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Gold Rising as Euro Weakens Spurs More Speculation (Update2)

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By Nicholas Larkin, Claudia Carpenter and Millie Munshi

May 24 (Bloomberg) -- Speculators are buying gold faster than the world’s biggest producers can mine it as analysts forecast a 27 percent rally that may extend the longest run of annual gains since at least 1920.

Exchange-traded products backed by bullion added 41.7 metric tons in the week to May 14, the most in 14 months, data from UBS AG show. China, Australia and the 15 other largest mining nations averaged weekly output of 41.6 tons last year, researcher GFMS Ltd. estimates. Even though prices have fallen 5.1 percent to $1,185.30 from a record $1,249.40 an ounce May 14, the median in a Bloomberg survey of 23 traders, analysts and investors shows it will reach $1,500 by the end of the year.

Buying accelerated as the MSCI World Index of 23 developed nations’ stocks tumbled as much as 16 percent since mid-April and the euro weakened to a four-year low against the dollar. Holders of ETPs, including George Soros and John Paulson, accumulated a record 1,938 tons by May 21, eclipsing all but four of the biggest central-bank holdings.

“You could see gold go up another $1,000,” said Evan Smith, who helps manage $2 billion at U.S. Global Investors Inc. in San Antonio and in 2006 correctly predicted that gold would reach $700 within two years. “All of the turmoil and problems we’ve seen in Europe is just another reminder that there’s a lot of value in gold as a safe haven.”

The risk to gold bulls lies in economic growth, which should buoy the prospects of metals linked to industrial demand, such as copper and silver. The world economy will expand 4.2 percent this year, the International Monetary Fund said April 21, raising its January projection from 3.9 percent.

Industrial Metals

Astor Asset Management LLC, with $520 million under management, held as much as 10 percent of its assets in the SPDR Gold Trust, the biggest ETP backed by bullion, according to Bryan Novak, managing director of the Chicago-based company. The firm sold the stake in the first quarter.

China, the biggest consumer of industrial metals, will expand 10.1 percent this year, more than three times the pace of the U.S.’s anticipated 3.2 percent gain, according to as many as 77 economists surveyed by Bloomberg.

“The feeling now is as we move into the expansion phase of economic growth, we want to be diversified in economically sensitive metals,” Novak said. “We’re not negative on the economy now.”

‘Afraid of Debasement’

While gold is favored by investors when the dollar weakens and inflation gains, the metal can also advance at other times. Gold rose 5.8 percent in 2008 as U.S. consumer prices gained 0.1 percent. The metal added 18 percent in 2005 when the U.S. Dollar Index, a measure against six counterparts, advanced 13 percent. Gold rose 8 percent this year as the U.S. Dollar Index jumped 11 percent. U.S. consumer prices dropped in April.

“People are afraid of the debasement of all the currencies,” said Peter Schiff, president and chief global strategist for Darien, Connecticut-based Euro Pacific Capital, whose clients have more than $2 billion in assets. “What’s surprising is that gold is still as low as it is,” he said, predicting $5,000 to $10,000 an ounce in the next five to 10 years.

Since the last week of April, ETPs have been adding bullion at a pace not seen since the first quarter of 2009, in the wake of the collapse of Lehman Brothers Holdings Inc. Buying rose as European policymakers agreed on an almost $1 trillion emergency loan package to prevent sovereign defaults.

Half the Peak

Assets in gold-backed products increased 18.3 tons last week, according to UBS data. The bank revised its estimate for the previous week’s holdings.

Gold is still at half the peak set in 1980, after adjusting for inflation. Then, prices rose to $850, equal to $2,266 today, according to a calculator on the website of the Federal Reserve Bank of Minneapolis.

Supply from mines, which peaked in 2001, fell in five of the last eight years, data from London-based GFMS show. Companies are digging deeper to extract dwindling reserves, with mines in South Africa extending as far as 2.35 miles (3.8 kilometers) down.

Investment, including bars and coins, almost doubled to 1,901 tons last year, exceeding jewelry demand for the first time in three decades, according to GFMS. Jewelry will jump 19 percent to 2,100 tons this year and industrial use 8 percent to 398 tons, Sydney-based Macquarie Group Ltd. says.

Central Banks

Muenze Oesterreich AG, the Vienna-based mint that makes the Philharmonic, the best-selling gold coin in Europe and Japan, on May 12 said it had sold 243,500 ounces since April 26, more than the 205,300 ounces sold in the entire first quarter.

Central banks and governments are also buying gold, adding 425.4 tons last year, for a combined 30,116.9 tons, the most since 1964 and the first expansion since 1988, data from the World Gold Council show. Official reserves of central banks and governments may expand by another 192 to 289 tons this year, according to CPM Group, a research and asset-management company in New York.

The net-long position in Comex futures, or bets on higher prices, is within 13 percent of the record reached in November, U.S. Commodity Futures Trading Commission data show. The most widely held option gives owners the right to buy gold at $1,500 an ounce by December, data from the bourse in New York show.

Economists’ outlook may be too rosy, said Michael Pento, chief economist at Delta Global Advisors in Holmdel, New Jersey, who correctly predicted the 2008 commodity collapse. Some investors judge that a debt crisis in Greece may spread elsewhere in the euro zone, including Spain and Portugal.

Billionaire Managers

“The second half of this year will likely show very anemic growth on a global basis,” he said. “The crisis in Greece is going to spread to Spain and it’s going to be very difficult to deal with. They are bailing out debt with more debt and it isn’t sustainable. It’s a wonderful scenario for gold.”

Billionaire John Paulson’s New York-based Paulson & Co. hedge fund is the SPDR gold trust’s biggest investor, with 31.5 million shares, or about 96 tons, a May 17 regulatory filing showed. Kyle Bass, the head of Dallas-based Hayman Advisors LP who made $500 million in 2007 on the U.S. subprime collapse, bought gold this month, according to a letter to clients.

Buying at the start of a bubble is “rational,” Soros said in January. His New York-based Soros Fund Management LLC was the sixth-biggest investor in the SPDR fund in the first quarter, a May 17 filing with the Securities and Exchange Commission shows. He trimmed his holding by 9.6 percent from the previous quarter.

“People still want a store of wealth,” said Andrew Karsh, co-manager of funds for the Credit Suisse Total Commodity Return Strategy team. “A lot of the fundamentals are still in place.”

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24-May-2010 14:31

Straits Times Index / STI to cross 3000 boosted by long-term investors

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SEOUL/BEIJING - The two Koreas raised their war-like rhetoric on Monday, threatening conflict if the other side pushes too far in escalating tension after Seoul accused Pyongyang of torpedoing one of its naval ships.

RAW IS WAR!!!!

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24-May-2010 13:10

Straits Times Index / STI to cross 3000 boosted by long-term investors

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STI Index down 5.4% or 154 points last week.....inline with global stock markets.....what should you do ??!!.....
Saturday, 22 May, 2010 11:2 AM
Posted by Kevin Scully

Last week was painful for many investors especially if you were trying to trade the market or were leveraged as you may have had margin calls. The table below gives a snap shot of what happened to our STI Index and some component stocks. You will notice exceptional weakness in commodity related stocks such as Wilmar, Noble and Olam on specific cocerns such as alleged tax evasion to the imposition of taxes on excessive profits for commodity companies. If we survived 2008 and 2009, this weakness is not new so dont panic.

	14-May-10	21-May-10	change	% change	Impact on
					STI Index
STI Index	2855.21	2701.2	-154.01	-5.4%		Contribution
						to week's fall
Worse index movers	S$	S$	S$		Points	%
Wilmar	6.42	5.54	-0.88	-13.7%	-25	16.4%
Noble Group	1.93	1.69	-0.24	-12.4%	-6	3.9%
NOL	2.14	1.89	-0.25	-11.7%	-3	1.9%
SembCorp Marine	4.20	3.79	-0.41	-9.8%	-4	2.5%
Olam International	2.51	2.30	-0.21	-8.4%	-4	2.3%
OCBC	8.85	8.35	-0.5	-5.6%	-14	8.9%
DBS	14.36	13.60	-0.76	-5.3%	-15	9.5%
ST	2.96	2.86	-0.1	-3.4%	-9	5.8%
SGX	7.74	7.50	-0.24	-3.1%	-3	1.9%
UOB	18.98	18.46	-0.52	-2.7%	-7	4.4%

						57.6%

It is interesting to note that UOB which our banking analyst feels is the best among the local banks in terms of lowest cost income ratio, best interest margin and highest CAR - was the best performing among the three local banks.

What can we expect going forward ?

Markets are likely to remain volatile as it would take about three to six months before investors feel comfortable that enough has been done to address the problems in the EU - we went through this in the US in Q4-2008 till Q1-2010. In my earlier Blog, I felt that the Euro would find support against the US$ at about the US$1.20 level - this would be good for the EU as it would help both their tourists and manufacturing sectors. The chart below on the US$/Euro shows that we bounced just above the US$1.20 level.

Most global stock market indices have breached support levels and their 100/200 day moving average - this points to further technical weakness in the Dow which has support at 10,000 and then 9000. Our own STI Index has support at 2700 and then 2500 and 2400. But any decline to these levels is likely to be on thinner volume given that many investors are sidelined and waiting for events in Europe to stabilise.

The VIX will continue to be a good indicator of sentiment......it recently rebounded above 45 last week and is now around the 40 levels. A drop below 30 would be a good signal for markets to resume their uptrend.

I am still positive on stocks and think that sentiment should improve into Q3-2010 !!

Putting aside the problems in Europe, the good news is that the economic numbers from the US and Asia remain strong, corporate earnings have been good and market valuations are not expensive. The PER of the Shanghai market which used to be between 30 to 60 is now in the mid teens. Our own STI Index and even the Dow are trading between 12-13 times PER - not expensiive.

Selected bargain hunting is my strategy. The stocks in my Stock Picks are on low valuations, deep discount to their NAVs and have strong balance sheets - these should help them weather the current storm well. Commodity stocks are likely to face some uncertainty in the new taxes on excessive profits which are being proposed and this may lead to earnings downgrades by analysts if implemented.

If you cant stomach the volatility given the high VIX, another strategy would be to stay sidelined and enjoy the World Cup - hopefully markets will stabilise by mid July and be poised for their next upward move.

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24-May-2010 12:58

YZJ Shipbldg SGD / Cruising with the ship ..Yangzijiang

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SINGAPORE - Singapore-listed shipbuilder Yangzijiang said on Monday it plans to list Taiwan Depository Receipt of up to 100 million new ordinary shares

Break 1.35 today?..kekek

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24-May-2010 09:55

Straits Times Index / STI to cross 3000 boosted by long-term investors

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CHIONG AHHHHHHHHHHHH!~!!!

sell into strength.. if last week u had bought on dip..

damn good strategy

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24-May-2010 09:05

Swiber / Swiber

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broke 1.02 resistance...chiong ahhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh

DYODD...

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21-May-2010 17:25

Straits Times Index / STI to cross 3000 boosted by long-term investors

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Flea market?

iPunter ( Date: 21-May-2010 17:18) Posted:

I have a very long list of many companies' odd lots (less than 1 trading lot) in my CDP A/C...

accumulated through the years, which I had not bothered to dispose of so far...

Anyone able to advice how I can once and for, all clear off everything? Smiley

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21-May-2010 17:20

Straits Times Index / STI to cross 3000 boosted by long-term investors

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we in worse shape than them..cos we have to make $$ then can make love..

they str8 away no holds barred..XXXXXXXXXXXXXXXXXXXX

178investors ( Date: 21-May-2010 15:59) Posted:

keke...while they make love, the rest make fat profits in may.... huat!ahh...

ozone2002 ( Date: 21-May-2010 15:37) Posted:

ipunter & kelly don't mind can take ur love conversations somewhere else?

need to make $$ here..

volatility is a traders best fren..can't make money with love talk here..

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21-May-2010 15:37

Straits Times Index / STI to cross 3000 boosted by long-term investors

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ipunter & kelly don't mind can take ur love conversations somewhere else?

need to make $$ here..

volatility is a traders best fren..can't make money with love talk here..

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21-May-2010 15:35

Swiber / Swiber

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CHIONG AH~~~~!!!!

$1.01

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21-May-2010 12:12

Swiber / Swiber

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freaking big contract win $618 million..

buy on weakness on good fundamentals...

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21-May-2010 10:15

Straits Times Index / STI to cross 3000 boosted by long-term investors

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shit market bouncing back up..

gotta cover shorts..

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21-May-2010 09:09

Straits Times Index / STI to cross 3000 boosted by long-term investors

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drinks on me..let's party in the bloodshed...

oh yeah! loving it

ozone2002 ( Date: 20-May-2010 16:04) Posted:

wah zhun man hit low of 2735..made 1 round..now bounced back up..waiting for put warrant opportunity again..

STRAITS TIMES INDEX

(SES: ^STI)

Index Value:	2,760.74
Trade Time:	16:00 SGT
Change:	13.80 (0.50%)
Prev Close:	2,774.54
Open:	2,778.27
Day's Range:	2,735.77 - 2,788.22

ozone2002 ( Date: 20-May-2010 13:41) Posted:

broke 2775 support..next is 2737..

break that..all hell breaks loose..we can all go for a party..

i buy some insurance..put warrants..drinks on me if 2737 broken..

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