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Gold’s Holding Pattern is a Golden Opportunity

Billionaire George Soros declares: “Conditions for gold are pretty perfect”

Gold’s holding pattern is a gift to bargain hunters

Gold prices stood near the $1,350 range today on news that China’s central bank acted to slow inflation but fell short of raising interest rates outright. Gold’s holding pattern is a gift to bargain hunters because gold “should continue to remain well supported too, both by the growing debt crisis in the euro-zone peripherals, which could spill over to other countries at any time, and the expansion of liquidity on the back of renewed quantitative easing of U.S. monetary policy,” Commerzbank analysts said. Richcomm Global Services’ Pradeep Unni agreed, saying a weak dollar and a firmer euro “will continue to provide a bullish bias to the metal.”

The trend is “back up again”

Gold prices surged back Thursday as the euro rose against the dollar on optimism of a bailout for Ireland. “Having held $1,330, and with the dollar a bit weaker … we are just following the trend back up again,” the Bank of Nova Scotia’s Simon Weeks said. VTB Capital’s Andrey Kryuchenkov noted: “Should fear in the eurozone escalate, gold would draw fresh support from risk-averse buyers similar to what happened earlier this summer when investors scrambled for the safe-haven asset on fears of sovereign default.” Investors also are watching China for potential news of an interest-rate rise, which would only create a buying opportunity for bargain hunters.

Billionaire George Soros tips his hat to gold

With quantitative easing going full-steam ahead and U.S. interest rates low for the foreseeable future, billionaire investor George Soros said the precious metal still has plenty of kick to it. “The conditions for gold are pretty perfect,” he said Monday. Soros also said the present world order is on the brink of breaking down. “There is now a rapid decline of the United States and a rapid rise of China,” he said. “It is happening very quickly. … If they persist in their present course, it will lead to conflict,” he said, adding that China’s neighbors are already getting nervous about its rising global influence. Read more

Inflation surfaces at Walmart, not in feds’ data

Offering up its statistics Wednesday, the Labor Department said the core consumer price index, an inflation indicator that excludes food and energy prices, was unchanged in October. However, a new pricing survey of 86 products sold there – mostly everyday items like food and detergent – showed a “meaningful” 0.6 percent price increase in just the past two months, according to MKM Partners. At that rate, prices would be close to 4 percent higher a year from now, double the Federal Reserve’s mandate. “I suspect that when [Fed Chairman Ben Bernanke] thinks about reflation, he has a difficult time seeing any other asset besides real estate,” said Jim Iuorio of TJM Institutional Services. “Somehow the Fed thinks that if it’s not ‘wage-driven’ inflation then it is somehow unimportant. It’s not unimportant to people who see everything they own (homes) going down in value and everything they need (food and energy) going up in price.” Read more

The Fed sticks to its quantitative-easing guns

Ben Bernanke had to defend the Fed’s actions on Capitol Hill, where he briefed skeptical lawmakers on the QE plan’s merits on Wednesday, and some of his colleagues said the bank is likely to follow through on its entire $600 billion bond-buying program, citing weak economic data. “It looks like we’ll be purchasing at this pace through the end of the second quarter to add up to $600 billion,” St. Louis Federal Reserve Bank President James Bullard said.

The Fed’s QE plan came under fire this week from a group of prominent Republican-leaning economists and other experts. “The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment,” they said in an open letter published in The Wall Street Journal and The New York Times. Top Republican lawmakers also sent Bernanke a letter warning that QE “introduces significant uncertainty regarding the future strength of the dollar and could result both in hard-to-control, long-term inflation and potentially generate artificial asset bubbles that could cause further economic disruptions.” Read more

Chinese march toward gold continues

“China is considering raising its gold reserves, a move which would push up gold prices in the future, a person providing consulting services to the Chinese government said” in a Chinese daily-newspaper article. “The source told the 21st Century Business Herald [that] China may gradually increase gold holdings as it is not possible for the country to buy large amounts of the metal within a short time.” Two Chinese precious-metals experts also weighed in on gold’s prospects for the article: “Chen Beilei, director of metals and mining at BOC International Holdings, said China may increase its gold reserves to diversify its foreign exchange reserves. … Demand for gold may continue to rise due to inflationary risks brought by Washington’s recently announced quantitative easing program, high public debts and low economic growth in Europe, Chen said. … Feng Rui, president of Silvercorp Metals, said the decline [in gold prices] is an adjustment in the upward trend … and the metal may rise by as much as 20 percent in the future. Feng predicted the price of gold would peak at $1,600 per ounce in 2011.” Read more

“Bullish” Barclays Capital sees $1,485 gold this year

Gold could hit a record $1,485 by year’s end, Barclays Capital analysts say. “Strategically, we are bullish,” the bank said. “Medium-term trend followers are unlikely to have been panicked out of their positions given that important support between $1,314 and $1,331 is still holding. A bearish divergence signal on weekly charts, though, warns of downside risk throughout the month, and we still fear an important clearout below $1,314 to $1,250 before gold recovers. We would be bargain-hunting as the price approaches $1,250.” Read more

French banking giant raises its precious-metals forecasts

BNP Paribas said Wednesday it has raised its 2011 forecasts for gold and silver (as well as palladium and platinum).

Gold: The bank increased its gold forecast for the first quarter of next year to an average $1,415 from its previous estimate of $1,280, with the price expected to rise to an average $1,565 by the end of next year, compared with a previous $1,310 forecast. “Gold is considered one of the best hedges against either of these risks,” BNP Paribas analysts wrote, referring to dollar weakness and rising inflation fueled by QE. “Add to inflation expectations a low nominal interest rate environment, and the decline in expectations for real returns makes alternative asset classes, such as commodities, appealing for investors.”

Silver: The bank expects silver to average $25.30 in the first three months of next year, up from its previous forecast of $19.75, rising to an average $27.45 by year’s end. The spot silver price has risen by more than 50 percent this year to 30-year highs well above $25. Read more

Any dip is a buying opportunity, experts concur

The trend is positive: “We may see some more consolidation in gold,” said chief and Market Club co-founder Adam Hewison in a Monday video chart analysis of gold. “Now please don’t misunderstand what I’m saying. We are not bearish on gold longer-term. The trend in fact is still very positive. … The longer-term trend in gold … is very clearly up, and it’s going to probably have some pullbacks, which is possible, and then I think we’re going to see the market go to new highs. I don’t think we’ve seen the highs yet in gold.” Watch video

Accumulate on weakness: “We don’t think that the U.S. dollar fundamentally should deliver any form of sustained strength, so we wouldn’t expect to see this serve as a game changer for the commodities,” Fat Prophets analyst Colin Whitehead told CNBC Monday. “The underlying fundamentals for gold – and that is strong and continued investment demand – remain in place over the longer term. So we don’t think that we’re in bubble territory yet. We’re really just in the foothills of the gold bubble. … Certainly as we look at gold, it’s not yet clear as to whether the correction has petered out. We’re certainly going to have some consolidation ahead of what we think is a further upface. So we’ll be looking to accumulate on weakness there.” Watch video

A healthy correction:
“This [dip] is just healthy,” CIBC World Markets Vice Chairman Warren Gilman told CNBC Tuesday. “Metal prices probably got a little bit ahead of themselves during the September and October period. Prices got to pretty lofty levels, and I think this is a healthy correction. … I think gold is going to prove to be most resilient. People have been waiting for an opportunity for an entry point, and I think this is probably that opportunity.” Agreeing with CNBC anchor Bernard Lo that paper currencies are vulnerable, Gilman adds: “That’s one of many reasons, and obviously we have inflation on the horizon, and there are plenty of reasons to buy gold, and I think there are a lot more buyers than sellers in this environment. … I think we could get down to $1,250, or we could potentially break $1,300, but I wouldn’t expect it to go much further than that.” Asked what sort of gold to invest in, Gilman says: “I think I would probably shy away from the equities because the equities have had a good run in the last little while. I would go for physical. … Buy coins.” Lo interjects: “Krugerrands, Maple Leafs, and Pandas?” “Indeed,” Gilman answers. Watch video
Stay the course: In a Monday show, CNBC “Fast Money” analysts applauded billionaire hedge-fund magnate John Paulson’s decision to maintain his massive gold position. “You look at his holding, gold. He kept it; he left it alone,” Joe Terranova said. “I don’t know why you would be selling gold right now. You should hold onto it. He’s doing the right thing. There’s nothing in the price action that tells you to sell.” Analyst Carter Worth agreed: “The reason to sell something, right, is weakness that suggests further weakness, or hyper-strength that suggests it’s over. Gold has been deliberate and orderly and measured – a nice bounce over the last three months. … Stay the course.” Watch video

ETFs lose luster in the shadow of physical gold

Doubts continue to be raised about the reliability of certain exchange-traded funds, and Blanchard and Company, Inc. agrees the issue is a troublesome one.
Read the fine print: In a Nov. 10 broadcast, CNBC star Rick Santelli called into question the actual physical precious-metals backing behind the large exchange-traded funds like SLV and GLD. “If you’re looking for something to worry about, think about all the coverage we in house have been giving to ETFs. I like futures contracts because I know there’s silver there, and if I want it, I’ll get it. But ETFs I still have questions about. … It’s clear that you can’t get the physical gold if you want it – they can give you money (instead). Read the fine print – that’s all I’m saying. And I want to put somebody on who’s actually seen their inventory. You think we can find somebody who will actually go on and say, ‘I’ve seen it’? I don’t think so.” Watch video

Hosted by “hostile entities”: Seeking Alpha contributor Mark Anthony has articulated similar fears in a recent article: “I always encourage people to directly own physical precious metals. I do not trust the physical gold ETF, GLD, and the physical silver ETF, SLV. Like some other folks I expressed skepticism whether these funds actually hold the physical precious metals as they claimed. These ETF funds were hosted by entities known to be hostile to precious metal investors and known to have large short positions in silver, so why should people trust them?” Read more

Similar concerns surfaced in a Financial News article Monday titled “Bearish trustees dig deep for gold and diamonds”:

Iain Tait, partner at UK wealth adviser London & Capital, received requests from separate trustees in Jersey and Guernsey for physical diamonds and gold bars last week. He said: “There is the feeling that ETFs are the home of the speculator, while bars and real diamonds are the domain of wealthy families trying to protect themselves.”

Ned Naylor-Leyland, partner at Cheviot Asset Management, said a lack of trust in banks and the spectre of counterparty risk was a problem. “I hear Swiss banks are turning out their vaults for clients wanting to take home their gold. Trust is wearing thin.”

Some investors are put off by the idea that gold ETFs can contain other financial products, such as swaps or derivatives, even if just a small percentage of their weighting.

Angus Murray, chief executive of London-based Castlestone Management, said: “Physical gold is simply metal without any other financial product or structure. My clients want to own an unleveraged real asset.” He added: “If the ETF doesn’t have the ability to list additional shares there can be a pricing issue. Why complicate it?” Read more

Don’t lose sight of the big picture

Analyzing gold’s correction this week in a Seeking Alpha post, Gold in Mind blogger Marek Kuchta concludes:

The only thing that somewhat makes sense is the big picture and the general direction. The gold price has so far gained 20 percent in 2010, even after the current drop. All primary, long-term reasons for gold’s continuous rise such as exorbitant government debt and unfunded liabilities, quantitative easing, high volatility and uncertainty in all markets, fear of commodity inflation (to be followed by imported domestic inflation), and many more, remain in place. There is no obvious reason for a lasting trend reversal in the gold price. Unfortunately, very obvious are the reasons for a further decline of the value of the dollar and possibly also the pound and the euro.

So, strategic investors and savers, don’t lose your nerves. Wherever we are headed, it will be a bumpy ride that may end up in a complete off-road trip. Don’t forget where the north is, think about what you’ll need should we arrive in the wilderness. Nothing is safe there. Diversify, buy gradually, avoid paper promises. Keep your economic seat belt buckled, keep your eyes open, keep gold in mind.

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