US troubled, but gold will continue to shine: Experts

Published on Sat, Aug 06, 2011 at 15:15 |  Source : CNBC-TV18

Updated at Sun, Aug 07, 2011 at 11:33  

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The dominant theme of the week is the big meltdown across all asset classes as the global financial market came to terms with lower growth in all major economies. The Dow Jones crashed nearly 5% on Thursday, Asian stocks followed suit on Friday and crude and other commodities also lost.

In an exclusive interview with CNBC-TV18's Latha Venkatesh, Roger Yeoman, head of institutional equities at Avendus Capital and Brenton Saunders, director of Taurus Funds Management spoke about views on the issue and how they see these asset classes panning out.

Here is the edited transcript of the interview. Also watch the accompanying video.

Q: The US gross domestic product (GDP) data was bad but that came in quite a few days back. Investor sentiment seems to have declined more after the debt ceiling debate. Is there much disappointment that the US government won’t permit another fiscal stimulus and so there is really no hope from a recession? Is that what is driving markets down?

Yeoman: The key question is does the US political system have the will to make the changes necessary to put the US back on a sustainable footing given the general economic weakness, not just in the US but in the rest of the mature economic world as well. Compare what is happening and what has happened in rather unseeingly fashion over the last month in the US to what is going on in the UK, where, the conservative party has taken a very firm stance with regards to spending control and ultimate deficit reduction. We have two very different stories. The US clearly not making or taking the sort of positive political leadership that one would have expected from the leading economy in the world, it seems to me that the latest agreement is really just a short-term fudge to allow all parties to come out of it with some semblance of respectability. It is deeply unsatisfactory for the markets. That is why the markets are going down in such speed right now.

The problem is that the US economy isn't growing. If you have an economy growing fast, you can afford to carry a debt load which is much larger. But the US has too much debt, it's been ballooning out of control, the political leadership have not taken hard decisions that they need to take to bring things back under control in the light of slower economic growth. That is going to remain a concern for the market over here.

Q: In that case what do you think smart money will chase in terms of asset classes for the rest of 2011?

Yeoman: Right now it's safe-haven assets which will win the day. It's cash which is extremely unappetising in itself given low returns in fact negative inflation-adjusted return, the cash yields, safe haven such as high-quality real estate and equities where they represent of company cash flow which are resilient. That can mean consumer non-durable products for instance, it could mean the healthcare names, utilities anything which typically regarded safe is probably to be the best place to be short-term and the avoids are probably the ones that are leveraged towards the rate of economic growth.

Q: How do you see the non-precious commodities—the crudes and the coppers—panning out?

Yeoman: I think there is a very good chance that commodities will pause some time in the next six months. However, in the long-term, the outlook looks still very strong. And, to the extent the US and Europe hold together as world-leading economies (which they will) then demand is going to be strong from the US and Europe.

That is behind the sort of strategic investments we have seen notably from the Chinese of course in result-producing regions such as Africa. In the short-term if we continue to see the travails which the Europe and the US is suffering from and if we continue the sort of monetary restraint that we are seeing in India and China, then it is easy to believe that commodity prices will be driven down at some stage. I think that actually is a pre-requisite for interest rates beginning to come down in India for instance.

Q: How do you see commodities like metals and crude panning out? Do you see major downsides given the question marks over growth?

Saunders: I think any of these risk assets, whether they are crude or base metals or any other industrial-related commodities are really going to be at the mercy of general markets. The underlying fundamentals are good, we have lack of predictable supply; we have reasonable trend growth globally which should bode well. But if markets are inflecting in any way, crude is never immune to that, and is unlikely to come under pressure if that is the case. That is really not our base case; we think that markets will sort of muddle through the next couple of years and crude will continue to be sort of in this USD 100-120 per barrel range for the foreseeable future.

Q: Your take on gold, it’s been the best performing asset class. How do you see that panning out?

Saunders: We are very big proponents of gold, have been so for a long time. We really think what is going on the gold market is really just reflective of what is going on in a lot of developed markets and the monetary systems that back them—the transfer of debt out of the consumer environment into the sovereign environment and the inability to service that debt is going continue to weigh heavily on developed market currencies and be good for all real assets especially gold. We think gold stays strong from here and any short-term weakness in that we would really see as buying opportunities. Gold on any sort of risk-adjusted basis and in absolute terms continue to be the asset of choice globally.

Q: How do you see flows into emerging markets like India and China in the remaining part of 2011? Will flows into India have to wait for the interest rate cycle to peak out here?

Yeoman: Economic fundamentals in India state that the trade balances have rumbled along the negative 10 billion a month. Foreign direct investment (FDI) flows, if anything, have picked up year on year. The indirect investment flows, portfolio flows have been very lumpy. Generally speaking they have been on a negative trend over the last several months. This, given the rate hikes that we have seen in India, which is hardly a surprise despite the fact that the linkages between the economy of the size of India and Western economies are probably breaking down overtime. There are bound to be some sentiment effects. Looking at what is going on in the Europe and US, it is not a surprise the Indian market has performed as it has; it has been on a significant pressure recently; it is down double digits, year to date.

So it is hard to believe that India is going to perform well as a stock market until a time you can predict the interest rate cycle is starting to reverse and that is unlikely to happen, unless we see inflation coming down significantly from current levels.

'India's gold demand to hit 1,200 tonnes'

Agencies Tags : bullion, gold price, india gold demand Posted: Sat Apr 02 2011, 12:05 hrs Dubai:

 

Gold demand in India will continue to grow and is likely to reach 1,200 tonnes or approximately Rs 2.5 trillion by 2020, at current price levels, according to a research by World Gold Council (WGC).

"The rise of India as an economic power will continue to have gold at its heart. India already occupies a unique position in the world gold market and, as private wealth in India surges over the next ten years, so will Indian demand for gold", WGC Managing Director for India and the Middle East Ajay Mitra said in a statement here.

Indian gold demand has grown 25 per cent despite 400 per cent price rise of the rupee in the last decade, making the country a key driver of global gold demand, the research said.

Gold purchases in India accounted for 32 percent of the global total in 2010.

Further, the council expects an increase by over 30 per cent in real terms.
 more....
 

Gold and Money

Free Enterprise Zone, The Freeman, Warren C. Gibson

Nothing seems to arouse passions—pro and con—quite like suggestions that gold should once again play a role in our money. “Only gold is money,” says one side. “It’s a barbarous relic,” says the other. Let’s turn down the heat a bit and look into some propositions about gold. That should lead us to some reasonable ideas about whether or how gold might return.

Propositions About Gold

Gold has intrinsic value. Actually, nothing has intrinsic value. The value of any good or service resides in the minds of individuals contemplating the benefits they might derive from it. What gold does have is some rather remarkable physical properties that make it very likely that people will continue to value it highly: luster, corrosion resistance, divisibility, malleability, high thermal and electrical conductivity, and a high degree of scarcity. All the gold ever mined would only fill one large swimming pool, and most of that gold is still recoverable.

Only gold is money. Although gold was once used as money, that is no longer the case. Money is whatever is generally accepted as a medium of exchange in a particular historical setting. Right now, government-issued fiat money, unbacked by any commodity, is the only kind of money we find anywhere in the world, with some possible obscure exceptions.

Perhaps people who say this mean that gold is the only form of money that can ensure stability. That’s what future Federal Reserve Chairman Alan Greenspan thought in 1967, when he wrote “Gold and Economic Freedom” for Ayn Rand’s newsletter. “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation,” he said. When later asked by U.S. Rep. Ron Paul whether he stood by that article, Greenspan said he did. But he weaseled out by saying a return to gold was unnecessary because central banks had learned to produce the same results gold would produce.

The gold standard is too rigid. The gold standard makes it impossible for a government central bank to conduct monetary policy—hooray! Under the Fed’s watch the dollar has lost more than 95 percent of its purchasing power and the economy was convulsed by the Great Depression of the 1930s, the stagflation of the 1970s, and the crash of 2008. Milton Friedman long ago explained the long and variable lags that follow monetary interventions and at one point called for replacing the Fed with a computer. The end of government economic manipulations in the form of monetary policy is a major potential benefit of a gold standard.

Gold is supposedly too rigid to accommodate increased demand for money at certain times of the year—historically harvest time and Christmas time—or in wartime. Falling prices are one way an economy can adjust to an increase in the demand for money, but this accommodation works best over a longer period. A short-term accommodation is possible when banks hold fractional reserves. On short notice and without any increase in monetary gold, fractional-reserve banks could simply issue more bank notes or their electronic equivalent during periods of high demand and retire them when demand subsided.

Inflation is impossible under a gold standard. Between 1897 and 1914 the gold stock rose at about 3.5 percent a year due to new discoveries and inflows from abroad. As a result, prices rose about 26 percent over this span, or about 1.4 percent per year. This was not a disruptive level of price inflation—but it was inflation.

The gold standard was tried and failed. This is a plausible proposition, not to be dismissed out of hand. Nor may we simply note that because we never had a pure gold standard, the concept was never really tested. We must do better than that.

During much of our history, money was linked to gold in some degree, and there were some serious monetary problems during that time. The record of gold is bound up with the institutional arrangements that prevailed at various times in our history. Snapshots from that history should help illuminate this claim.

Before proceeding, we need a definition. Under a gold standard either private banks or a monopoly central bank issues notes (or their electronic equivalent) redeemable in gold. Gold coins may circulate as well. Notes may be fully or fractionally backed, meaning a note issuer may not have sufficient gold to redeem all outstanding notes at one time. In passing I assert, contrary to some “hard money” advocates, that fractional-reserve banking is an institution that is entirely compatible with free markets and the rule of law.

The period between the War of 1812 and the Civil War is commonly called the “free banking era.” It is also called the era of “wildcat banks” because many banks were poorly capitalized, poorly if not fraudulently managed, and prone to failure. Conventional wisdom says that this era demonstrates conclusively the need for strict government regulation of money and banking. Like other free-market institutions, free banking rests on the sanctity of property rights, with no government involvement other than prosecution of theft or fraud. But there was substantial government involvement all along, so the “free banking” label is only accurate in relative terms.

The most egregious departure from free-banking principles was the frequent suspension of specie payments: banks’ refusal to honor their obligation to redeem their banknotes for gold. These breaches of contract, which should have triggered liquidation and perhaps criminal prosecution, were in many instances tolerated or even encouraged by government authorities, especially during times of war or economic contraction.

Second, the free-banking paradigm does not include a monopoly central bank. The Second Bank of the United States—roughly speaking, the U.S. central bank of its time—closed its doors in 1836. Its defeat, engineered by populist President Andrew Jackson, came with wide support from a public that had been generally suspicious of banks since the founding of the Republic. But the end of the Second Bank was by no means the end of federal government involvement in banking. With the Second Bank gone, the federal government still needed depositories for its funds. Certain private banks, which came to be known as “pet banks,” were selected for this privilege. This was one way in which the federal government continued to influence the banking system.

A third intervention, practiced by federal and state governments, was prohibition of branch banking. No banks were allowed to cross state lines to open branches, and there were significant restrictions within most states as well. The strictest state laws forbade any branching whatever, while others allowed branching within their states on a limited basis. The result was that many communities could only be served by small, poorly capitalized, and often poorly managed local banks. Stronger city banks might have established branches in areas where early banks had failed or where none had emerged, particularly with the spread of the telegraph and railroads. But they were not allowed to do so. For confirmation of the ill effects of branch prohibition, we need only look as far as Canada, which has always had a few strong nationwide banks. During the Great Depression, when some 9,000 U.S. banks failed, not a single Canadian bank went under.

Fourth, many state governments required banks to hold their bonds as part of their reserves. This of course provided a captive market for such bonds. The National Banking System, established after the Civil War, imposed a requirement to hold federal Treasury securities. Thus the five-dollar gold note (see photo), issued by the Farmers Gold Bank of San Jose, California, in 1874 promises to “pay the bearer on demand five dollars in gold coin.” But it also says the note is “secured by bonds of the United States deposited with the U.S. Treasurer at Washington.” In other words, the government gave the banks incentive to substitute bonds for some of the gold they might have held as reserves.

The gold standard is to blame for severe downturns in 1893 and 1907. The panic of 1893 was quite severe. That year saw numerous railroad bankruptcies, bank failures, and declining stock prices. Among the causes were general overbuilding of railroads, the Silver Purchase Act of 1890, and the protectionist McKinley tariff of 1890. Perhaps a modern central bank, with unlimited money-creation power, could have mitigated some of the immediate pain. But as we have seen, the record of the Federal Reserve, which acquired that power in the following century, suggests a failed institution. As it was, the panic was over in fairly short order and economic growth resumed.

The Panic of 1907 was marked by bank runs, numerous bankruptcies, and sharp drops in stock prices. A trigger for the Panic was a failed attempt to corner the stock of United Copper using borrowed money. Other factors included the San Francisco earthquake and the Hepburn Act, which gave the Interstate Commerce Commission power to set maximum railroad rates, suppressing the shares of those companies


more.....http://www.themoralliberal.com/2011/03/14/gold-and-money/

Q&A: David Lamb, MD, Lifestyle & Jewellery, World Gold Council

'India's gold industry should look into the branded segment'

Rajesh Bhayani & Sharleen D'Souza / Mumbai March 15, 2011, 0:36 IST

Currently on an India visit, David Lamb, managing director – lifestyle and jewellery, World Gold Council, spoke to Rajesh Bhayani and Sharleen D’souza on trends in designs and consumer preference. Edited excerpts:

What are the key trends in jewellery designs in India and how are they different from global trends?
Some of the leading, most cutting-edge, designs in India take inspiration from Indian culture and history and there is big difference in understanding the richness of gold against other luxury goods. For me, the most exciting designs are the ones which are complete modern re-interpretations of the traditional. For example, the Taj collection from Tanishq, that is a 21st century take on established imagery. It’s kind of a modern reworking of Indian traditions. This is contrary to India’s hunger for Western ideas in other sphere of life.

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And, emerging trends in global markets?
Traditionally, a lot of gold in India is bought in jewellery sets because the market here is dominated by the wedding, occasions and by the rituals. In the West, we see a huge move towards individual pieces that have enormous impact, which are known as statement pieces. In particular, two categories, a cuff and you will see one enormous bangle, that is, bracelets. You also see statement earrings, which are long and dramatic and have an enormous impact. It is also important to study the psychology behind the trend because we are dealing with gold prices which are at a peak. One logical response is to make things smaller and lighter. However, consumers in the West are looking for an individual piece that will make a statement and are bigger in size.

The preference in Western markets are also changing from low carat gold jewellery to higher, that is, 18-carat gold.

What has been the impact of changing designs and rising gold prices on the watch industry?
Watch companies thought that in 2008-09, the time of economic recession, they would have to make their watches smaller. But actually consumers want them to be bigger. Rolex’s day date is now super-sized and the bracelets are solid because people are looking at bigger pieces, where the sheer intrinsic value of gold makes a bigger statement. The interesting trend that is alive overseas is to move away from always being a matched set towards individual pieces that become an investment asset for a lifetime. more... 

http://www.business-standard.com/india/news/qa-david-lamb-md-lifestylejewellery-world-gold-council/428487/

http://news.goldseek.com/GoldForecaster/1299034800.php

Gold Market Breakout Alert! By: Julian Phillips & Peter Spina, for the Gold & Silver Forecaster - GoldForecaster.com

---

-- Posted Tuesday, 1 March 2011 | Share this article | Source: GoldSeek.com

The Gold Price has confirmed that a large movement upward is shortly to occur.   

1^st March 2011

           We noted that once the trading range between $1,320 and $1,380 broke through resistance at $1,380 it could move much higher in the coming weeks, months.   We were going to alert you, but felt we should hang back and await confirmation that the high-risk area was passed and that we had confirmation that a strong move up was coming ($1,430+).   We have now had that confirmation and can confirm to you our subscribers that a large move upward is soon to occur.   Many leading analyst felt that a correction to $1,290 should come first, but we believe that, that has come and gone.   We now expect to see a move to new highs now between $1,500 and $2,000 in 2011 with higher prices thereafter.

The fundamental picture is a combination of four gold-positive forces:

1.      Persistent ‘limit’ buying [informing dealers of the price they will pay then waiting for offers to come to them, but not chasing prices] of gold by Central Banks and Sovereign Wealth Funds.   This has been the case for the last year and more now.

 

2.     Asian buying from India and China, where a rapidly growing Middle class is saving as always, but including gold in their long-term savings.   This demand has become explosive and is set to dominate the market in the years to come.   These buyers buy to hold, not seeking profits [the same as central bankers] but seeking financial security for their families.   This has adjusted the shape of the technical picture as we have seen lately.  A good monsoon has led to an increase in rural community buying of gold in smaller amounts [due to higher prices] of around 5.7% over last year.

3.     The failure of developed nations to resolve their monetary problems has set the stage for more debt crises alongside those in the U.S. where States are about to experience their own.   Food and energy inflation is ensuring negative interest rates [despite rates set to rise] and social disorder [as we are seeing now in the Middle East].   These will worsen in 2011 and beyond.

4.     The inability of supply to grow despite the high prices we have seen.   Newly mined gold is at 2,542.7 tonnes and will rise to just above 2,660 which is not nearly enough to satisfy demand.   Recycling, or ‘scrap’ sales in 2010 was 1,652 tonnes 20 tonnes down on 2009.   For this to increase to satisfy growing demand in 2011 we believe that the gold price must rise by 20+% and persuade current holders to sell.

Our Alerts of last year have been completely right and we hope you acted in line with them.  

As you know our newsletter follows our favorites gold shares, gold, silver, currencies, oil and has a portfolio for your reference.  

Should you want us to track any particular stock for you, please let us know?

We feel that soundly based gold “Junior” mining companies will benefit strongly on the rise (please see more on gold stocks below).

Gold Stocks

1.       Medium Sized:      - Randgold Resources [GOLD]

                                                - Goldcorp [GG]

2.     Junior and Exploration Stocks

Gold stocks provide investors with a leveraged investment option versus the metal. Volatility has been a normal component of the gold stocks and with increasing volatility among all markets; this has only amplified the swings in the gold equities. So historically, gold shares will outperform the price on the upside and likewise on the downside.

There are many criteria a gold stock investor will look for when selecting an appropriate basket of gold companies. Those with a higher risk tolerance will look at junior and exploration gold stocks to offer extreme risk/reward investments. Yet despite the record $1,000+ gold prices, junior and exploration stocks are trading at levels significantly below pre-2008 sell-off levels. This is on top of growing prospects that gold is set to move significantly higher in the coming months, years. Also of consideration, gold mining companies have yet to heavily invest into exploration and development capital needed to replenish their declining production levels and reserves so market valuations are very attractive levels!

In our GoldForecaster.com Junior and Exploration Stock Portfolio, we research hundreds of companies looking for the right story with the proper mix of criteria that will provide among the lowest risk with exposure to high rewards. From management to share structures to the project themselves, many decisions must be made to select the right junior stocks.

 

To illustrate one of our recent gold junior selections, please refer to the Gold Resource Corp. (NYSE-AMEX: GORO) chart above.  An example of one our very profitable low-cost gold producer stock selections, a significant and growing high grade gold deposit provided our newsletter subscribers the opportunity to participate in a 2,300%+ profit.

Over the coming weeks and months, new additions to the portfolio will be made as new opportunities are researched, investigated. Please subscribe to the Gold Forecaster to view our Junior and Exploration Stock portfolio.

As you know, we at the Gold & Silver Forecaster are dedicated to following these developments so that Investors can maximize their understanding and profits from the gold and silver [and platinum] markets.  As a result we expect to see the gold market shine far brighter than we have seen to date.

If you have followed this newsletter and find our work to be valuable, we recommend that you forward this alert to your friends plus colleagues and encourage them to subscribe.   Weekly issues will allow them to see which shares we believe will benefit investors the most and to keep your fingers ‘on the pulse’ of the gold price.   Our coverage of the global economy is focused on the factors driving the gold price including oil, the $, and other relevant markets.  We keep you updated and ahead!  

We will always keep the global perspective with the focus on gold, making our letter “must-have” reading in these markets.

Kind regards,




Gold market booming.....!

Topic: Gold — February 28th, 2011

Both gold and silver prices are reported to be at all time highs in India according to an article by DEBIPRASAD NAYAK and carried in the Wall Street Journal recently.

MUMBAI – Gold and silver spot prices in Mumbai, India’s largest bullion market, rose to all-time highs Thursday, as investment demand remained firm and turmoil in the Middle East continued.

Pure spot gold hit an all-time high of 21,065 rupees ($467) per 10 grams, while silver hit a new high of 50,515 rupees a kilogram, the Bombay Bullion Association said.

Spot gold hit an earlier high of 20,975 rupees per 10 grams in early December, while silver breached its previous record of 49,955 rupees per kilogram hit Monday.

Demand for gold is likely to remain firm in India in the coming days as rural consumers will have more disposable income due to winter-sown crop harvesting in March, said Angel Commodities in a note.

India’s food grain production is expected to rise 7.2% to 234 million metric tons this crop year through June due to higher planting.

In India, the world’s largest bullion consumer and importer, most of the farmers aren’t exposed to other forms of asset classes and investment in gold is the only option available to them, Angel Commodities said.

The current wedding season in India is also bullish for the yellow metal, the brokerage added.

As we see it, it all bodes well for the continuation of demand out of India and pressure on gold and silver prices over the short term.

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