Gold racks up strongest annual gain in 3 yrs  Fri Dec 31, 2010 8:46am EST

 * Gold's rally likely to extend into the new year

 * Gold's target modified to $1,421-technicals

 * Coming up: U.S. ECRI Weekly index; 1530 GMT LONDON, Dec 31 (Reuters) - Gold rose on Friday, notching up its strongest annual performance since 2007 and marking a fifth straight month of gains in December, driven by a weaker dollar and global economic uncertainty. The precious metals complex has had a stellar run this year, led by palladium's 95 percent rise, in a broad commodities rally which has pushed up the 19-commodity Reuters-Jefferies CRB index .CRB up 15 percent.  Spot gold XAU= rose 0.6 percent to $1,411.86 an ounce by 1305 GMT, on course for a 29 percent annual gain and a fifth straight month of gains, the longest stretch of monthly increases since late 2001. U.S. gold GCG1 climbed 0.5 percent  to $1,412.50 an ounce. The dollar fell 0.4 percent against a basket of currencies .DXY, having fallen by 12 percent against the yen and by more than 9 percent versus the Swiss franc this year. [USD/] "The gold price remains well supported by a weaker dollar and solid investment demand," said Anne-Laure Tremblay, precious metals strategist at BNP Paribas. "We expect the gold price rally to continue into 2011 on the back of strong fundamentals, including inflationary pressures (notably in China), ample liquidity and concerns about the value of the dollar," she added. Traders and analysts expect gold to break above $1,500 in 2011, particularly if the dollar extends its decline, the U.S. economy remains unable to generate enough jobs to lower unemployment and Europe's debt crisis is not diffused. "It is still a positive picture for metals next year. There is sufficient demand from investment perspective to maintain a relatively bullish trend, in gold in particular," said Darren Heathcote, head of trading at Investec Australia in Sydney.  Tempering some of the enthusiasm, holdings in the SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, fell to 1,280.722 tonnes by Dec 30, its lowest since early June. [GOL/SPDR] Spot palladium XPD= rose 0.6 percent to $790.28 an ounce, after rising to a nine-year high of $795.47 on Thursday. Spot silver XAG= was the second-best performer in precious metals, up 82 percent on the year. It was trading up 0.6 percent at $30.62, retreating from a 30-year peak of $30.88 hit on Thursday.

 (Additional reporting by Rujun Shen in Singapore; editing by Keiron Henderson)

How to Play Gold & Base Metals: Strategist Jan 2010
By: JeeYeon Park 1 Feb 2010
CNBC News Associate

USD-GOLD

This tells us not only that gold is about to erupt to the upside, but also that the market smells the endgame for the dollar fast approaching too.

There's no way around the fact that the dollar will collapse. Either it falls because the Fed begins to monetize and rapidly inflate (which has always been my assumption), or because the asset-price deflation continues and the US government is forced into default.

Think about it: In what world does the biggest debtor nation on the planet become the epicenter of a financial and economic collapse - and also see its currency remain strong? These people looking for “deflation” into dollars are simply nuts: The only reason the dollar has rallied so sharply thus far is because the dollar is the world’s reserve currency, and therefore everyone’s liabilities are in dollars. And when people began to deleverage in a panic, they had to buy dollars to offset those liabilities.

We may well continue to see credit deflation if the Fed doesn't ramp up the printing presses even faster than it already has. I doubt that will happen, because I believe the Fed will print whatever amount is necessary (which should be more than obvious, given the growth in its balance sheet that has already occurred). But as always, anything is possible.

Even it the credit deflation does continue, it won’t end in lower prices for everything in terms of dollars. It will end like Iceland, with a government default and rampant inflation due to a collapse in the dollar.

The US is no longer the creditor nation that it was in the 1930s, or as Japan was in the 1990s. It’s a giant debtor with a world-record current-account deficit, totally at the mercy of its creditors (i.e. the rest of the world).

 At the current rate of collapse and spending, the US government won't be able to service its debts. Eventually, the rest of the world will simply say “no” to continuing to fund more debt, just as the private markets did to the US consumer over a year ago when the mortgage market collapsed.

My bet: The first indications of that “no” are coming this weekend at the G20.

As for your last question, the answer is “yes." If we assume that property laws will continue to remain intact (thus making “equities” a viable investment), then the gold stocks must rise with the price of gold as well.

At the end of the day, earnings drive stock prices, and higher gold prices wil translate into dramatically higher earnings growth for the gold miners (especially given the collapse in oil, which is a major component of mining costs). And in a world currently starved for earnings growth, gold mining may just be the one bright spot out there for the next several quarters, if gold erupts to the upside in the very near future - and I believe it will

10 fundamental reasons to own gold
1. Gold remains ultimate form of payment – No counter party risk
2. Currency debasement – US Dollar losing status as world reserve currency
3. Gold crawling back into the monetary system
4. Negative real rates
5. Falling gold supply vs increased investment demand
6. Gold & Historic averages – gold should be trading above $2300 these days
7. DOW/GOLD ratio points to $5.000+ gold before 2015
8. Gold & US public debt – gold prices required to counter balance all US public debt held in foreign hands exceed the $10.000 mark
9. Large short positions – half of all central bank’s gold has been leased into the market. (about 15.000 tons). Covering these short positions is not possible without catapulting gold prices to unimaginable highs.
10. Gold acting as safe haven in times of rising geopolitical tensions

CHINA GOLD DEVELOPMENT TRENDS    

CHINA ADVISE GOLD BUYING

The recent development of the Chinese government no longer restricting Gold and silver ownership and now actively promoting it is a very, very big deal (see article reporting this here and see this clip from Chinese television promoting silver - please remember that this item would not appear on Chinese television without explicit central government approval). To quote from the linked article:

"The Chinese are being converted from being the lowest per capita [G]old consumers in the world to a nation of small precious metals investors. Now, by next year, Chinese consumption of [G]old is likely to exceed that of India, which has been for years the world's biggest [G]old market."

This will generate huge physical demand for Gold and silver. I am currently intermediate-term bearish on silver and neutral on Gold because I still believe we need another deflationary price wave of asset liquidation. However, this story is a longer term development that is wildly bullish for precious metals investors and owners.

The physical markets for Gold and silver are severely constrained. Those who say otherwise are dishonest or ignorant. Paper Gold and silver, which is not the same as Gold and silver at all, is plentiful. It is easy to buy the GLD ETF, a futures contract or some other paper proxy for actual physical Gold. I think these instruments defeat the purpose of Gold and silver investing and actually help to keep the price much lower than it should be. I do not advise paper Gold. Those who want paper investments should invest in Gold mining companies, but I think it is prudent to first secure some physical Gold as a portfolio anchor and insurance against paper defaults.

The development of the Chinese government actively encouraging physical precious metal investment is not just important because of the sheer physical demand this move will generate. It is also philosophically and politically important and is yet another sign post pointing to the end of U.S. Dollar hegemony for those who care to pay attention.

A government with a fiat currency that is backed by nothing but paper promises should be trying to get its citizens to despise Gold! Gold is the enemy of fiat currency regimes and always has been. America has been taught that Gold investing is kooky or weird and for "end of the world" types. This mantra has been repeated by the mainstream financial community over and over and Americans, in aggregate, have been brainwashed to believe it.

Why wouldn't the Chinese, who have an unbacked paper currency pegged to America's unbacked paper currency, promote saving money in Yuan to their people? Why wouldn't they tell their people how strong their banks are and how they can earn 5% or 10% on a long-term certificate of deposit? In short, why aren't they lying to their people about money as our government lies to us?

There aren't many reasonable options for this conundrum. They all center around one theme: the Chinese government wants more Gold and silver within its borders. Why would it want that? What is the point of the central government promoting an investment class that creates very few jobs and has little prospect for immediately growing the Chinese economy?

I believe China is preparing for a post-U.S. Dollar world and I believe they are planning to promote a precious metals backed currency in some form (whether their own or an international currency for trading purposes). I believe this is being done methodically and gradually by China and I believe it has grave long-term implications for the U.S. Dollar.

Though not good for the U.S. Dollar, a return to sound currency on any scale is a welcome development in my mind. Gold is money. Gold is a check on spendthrift governments that insist on Keynesian insanity. Gold stands in the way of those who believe increasing the indebtedness of a country is a way to grow or stimulate anything besides debt and increased central bank power.

While China has begun promoting real savings to their people, the United States continues to deny reality and promote toxic waste to its citizens, pretending that our Dollar is strong and our banking system is solvent. When demand for Gold and silver increases in the United States, our government conveniently stops making the retail coins they are legally bound to produce. The more popular these U.S. Mint coins become, the less our government wants to make them. Here's a previous rant on this topic.

When stepping back from the day to day price swings, this is a big picture of an emerging economy and a declining one. It is not pretty. And please don't think I'm excited by the prospect of China gaining global power - I'm not. I wish it weren't so. American citizens need to buy physical metal in much bigger quantities than they have so far. Our government should be promoting physical precious metal investment and should be falling all over themselves to provide an unlimited supply of U.S. minted Gold and other precious metal coins. But alas, up is down and right is left in a fiat world, so all I can do is scream and yell in cyberspace to let off a little steam and hopefully let a few people know what's coming so they can prepare.

As an aside, many people have asked me about how to buy and store precious metals. I am going to summarize how easy it is in one long-winded paragraph!

You can buy $10,000 worth of Gold by buying ten 1 ounce coins and it is roughly the same physical size as a $10 roll of quarters. Why are people concerned about storage? If you can't find a safe place to put an object the size of a $10 roll of quarters, then you may have to consider paying for a safety deposit box or other storage facility. If you have hundreds of thousands of dollars to invest, well that's a different story (email me - let's do lunch!). I recommend government 1 ounce coins for novice investors (e.g., American Eagles, Canadian Maple Leafs, South African Krugerrands, Austrian Philharmonics) and they can be mail ordered with minimal shipping costs (may be cheaper than using a local coin shop but there's nothing wrong with comparison shopping for such a big purchase). I would buy whichever of these 1 ounce coins has the lowest price on the day you are ready to make a purchase and avoid "rare" or "special" coins and just go for the plain Jane cheapest 1 oz. government Gold coins you can find. I have used several dealers in the past and never had a problem with any of them but I like apmex.com and gainesvillecoins.com (no financial relationship with these firms other than as a customer).

Let's get physical along with China and restore some of the wealth destroyed over the past few years by replacing it with actual debt-free savings.

By Neil Behrmann

Sat, Dec 05, 2009 The Business Times

GOLD soared through US$1,200 (S$1,657) as investors and speculators feared renewed US dollar weakness following President Barack Obama's decision to substantially boost the war effort in Afghanistan.

Other factors that have boosted the demand are worries about quantitative easing, that is, money printing in the US and UK, punitively low interest rates for savers seeking a home, fears of renewed inflation and persistent turmoil in the Middle East.

Uncertainty in Dubai with expectations of bailouts and a general rise in oil and other commodity prices are other reasons.

A recent catalyst for the upturn was the Reserve Bank of India's purchase of gold at an estimated price of around US$1,050 an ounce. Mining producers that hedged, that is, sold gold forward to insure themselves against any price falls, have also been buying back bullion.

Barrick Gold Corp, the large Canadian producer, confirmed that its buybacks have been completed and its shares jumped 7.6 per cent following the announcement.

The latest surge in the gold price, up 80 per cent since its 14 month low point of US$667 in October 2008, came at a time when there was minimal change in the currency markets, bullion analysts say. If the US dollar weakens further, prices of gold, silver, platinum and palladium will continue to soar as momentum drives it higher.

At these prices, asset managers at Credit Suisse and several firms fear that a golden bubble is expanding. They are warning that a gold bet at present prices is highly speculative.

Financial advisers, however, are playing a guessing game. Prices are now way above the average predicted 2009 highs of US$1,074 from two dozen precious metals analysts and dealers, made at the beginning of the year. In the London Bullion Market Association survey, only four predicted US$1,200 an ounce or higher with the highest at US$1,275. Such has been the demand from hedge funds, including Paulson and Tudor Jones, commodity trading advisers, exchange traded funds, pensions, wealthy individuals and others that their inventories have reached an estimated 111 million ounces. This is equivalent to one year's annual production and excludes the gold held in bullion vaults.

Meanwhile, as reported in The Business Times, individuals in India, Asia, Europe and elsewhere have cut back their jewellery purchases substantially. More- over, growing numbers are selling their trinkets and are dishoarding. The gold is flowing into refineries which are working overtime and at full capacity to meet growing investor and speculative demand. The only exception is China where consumers were continuing to buy in the third quarter. At latest prices, the boom may well end there, dealers say.

Some analysts warn that in previous gold booms, a contraction in Asian consumer demand was a warning sign. In 1980, for example, gold soared to the then peak of US$850, soon after Russia entered Afghanistan and the Hunt Brothers attempted to corner the silver market by ramping prices to US$50 an ounce. Then individuals were also queuing up to sell their jewellery. Gold subsequently tumbled below US$300 and silver fell to US$4 an ounce, compared with current levels near US$20.

Several gold enthusiasts say that in real inflation terms, the previous peak would put bullion near US$2,000. In the current economic climate, such a move would prove the death knell for the jewellery business, while industry would seek substitutes. At the end of September the surplus of mine and recycled gold production was well in excess of physical demand and growing, according to the World Gold Council and Virtual Metals.

A bet on gold now is a bet against the US dollar, dealers and analysts say. The Bank of Japan, however, has hinted that it might support the greenback. Several European officials are concerned about the surge of the euro. Any central bank intervention to sell those currencies would place considerable pressure on hedge funds and other speculators who have sold the greenback short. An unexpected dollar rally would cause gold to fall. But if US dollar weakness continues, gold could rise further, traders say.

Asian platinum stocks hold promise as metal rallies

19 Dec 2009

* Soros renews warning that gold is the 'ultimate bubble' * Soros says great uncertainty makes all investments risky * Soros favors companies that throw off cash over debt (Adds comments) By Emily Chasan and Herbert Lash NEW YORK, Sept 15 (Reuters) - Billionaire financier George Soros said on Wednesday that gold prices might continue to rise after hitting record highs this week, but he renewed a warning that gold is the "ultimate bubble." With economic and fiscal weakness crimping the developed world, Soros said all investments are at risk because "this is a period of great uncertainty, so nothing is very safe." Regarding gold, he said that after asset classes set new highs, there are almost always immediate reversals that disappoint investors. Soros' hedge fund, Soros Fund Management LLC, has been heavily invested in gold and gold-mining companies. "Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue," he said at a Reuters Newsmaker event. "I called gold the ultimate bubble, which means it may go higher. But it's certainly not safe and it's not going to last forever," he said. Soros made the "ultimate bubble comment" in January at the World Economic Forum in Davos, Switzerland. He no longer is involved in management of his hedge fund. (
Spot gold XAU= hit a record $1,274.75 an ounce on Tuesday and traded about $10 lower on Wednesday. As of June 30, the Soros fund held 5.24 million shares of the SPDR Gold Trust GLD <reuters://realtime/verb=FullQuote/ric=>, a stake worth about $650 million on Tuesday.

Soros' fund was the third-largest in the exchange-traded fund at the end of the second quarter. The Soros fund also held equity holdings in miners of gold and other minerals that were worth almost $250 million on June 30.

On Wednesday, Soros once again said Germany should do more to encourage economic growth rather than trying to reduce its deficit. But he warned that deficit spending was not a durable solution. "You got a lot of deflationary forces now in the world and which are mainly due to political pressures," he said. "You can't have increasing deficits forever. It's not sustainable." In such a difficult environment, the investor, who gained fame on his massive bet against the Bank of England in the early 1990s, said he preferred investments in quality companies that throw off lots of cash over government debt. "Some blue-chip, steady-earning cash cow companies now yield substantially more than government debt and I would rather own them than government debt," he said.

Soros saw few bright spots in the developed world, but he once more hailed China's prowess as a developing power and said its purchases of the euro, local debt and Greek assets had staunched the European sovereign debt crisis. "The Chinese came off the fence when the euro was around 120 and started buying the euro, buying Spanish bonds and investing in Greece. So in a way the Chinese saved the euro," he said. In other comments, Soros said he saw no sign of return to strong growth in the United States, which is struggling to emerge from its worst downturn since World War II. "If I had to sum it up in one word, I would say: 'Blah.' It may slip into double-dip (recession) or it may not, but it is going to slow down," he said. "There is no question in my mind because the stimulus is running out, and there is great resistance to any further stimulus." ( Insider video of Soros interview on U.S. economy: <http://link.reuters.com/qaz73p> ) Soros said Japan did the right thing when it intervened in foreign exchange markets on Wednesday to bring down the value of the yen -- a move that lifted the U.S. dollar as much as 3 percent. "Certainly, they are hurting because the currency is too strong so I think they are right to intervene," Soros said. Japan sold yen in the market for the first time since 2004 and said it would do so again to prevent the currency's rise from hurting exporters and threatening a fragile economic recovery. "They had a real estate boom and then a crash in banking ... It's 20 years now, and they are still just struggling along," Soros said.