Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Gold: Lagging Supply vs. Soaring Inflation

Commodities / Gold & Silver Sep 28, 2007 - 01:23 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis Article"...The gold mining industry just admitted that it lacks growth. The world's central bankers, in contrast, are expanding their production each and every day..."

SPOT GOLD PRICES just ended their sixth week of successive in London , peaking above last Friday's $740 peak and recording the highest Fix since 21st Jan. 1980 , the day of gold's all-time record spike to $850 per ounce.


Where next? On one side, long-term gold market bulls are calling for One Thousand Dollar gold and more. On the other, the sober market professionals awaiting a sharp pullback...any day now!

"We think after the large run we have seen since mid-August that a correction looks likely," said John Reade, head of precious metals analysis at UBS in London on Wednesday, "especially in light of the large net-long positions held in US futures market."

Reade advised his clients to switch out of gold and into platinum, pointing to the heavy build-up in speculative positions in Comex gold futures. By the end of last week, they represented a net-long investment equal to 545 tonnes of gold bullion.

The net-long position held by speculative Comex traders was barely half that size prior to the 12% surge in Gold Prices starting in mid-August – the very day the US Federal Reserve began slashing its interest rates.

And while the build-up in Comex longs might point to a near-term top, the Fed has continued to pump record quantities of extra liquidity into the New York money markets.

Barring the huge liquidity forced into the system by the Greenspan Fed in the aftermath of 9/11 (discounted from the chart above), the Fed has never made so much short-term money available as it has in Sept. 2007...nearly $203 billion.

The Fed's counterparts in Frankfurt are doing the same, and even the Bank of England is now offering short-term loans – and agreeing to accept mortgage-backed bonds as collateral – in an unprecedented series of auctions that both reverse the Old Lady's previous tough stance and that look highly pressured by the inept and amateurish UK Treasury.

"Investors have to look for assets which cannot multiply as fast as the pace at which the Fed prints money," said Dr.Marc Faber, editor of the Gloom, Boom & Doom report, at a CLSA conference in Hong Kong late last week.

Faber advises buying gold and agricultural land as a defense. And while they're certainly not making any more of the latter, the world's supply of gold bullion is also "facing headwinds" as the Toronto Globe & Mail reports.

Speaking at the Denver Gold Forum, president and CEO of Newmont Mining – the world's second largest gold mining company – Richard O'Brien said Wednesday that his total production costs are set to rise above his previous guidance of $400 per ounce.

Newmont's stock dropped 7% on heavy trading on the news. But the greater problem for the gold mining industry remains the lack of significant new finds.

BHP Billiton, the world's largest diversified mining group, was rumored at the start of this week to have found a huge "elephant deposit" at its Olympic Dam mine in southern Australia . BHP itself, however, yesterday upgraded reserve estimates for Olympic Dam by less than 10%.

"Year on year, we believe the industry is struggling for growth," Newmont's O'Brien went on in his presentation. "In fact we believe the industry is probably not growing. That is, there is a lack of growth in production."

Barrick Gold, the world's largest gold producer, also told Denver delegates this week that its cash-costs are rising. Third-quarter mining costs will be the highest so far in 2007, warned vice-president of investor relations Deni Nicoski, driven by Barrick's recent buy-out of Placer Dome and current mine-stripping expenses.

Ironically, the surging Gold Price is also adding to Barrick's costs, he added, as it increases royalty fees.

"No doubt it is getting harder to replace reserves and resources at mature properties," added senior vice-president Alex Davidson – a hard fact of world gold-mining right now, not least given the sector's own view of where gold is headed.

"I think before the end of the year we'll see $800," Barrick's CEO Greg Wilkins told reporters in Denver yesterday.

On the other side of the trade, meantime, that historic auction of three-month money at the Bank of England actually met with zero demand on Wednesday. Charging a "penalty rate" of 6.75% annualized, fully 100 points above the BoE's main base rate, the auction failed to find any takers at all.

"It's clearly good news," reckons Ben Broadbent of Goldman Sachs, because it implies that everyone now seeking short-term funds in London is judged to be credit-worthy by their open-market lenders. Indeed, the City's three-month interbank lending rates pulled back sharply on the news, dropping to 6.32%.

No more Northern Rock 's hiding here, right?

But does the lack of bids really mean London 's banks are happily getting the cash they need inside the Square Mile? The US Fed added another $5 billion in short-term liquidity to the New York market on Thursday; that took the sum total lent in Sept. so far above $198 billion. Most of these loans were overnight only, but London banks applying through their US subsidiaries could have picked up Thursday's offer of 14-day cash more than 150 basis points below the Bank of England's penalty rate.

London banks were doing exactly this in Frankfurt earlier this month, according to a report in the Financial Times Deutschland. And on Wednesday this week – just as the Bank of England's auction at 6.75% was deserted – the European Central Bank lent €3.9 billion ($5.5bn) at a rate of 5%, its largest one-day auction in nearly three years.

Priced fully 100 points above the ECB's key target interest rate, that auction still came at a 1.75% discount to the Old Lady's short-term loans. Nor has the ECB said which banks asked for the money, leaving analysts to guess who might still need a helping hand from the official sector because they're struggling to raise funds in the open market – whether in London or Europe.

"No-one knows where the bodies are buried," says Stuart Thomson, manager of $46 billion in bonds at Resolution Investment. And for as long as the Bank of England holds its penalty rate 1.75% above the equivalent charge in Frankfurt , then the Old Lady's auction room will remain empty.

Accepting help at the highest price charged by G5 central banks would be a sure admission of impending doom. Just look what it did to Northern Rock!

As for Dr. Marc Faber, "he recommends holding physical gold bullion in gold-friendly countries such as Hong Kong , India and Switzerland ," reports Finance Asia magazine. "He counsels against holding gold in the US for fear that it might be nationalized by the government."

Should the idea of owning Gold Bullion – outright in your name – securely in Zurich , Switzerland appeal to you, be sure to consider the low-cost option of buying Swiss gold at BullionVault .

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules