Rabu, 7 April 2010

Paper Gold: Prudent Investment or Paper Dream?

Almost all market and bullion analysts in the recent years harped on a new investment option — the Gold Exchange-Traded Funds (ETFs). Till a decade ago, there were no easy options to invest in gold like the equities market. Realising this, innovative people brought out the gold ETFs to make gold investment easy for investors. The development of the gold ETF market in 2003 changed the way people invested in bullion.

Now, gold ETFs are an efficient way to invest in gold without dealing with the troubles of holding the physical metal.

Gold ETFs are traded just like shares of stock. You can buy and sell a gold ETF just as easily as shares of any company. And they trade on major stock exchanges including New York, London, and Sydney. However, some gold ETFs buy and hold the physical bullion, while others invest in futures contracts.

But when the gold ETFs came into the market, nobody anticipated a fraud will spoil the image of ETFs within 10 years of its existence. So, last week, when the Commodity Futures Trading Commission (CFTC) heard a case regarding manipulations in bullion market by gold cartels, the gold ETF scam hit the investors like a bolt from the blue.

Now, the gold ETFs’ image is at stake. Soon, investors are set to question the credibility of the gold ETFs. The reason is the facts emerged during the CFTC hearing.

The whistle-blower in this biggest gold fraud was Andrew Maguire, an experienced precious metal trader in London. In an riveting interview (which is available on the internet all over the world) with GATA director, Adrian Douglas, Maguire describes a new dynamic impacting gold. The fact is that, there is a huge short position in the market.

The CFTC hearing confirmed what GATA has been saying all along, that the gold market is being manipulated. And, how? The gold cartel has accumulated a huge short position and the huge short positions are ‘naked’, which means these positions are not hedged. There is 100-times more paper-gold outstanding than physical gold.

So, if you are buying ETFs, be sure that there is no gold guarantee for your piece of paper which offers you the ownership of some specific quantity of the yellow metal. In reality, it is just a piece of paper which you bought paying huge sums.

Recently, the World Gold Council reported that the world’s total gold ETF market grew 85% relative to 2008.

During the hearing Adrian Douglas of GATA said: I would just like to make a comment. We are talking about the futures market hedging the physical market. But if we look at the physical market, the LBMA, it trades 20 million ozs of gold per day on a net basis which is 22 billion dollars. That’s 5.4 Trillion dollars per year. That is half the size of the US economy. If you take the gross amount it is about one and a half times the US economy; that is not trading 100% backed metal; it’s trading on a fractional reserve basis. And you can tell that from the LBMA’s website because they trade in “unallocated” accounts. And if you look at their definition of an “unallocated account” they say that you are an “unsecured creditor”. Well, if it’s “unallocated” and you buy one hundred tonnes of gold even if you don’t have the serial numbers you should still have one hundred tonnes of gold, so how can you be an unsecured creditor? Well, that’s because its fractional reserve accounting, and you can’t trade that much gold, it doesn’t exist in the world. So the people who are hedging these positions on the LBMA, it’s essentially paper hedging paper.

Bart Chilton uses the expression “Stop the Ponzimonium” and this is a Ponzi Scheme.

Gold to "Reach $1375 in 2010"

Target bak peluru ini telah dibuat oleh John Licata yang pernah mengendalikan Nymex, Dow Jones, Smith Barney and Brokerage America. Beliau berpengalaman selama 14 tahun di Wall Street.

Isnin, 5 April 2010

China's Gold Demand

The HIGHLY RESPECTED World Gold Council has issued a report on the Chinese gold market, notes Julian Phillips at Gold Forecaster.

In it, the mining-backed marketing and research group points out that local Chinese consumers are well aware of gold's benefit as a store of value and that jewelry has always been regarded by Chinese buyers as an investment.

Like Eastern gold demand in general, the Chinese want gold, not diluted gold, so at least 80% of total gold jewelry demand in China is accounted for by 24-carat gold.

Chinese jewelry demand has averaged 250 tonnes of gold per annum over the past ten years. Total jewelry plus bar hoarding demand has averaged 3,355 tonnes over the same period, giving China an average market share of just over 7% of total. Last year, jewelry demand grew, in contrast to the rest of the world, by 6% year-on-year to reach 347 tonnes, which was equivalent to 21% of world jewelry demand.

This works out at 0.26 grams per capita, substantially lower than other areas with a similar affinity to the metal, such as the UAE, Saudi, India, and other parts of the East Asian continent. This is accounted for not only by the still very low level of income earned by the average Chinese citizen, but by the immature nature of the Chinese gold market.

The gold market has to follow wealth development, which starts in the towns and cities. While the economy is growing rapidly it is only at a 'young' stage, with vast increases still to come. Within 10 years we believe two-thirds of the Chinese population will live in towns and cities, leaving one-third still in the countryside feeding the urban population. But of greater importance will be the speed with which disposable income will rise. China's appetite for gold will rise alongside the rise in disposable income, as will the level of gold off-take.

This is augmented by the high savings ratio of the Chinese, together with a lack of alternative investment vehicles. This is an explosive formula for gold demand.

Just think of it, when a company is just below break-even point a rise in profitability through that level, to moderate profits is the most dramatic event a company can experience. Thereafter, similar rises in profitability mean a steadily lowering of percentage increases in profitability. So it is with an individual.

The first thousand Dollars above one's needs is a heady amount, the second not so dramatic. Now apply that principle to China and its 1.4 billion people. The pace of growth in the gold market is set to explode in the years to come and, with all due respect to the WGC's report, should explode far more than a doubling in 10 years. Just look at the growth of its car market. We expect the same in its gold market.

Net retail investment in gold in China in 2009 was 81 tonnes, up 22% year-on-year. China thus accounted for 43% of the world total in that category last year. Coins and bar hoarding have been growing strongly in recent years and we believe will jump almost on an exponential rate in the years to come.

Like Indian gold owners, gold represents financial security, so we agree with the WGC when they say that Chinese investors are much less likely to sell into strength than some of their counterparts elsewhere in the world.

On an institutional level gold is finding favor as well. The China Investment Corporation is moving into commodities and real estate and recent filings with the SEC show that the CIC took a 1.45 million share stake in the SPDR® Gold Shares Fund in New York (equivalent to 4.5 tonnes) in the fourth quarter of last year.

On the immediate front, a trend over the last few weeks has been that the Gold Price rises in Asia time and is pulled down in London and early New York time. We expect remarkable growth in demand from China in the years to come, which by itself, will support present prices and take them far higher in times to come.