Saturday, October 2, 2010
Mineweb weekly podcast......listen here
By Geoff Candy:
As concerns about the state of the global economy grow, gold is going to continue to regain its position as money.
This is the view of Gold Money founder James Turk. Speaking on Mineweb.com's Gold Weekly Podcast, Turk says at the moment, " People are looking at the various currency problems around the world, and regardless of where you focus - Asia, Europe and even North America, the demand for physical metal remains quite strong."
The reason for this he says is that gold is a form of liquidity but, it differs from other types of money in that it has no counter-party risk.
"There is no default risk with gold and with all of the uncertainty that we have today with the banking system globally, all the uncertainty that we have with the sovereign debt risks and crisis really, that we're seeing globally - people are moving more and more into physical tangible assets."
Turk believes that this state of affairs is likely to continue because, from a big picture point of view, "It's becoming increasingly clear that the system is broken and the tools that central banks are using are not the right tools. When you have a broken system, you have to sort of step back and take a look at what's going on.
He adds, "From a longer-term point of view as well, you have to consider that for thousands of years gold has been the centre of global commerce. We've had four decades now where gold has certainly moved to the side - now are we going to deny thousands of years of history and say the four decades is really the basis for going forward, or are we going to say these four decades have been aberration and in fact are going to come back to gold as a centre of global commerce?
In Turk's view the answer is clearly the latter but he does admit that he does not know how all of these developments are going to unfold.
" I don't know what kind of events we face in the future that could trigger this increasing movement toward gold and out of paper, but clearly there's going to be a major shake-up and these things happen every several years - once you get off the basic fundamental principles and basic fundamental principle that we lost here or that we've lost recently is that money is a function of the market process, it's not something handed down by governments which people are supposed to use.
"If the market doesn't like the money that's coming out of governments, they're going to move to other alternatives and the natural place they will move is gold.
As for prices, Turk is maintaining his view of gold at between $1,800 to $2,000 although he does admit that it may be a little overoptimistic to expect it to get to that level by year end.
But, "whether we hit that $1,800 or $2,000 target this year or next year really doesn't matter. You're running a bull market and what people have to focus on is continue to accumulate gold because it's still relatively cheap and that's the key thing."
By Dorothy Kosich:
Billionaire John Paulson, whom the Financial Times considers the second most successful hedge fund manager ever, predicted recently that gold could hit $2,400 to $4,000 per ounce as double-digit inflation coming by 2012 kills the bond market and restores strength to gold.
Speaking before a SRO crowd at New York City's University Club, Paulson said 80% of his assets are in gold. His investment is spread out between ETFs, physical bullion and shares of gold mining stocks.
If his prediction proves correct, Paulson could become a contender for the richest man in the world, based on his gold holdings. He is believed to hold more gold bullion than several nations combined.
Among his gold equity holdings are AngloGold Ashanti, Barrick, Gold Fields, IAMGOLD, Kinross, NovaGold, Randgold Resources, and SPDR Gold Trust.
In his speech, Paulson noted that the price of gold has been highly correlated to the monetary base for as long as his firm has been tracking gold data. Given his expectation for further money printing by the Fed, Paulson predicted the price of gold could hit $2,400/oz based only on monetary expansion, and soar as high as $4,000 per ounce based on a projected overshoot.
One of the primary gold price catalysts has been Fed monetary policy. As proof of the validity of his forecast, Paulson observed that in 1980, the gold price rose by 100% more than the correction between the U.S., dollar and the gold price implied.
Low to negative real interest rates mean that the opportunity cost of holding gold is negligible, and during such times the gold price has made substantial gains. Until a decent rate of return on capital becomes evident, gold will experience a series of high highs and higher lows.
By David Levenstein:
It was only a little more than a week ago when analysts were wondering if the price of silver was going to break above $20 an ounce. Not only did it blast through this level of resistance, it continued upwards through $21 an ounce, and now it is testing the $22 level.
Like gold, silver is a monetary metal and can be traded around the world. And, like gold, silver has proven itself, time and again, to be a safe haven for investors during times of economic uncertainty. While it is a lot more volatile than gold, it is the one precious metal that I believe will ultimately yield the greatest return compared to gold, platinum and palladium. Even though the price has touched a 30 year high, it is still way below its all time high. If adjusted for inflation and using the previous high of $50 an ounce achieved in 1980, the price of silver today should be around $130 an ounce.
During the last 25 years the gold/silver ratio has been around 46. If we use this figure and apply it to the current price of gold we get a price for silver around $28 an ounce. While I do not see the ratio falling to this level any time soon, it has come off it recent highs when it was trading close to 70. It is now a fraction below 60.
Recently, a client asked if this move in silver was prompted by the unwinding of the open shot positions on Comex currently held by the bullion banks. Actually, up and until last week these "super traders" were adding to their short positions. According the latest COT reports the current open short position held by these bullion banks increased only marginally. Since the price of silver has traded above the $20/oz level I estimate that the "paper" loss incurred by the 4 or less bullion banks must be over $500 million. This of course does not include losses they must have sustained when the price was below $20 an ounce.
Like I have mentioned, I believe that this price movement was long overdue and have been writing and talking about it for months. I believe that is driven by prudent investors who have seen the potential of this metal and who have also seen how undervalued it has been. I did hear some rumours about some large company based in Germany coming onto the market to buy a large quantity of physical silver, but I have not had this story confirmed. In the meantime, silver still remains way undervalued and should be included in investment portfolios.