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Friday, April 29, 2005

Gold Hedging

Gold Hedging is when a gold producer contractually locks in a gold price to be paid in the future when their gold is produced, regardless of whether the gold price in the future is higher or lower than the agreed upon contractual gold price.

The original reason gold mines used gold hedging was to protect a portion of their cash flow in the event that the gold price dropped without warning. This way they could still pay their operating expenses.

Gold mines use to hedge 10% of their annual gold production however, in recent times some major gold mines have hedged as much as 300% of their annual gold production. Which is a very large bet that the price of gold is going to go down! If that bet turns out to be wrong and there is a rapid spike in the gold price they could actually go bankrupt!

It seems many of the large gold mining companies are rapidly changing their bets by moving from Gold Hedging to Gold De-Hedging as they prepare for what lies ahead in this gold bull market.

GFMS who claim to be the world's foremost precious metals consultancy, specialising in research into the global gold markets, has released its annual review called Gold Survey 2005.

GFMS says gold hedging slumped to a 10 year low of 1,779 tonnes in 2004. Although the rate of gold de-hedging would slow in 2005, the trend would continue to support gold price surges above $454/oz, GFMS said.

Commenting on future gold hedging trends, GFMS said that in 2005 a further 280 to 300 tonnes of gold would be de-hedged either by buying back positions or non renewal of gold hedging contracts. “There was an estimated 532 tonnes of de-hedging versus 90 tonnes of new gold hedging,” GFMS said.

“While this figure suggests that the peak in gold de-hedging has already passed, at around 300 tonnes, gold de-hedging should continue to provide an important support for the gold price this year, especially on dips where buy backs could soak up lost gold demand during periods of weaker investor interest,” GFMS said.

The following large gold companies have been rapidly de-hedging in 2005:

AngloGold Ashanti has reduced gold hedging by 23%
Australia’s Sons of Gwalia has reduced gold hedging by 12%
Barrick Gold has reduced gold hedging by 12%
Placer Dome has reduced gold hedging by 10%
Newcrest has reduced gold hedging by 8%

It is wise to avoid mega gold hedging companies like Barrick Gold like the plague when selecting gold stocks in a gold bull market.

Thursday, April 28, 2005

Stock Market Manipulation

As global share markets stand on the edge of the next big stock market crash, examples of stock market manipulation just before the close of trading are becoming increasingly more obvious, not only in the US stock market but around the globe.

From the King Report last night:

"Someone is hell bent on keeping stocks from decline. Again someone
PERSISTENTLY bought S&P 500 futures (from 9:20 to 12:10 CDT) to stem
a decline. Thereafter stocks traded gently lower. Operators and
traders are perplexed by recent action, so they moved to the
sidelines. The stock and economic trend is down, but due to recent
determined stock buying on declines astute traders don’t want to be
short."

The stock market manipulation in the US stock market generally takes the form of a huge spike minutes before the close of trading. The aim of this manipulation is to have the markets close above the previous days close or just a few points below, rather significantly lower where the market was headed during the day.

This stock market manipulation makes for much rosier nightly news reports!

Bill Murphy from Lemetropolcafe.com says this stock market manipulation is happening at the same time as manipulation in the gold price is taking place. More recently it has been suggested by Bill Murphy that Central Bank gold supplies which have previously been sold off to keep the gold price lower are running out and those rigging the gold price have taken to shorting the gold mining stocks instead in order to keep the gold price down.

Here are some examples of Stock Market Manipulation in the Japanese Stock Market and the Australian Stock Market yesterday:

Evidence of manipulation in the Nikkei was displayed yesterday as it closed just above the important 11,000 level and above its previous days close. With a huge spike minutes before the close of trading



The same pattern of manipulation was observed in the Australian Stock Market with the All Ordinaries spiking just above the previous days close, in the last minutes of the days trading in Australia.


The Dow Jones didn't show the usual pattern of manipulation and fell another 1.26% Although there was a massive volume of shares traded just before the close. Perhaps they tried and failed? Or perhaps they are saving their money for a more important manipulation point, when the Dow Jones goes below 10,000!



Lets see if the Dow Jones goes below 10,000 during the day tomorrow then spikes just above 10,000 in the last few minutes of trading.

As I post this the All Ords is down 0.84% in the first hour of trading!

Wednesday, April 27, 2005

US Dollar Forecast

Here is a 10 year chart created by Frank Barbera of FinancialSense.com of the US dollar Index from 1996 to the present. It includes a forecast for the US Dollar in the next few years.

The US Dollar forecast provided by Frank shows the US dollar dropping below the 0.80 level around August 2005 then dropping below 0.6 around August 2006 and even below 0.6 around August 2007.



Franks US Dollar forecast is consistent with the US Dollar Forecast provided by Bob's Gold Price Column in November last year: "US Dollar Trend Line".

Here is Frank's corresponding gold price forecast for the next few years:



Frank is predicting a run up in the gold price ending around the end of May and the start of June 2005, with a correction in July. He predicts that that correction will end in August when the gold price hits the uptrend line of this gold bull market.

If Frank's gold price forecast is correct, it looks like now until August 2005 is the last chance to buy gold at "cheap!" gold prices before the gold price really starts to take off on its way to $700, $1000, $1600 US and beyond...

Tuesday, April 26, 2005

Gold Price Manipulation Failing

Today the gold price and the US Dollar rose. This is very unusual because normally when the US dollar rises the gold price falls.

Bill Murphy from lemetropolecafe.com suggests this is a strong indication that the gold cartel (Western Central Banks), which Murphy and Gata.org says have been manipulating the gold price for years, are finally running out of physical gold in order to control the gold price.

Murphy suggests that the gold holdings of western central banks has been used to provide very low cost finance that has fueled the huge gains in the US stock market. You can read numerous essays on the rigging of the gold price at gata.org

Bill Murphy points out that while the gold price is breaking out, the gold shares have been totally disconnected with the gold price. Infact as soon as gold opened higher today the gold shares began to sell off. The higher the gold price went the more the gold shares were sold off.

Murphy suggests that the gold cartel may be moving their manipulation efforts from selling physical gold when the gold price rises to selling gold shares which are more easily bought with US Dollars which can be created, unlike physical gold.

Howevever, Murphy points out that instead of the gold price collapsing as the Gold Cartel might have liked it to do, the gold price gradually worked its way right back up and closed on its high of the day made early in the session, even as the dollar stayed firm.

At the close the gold price in euros was 337. We have now watched the Euro gold price break out and then accelerate to the upside.



The euro gold price breaking out has not gone unnoticed.

Monday, April 25, 2005

Peak Oil and Exploding Gold Prices

Eric Hommelberg of golddrivers.com has published a report on gold and Peak Oil.



The report suggests that based on the historical Gold price to Oil Price ratio we should have a current gold price exceeding $800 US per ounce. The report highlights previous oil shocks and their consequences because the era of cheap Oil will only be found in History books from now on the reports says.

The report says that according to many industry experts such as Matthew Simmons, Colin Campbell and Kenneth Deffeyes that we're approaching PEAK OIL at an alarmingly high speed. PEAK OIL is probaly here right now but unfortunately we've to wait a few years in order to confirm. This report says that PEAK OIL will bring about a nasty Oil shock in coming years.

The highlights of the report are:

-Oil discoveries have peeked 40 years ago.
- According to M King Hubbert Production peaks follow Discovery peaks after approximately 40 years.
- US Oil production already peaked in 1970.
- Non OPEC Oil production already peaked in the early 90’s.
- World Oil production will peak when OPEC peaks
- OPEC peaks when Saudi Arabia peaks
- Saudi Arabia peaks when Ghawar peaks
- Ghawar is aging rapidly and its life expectancy isn’t rosy. Matthew Simmons says that the end is in sight.

"Ghawar is one of the oldest Oil fields in production and lots of water injection is needed in order to keep production going. At one moment more water injection won’t be able to keep production going and Oil production will fall off a cliff meaning the Oil field dies." says Matthem Simmons. Read Matthew Simmons report here : Saudi Arabian Oil – A Glass Half Full Or Half Empty

- Prof. Kenneth Deffeyes predicts PEAK OIL to happen in 2005
- Bank of Montreal says that Gharwar is in already in decline.
- World Oil peak production means the End of Cheap Oil
- The End of Cheap Oil means continuing rising Oil prices which translates itself into Oil shocks.
- French investment bank Ixis-CIB has warned crude oil prices could touch $380 a barrel by 2015.
- Previous Oil shocks were an perfect call for recession/Inflation
- Gold is the ultimate Hedge against Inflation
- Rising Oil prices brings the historical Gold Price to Oil Price average way out of balance
- Historical average of the Gold Price to Oil Price ratio suggest a price of Gold exceeding $800 today.

You can read the full report at golddrivers.com

Sunday, April 24, 2005

Russian Gold Mine Production plummets 10.65%

Here is more evidence to suggest that global gold supply will not meet global gold demand in 2005 and beyond. The 1st quarter report from the Russian Gold Producers Union:

Russian gold mine production has plummeted 10.65% year on year in the first quarter of 2005 to 22.350 tonnes, its biggest drop since 1998, Valery Braiko, head of the Russian Gold producers' Union, told Interfax.

Valery Braiko said the total included gold mine production, recoveries from scrap gold and byproduct gold production. He said gold mine production fell 11.6% to 16.701 tonnes, gold recoveries fell 1.6% to 3.051 tonnes and byproduct gold output fell 13.7% to 2.599 tonnes.

2500 year gold sheets unearthed in Iran

An archaeological team working on a 2500 year old site has uncovered four pieces of folded gold sheet with a total weight of about three kilograms beside one of the columns of the main hall of the Darius Palace at Bardak Siah, in sourthern Iran, the director of the team announced on Sunday.

“Three pieces of the gold are folded thick sheets and the other piece seems to be the upper part of a cup, having a carved simple line on the edge,” Dr. Ehsan Yaghmaii added.

“The three pieces seem to be the covers of the wooden gates of the hall or epigraphs, which were carved on thick sheets of gold during the Achaemenid era, but the sheets have not yet been precisely identified,” he said.

“In order to precisely identify the gold items, the folds must be opened at the appropriate temperature in an equipped laboratory.” Dr Yaghmaii said.

More than 20 other palaces and halls from the Achaemenid dynasty have been identified buried under the palm trees in the area.

Saturday, April 23, 2005

Why Gold Bull Market is different to 1970s

There is no doubt that we are in a gold bull market, however there are many key elements that make it vastly different to the gold bull market of the 1970s.

Jim Puplava reported on the differences in his News Hour on FinancialSense.com this week.

Jim says the big differences this time around are:

1. Gold Demand

Global gold demand is growing faster than supply and its not just demand in the US and Europe. Gold demand is growing in Asia, China, India, The Middle East and in Latin America especially due to the currencies crisis that occurred there in recent times.

Just last week we reported on a surge in demand for gold bars in Asia in the gold price news.

Bob's Gold Price column has also posted an article on gold demand vs supply this week.

2. Gold Production

Gold production was down 4.4% globally and no doubt gold supply will be down this year also. The reason is we have been in a gold bear market for the past 18 years and many of the weaker gold mining companies went out of business or were taken over, only the large strong companies survived.

The environmental movement is much stronger today than in the 1970s and is very anti gold mining. As a result the time it takes for gold mines to start production from the date that they discover gold is now as much as 7 to 10 years.

In the gold bull market of the 1970s there was plenty of gold supply and the gold mining companies where growing their production every year as gold demand increased. Today that situation doesn't exist.

The mining industry has not made any major new gold discoveries for some time. Frank Bullis did a study of all the worlds major gold deposits in 2002.

Franks Bullis's study found that there were very few large gold fields:

3 with 10 million or more ounces of gold.
7 with 5 million ounces of gold.
5 with 4 million ounces of gold.
2 with 3 million ounces of gold.
2 with 2 million ounces of gold.
3-4 with 1 million ounces of gold.

In the 1970s there was a lot of gold discovers and gold exploration and those gold discovers were mined in the 1980s. In the 1980s Barrack Gold and Newmount the largest gold mining companies were only producing 1 million ounces a year and that was considered to be significant.

Currently Newmount the worlds largest gold miner is producing 7 million ounces a year but its not going to increase to 10 million during this gold bull market, in fact it is likely to decrease to 5 or even 4 million by the time this gold bull market is over.

Most major gold producers have been declining and this year most large gold producers have announced their production will decline by 10 to 15%.

Thursday, April 21, 2005

US Foreign Debt and Gold Price of $518 - $529

Jim Sinclair of jsmineset.com says Nothing has become as important as the TIC report figures (U.S. Foreign Debt) in terms of their impact on the US Trade Deficit. Sinclair says the reason for this is that the TIC reports provide an indication of the ability of the US to continue to finance itself with Foreign Debt.

Sinclair suggests that should the US Foreign Debt fall below the US Trade Deficit numbers then the market will be on a razor's edge waiting to see the following month's figures.

Sinclair says "That could well be gold at $480 and the USDX at say, .7800. Should the second month confirm the TIC is trending below the Trade Deficit, then the dollar will encounter severe selling pressure and huge spin to hold it. That well could be .7600 on the USDX. If the spin fails for the third consecutive month, then all hell could break loose and one could expect .7200 on the USDX and gold at $518-$529."

The U.S. Treasuary provides updates on US Foreign Debt and Major Foreign Holders of U.S. Treasury Securities on or about the 11th business day of each month, with a 1.5 month lag.

The release dates the reports on U.S. Foreign Debt are May 16, June 15, July 18, Aug 15, Sept 16, Oct 18, Nov 16 and Dec 15. The time of TIC report release is normally at 09:00 a.m. in Washington D.C.

To get updates on U.S. Foreign Debt visit the U.S. Treasury - Treasury International Capital System web site.

Bob's Gold Price column has also been convering the topic of Foreign Holdings of U.S. Securities.

Tuesday, April 19, 2005

Demand for Gold Bars Soars in Asia

Gold Demand is soaring in Asia today, Reuters reports premiums for gold bars doubled in Hong Kong on Tuesday. Gold bars were 50 U.S. cents an ounce higher than London spot price in Hong Kong versus 25 cents last week. Gold bars were last offered at such high premium in early 2001, said some dealers.

"Demand is there but we are running out of supply. That pushes the premiums up," Ellison Chu, a senior manager at Standard Bank London in Hong Kong told Reuters.

Gold Bars where also 50 U.S. cents an ounce higher than the London Spot price in Singapore.

These gold price premiums are unusual on 400 ounce gold bars which are generally traded at spot gold price.

Gold demand was also soaring in India. To read more on Gold Demand Increases in India visit our "Gold Price India" (goldprice.in) website.

Source: Reuters.com

Sunday, April 17, 2005

Bloomberg Gold Price Survey

Bloomberg publishes a survey of which way 42 gold traders think the gold price will go each week. They have just published the survey with the tittle:

"Gold May Fall on Expectations Dollar Will Rally, Survey Says"

Blooomber says "Gold may fall for a second week on speculation the dollar will rally against the euro, eroding the appeal of the precious metal as an alternative investment"

However, Bloomberg also says the survey has been correct 59% of the time. Given that there is a 50% chance that the gold price will go up or down each week, I ask the question how accurate is the Bloomberg Gold Price survey?

I suggest its not very accurate at all and perhaps it would be even less accurate if it wasn't for James Turks contribution to the survey. Bloomberg says James Turks forecasts are the most accurate of their 42 gold traders.

James Turk is the co-founder of Channel Islands-based Goldmoney.com, which stores about $48 million of gold for owners in 102 countries.

Turk told the Bloomberg survey this week "Traders may be more focused on commodity prices as an indicator of inflation than they are on government reports this week for producer and consumer prices."


Turk said, "The risk of inflation remains, and that may boost gold.
"Gold is very undervalued,'' Turk said. Based on the historical relationship between gold and oil, the precious metal should be trading closer to $700 an ounce, he said. "It has not kept pace with the rise in commodity prices, and particularly the jump in crude oil,'' Turk said.

Lets see who is right this week, the Bloomberg survey or James Turk.

You can read James Turk's regular commentary on the gold price at his Founders Commentary page at goldmoney.com

You can read the first chapter of James Turk and John Rubino's latest Book here "The Coming Collapse of the Dollar and you can profit from it. Make a fortune investing in gold and other hard assets."

You can read the bloomberg gold price survey which is wrong 41% of the time here.

IMF Gold Sale

Looks like the threat of IMF gold sales will remain until September.

"Selling part of the 3,217 metric tons of gold will be included in proposals being drafted for the next IMF gathering in September", U.K. Chancellor of the Exchequer Gordon Brown said on April 16.

With news reports reading "IMF Gold Sale Accord For Debt Relief Still Seen Far Off"

When in actual fact the IMF gold sale has been stopped already by the U.S. who is the largest shareholder of the IMF, with a 17 percent voting stake. This is enough to block an 85 percent majority required to approve the IMF gold sale, as I reported in a previous blog entry "IMF Gold Sales Stopped"

After the G7 meeting on the weekend, the official statement was "we're still far from an accord".

Seems like a excellent tactic to hold the gold price lower by leaving the threat of the IMF gold sale on the table for as long as possible. Even though the top US, French, German and Canadian spokesmen have rejected IMF gold sales


WASHINGTON Reuters reported that German Deputy Finance Minister Caio Koch-Weser said on Sunday he saw almost no chance of a plan to sell International Monetary Fund gold to fund debt relief for the world's poorest nations would be adopted.

"I see no big chances for that anymore," Koch-Weser told Reuters in an interview.

French Finance Minister Thierry Breton made a similar statement "I don't think this question has any real prospect," he told reporters.


The gold price is right on the long term uptrend at the moment it will be interesting to see if the gold price goes lower from here. If it does it could be one of the last good buying opportunities before the gold price goes much higher.

Friday, April 15, 2005

Paul Volker on Financial Crisis

Paul Volker who was chairman of the U.S. Federal Reserve from 1979 to 1987 has predicted the coming financial crises, in an article in the Washington Post on April 10, 2005. This man is not some crazy "gold bug", this is an Ex Chairman of the U.S. Financial Reserve, so there is a good chance when he warns of a financial crisis ahead, he knows what he is talking about or at least knows something that the rest of us don't. This is surely the biggest news item of the week, aside from the Dow Jones being down over 400 points this week.

Paul Volker says "there are disturbing trends: huge imbalances, disequilibria, risks -- call them what you will. Altogether the circumstances seem to me as dangerous and intractable as any I can remember, and I can remember quite a lot."

Paul Volker says "I don't know whether change will come with a bang or a whimper, whether sooner or later. But as things stand, it is more likely than not that it will be financial crises rather than policy foresight that will force the change."

Paul Volker suggested that in order to avoid the financial crises, "Japan and Europe should work promptly and aggressively toward domestic stimulus" and "the United States should forcibly increase its rate of internal saving, thereby reducing its import demand."

However, Volker had no confidence that any of these policies will be put in place.

Paul Volker says the U.S. is "skating on increasingly thin ice". Volker predicts the that if the U.S continues on its present course, the deficits and imbalances will increase and that at some time the confidence in the U.S that supports the flow of Foreign investment in the U.S. could fade.

There is going to be something that precipitates this financial crisis and once the cascade begins there is going to be a rush to get out of dollars. However, money may not necessarily flow into Euros, as the economies of countries in Europe are looking increasingly shaky and will get worse as the U.S. starts to decline.

The money will flow into gold, the safe haven in times of crises for over 5000 years.

At this time we will see a gold price of $2500 to $3000 USD per ounce, says Jim Papluva of FinancialSense.com.

As James Turk of GoldMoney.com says, while we have a gold price below $500 ounce, just keep buying gold and once the gold price goes over $500 US, sit back and enjoy the ride!

Thursday, April 14, 2005

Why the Gold Price will Explode in the Months and Years Ahead

GATA says the price of gold will explode in the months and years ahead because of one of the following reasons:

1. The Gold Cartel (Western Central Banks) will run out of physical gold supply to hold down the gold price.

GATA says the the demand for physical gold is soaring. As demand outpaces gold mine and gold scrap supply by 1500 plus tonnes of gold per year. The Gold Cartel must meet this deficit with Central Bank gold supply from somewhere.

GATA says this is what the proposed IMF gold sale was all about. They also say the Swiss Central bank is ending their sales, Australia Central Bank has run out, and the Canadian Central bank has run out. Recently the gold cartel had to go to the ECB for supply as they announced a surprise 47 tonne sale.


2. Or, the Gold Cartel will lose control of their rigging due to a financial market derivatives disaster which will lead to a US Stock Market Crash and Realestate Crash


Inflation has taken off in the US, yet the economy is weakening. If the Fed raises interest rates much more to combat inflation, it could destabilize the derivatives markets and result in a Stock Market Crash and a Realstate Market Crash. If the Federal Reserve doesn't raise interest rates the dollar should collapse with Foreign Central Banks dumping U.S. debt instruments. In that case, interest rates will have to go up, causing derivatives instability anyway.

There are over 230 trillion dollars worth of derivatives. The use of these financial instruments has grown exponentially over the years. There is no telling what could happen when counterparty risk problems begin at one firm and spread to another, Gata says.


Gata says to watch these big six interest rate derivatives laden, high profile US corporations, If a number of them tank from here run for the hills!

General Motors lost 6% today!

GM (GENERAL MOTORS)


AIG (AMERICAN INTERNATIONAL GROUP INC)


GE (GENERAL ELECTRIC)


FMN Fannie Mae


Citigroup


JPM (JP Morgan Chase Co)

Gold Price Increase on Serious Euro Concerns

It is expected that the French will vote ‘No’ to the European constitution on May 29 This will give strength to the US dollar and will create serious concerns for the Euro. However, it will be very positive for the gold price and may send western investment demand for gold through the roof!

"With each passing day, given the problems incumbent in the Euro as Europe moves toward the constitutional referenda in the Netherlands and France, we can make the stronger, and ever stronger, case that Gold Price in Euros shall move higher even as the dollar itself gains relative to the Euro.

Gold shall become a more "reservable" asset as central banks who might have been interested in diversifying their assets away from the dollar now find the Euro less and less attractive, and find gold somewhat more so." said Dennis Gartman thegartmanletter.com

Deutsche Bank warned yesterday that a likely French 'No' to the European constitution could begin a wave of currency speculation across Eastern Europe, setting off a chain of economic disruption.

Tuesday, April 12, 2005

China Online Gold Trading Starts

Private investors can now buy gold through the Internet in China. Online Gold Trading is the latest move that will bost gold deamand in China.

Individuals can now buy gold for investment online from the Bank of China and other selected banks which are members of the Shanghai Gold Exchange. By using Intrnet Banking, investors can transfer money from their bank account into a gold saving account, making gold trading more convenient.

Gold has always been revered in the Chinese culture. But not until 2003 have Chinese citizens legally been allowed to buy gold. One might think that 1.2 billion Chinese now able to invest in gold would have sent the gold price much higher. The reason it has not is until now is due to poor gold distribution. There hasn't been the resources to get gold to the people. Now the four major Chinese banks are providing customers with the ability to buy gold.

China has also recently cut the import tax on gold jewellery to 21.3 percent from 23.3 percent to help encourage foreign investors to set up jewellery factories as well as to boost China's gold consumption.

China is gradually liberalising its gold market, although a few restrictions including the import tax, remain. Local dealers in China still have to pay a 17% tax to import gold jewellery into China.

Currently China has one of the lowest gold ownership rates in the world with just 0.1 grams of gold owned per capita. In contrast gold ownership in India is 0.73 grams of gold per captia and the U.S. is 1.41 grams per captia.

Once Chinese banks increase distribution, a lot of gold will be sold in a relatively short time. This huge increase in gold demand in China has the potential to dramatically increase the gold price in years to come.

South Africa's Gold Production Lowest in 73 Years

South Africa's gold production fell by 8.8 percent to 342.7 tons in 2004, the lowest since 1931. Roger Baxter the cheif economist at Chamber Mines said it was due to the strong South African Rand's impact on domestic gold prices and rising costs.

Ten gold mines which account for 90 000 jobs and half of the country's gold production, were making only marginal profits or outright losses, Mr Baxter said.

Harmony Gold plans has posted its sixth consecutive quarterly headline loss in the fourth quarter of last year and plans to cut 5000 jobs.

Other gold mining companies have also warned of job cuts due to the rand eroding export earnings. Gold Mining is one of the South Africa's biggest private sector employers.

Mr Baxter said costs were rising much faster than inflation, with total gold production costs, excluding capital expenditure, up 13.4 percent in 2004, compared with the 1.4 percent annual inflation increase.

Mr Baxter said that water prices rose by 18 percent a year over each of the past three years in South Africa.

Labour costs, which comprise about half of the total, also rose faster than inflation, while transport costs leaped in 2003 and 2004 Mr Baxter said.

Saturday, April 09, 2005

Gold Price Forecast - When will the price Really Move Up?

In this weeks financialsense.com News Hour Jim Puplava gave a forecast for when the gold price will really start to move.

Mr Puplava predicts another interest rate increase in May and June with the June rate hike going too far. The Federal Reserve Bank will continue raising interest rates till something breaks as it has done in the past, Mr Puplava said.

Mr Puplava says that fundamentals determine the long term gold price, technical considerations and perceptions drive the gold price in the short term. Currently perception is that rising interest rates will make the dollar and dollar assets like bonds popular.

Mr Puplava said the current perception is that the Federal Reserve will fix the inflation problem. While central banks are trying to hammer and manipulate the gold price, investment banks are shorting gold and all the while the smart money is accumulating gold.

Mr Puplava believes the realty is that Fed won't fix inflation and will make it worse, as inflation is due to creating excess money. He expects the dollar is going to get weaker but the trade deficit won't correct. Particularly as oil consumption is expected to increase by 2% in the US while oil production is going down, the increase in the oil price is going to make things a lot worse for the deficit Mr Puplava said.

Mr Puplava said once realty sets in that Federal Reserve can't correct the dollar, and the perception about the US economy changes, central banks may not start selling dollars but they will demand dollars a lot less and less money going into the US market will mean a problem for the US dollar.

Mr Puplava says that now is a great time to be accumulating positions in gold. He recommends to not try to get in at the bottom and out at the top. Instead, he recommends trying to add and keep adding to positions. Accumulate in the quite times, If you have positions hold onto them Mr Puplava said.

Currently the the total value of mining is 100 million, there is about 35 million in gold trading. However there are trillions of dollars in currency trading and 40 trillion in equity and bond markets. If 5% of that money moves into gold there will be 20% to 30% moves up in the gold price in one day! But you have to be in it to win it.

When the currency traders realise that all the currencies are depreciating thats when there will be a run to gold. It will be like a water fall trying to fit though a garden hose Mr Puplava said.

Wednesday, April 06, 2005

Global Economic Growth Slow Down Predicted by World Bank and IMF

The World Bank and the International Monetary Fund (IMF) predicted on Wednesday that global economic growth would slow down significantly in 2005, and they warned that the United States' ballooning trade imbalances could disrupt world markets if foreign investors stop buying American debt.

"Global expansion has become less balanced, with global growth continuing to be unduly dependent on the United States and China," said Rodrigo de Rato, managing director of the International Monetary Fund.

Mr. de Rato said a number of "downside risks" could catch investors by surprise. Those risks included higher oil prices, rising fears of inflation and, not the least, the United States' large and growing indebtedness to the rest of the world.

"The demand for U.S. assets is not unlimited," Mr. de Rato warned, noting that bond markets were badly shaken last month by the mere hint that Asian central banks might begin to reduce their holdings of United States Treasury securities.

"A sharp reduction, or a reversal, of capital inflows could entail serious consequences for currency and capital markets," Mr. de Rato said.

In a separate report, the World Bank said that global growth had probably "peaked" at 3.8 percent last year and would probably slow to about 3.1 percent this year. Among the reasons, it said, were rising interest rates, high oil prices and less stimulative fiscal and monetary policies in many countries.

IMF Gold Sales Stopped

U.S. Congress and President Bush will stop the International Monetary Fund from selling its gold, the chairman of the Joint Economic Committee said.

The IMF has been considering gold sales as a way of covering bad loans it has made to impoverished borrowers now unable or unwilling to repay, but Congressional approval would be required.

JEC Chairman Rep. Jim Saxton, R-N.J., said he favors IMF debt relief through write-offs financed out of the IMF's other resources.

"The potential profits on IMF gold sales rightfully belong to the original donor countries and their taxpayers," he said. "These IMF gold sales would amount to a hidden appropriation from the donor countries that were the original source of the gold."

Saxton said the IMF failed to implement the proper lending safeguards and accounting controls for making such loans.

"Not surprisingly, some of its loans have gone bad, and the consequences should not be papered over," he said. "The IMF's mistaken forays into development lending have proven counterproductive, and should not be repeated."

Bill Murphy from Gata.org says that "this KILLS any potential for IMF gold sales in my book and should give a HUGE lift to the gold price in the days and weeks ahead."

The IMF holds 103.4 million ounces (3,217 metric tons) of gold at designated depositories. The IMF’s total gold holdings are valued on its balance sheet at SDR 5.9 billion (about $9 billion) on the basis of historical cost. As of February 28, 2005, the IMF's holdings amounted to $45 billion (at then current market prices).

The Group of Seven richest countries meets on April 15 to review a report by the IMF on the possibility of selling some of its gold. The U.S. is the largest shareholder of the IMF with a 17 percent voting stake, which is enough to block an 85 percent majority required to approve a gold sale.

Read more on Bill Murphy's analysis of this news here.

Monday, April 04, 2005

Oil Price Super Spike

The oil price has entered a ``super-spike'' period that could see 1970's style oil price surges as high as $105 a barrel, investment bank Goldman Sachs said in a research report.

Goldman Sachs believe oil prices may have entered the early stages of what they have referred to as a ``super spike'' period -- a multi-year trading band of oil prices high enough to meaningfully reduce energy consumption and recreate a spare capacity cushion only after which will lower oil prices return.

The analysts said resilient demand had led them to revise their super-spike oil price range to $50-$105 per barrel from $50-$80 previously, noting strength in oil demand and economic growth in the United States and China especially.

Goldman Sachs is the biggest trader of energy derivatives, and its Goldman Sachs Commodities Index is a widely-watched barometer of energy and the oil price.

Goldman pointed out thin spare capacity in the energy supply chain, and long response times for bringing on supply additions, as well as robust demand in the United States and in developing heavyweights China and India, despite the recent rapid increase in oil prices.

Goldman said the current oil market environment looked more like that seen in the 1970s -- when the oil price spiked dramatically following the Arab oil embargoes on supply to the West and Iran's revolution.

The High oil price threw the world into recession, and triggered several years of declining oil demand.

Supply growth continued unabated and bolstered spare capacity, which in turn stabilized the oil price -- a phase of the market cycle that Goldman's researchers said had only just ended.

Friday, April 01, 2005

Gold Oil Ratio



In late March the gold oil ratio hit an all time low of 7.7. The maths behind the gold oil ratio is simple, it means that an ounce of gold now costs only 7.7 times as much as a barrel of crude oil, each priced in dollars. This is an all time low in the gold oil ratio.

The gold oil ratio expresses the interrelationship between the commodity that forms the foundation of our entire global economy and the commodity that has been the ultimate form of money for six thousand years of human history.

Oil forms the foundation of the extensive global trade today and hence the world economy. Virtually everything we consume in the first world is transported via oil-powered ships, trains, airplanes, or trucks. Without oil, the incredibly intricate global logistics network on which we heavily rely today would grind to a halt. The world would be thrust back into the Steam Age before flight and global trade would implode. In this oil-powered young Information Age, oil truly is the king of commodities.

And gold always has been and always will be the ultimate monetary standard. Empires and nation states rise and fall, and history is littered with once mighty fiat currencies that became worthless as their sponsoring governments slid out of favor. But gold is the standard by which all other currencies are judged, the only real money of world history. It is highly sought after universally, it is very scarce in the natural world so its supply can’t inflate rapidly, and it is very valuable relative to the tiny volume it occupies … the perfect money.

The gold/oil ratio is such a crucial measure because it expresses the entire complex interrelationship between the king of commodities and the only timeless real money in a single data series. This ratio allows us to discern when gold or oil prices are probably out of whack and hence a mean reversion is highly likely. If we can figure out which component of this ratio is most likely to lead this mean reversion, gold or oil, then we can position trades to ride the move.

With the gold/oil ratio at an all-time low and the gold cost of crude oil at an all-time high, conditions have never been riper for a powerful mean reversion. And as tight as global oil supply and demand fundamentals are, the only practical way this mean reversion can be executed is via a massive new gold price upleg.


Read more about the gold oil ratio here.