Gold Rises To Seven-month High As Major Investors Pile Into Gold

MarketWatch reports that gold rises to seven-month high on flight to safety.

(emphasis mine) [my comment]

Gold rises to seven-month high on flight to safety
By Moming Zhou & Chris Oliver, MarketWatch
Last update: 2:33 p.m. EST Feb. 17, 2009

NEW YORK (MarketWatch) -- Gold futures rose Tuesday to end at their highest level in seven months, near $970 an ounce, as investors seeking a safe haven against economic troubles bought into the metal.

Heightened risk aversion also pushed up the U.S. dollar and Treasury prices, while oil futures and global stock markets skid. Safe-haven buying raised holdings in the largest gold exchange-traded fund to a new record high near 1,000 tons, according to the latest data.

Gold for February delivery rose $25.50, or 2.7%, to end at $967 an ounce on the Comex division of the New York Mercantile Exchange, the loftiest closing level for a front-month contract since July. It rose to as high as $973.80 an ounce earlier in the session.

Monday's gain followed on gold's 3% increase last week.
The metal is now just about $36 below its record high above $1,003 an ounce set in March 2008.

Trading more actively, the April gold contract ended at $967.50 an ounce, up 2.7%.

"I think $1,000 is pretty much almost in the cards here just given how strong the trend has been," said Brian Hicks, co-manager of the U.S. Global Investors Global Resources Fund (PSPFX).

MarketWatch reports that gold's gains for week catch bugs' interest.

Something still stirring precious-metals pond
Commentary: Gold's gains for week catch bugs' interest
By Peter Brimelow,
Last update: 12:06 a.m. EST Feb. 16, 2009

NEW YORK (MarketWatch) -- Something was indeed stirring in the precious metals pond, as I reported a week ago. Key investment letters say it still is.

With some wild swings, gold gained about 3% on the week, closing Friday at $941. The Phx Gold Silver Index (XAU) picked up 4.8% to 130.88. The Amex Gold Bugs Index (HUI) added 1.36% to 311.16. The stock market, in case you missed it, lost ground.

Technicians were impressed.
Long-term chartist Martin Pring is deflationary-minded at present. Two weeks ago, he remarked that if certain trend lines were broken, "I would be dragged kicking and screaming into the bullish camp" [I liked this quote]. But now he simply says in his recent weekly Intermarket Review: "Not much to add to my recent bullish comments. Both the metals and shares recently broke out of giant patterns ... With our Global Gold Index at a new all-time high - enjoy the ride!"

Pring also flags a powerful conceptual reason for the gold move. Discussing a chart of the inflation proofed Treasuries, and using the iShares:Lehm TIPS TIPT as a proxy, Pring says: "Here we see the inflation protected bonds, or TIPs.
Who needs these in a deflation? But look, the price just broke to the upside ... and volume is expanding! When we look at the longer term we see it's still in a primary bear market ... However this week's breakout suggests a turn is likely."

In other words, the bond market is getting seriously concerned about inflation.

The Privateer, being Australian, is even more direct in its weekly remarks: "Why is gold going up? It is certainly not in spite of the global mania for bailout programs now sweeping the world. It is because of these programs.
The more 'liquid' the global financial powers that be make their money -- by creating it in ever larger swathes -- the more they run the risk that the world starts to look elsewhere for a viable and trustworthy way to exchange goods and services."

The Privateer's invaluable $US 5X3 point and figure chart has now broken above its last downtrend, although its proprietor would like more progress: "This week the chart got up to and just above the second of the two downtrends. The 'poke' above the line which came with Gold's close above $U.S. 945 on Feb. 12 is not yet decisive, a close above $U.S. 960 would be."
[this happened today]

Silver, which I reported last week was exciting the gold bugs by showing unusual leadership characteristics, persisted -- rising 3.5% on the week, including on Friday despite gold's fall, and pushing the Gold/ Silver ratio to 68.9 from last week's 69.5.

But the star of the week was the reported bullion holdings of Spdr Gold Trust (GLD).
These rocketed a startling 13.7% to 985 tonnes, setting records each day.

GLD is regarded with deep suspicion by the radical gold bugs who think the metal's price is manipulated. But at the least it has to been seen as a measure of the Western Hemisphere investment appetite for gold.

In contrast, Le Metropole Cafe monitors Indian gold imports and reports that, unusual in the past few years, the world's largest gold consumer is standing aside for now.

Interestingly,
two sentiment indicators did not react much this past week. Mark Hulbert's HGNSI on Friday stood unchanged at 60.90%. MarketVane's Bullish Consensus actually lost a point on Friday to 78%, gaining only 3 points on the week.

In serious gold moves, MarketVane excursions into the 90s are reportedly common.

Seeking Alpha reports that major investors are piling into gold.

Major Investors Piling into Gold
by: James West February 15, 2009

Endeavour Financial Corp (TSX:EDV) closed a $100 million equity offering last week, and several other "bought deal" financings point to a strengthening trend: major investors are piling into gold.

The Offering was underwritten by a syndicate co-led by GMP Securities L.P. and Canaccord Capital Corporation (the "Underwriters"). Endeavour will use the funds to support its investment activity in the mining sector with an emphasis in the short term on precious metals.

The first quarter of 2009 has seen well over $1 billion flow into near term and existing mining companies, which is a reflection of the strong gold price amid safe haven demand. With estimates of U.S. government spending reaching as high as $2 trillion, large value investors are increasingly deterred by U.S. Treasury related securities in favour of precious metals.

*** Newmont Mining (NYSE:NEM), one of the world's largest gold mining companies, raised US$1.7 billion in a combined common share/convertible debt deal which it will use primarily to fund the acquisition of the remaining 33.33% interest in the Boddington project in Western Australia that it does not already own and the additional capital expenditures that will result from its increased ownership in the Boddington project, as well as for general corporate purposes. Citigroup Global Markets and J.P. Morgan Securities led the placement.
*** Freeport McMoran Copper and Gold (NYSE:FCX) raised US$740 million through the issuance of 26.8 million common shares at $28 per share;
*** Kinross Gold Corporation (KGC) announced a "bought deal" financing for US$360 through the issuance of 24,035,000 million common shares US$17.25 per common share. The underwriters were led by UBS Securities Canada Inc.;
*** Osisko Mining Corporation (OSKFF.PK) entered into another "bought deal" led by Thomas Weisel Partners and BMO Capital Markets. The offering of 77 million units at $CA4.55 a share will gross CA$350.4 million. Osisko is developing the 6.28 million ounce Canadian Malartic Project Quebec.

Smaller deals are becoming more common for junior emerging gold companies as well. Among the recent actions:

*** Centamin Egypt (CELTF.PK) raised $CA69 million through the issuance of 106.2 million shares at CA$0.65 per share for development and construction of the Sukari Project in Egypt. This financing was led by Thomas Weisel Partners and Cormark Securities.
*** Romarco Minerals Inc. (TSX.V:R) announced a bought deal Friday worth $20 million for the development of the Haile Gold Mine in South Carolina. Romarco issued 54 million units at $0.38 each. The financing was led by a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd. and including Paradigm Capital Inc. and GMP Securities L.P.
*** International Tower Hill Mines (THM) sold 2 million common shares at $2.50 per share for gross proceeds of CA$5 million, which will be directed towards further development of its projects in Alaska and Nevada. The placement was a "bought deal" led by a syndicate of underwriters led by Canaccord Capital Corporation and including Genuity Capital Markets and GMP Securities L.P.
*** Exeter Resource Corporation (AMEX:XRA) raised CA$25.2 million at $2.40 a share for development of its assets in Argentina and Chile.
[...]
Endeavour Financial is followed by many analysts and newsletter writers for its robust project pipeline.

Brien Lundin, who publishes the Gold Newsletter, says one of the main reasons he follows Endeavour Financials is because of management — especially Mr. Frank Giustra. He says this team now senses a market bottom, as they are raising capital to go after assets that now cost a fraction of what they did last year, or even six months ago. He intimates strongly that his subscribers should do the same, using Endeavour as their proxy. A mix of entrepreneurial expertise and value investing, he outlines what the smart money is doing now.


$100 Bills As Toilet Tissue?
2/12/2009
Efforts to avoid a deflationary depression will probably produce the opposite -- a nasty bout of inflation, says John Williams of Shadow Government Statistics, who advises hoarding gold and even Scotch to barter. Alistair Barr reports.




My reaction: A lot of bullish developments in gold markets:

1) Gold futures rose Tuesday to end at their highest level in seven months, near $970 an ounce.

2) $1,000 is pretty much in the cards given how strong the trend has been.

3) Technicians were impressed with gold's performance, and some deflationary-minded technicians are being "dragged kicking and screaming into the bullish camp".

4) The price of inflation protected bonds (TIPs) just broke to the upside ... and volume is expanding.

5) Major investors are piling into gold.

6) Smart money now senses a market bottom, and capital is being raised to go after assets that now cost a fraction of what they did last year.

Co nclusion: gold went above 970 today and is setting records in non-dollar currencies. With Europe's financial system on the verge of implosion, gold and silver remain very attractive investments.

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8 Responses to Gold Rises To Seven-month High As Major Investors Pile Into Gold

  1. BD says:

    Gold and Silver Priced in other currencies.... Is there a website that tracks this? What do you use? I can only find US Dollar prices for gold, silver, oil, natgas, etc

  2. kenneth says:

    eric

    could you help me with something? would it beneficial to buy gold/silver in another currency? i have a goldmoney account, and i would like to know if i should keep the gold denominated in dollars, or diversify away from the dollar, and use another currency? the other options are the euro, yen, pound, swiss franc, and the canadian dollar. thanks

  3. andy says:

    i bought in at 800 about... is it too late to put additional money in?

  4. Anonymous says:

    What's your analysis of the current rally of the dollar (vs. euro)? What about the T-Bonds? These events for me are rather confusing. Maybe it is just a matter of time.

  5. BD said...
    Gold and Silver Priced in other currencies.... Is there a website that tracks this? What do you use?

    I look at gold prices in dollars, then I look at the USD index to see how the dollar is doing. From looking at the two, I get a fair idea of what gold is doing in other currencies.

    24 hour spot gold price

    Live US Dollar Index Price Chart: 24 Hours

    -----

    kenneth said...
    could you help me with something? would it beneficial to buy gold/silver in another currency? i have a goldmoney account, and i would like to know if i should keep the gold denominated in dollars, or diversify away from the dollar, and use another currency?

    It doesn't matter what currency you buy gold in, but it might matter where your gold is stored. If you feel holding gold in Swiss vaults is safer than in the US, us Swiss francs to buy gold in Switzerland. If you are buying gold in the US, use dollars.

    -----

    andy said...
    i bought in at 800 about... is it too late to put additional money in?

    No, it isn't too late. In the next four, five months, gold is heading over $2000, so you wouldn't lose money buying it near $1000.

    -----

    Anonymous said...
    What's your analysis of the current rally of the dollar (vs. euro)? What about the T-Bonds?

    The USD rally will end when Europe's financial system starts collapsing. Investors will realize that the EU won't print money to bail out its banks, and that will send the euro soaring against the dollar.

  6. Anonymous says:

    Let me understand clearly. Are you predicting the dollar will be destroyed as in completely worthless paper and no longer traded on Forex or 'just' greatly reduced in buying power with debasement, inflation?

  7. Anonymous said...
    Let me understand clearly. Are you predicting the dollar will be destroyed as in completely worthless paper and no longer traded on Forex or 'just' greatly reduced in buying power with debasement, inflation?

    the dollar will be destroyed as in completely worthless paper.

    The dollar is the world's reserve currency. Any significant debasement via inflation will cost the dollar that status and cause the liquidation of dollar holdings by central banks.

    This is the downside to being the world's reserve: once your currency starts collapsing, it will go all the way down to nothing.

  8. Enrique from Barcelona says:

    "The USD rally will end when Europe's financial system starts collapsing. Investors will realize that the EU won't print money to bail out its banks, and that will send the euro soaring against the dollar."

    Eric, could you please explain this comment in more detail. It looks as a key point for the following months. Congratullations for your work.

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