Sunday, November 17, 2013

Frank Holmes: Dressed to the Nines with Gold GLD, MUX, TNR.v, GDX


  CS. After Janet Yellen's testimony fundamental picture for Gold is very bright, QE is assured "until the economic data will justify the opposite". Even after The Taper, we will have the credit expansion in the monetary base ongoing and, maybe, velocity will increase finally with money flowing through financial system. 
  Question of Taper is still more than open - with Bernanke in office until Jan 31, 2014 we are very doubtful that he will make any decision on part of the FED. With Janet Yellen coming into the picture we can expect even more accommodation until economy will provide the clear signs of improvement in the real economic growth. The main take out for us from Janet Yellen's testimony is that "There Are No Bubbles And More To Be done." 
  In all normal circumstances Gold will be flying over $2000 long time ago, but we do not have the luxury of free markets with "The FED's 100-Year War Against Gold." Market can not be manipulated forever, particularly when underlining Demand is growing with the suppressed Gold price. China and other Asian countries are more than happy to accumulate cheap Gold and it is flowing from The West To The East at the disturbing record rate. COMEX is running on fumes now and LBMA banks are exposed to the Gold Bank Run with all-time-high leverage of 69 owners per ounce of deliverable Gold.
  In all normal market circumstances the Gold chart above will provide a good formation for the higher prices with Bullish free white candles coming out from the very important support - which can confirm the higher low -  and momentum indicators turned to the Upside. The reason for it is the US Dollar chart below with very strong Bearish Reversal candle formed last week. Despite very weak data from Europe US Dollar was not able to overcome the reversal so far and its momentum indicators are turning Down. The follow up next week will be very important.
  There are a lot of calls for Gold to go down to $1000 level and it could be another very good contrarian indicator. Basically all the events are confirming the ongoing US Dollar debasement case: reduced buying by foreigners of US Treasuries, record level of buying US Treasuries by the FED. Taper talk - which means less Bid from FED for USTs, less demand in the market and higher interest rates and Janet Yellen on the mission with More To Be Done. Debt Ceiling debate entertainment is coming back very soon and Raised Debt Ceiling Does Mean More Debt, whatever spin you would like to put on it.

  Frank Holmes provides another insight into the drivers behind the Gold market this days. There is no surprise that China is taking the central stage in this developments.

RJ Wilcox: China’s Central Bank Gold Reserves are Growing Rapidly GLD, MUX, TNR.v, GDX

"We are monitoring the situation with Gold demand from China as it is the main driver for the Gold market now. So far this demand has backed Gold to withstand the numerous attacks in the paper market to allow Janet Yellen to implement even more aggressive easing polices at the FED. 
  Rising Gold price indicates FIAT currency debasement, pushes real interests up, which economy and fiscal budget can not sustain at the moment. These official Gold holdings numbers are already out of date and the question is how much Gold China really already holds now and you can add to it the state level encouragement for citizens to accumulate Gold in China."

Brutal Past 24 Months For Precious Metals Investors, Nearing A Bottom – Rob McEwen MUX, TNR.v, GLD, GDX, SLV, CU

“The past 24 months for precious metals investors has been brutal, but I feel like we’re nearing a bottom,” McEwen said on the call. “We had a brief and explosive rally in August, which I see as a good indication of a potential for large gains going forward.
“And despite a decidedly ugly mood amongst investors, analysts and market commentators, I believe it is an excellent time to be a contrarian,” he added."

U.S. Global Investors:

Dressed to the Nines with Gold

November 15, 2013
By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
While paper gold is getting the cold shoulder in the West, the Love Trade buyers in the East are wrapping their arms around all the physical gold they can get their hands on.
In the third quarter, gold jewelry demand was at the highest level since 2010. Buying out of love in the East was significantly higher during the first nine months of the year compared to demand the same time last year, according to the World Gold Council (WGC). As the chart shows, buyers in Hong Kong and China went on a shopping spree for gold jewelry, as demand rose 40 percent and 35 percent, respectively, on a year-to-date basis in 2013 compared to the same period last year.
Another way to look at the strong demand coming from the East is to compare it to Western demand. As you can see below, so far in 2013, the East purchased 5 times more gold bars, coins and jewelry than the West. Together, Chindia purchased a whopping 1,500 tonnes in physical gold in nine months.
It's important to note that despite the government's efforts to stop Indians from buying gold, jewelry demand in India was still about 12 percent higher in the first nine months of 2013 compared to same time frame last year. The buying continued despite the fact that premiums were above the international price of gold.
Indian gold demand did weaken in the third quarter, as consumers were discouraged from loading up on the yellow metal through official channels. Residents faced a depreciation of the rupee, the tight restrictions, and confusing regulation, as gold bullion imports were tied to a fixed level of exports, says the WGC.
An emphasis should be placed on gold demand recorded by “official channels," as “gold entering the country unofficially through India's porous borders helped to meet pent-up demand," according to the WGC.
While traveling in India, I'm anticipating that I'll gain tacit knowledge on this topic. I'm eager to learn how locals think the government will contain its current account deficit that has weighed on the economy. It seems the slowdown in GDP per capita has created a short-term setback for gold, but when the economy picks up, there should be ready buyers lined up outside the gold shops.
Dressed to the Nines in Gold
What's interesting about gold demand today is that more and more investors around the world are buying higher-end, more expensive gold. Specifically in China, 24-karat gold jewelry and ‘four nines' gold gained market share in the third quarter, says the WGC.
‘Four nines' is named for the almost pure gold content of 99.99 percent; in comparison, 24-carat jewelry has a purity of 99.95 percent. According to the WGC, ‘four nines' gold is “unique to China and has proved to be most popular with consumers in lower tier markets and rural areas, again reflecting the investment qualities offered by such jewelry," says the WGC.
I point this out because investors should take note of the emerging trend for luxury goods as a result of growing incomes in emerging markets around the world.
Take the buying of high-end products such as Chanel and Louis Vuitton bags, Rolex watches, and Chow Tai Fook jewelry in China, for example. From 2009 to 2012, the luxury-goods sector grew by 41 percent, due primarily to “lavish spending by rich Chinese and aggressive gift giving," according to research from CLSA. Looking over the next five years from 2013 though 2018, the middle class in China will increasingly be participating in this boom, as “income levels pass critical inflection points for spending on luxury items," says CLSA.
Jewelry is only one of many luxury items that has been seeing significant growth year after year. CLSA finds that from 2009 to 2012, jewelry sales increased 115 percent in Hong Kong and 172 percent in China.
So even as hearts beat fast for gold in the East, the yellow metal continued to lose its luster in the West. According to Bloomberg's precious metal mining team, gold ETF holdings have fallen nearly 30 percent since the all-time peak earlier this year. It's no surprise that the selling has been a big contributor to the decline in gold prices in 2013.
The good news is that gold ETF redemptions are no longer the main driver of gold prices. You can see below how the selling out of gold ETFs holdings has been slowing, but the metal has not followed the same path. Instead, gold has moved sideways over the past few months, with the price “supported at about $1,200 to $1,300 an ounce," says Bloomberg. We believe this shift provides an opportune time to buy, especially with the tremendous physical demand continuing to emanate from the East.
Earlier this week, The Wall Street Journal asked several “gold enthusiasts" and me about our case for gold investing. Reporter Lindsay Gellman highlighted many of gold's important attributes, including inflation protection and diversification, and discussed one of the most important points I often make about gold: Make sure you allocate only 5 to 10 percent of your portfolio to gold and gold stocks, and have the discipline to take profits.

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