Wednesday, June 14, 2006


Gold Sector: Is this massive sell-off in gold justified?

15 June 2006

The sell-off in gold continued overnight, with gold closing lower every single day during this week. Although price declines have not been limited to gold alone and spread across most commodities, it is important to note that most of them (eg base metals) still have very strong underlying fundamentals. In the following extract, Macquarie Research Equities (MRE) examines whether the fundamentals on the gold market have changed so significantly to warrant the massive price falls seen over the past weeks.

Why the recent sell off?
Indications are that an increase in risk adversity is one of the main factors behind investors pulling money out of the market. Prices did not always correlate with the usual drivers during the past weeks - gold fell at stages, even as oil strengthened or news out of Iran continued to be precarious.

The recent sell-off has not been limited to the precious metals only, as commodities also fell across the board with investors reducing exposures to the market. The widespread corrections seen in commodities are a good indicator that selling was not primarily driven by a change in gold fundamentals. It seems rather more likely that a lot of investors left the market following an adjustment of risk premia.

Comments from US Central Bankers - The change in market mood has been significantly influenced by comments from various US central bankers. In a widely followed speech held on 5 June 2006, Federal Reserve Chairman Ben Bernanke for instance said that the economy is entering a ‘period of transition’, reflected in a slowdown in US growth from an impressive performance over the past two years. The Fed Governor also highlighted inflationary pressures. Externally, these emanate from rising energy prices. Domestically, the US central bank officially stated that a tightening labour market (among other factors) is a possible risk to price stability.

Monetary Policy Measures - The implementation of monetary policy measures will crucially depend on where inflation originates. There is not a lot the Fed can do to bring high energy prices down, so a focus will be on anchoring long term monetary policy expectations to prevent second round effects (for example through higher wage settlements). Meanwhile, domestic inflationary pressures are usually tackled by the classical monetary policy tool of raising interest rates and cooling down the economy.

Interest rate Concerns - Most of the recent sell-off and rise in risk adversity was in part driven by concerns around whether the Federal Reserve may raise interest rates too much and kill off economic growth in its quest to fight inflation.

Although all of the above arguments need to be taken seriously, their negative impact on gold prices should theoretically be limited. Looking at the continued inflationary pressures, there are certainly strong reasons for a higher gold price going forward.

In addition, the global structural imbalances still persist. As long as they are not resolved and the US economy underperforms relative to its peers, the dollar should find it difficult to outperform significantly (although for the moment, the expectation of higher US interest rates on the back of rising inflation seem to exert a bigger influence on the FX market).

Given that a good part of the current correction seems to have been caused by a change in investor sentiment, MRE are of the view that if investors continue to adjust their required compensation for risk, over the medium term this should not add to further downward pressure on gold prices.

Traders looking for maximum exposure to short-term movements in the above mentioned stocks should consider the following equity warrants for a high-risk, high-return strategy.

Source: Macquarie Bank

Friday, June 09, 2006


gold supply flat, price high

Global gold conferences are taking place around the world to discuss the industry, trends and forcasts. The Reuters Global Mining and Steel Summit in New York has recently taken place and below is a report on Gold Investing.

NEW YORK, June 6 (Reuters) - Gold's current high price still has a ways to run, partly because global production is likely to be flat or decline in the next 5-10 years, the head of Newmont Mining Corp. said on Tuesday.

Wayne Murdy, chief executive of Newmont, a major gold producer, told the Reuters Global Mining and Steel Summit in New York that a recent price forecast of $850 per-ounce "doesn't sound unreasonable."

Newmont President Pierre Lassonde made the forecast in May in his capacity as current chairman of the World Gold Council, saying that the highs would last for the next 18 months.

Gold, which hit a 26-year high of around $730 last month, on Monday closed in New York at $643 and was down in London on Tuesday at $628.

The article finished with the following

With high prices for energy and other commodities, a weaker dollar and interest rates inching up, Murdy said the time was ripe for investors who traditionally seek a safe haven in bullion.

"This is the strongest economy in the world and will be for a long time. "We think it's a good situation for gold for a number of years."

Source: Reuters, By Steve James

Tuesday, June 06, 2006


Even as demand-supply dynamics and political conditions suggest that gold could just be at the beginning of a long bull run, the metal meltdown on the London Metal Exchange during the week sent jitters through the investing community.

A slew of reports from the who's who of the financial world declare stridently that commodities are overvalued now, though the long-term outlook remains bullish. So, is it the right time to invest now? "Yes, it is. Gold is a scarce commodity, and its price is bound to go up because no new gold mines have been discovered recently to increase supply," says Mr Sachin Haresh Bhatia, Branch Manager, ICICI Bank.

Sourced from the Hindu Business Line.

Tuesday, May 30, 2006



The markets have shown some falls in the past few weeks, leading to nervousness amongst some investors. However, there is still enough evidence to suggest that there is confidence in the market. See the excerpt from a news report below:

Gold prices end at a one-week high as the U.S. Dollar falls. Marketwatch reports:

“Overall the crowded exit door of the administration is making for some rather nervous when it comes to the prospects of the dollar and the U.S. Equity markets,” said Nadler. He added that “The ones who seem to sleep a little better these days are the holders of gold”.

From here, the “question is whether the entire precious metals complex will settle into a nice consolidation range or will it find a way to rally to new highs,” said Dale Doelling, Chief Market Technician at Trends In Commodities, adding that he’s “Betting on a consolidation at this point which could last a couple of weeks.”

The “Final outcome will be a breakout to new all-time highs in the gold market – although it may take some time for that to materialize,” he said.

Note from the Team: "Follow The Money" - It's often a volatile market which can produce excellent returns for investors.

Tuesday, May 23, 2006

The Reuters desk in London reported yesterday:

KPLC-TV Lake Charles/Lafayette, Louisiana: Hurricane Rita Video/DVD - Gold drops 3.5 pct on firm dollar: "BULL RUN NOT OVER
Gold added $100 in one month to hit a 26-year high of $730 on May 12, but eroded almost all those gains in the following 10 days. At its peak this month, the metal was up 74 percent from a year earlier.
'Despite some speculating the bull run for gold is over, in my view there are still far too many factors in favor of being long gold, with $850 remaining a realistic target for later in the year as investment demand continues to swell prices,' James Moore of said in a note."

Savvy investors understand that it is not necessarily in a rising market that money can be made. in fact, many investors look for volatility to invest in stocks, options and the like. For more information on the gold market and investment strategies visit We will continue to scan the market for interesting articles that will help inform you as an investor. Best Regards, Sean Cowan, The Seaco Report.

Monday, May 22, 2006 "Gold is probably the most precious metal of all, adored since the time before Christ by kings and commoners alike.

For gold investors, January 1980 was a time they'll never forget: Their favorite metal briefly reached a record $875 an ounce.

Now, a revival of sorts is in the works. Gold is again fetching big money as a weakening U.S. dollar and rising inflation puts fear into those looking for a perceived refuge in precious metals. Recently, gold reached a 26-year high, at $732 an ounce. Just five years ago, it was about $300 an ounce.

Gold, it seems, is looking golden once again.

But should investors start gobbling up bullion and coins, snapping up shares of mining companies or buying into exchange traded funds?

Those bedazzled by gold argue that it has always been a debt-free safety net during times of economic uncertainty. They point out that governments, banks and Wall Street brokerages have big reserves of the stuff.

But others caution gold is a commodity, like silver, copper and crude oil, and is subject to the whims of a speculative market.

'For someone trying to take advantage of gold prices, I ask, Do you remember the tech market in 2000?'' ventured Robin Haire of Haire Wealth Management in Tupelo. 'I might get a blank stare. Either you do or don't. But investors' memories are often short-lived.'

Those who do remember will recall the bursting of the technology bubble that sent tech stocks tumbling and investors' money down the toilet. Haire says mining the gold market and waiting for the prices to move could bring similar results to overeager investors.

Besides, Haire and others say, the long-term return on gold is negligible.


KPLC-TV Lake Charles/Lafayette, Louisiana: Hurricane Rita Video/DVD - Gold drops 3.5 pct on firm dollar: "BULL RUN NOT OVER
Gold added $100 in one month to hit a 26-year high of $730 on May 12, but eroded almost all those gains in the following 10 days. At its peak this month, the metal was up 74 percent from a year earlier.
'Despite some speculating the bull run for gold is over, in my view there are still far too many factors in favor of being long gold, with $850 remaining a realistic target for later in the year as investment demand continues to swell prices,' James Moore of said in a note."

Daily Commodities Comments for 5/22/2006: "Daily U.S. Metals Commentary for May 22, 2006
Overnight Action:
Moderately aggressive selling overnight off weak equity markets and a rising dollar."

Thursday, May 11, 2006

I read a recent interview with a senior economic advisor from the World Gold Council which made some interesting comments. One of the questions put to the advisor was -

".... does gold still look relatively cheap?..."

In other words, is it over-priced or over-valued and should we still be investing?

The response to the question was -

"It depends on your point of view, but if you look at the real price of gold, since the price of gold was freed in 1971, and look at the long-term average of that, the price at the moment is only just above the long-term average in real terms. So, on that measure, it doesn't look particularly overblown."

The full trasncript of the interview is available to our Gold Members through

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