossible to achieve.

Smart Money Positioning For Summer and Autumn Rally
There continues to be much debate as to why gold has not risen or surged in value given the risks in the eurozone, the bursting Chinese property bubble and risks of a US and global recession or even Depression.

The fact that gold is 3% higher in dollar terms year to date in 2012, higher in other currencies and is again outperforming most other assets continues to be unacknowledged.

However, the smart money (central banks, PIMCO, Soros, Faber, Einhorn, Bass etc) continues to buy gold and is positioned for the possibility of a sharp upward movement in the price in the coming months.

There were similar sentiments expressed regarding gold in the first half of 2011 when gold had eked out limited gains in dollars and had traded sideways in pounds and euros.

All this changed in July and August when gold suddenly surged in all major currencies (see charts).

Gold fell in June 2011 in major currencies. It bottomed on July 1st 2011 when gold was trading at $1,488/oz, €1,024/oz and £925/oz (closing prices).

Gold then surged in July and August and reached record nominal highs in dollars, euros and pounds in early September.

The monetary metal reached closing highs of $1,900.30/oz (September 5th), €1,358/oz (September 9th) and £1,179/oz (September 5th).

[30]XAU/EUR Currency Chart – (Bloomberg)

Thus in just two months, gold made gains of 27.6% in dollars, 32.6% in the beleaguered euro and 27.4% in pounds sterling.

Similar gains were seen in all fiat currencies including Canadian dollars, Australian dollars, Singapore dollars, Norwegian krone, the Swiss franc and the 'safe haven' Japanese yen.

Many buyers who attempted to time the market and were not positioned for the rally missed the gains and therefore did not enjoy gold's gains in 2011.

Silver also rallied sharply from $33.88/oz to $43.75/oz - a gain of 29% in the 2 months.

However, silver has already seen a sharp move up in February, March and April when it had rallied from $28.53/oz to nearly $50/oz on April 28th - a massive gain of 75% in just 3 months.

Silver subsequently fell back to the $34/oz level prior to the strong gains seen in July and August.

Given the still strong fundamentals for gold, we believe that gold may replicate the performance seen in July and August 2011.

While history never repeats, it has a habit of rhyming and those who fail to learn their history are condemned to repeat it.

While gold may repeat its significant gains seen last summer, gold buyers should as ever be motivated not simply by capital gains - as welcome as they always are.

[31]XAU/GBP Currency Chart – (Bloomberg)

Buyers should focus on the fact that physical gold bullion, either in your possession or stored in the safest vaults in the safest jurisdictions in the world, will hedge against currency devaluation and debasement.

Gold will also act as a liquid safe haven in the event of a systemic financial crisis involving capital controls, ATM and deposit withdrawal restrictions and bank ‘holidays’.

OTHER NEWS
(Bloomberg) -- Central Bank 2012 Gold Purchases Seen Topping Last Year’s Total
Central banks, the world’s largest holders of gold, may buy more of the precious metal this year than the purchases of 456 metric tons in 2011 as countries diversify their reserves, according to the World Gold Council.

“We have seen many countries, especially the emerging economies, buying gold during this economic turmoil,” Ashish Bhatia, the manager of government affairs at the producer-funded World Gold Council, said today in an interview in New York. “Also, sales from central banks have dried up in the past couple of years.”

Central banks are expanding reserves for a third straight year as prices head for a 12th consecutive annual gain. Gold futures are up 3.6 percent this year in New York as slowing economies and the deepening European debt crisis boost the appeal of the metal as a haven. Kazakhstan plans to raise the amount of gold it holds as part of its international reserves to 15 percent from 12 percent, the nation’s central bank said.

Turkey expanded its gold holdings by 29.7 tons in April, data on the International Monetary Fund’s website showed. Ukraine added 1.4 tons to bullion reserves, Mexico increased them by 2.9 tons and Kazakhstan’s gold holdings climbed by 2 tons, the data show.

“Emerging economies want to increase their holdings as gold has been relatively under-owned by them,” Bhatia said.

Gold futures for August delivery slid 0.2 percent to settle at $1,623.20 an ounce on the Comex in New York. The precious metal rose 2.3 percent last week, while the dollar fell 1.1 percent against a basket of six currencies.

All the gold ever mined totaled about 171,300 tons by 2011 and would fit inside a cube measuring about 69 feet (21 meters) on a side, according to the World Gold Council. Private investment in the metal reached about 33,100 tons by the end of last year, according to the council.

(Bloomberg) -- South Africa Needs Platinum, Chrome Exchanges, Adviser Says
South Africa’s platinum industry requires “extra-market coordination” and could be helped by an exchange for the metal, said Iraj Abedian, an economic adviser to the country’s mines minister.

“As a general rule, if a country is a dominant player in any commodity, if they don’t establish an exchange for that commodity, then they’re heading for a crisis,” Abedian said in a speech in Johannesburg today, speaking in his personal capacity. “Our platinum industry at the moment is heading for its first crisis.” Abedian isn’t aware of a specific proposal before government on this, he said.

Mines Minister Susan Shabangu said yesterday she’ll work with the platinum industry to help the producers formulate a plan to deal with challenges that include above-inflation labor and power-cost increases while prices are little changed over the past two years. South Africa has the world’s largest reserves of platinum, chrome and manganese.

Anglo American Platinum Ltd. and Aquarius Platinum Ltd., the largest and fourth-largest producers, this month said they would idle their Marikana operation because of a “difficult” market. Eastern Platinum Ltd. also halted development of a mine.

It would also be of benefit to the chrome and manganese industries to set up exchanges similar to Canada’s potash exchange, Abedian said.

In Canada, “they have a regulated exchange,” for potash, he said. “They manage the market supply and over the long term, they maximize national interest and all the producers are part of it.”

Industry Participation

Producers can’t set up an bourse on their own because of local and international trade and antitrust rules, Abedian said. The exchange has to be started “in pursuit of national interest,” and should be done “with the participation of the producers,” he said.

The companies would deliver product to depots and receive written acknowledgment of the volume and specification of the product, which they would then be paid for by banks, he said. Buyers would place orders with the exchange.

It would “smooth out” industry volatility, he said.

Platinum increased for a second day, rising 0.2 percent to $1,487.25 by 11:33 a.m. in London, extending is advance this year to 6.2 percent.

(Bloomberg) -- Societe Generale Says Gold to ‘Challenge’ $1,800 by Year End
Gold will “challenge” $1,800 an ounce by the end of the year, Societe Generale SA said in a cross asset research report e-mailed today.

Investors should buy the metal, which “remains a perfect asset to benefit from the soon-to-come QE3,” the bank said, referring to so-called quantitative easing.

(Bloomberg) -- Putin Says IMF Reform Is Needed With Quota Formula Revised
Reform of the International Monetary Fund is needed, including a revision of the quota formula that determines voting power, Russian President Vladimir Putin said.

Russia’s $10 billion contribution to the IMF’s crisis- fighting fund is a good use of the country’s gold reserves, Putin said. He spoke to reporters after the summit of leaders from the Group of 20 leaders in Los Cabos, Mexico.

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[33]Cross Currency Table – (Bloomberg)