Bullion finishes down for day, but July is its biggest monthly gain since January 2012
Spot gold was cutting early losses Wednesday afternoon after the Federal Reserve made clear that its quantitative-easing bond-buying program will remain in place at $85 billion a month. Bullion finished July up more than 6% for its best month since January 2012.
Gold had fallen about 1%, under $1,310, after positive GDPand ADP jobs reports were seen as drivers for the Fed to carry through with tapering stimulus later this year.
Second-quarter GDP unexpectedly came in at 1.7%, on predictions of 1%; however, first-quarter performance was slashed to 1.1%, from 1.8% for "to the worst miss in 27 months," Zero Hedge noted.
"The economy is expanding but growth remains disappointing," said Gus Faucher, senior economist at PNC Financial Services.
Meanwhile, the ADP private-sector payrolls report tallied 200,000 jobs, also surpassing forecasts. On Thursday, weekly initial jobless claims will be released, followed by Friday's huge July employment report from the Labor Department. With the Fed's stimulus policy linked to job growth, that nonfarm-payrolls report is the most highly anticipated data of the week.
Fed's view on economy darkens
Gold sank and almost tested the key $1,300 level on the positive numbers until the Fed's statement was released and its immediate implications processed. "The Fed said that the economy has expanded 'at a modest pace,' during the first half of the year and also noted that mortgage rates 'have risen somewhat,'" The Wall Street Journal reported. "The description of growth as modest appears to be a slight downgrade from the 'moderate' growth Fed officials had been seeing in the economy. It is the first time in at least three years that the Fed has used the term 'modest' to describe the economy in its formal policy statement."
Perhaps more significantly, the Fed warned of low inflation. "It said that inflation 'persistently below its 2% objective could pose risks to economic performance,' although it expects inflation will move back towards 2% over the next 18 months. and is also a new expression of concern in the statement,"MarketWatch reported.
Goldman predicts downward revisions ahead
What the new GDP numbers mean is that the Fed's second-half forecasts are unlikely to play out, and full-scale tapering could fade from fast-track status.
"In light of real GDP growing by only 1.4% at an annualized rate in the first half of 2013, it is unlikely that growth in the second half will be strong enough for the Fed's 2.3 to 2.6% real GDP growth projection to be realized," said Goldman Sachs chief economist Jan Hatzius. "As a result, we would expect a downward revision to the Fed's 2013 growth forecast in the September Summary of Economic Projections."
In order for the Fed to continue forecasting 2.3-2.6% real GDP growth in 2013, it must expect GDP to grow 3.2% in the second half of this year.
Rising rates can't slay gold bull
The Fed noted that mortgage rates have been rising, and so have bond yields. George Gero, vice president at RBC Capital Markets, said gold was pressured by higher Treasury yields, seen as a gauge of short-term interest rates, a stronger economic outlook, and uncertainty related to the Fed statement.
However, even if rates do rise, gold can still thrive, according to a new report from the World Gold Council on Wednesday. With emerging markets accounting for about three-quarters of gold demand yearly, higher U.S. interest rates may have less influence on gold prices than expected, according to WGC's latest "Gold Investor" report. Between October 2003 and October 2006, gold posted a cumulative return of almost 60 percent when U.S. real interest rates jumped from -1 percent to 3 percent, the report showed.
Gold "regaining its glow," say experts
With gold still holding the $1,300 level and posting its best month since 2012, more analysts are emerging to predict a stronger second half. On July 20, Barron's issued a reporttitled "Gold is regaining its glow." Steve Briese, publisher of the Bullish Review of Commodity Insiders newsletter, was interviewed. Briese says that because of bullish commercial trading trends in the Commodity Futures Trading Commission's weekly Commitments of Traders report, gold's rapid decline appears to have halted at $1,200. Both fundamental factors and "insider" trading data point to a rebound to $1,550.
And the respected analyst Don Coxe of Coxe Advisers toldBull Market Thinking: "I don't think it's a matter of if, but when, that we're going to see an upside breakout in gold. I remind you that in the '70s ... the huge breakout in gold did not occur at a time of the worst inflation. ... It's once the people lose faith in the paper money and the policies that are being pursued, [that] you get the rush into gold. ...
"The drama is unfolding where you've got this gigantic short position, and eventually the shorts are going to get scared. So it looks like from my perspective, that we've seen the low in gold, and now we're going to watch who loses the most when gold moves to the upside, which ... is virtually inevitable."
And high-profile gold bull David Einhorn of Greenlight Capital dismissed concerns that he's turned bearish on the metal. "During the gold selloff in the quarter, we sold a small amount of gold to take advantage of opportunities in gold-mining stocks that were in freefall," said Einhorn, the chairman of the reinsurer. "Overall, we modestly increased our exposure to this area, and our view towards gold has not changed."
Finally, Mark Mobius of Templeton Emerging Markets Group urged investors to hold a long-term view in a July 30Bloomberg interview. "At the long term the gold price will rise. What you're seeing is a dissonance between the actual demand, real demand, and the derivative market. And derivatives have been causing quite a lot of volatility in the market, but from a demand -- actual physical demand point of view -- it's rising. When you have this kind of situation, at the end of the day, it's physical demand that will determine the price. So we believe that from a longer-term point of view, gold prices will trend upwards."
Hedge funds raise gold bets for 4th week running, while new silver vault opens in Singapore
After rising about 9% over the past three weeks, gold easedback Monday as investors await three big news events this week: the Federal Reserve's rate announcement at the end of its two-day meeting Wednesday; the second-quarter U.S. GDP report, also Wednesday; and Friday's July nonfarm-payrolls report from the Labor Department (preceded by a new ADP jobs report Wednesday).
"Gold has found solid recent support at the $1,315 level," saidJason Rotman, president of Lido Isle Advisors in Newport Beach, Calif.
Big funds increase long positions
Gold continues to draw support from hedge funds, Bloomberg reported. "Money managers increased their net-long position by 26 percent to 70,067 futures and options as of July 23, U.S. Commodity Futures Trading Commission data show. The fourth consecutive weekly gain is the longest streak since October. Bullish wagers across 18 U.S.-traded commodities gained 7.4 percent to 615,140. Investors more than doubled bets on lower corn prices to a record net-short holding."
"Buyers are expecting that the tapering program that's been much ballyhooed won't begin quite as soon as a lot of people anticipated," said Mark Luschini, chief investment strategist of Janney Montgomery Scott. "It's been a good month in a bad year."
Huge silver vault already 30% booked
Meanwhile, precious metals remain a key focus of high-net-worth individuals in Asia, with news that Malca-Amit Global Ltd. is opening a 200-tonne silver vault in Singapore this week.
The new facility is 30 percent booked at the opening, saidJoshua Rotbart, precious-metals general manager, citing "strong demand." The storage will add to the firm's five gold-focused vaults at the Singapore FreePort.
"Gold demand is on the rise. Both from financial institutions and high-net-worth individuals who are looking for long-term storage solutions," said Rotbart, citing Singapore and Hong Kong as the main destinations in Asia.
The data bear out Rotbart's observation: "The number of high-net-worth individuals in the Asia-Pacific region expanded 9.4 percent last year, according to Cap Gemini SA (CAP) and Royal Bank of Canada."
China making massive push into solar energy
And based on news out of China, silver should enjoy incredible demand there, says Jeff Clark of Casey Research. "China raised its target for solar generating capacity to more than 35 gigawatts (GW) by 2015, a stunning increase of 67% above the previous target," he noted.
"China's State Council announced on July 4 that installed capacity for solar electricity would grow about 10 GW per year until it reaches the newly set target. The country's previous target was 21 GW; installed capacity in 2012 was about 7 GW, so this would translate into a 400% increase. Moreover, if one looks at the rate at which it keeps raising the target, we may well see even more solar capacity by 2015 -- and quite possibly two times that by 2020.
"What does this mean to us as precious metal investors? A simple answer would be that growing demand could crimp supply and push on prices."
Aussie miner sells stake to Chinese company
Though silver likely will grow in importance as a key strategic metal, China still hasn't lost focus of gold, or so the latest acquisition by a Chinese firm suggests: Australian "mining giant Rio Tinto on Monday announced that it would sell its 80% shareholding in the Northparkes copper/gold mine, in New South Wales, for $820 million to China Molybdenum. ...
Rio said that the sales agreement was conditional upon regulatory approval, and shareholder approval, and would likely be completed by the end of 2013."
Meanwhile, Russia buys gold for 9th straight month as central-bank trend supports bullion
Perhaps the single biggest bullish driver behind gold keeps growing stronger: Chinese demand for physical metal. It could hit a record 1,000 tonnes this year, the World Gold Council announced Thursday, "which means it would overtake India as the world's biggest bullion consumer."
"China will probably be the world's biggest gold consumer this year for the first time on an annual basis," the WGC's Marcus Grubb said. "That will be driven by both jewelry and investment demand. Jewelry will be the biggest overall demand segment, but investment will grow fastest."
Shanghai gold trade booming
Every day it seems like a new statistic, field report, or analysis comes out to support the council's prediction. For example, physical deliveries from the Shanghai Gold Exchange in the first half of 2013 exceeded total deliveries for all of last year, 1,198 tonnes versus 1,140 tonnes, exchange data showed, while premiums over spot prices rose above $20 an ounce.
Also, "the sale of gold and silver jewelry rose in the markets in Shanghai during the first half of the year," Diamond Worldreported. "The increase was of 57.7 percent from the same period last year, reports say. Also, the total sale of gold and silver jewelry in the country during the six months rose 29.7 percent ($25.7 billion) from the same period last year."
"Paper" gold also gaining popularity
And despite reports that China's newly introduced gold ETFs got off to a slow start, "Asian investors are keeping faith in gold funds, taking in their stride a stunning plunge in the price of the metal over the past few months, as paper gold looks to be finding a stronger foothold in the region," Reuters reported.
"In sharp contrast to Western markets, where investors made a beeline to exit gold fund investments, a net $33.5 million was pumped into Asian gold and precious metals miners' funds in the three months to June, according to data from fund tracker Lipper and Reuters calculations."
"Gold is not just considered an investment tool in Asia, it is also seen as a luxury. So when the price drops, people tend to accumulate more," said Tanawat Roongtanapirom, a fund manager at Kasikorn Asset Management, which runs the $591 million K Gold, Asia's biggest gold fund. "The trend of shifting from physical to gold ETFs is just beginning," said Kasikorn's Roongtanapirom.
Russia "ramping up" its strategic reserves
China's focus on gold also exists on the sovereign level, as rumors of Beijing backing its yuan currency with gold refuse to die out. And China has a major ally in this endeavor: Russia Beyond the Headlines (RBTH) is reporting that "China is less than enthusiastic about the dollar's status as the main global reserve currency," while "Russia is not happy about the dollar's ubiquitous role, either. ... The two emerging economies, Russia and China, have now pooled their efforts in order to make their dreams of a stronger rouble and yuan come true."
The two nations have notably been forging currency-convertibility agreements across the globe. And that's not all. "China and Russia will need to back their currencies with gold." China's demand for gold has already been demonstrated, but "Russia has also been ramping up its gold and currency reserves in the past four years," RBTH wrote.
Central banks keep buying tons of bullion
That supposition is borne out in fresh data from the International Monetary Fund, which announced that Russia expanded it gold reserves for a ninth straight month in June.
Russian holdings, the seventh-largest by country, climbed 0.3 metric tons to 996.4 tons, though it was the smallest gain since Moscow starting increasing its reserves in October.
After decades of central banks unloading gold onto the market, this new buying trend is a huge support factor for prices by shrinking available supplies. Several other nationsjoined Russia in buying bullion in June. Kazakhstan boosted its gold by 1.4 tonnes to a total of 130.9 tonnes. In addition, Azerbaijan added by 2 tonnes to a total of 8 tonnes, while Kyrgyzstan increased by less than 0.1 tonnes to 3.3 tonnes. Thus, gold remains a go-to asset as emerging nations strive to diversify away from the dollar.
Rumors of bullion-backed yuan grow as Jim Rickards predicts Beijing has amassed 5,000 tonnes
"In our base case we are looking at the gold price to reach about $2,000" in coming years and as high as $5,000" by 2020 in a bull-case scenario, predicts Yan Chen of Standard Chartered Equity Research in a July 18 Bloomberg interview. Supply crunches due to rising mining costs, central-bank buying, and -- most importantly -- continuing demand in China and India will drive gold, Yan says.
But the Chinese aren't just buying gold on the individual level. According to one source, its government also is accumulating large amounts of gold, writes Marina Maksimova in a July 17 report at Russia Beyond the Headlines.
"The People's Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point.
"The reports have not been confirmed officially, but analysts are warning that the step, if taken, will weaken the yuan and destabilise China's already troubled economy, ultimately provoking a new bout of the economic crisis worldwide.
"Beijing's possible move to back the yuan with gold would not be meant as a strategic measure to strengthen the national currency and increase its attractiveness as an investment medium. Rather, it would be a flaunt aimed at demonstrating to the world (and to the USA in particular) that China is capable of taking the risks associated with a departure from the dollar standard."
Whether or not China will take that dramatic step, one respected analyst thinks Beijing will make a major announcement about its gold holdings next year.
"If you're China, the last thing you want to do is be transparent about your gold purchases, because it will drive the price up," says Jim Rickards of Tangent Capital. "The U.S. has 8,000 tonnes of gold; 17 members of the euro system have 10,000 tonnes. China at 1,000 tonnes is not a player, but at 5,000 tonnes, they are a player.
"But I have spoken to a number of sources in Asia. I've spoken to a number of people who are very close to the physical market. I've done my own investigations. Every time I have an estimate and try to verify it, what I get back is that I'm wrong on the low side."
He expects that come April 2014, China will announce that its gold reserves have grown to 5,000.
"That should be an earthquake because even the gold deniers, the gold doubters, are going to have to sit up and take notice," Rickards says. "Either the Chinese are dopes, which they're not, or people will start to get gold, which I think they will."
If these scenarios played out, gold would go a lot higher -- as high as $4,000 in a very short time. The winners will include those who hold gold. "That's going to be a very small minority. It's a small minority today. It might get a little bit larger, but that's not most of the population."
China isn't the only Asian nation pursuing gold. After announcing that its holdings rank No. 39 in tonnage, South Korea said Monday that it will open the gold exchange next year where gold spots can be traded in the public market.
The trend is clear: Gold is very important in Asia and will continue to be, to China's advantage and perhaps at the eventual expense of the U.S. dollar hegemony that has been unquestioned for decades.
Huge physical demand amid pervasive bearishness might be setting up a massive short squeeze
Investors should be aware of a couple of key phenomena in the futures market that are affecting the gold price today and in the near future: short squeeze and backwardation.
Monday's huge rally in gold was partly driven by short covering. That means that speculators who are betting against -- or shorting -- rising gold prices on the futures market have to buy futures contracts when the price rises against their prediction.
With gold shorts near record all-time highs, if the metal continues moving higher, the rising price could possible trigger the mother of all short squeezes. "Major short squeezes are the stuff of market legends," says Adam Hamilton of Zeal Research.
According to UBS, "with gold sentiment quite negative and shorts at extreme levels, upside price risks cannot be ignored especially amid evidence of consistent physical demand. Historical seasonal patterns suggest that this is likely to strengthen later in the quarter, which in turn could prompt a short-term squeeze."
Hamilton agrees: "The bottom line is the record short position futures speculators have amassed in gold is wildly bullish for the yellow metal. These guys have a long track record of betting completely wrong at major gold lows, extrapolating major downtrends continuing indefinitely even when they've begun reversing. This grave error leads to forced buying as the rallying gold price forces the shorts to cover their hyper-bearish bets.
"And given such extreme spec gold shorts, widespread despair, and gold recently hitting the most oversold levels by far of its secular bull, it is due for a monster upleg. As this accelerates, the leveraged shorts will be forced to buy back the gold they owe at increasing rates. This will feed on itself and likely ignite a buying panic. It will very likely lead to the biggest and fastest upleg of gold's entire secular bull."
Dave Kranzler of The Golden Truth blog even sees a return to record price levels in the picture: "The combination of a severe shortage of physical gold available for delivery in Europe and Asia and the massive short position in Comex futures could well fuel a short squeeze in gold that would quickly send gold up and over the previous record price level of $1900."
Backwardation is another key concept in today's gold market. "Gold went into backwardation in comparison to the three-month futures contract in early January, meaning the spot price rose above the short-dated future contact," Reuters reported. This phenomenon suggests that "demand for physical delivery of the metal is now far outweighing supply."
"The physical market has tightened up substantially, a postulation that is corroborated by the growing premiums being paid ... and the ongoing wholesale delays in the delivery of substantial bullion tonnage," wrote Ned Naylor-Leyland of Cheviot Asset Management in a report this month. "What is happening now is that the absolutely inevitable 'run' on the 100:1 leveraged bullion banking system is truly under way."
"More and more people want their gold today, at a higher price, no matter that they can buy a future much cheaper," said Guillermo Barba, economist at the New Austrian School of Economics in Mexico. "The actual message of the backwardation is that there is behind the curtains a lack of confidence in the fiat monetary system, a de facto rejection of paper money by some people who prefer the real money. ... That's why a fall or rise in gold prices is not so relevant anymore. The monetary 'fire alarm' message, courtesy of the relationship between spot and futures prices, is: run for your gold; there is not enough for all."
Kranzler concurred: "The physical market is starting to overwhelm the paper market. The premiums reflect scarcity and greater awareness of the fractional nature of the paper market. This awareness is debasing the trust in paper currencies. Possession of physical gold (and silver) is now being valued more highly than possession of paper dollars. This is reflected in the premiums being paid all over the world for 400 oz. gold bullion bars. Wealthy entities, central banks and sovereigns are will to pay a lot more in paper currency for an ounce of gold than is being reflected by the "spot" price of physical gold (as set by the paper market)."
Where is the demand coming from? The Far East, of course, specifically China. "Physical gold delivered to buyers by China's largest bullion bourse in the first half of this year almost matched the entire amount taken from its vaults in 2012, and was more than double the country's annual production," Bloomberg reported.
Because of this demand, gold leasing rates are rising: "The cost of borrowing gold has risen to the highest since the post-Lehman Brothers scramble for supplies, as the bullion market adjusts to a new era in which western investor demand is less dominant," London's Financial Times reported.
"In London gold forward rates (GOFO) continue to be negative, which means that the market will pay you more interest on your gold than on your dollars," Alistair Macleodnoted. "GOFO is telling us that strong demand for physical from Asia has cleaned out the London market."
Get your physical gold now before your local dealer is cleaned out. Don't wait around for a potential price explosion to act. Buy low, sell high. Don't be standing in line for wildly expensive gold with every Tom, Dick, and Harry who forgot about precious metals to chase the bubblicious stock market instead. Get prepared now, just in case. China might know something that we don't.
Fed chief Ben Bernanke's renewed accommodative stance "has a put a bid under gold"
"Gold settled at $1,336 on Monday, surging nearly 3 percent as a technical breakout above $1,300 an ounce triggered a rush by funds and speculators to buy back their bearish bets,"Reuters reported.
"The metal is on track to post its biggest three-day rally in over a year, partly boosted by heavy short-covering as futures investors rolled over to December from August deliveries ahead of first-notice day next week."
Gold bears rush to cover shorts
Data from the Commodity Futures Trading Commission for the week ended July 16 showed a decline in gold gross speculative short positions from an all-time high in the previous week.
"Further short covering for gold may provide a near-term boost for prices," HSBC analyst James Steel told clients on Friday.
Fed chief puts "bid under gold"
Federal Reserve chief Ben Bernanke's testimony before two congressional panels last week continues to reverberate through the gold market, particularly his revelation that "the economy would tank" if the Fed reduces its stimulus.
"We are seeing some support for gold as Bernanke's statements tell us that the Fed wants to see a visible improvement in economic conditions before they begin tapering," Michael Cuggino of Permanent Portfolio Family of Funds Inc. told Bloomberg. "The longer-term reasons for owning gold, like capital preservation, remain as easy money will continue to flow into the system."
"Bernanke's statement has a put a bid under gold," Bart Melek of TD Securities confirmed. "Also, the weak housing data confirms the fact that stimulus is here to stay for some time."
Home sales post largest drop this year
As Zero Hedge noted: "Existing home sales dropped 1.2% month-over-month -- the biggest drop in 2013 -- against expectations for a 1.5% rise. Critically though, this is for a period that reflects closings with mortgage rates from the April/May period -- before the spike in rates really accelerated. Inventory rose once again to 5.2 months of supply (vs 5.0 in May) and you know the realtors are starting to get concerned when even the ever-optimistic chief economist of the NAR is forced to admit that 'stunningly' "higher mortgage rates will bite." With mortage applications having collapsed since May, we can only imagine the state of home sales (especially as we see all-cash buyers falling) for July."
Inflationary policies green-lighted in Asia
What were some of gold's other bullish drivers? "The People's Bank of China removed control of interest rates on loans offered by the nation's financial institutions," TheStreet reported. "Seems like anybody can go out and get smaller denominated loans, and what that's going to do is that's going to start pumping some money back into the [Chinese] system," Phil Streible of RJO Futures said, calling the move inflationary and therefore gold-bullish.
And elsewhere in Asia, "gold prices marched higher Monday as a sweeping victory for Japan's ruling Liberal Democratic Party in upper house elections over the weekend was heralded as a vote of approval for the party's economic reforms," The Wall Street Journal reported. "Prime Minister Shinzo Abe's focus on loose monetary policies have been aimed at sparking growth in the world's third-largest economy."
The yellow metal retains legions of believers from Australia to Vietnam
Despite gold's correction this year, it remains a scarce, highly valued asset around the world. These snapshots from seven different nations suggests that bullion's future is bright despite recent temporary price turbulence.
An Australian founder of the ETF industry remains bullish. Cyprus' president reaffirms that it has no plan to sell its gold reserves. Despite government restrictions on gold in India, the upcoming monsoon season looks promising. A Russian mining mogul is calling a rebound in gold by next year. South Africa's mining-industry unrest means supply will remain restricted even as worldwide demand stays strong. Several London money managers think the bull market can resume. And the Vietnamese people still see gold as their primary savings vehicle and a shield against inflation.
AUSTRALIA: Hold gold as an insurance policy, hope it underperforms the rest of your portfolio, and expect it to beat investing in gold companies over the long term: that's the advice of entrepreneur, philanthropist and BRW rich-lister and ETF Securities chairman Graham Tuckwell.
Tuckwell is credited as being one of the founders of the $1.3 trillion exchange-traded funds industry. According to the BRW Rich List, he's worth $775 million for his 50 per cent stake in ETF Securities. ...
"I'm a great believer in longer term commodity cycles," Tuckwell says. "I also thought it was a great idea from an investment perspective because so many investors had invested in gold companies in Australia and yet a lot of them really didn't create much in the way of value. ... When I analysed gold companies in relation to gold, the gold tended to outperform."
CYPRUS: Cypriot President Nicos Anastasiades said on Friday he hoped there would never be a need for the island to sell its gold reserves, stipulated in an international bailout for Cyprus.
A sale of its gold reserves is among options for Cyprus as its contribution toward an financial lifeline thrown to the island nation in March, but Anastasiades said responsibility for the issue rested with the island's central bank.
"I want to believe there will never be such a need," Anastasiades told a news conference in Nicosia. "The issue is not being discussed by the government, it is a responsibility of the central bank," he told reporters.
INDIA: "The festival season will see reemergence of demand and around that time, the harvest season will also begin and with the present state of the monsoon, it is expected to be a bumper harvest," said Gnanasekar Thiagarajan, a director at Commtrendz Risk Management Services Pvt. "Genuine physical demand is not expected to moderate due to Reserve Bank of India measures."
The monsoon, which accounts for 70 percent of the nation's rain, was 16 percent above a 50-year average during the June 1-July 16 period, according to the India Meteorological Department. Abundant rains have boosted planting of the monsoon crops, brightening prospects for a bumper harvest and increases in incomes of farmers, who invest in gold mainly as savings.
"At the end of the day, there will be imports happening because people will always buy," said Praveen Gupta, general manager for bullion at Shree Ganesh Jewellery House Ltd.
RUSSIA: Nordgold NV, the producer controlled by Russian billionaire Alexey Mordashov, said a recovery in prices for the metal to $1,500 an ounce is possible by 2014.
"Physical demand from the jewelry industry and central banks in emerging markets is still in place, although we saw an outflow of investors" from exchange-traded funds, Chief Executive Officer Nikolai Zelenski said in an interview today. He sees the price recovering in the next 12 to 18 months, "with $1,500 an ounce possible if not this year, then in 2014," he said by phone from Moscow. Gold may trade in a $1,100-to-$1,500 range for the rest of the year.
SOUTH AFRICA: The problems for the sector run far deeper than [South African mining labor conflicts], said SBG Securities gold analyst David Davis. Using the new cost reporting metrics proposed by the World Gold Council last month, the average all-in cost for the world's top five global gold mining companies was $1,467/oz in the first quarter of this year against the current spot price of $1,287/oz, Mr Davis said in a note on Friday.
By next year, about half of global production will need a break-even gold price of $2,400/oz, using a 10% year-on-year mining inflation assumption, he said.
UNITED KINGDOM: "If you need to insure yourself against quantitative easing in the developed world, or inflation issues, or growth issues in the United States, I would say gold is actually a very cheap put option on those problems," London & Capital CIO Pau Morilla-Giner told Reuters.
"Volatility is making buying into gold at these levels really quite challenging," Barings fund manager Clive Burstow said. "A big macro shock could change the game for gold ... but we think there's enough (ingeniousness) out there to get us through these problems. The trend in our view is upwards, but it is a long, slow grind up."
"The dollar will peak sooner or later, inflation will rise and (U.S. shares) will run out of steam at a time when gold will be heavily oversold," Charles Morris, head of absolute return at HSBC Global Asset Management, said. "All in all, I see a new bull market beginning within the next year or so."
VIETNAM: The target of Vietnam's campaign to stabilize its currency is in the locked bedroom wardrobe of retired civil servant Vu Thi Huong: gold bars.
"It's been my habit for ages, buying gold whenever I can save up some money," said Huong, 57, who watches the financial news every day to monitor the price of the precious metal. "With gold, I can save my fortune and later on have something valuable to pass down to my children and grandchildren."
Huong is among millions of Vietnamese who hold an estimated 300 tons to 400 tons of bullion to store their wealth -- valued at as much as $19 billion at domestic prices and equal to official U.K. holdings -- a legacy of more than a century of war, revolution and economic turbulence. ...
"These habits are deeply ingrained," said Jonathan Pincus, an economist with the Harvard Kennedy School's Vietnam Program in Ho Chi Minh City.
Led by gasoline, prices rise, but Fed still has room to keep gold-bullish policies rolling
"U.S. consumer prices rose a seasonally adjusted 0.5% in June to mark the biggest increase since February, as the cost of gasoline, housing, medical care, clothing and food all rose,"MarketWatch reported, citing the Labor Department's latest Consumer Price Index on Tuesday. "The energy price index shot up 3.4%, spurred by a 6.3% gain in gasoline. Food prices rose 0.2%."
Gold initially fell on the CPI report. Why? The increase in the core U.S. consumer price index "suggests that U.S. economy will meet both these conditions for an early withdrawal from QE," said Chintan Karnani, a bullion analyst in New Delhi.
Gold rebounds from lows
However, gold rebounded to finish the day up, above $1,390, as some analysts interpreted the CPI number as low enough to maintain Fed stimulus. "This is probably going to be a little bit comforting for some of the folks at the Fed who are worried about lower inflation," said RBS Securities economist Omair Sharif. "Inflation's still very subdued, still very well contained."
"For the Fed, the steady deceleration in core inflation pressure should continue to create a favorable backdrop for their ultra-accommodative policies," Millan Mulraine of TD Securities told The Wall Street Journal.
Too much inflation or too much deflation?
Caroline Baum of Bloomberg also sees more room to print money. "Today's report on June consumer prices, with its gasoline-driven increase of 0.5 percent, may allay the immediate concerns about falling inflation, but it's unlikely to alter the underlying theme: Four years after the end of the recession, U.S. inflation is still slowing, the Federal Reserve's money-printing operations notwithstanding. Some policy makers say the Fed is being too cavalier about disinflation."
In contrast, Alan Ruskin of Deutsche Bank said the report should "counter arguments that there is a material deflation risk."
Meanwhile, another fan of Fed money printing is Matthew Yglesias of Slate, who wrote: "Generally speaking when unemployment is high and the inflation rate is below the level you consider consistent with your long-term price stability goals what you ought to be talking about is how much looser should monetary policy be. Maybe a lot looser."
True inflation is grossly understated for political purposes
Zero Hedge, however, torpedoed the notion that inflation is low, given that prices are rising for a host of basic necessities: "For those who don't eat or use energy: feel free to stop reading now -- your inflation came in just as expected, at 0.2% up from May, and 1.6% higher compared to a year ago. However, those unlucky few who are forced to eat, use and A/C and/or commute, your inflation just saw its biggest monthly hedonically adjusted jump (don't forget the deflationary impact of that 80 inch LCD TV you have zero intention of buying), or 0.5%, since February's 0.7% and well above the 0.3% expected."
The reason that everyday prices are slamming the consumer is that the methodology of measuring inflation has been reconfigured since the 1980s, as John Williams of Shadow Government Statistics notes. "CPI no longer measures the cost of maintaining a constant standard of living" nor "full inflation for out-of-pocket expenditures," Williams argues. Why? "With the misused cover of academic theory, politicians forced significant underreporting of official inflation, so as to cut annual cost-of-living adjustments to Social Security, etc. ... Understated inflation used in estimating inflation-adjusted growth has created the illusion of recovery in reported GDP."
"Low inflation is not good for the economy"Despite the massaged figures, Ben Bernanke is using the Fed's 2% inflation target (not to mention employment figures that overstate the progress of the economy even though part-time jobs are largely replacing full-time work) as a guidepost by which to continue stimulus. "We will not raise interest rates until -- at least until unemployment hits 6.5 percent, as long as inflation is well-behaved -- again, I think as I've said before, that that 6.5 percent is a threshold, not a trigger," he said last week before the NBER in Boston. "We are all very much committed to defending our inflation target from below as well as from above. Low inflation -- I know -- I know, everyone -- it's hard to explain to your uncle, I know -- (laughter) -- but low inflation is not good for the economy because very low inflation increases the risks of deflation, which can cause an economy to stagnate."
"We expect inflation to come back up," he said. "But if that's not the case, I think we have to say that that would be a good reason to remain accommodative and to try to achieve that objective."
Hedge against inflationary risks with gold
The problem with Bernanke trying to jigger the economy is that the Fed -- a notoriously poor forecaster -- risks stoking inflationary forces that metastasize out of control. That's what inflation hawk and former Fed chief Paul Volcker said in May.
He warned against "yielding to the notion that a little inflation right now is a good a thing, a good thing to release animal spirits and to pep up investment. The implicit assumption behind that siren call must be that the inflation rate can be manipulated to reach economic objectives. Up today, maybe a little more tomorrow and then pulled back on command. Good luck in that. All experience demonstrates that inflation, when fairly and deliberately started, is hard to control and reverse."
Investors should take Volcker's warning seriously and make sure their portfolios have an allocation to gold and silver in case inflation spirals out of control from the Fed's unprecedented money printing, which will see its balance sheet approach $4 trillion by year-end. If and when monetary velocity picks up, this flood of liquidity will gut the dollar's purchasing power. Be prepared with tangible assets.
Monitor what Bernanke says, then watch what he does
Bernanke's testimony before Congress on Wednesday and Thursday will be key to fathoming the Fed's future direction. In the meantime, the CPI number "remains ambiguous, as low inflation is dangerous and would suggest the Fed could act to avoid deflation, while at the same time rising inflation gives Chairman Bernanke more arguments to begin tapering this year," noted Agustin Fontevecchia at Forbes.
"Deflation would require a stronger response from the Fed, meaning rising inflation that remains below their 2% target gives Bernanke & Co. more arguments to taper QE sooner rather than later.
Yet, inflation remains extremely low, having gone through two months of deflation during March and April, and barely rising 0.1% in May before the June jump. At the same time, the gains were a consequence of rising gasoline prices, which act as a tax on consumers. This, in turn, could limit consumption and therefore hurt the economy as businesses slow. ... Bernanke has danced around the issue, first suggesting tapering is closer than expected, then backtracking and highlighting economic weakness. Bernanke, it seems, will keep the market guessing until the last second."
