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Article by Business insider
- Central banks have bought the most gold since the end of World War II, with the commodity becoming an increasingly valuable hedge against growing global instability.
- The near-record buildup in government debt globally, particularly in the US, makes other perceived risk-free assets less attractive.
- Gold is seen to have returns similar to equities in the current cycle, and a dip in supply makes it a more valuable asset for central banks and investors alike.
Central banks have been buying up gold at a rate not seen since World War II as concerns about geopolitics and the strong dollar see a shift in appreciation for the quintessential risk-free asset.
A broad combination of factors have led to gold’s resurgence, according to the research firm Bernstein. They include geopolitical risk, concerns about government debt, supply issues, and the perception that gold gives better returns over other assets.
“Beyond just the threat of inflation, it is also remarkable that, for the first time since the end of Bretton Woods and, indeed, since the end of the Second World War, central bank buying of gold has actually increased,” a note sent to clients by the firm said on Monday.
Equally, the case for gold purchases is boosted by the near-record levels of government debt in the US, which makes other potential risk-free assets more questionable and could increase inflation figures.
Gold is trading at $1,310 an ounce, up nearly 10% from its recent low in September.
As well as its value related to inflation, gold is likely to see demand increase, while supply will stay “flat at best,” Bernstein said, boosting its value to central banks and investors alike. “As with any other commodity, robust demand and weak supply implies price appreciation,” Bernstein’s analysts wrote.
Gold holdings had been on the decline for years but have seen a clear boost recently.
Bernstein also pointed out that beyond the conversation about central banks’ holdings of gold was its increase in use over jewellery. Both private and public “monetary” holding of gold have overtaken jewellery demand as the primary source of demand growth for gold in recent years, according to Bernstein.
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Zak Mir: Small Cap Highlight ECR Minerals #ECR – Gold back in the spotlight as slowing global economic growth spikes renewed appetite
By Zak Mir, Financial Journalist
- Positive forecast for gold prices
- Australia Gold production ramp-up
- MicroCap Australian Gold explorer focus
Positive forecast for gold prices
Sharp declines in global stock markets over the past few weeks saw Gold hit a three month high as political uncertainty continues to grow across the world.
In August prices for the precious metal fell below $1,200 per troy ounce mark for the first time in more than two and a half years’, down 12% since April. The turn largely caused by the US Dollars unexpected performance and aggressive monetary policy marked it’s worst losing streak since 2013.
However, October has seen a marked turnaround in the Gold price: the yellow metal grew by 3.3% in October, and continuing into November saw $1,233 per ounce as investors and hedge funds continue selling off global equities in search of reduced risk amidst geopolitical and economic uncertainty. Safe haven demand for gold has been driven by ongoing fears of a trade war between the US and China, growth concerns in China and the ongoing Brexit saga amongst a number of other issues.
Observers have been universal in their support. Mark O’Byrne, research director at Dublin-based GoldCore said: “Safe-haven gold is again acting as a hedge and safe-haven asset, exactly when investors need one.” “Throughout its history, Gold has served as a stable, safe haven investment during times of economic slowdown and following the International Monetary Fund (IMF) downward revision of the global economic growth for next year we might see more investors buying up the commodity.”
Others have noted how the nature of intra-year seasonal cycles may are likely to lead to increase in the price of gold. The Street says “massive washouts like the one we’re experiencing in gold right now are the fathers of subsequent rallies”.
Speaking on the Bloomberg Markets podcast Ruth Crowell CEO of the London Bullion Market Association discussed how the groups Annual Gathering this year predicted the most bullish forecast since 2012 with a forecast of $1,585 per ounce for next October. Ruth explains that this years price is reflected by ‘the macroeconomic outlook, ultimately talking about a lot of concerns’. Meanwhile a poll conducted by Reuters this month they found that of the 39 analysts and traders polled they expected gold prices to average $1,300 an ounce in 2019.
Australia Production Ramp Up
On the supply front, according to Bloomberg the world’s largest miners look set to increase spending for the first time since 2013 while the value of sector M&A activity has hit the highest levels in six years.
As a result, Gold production looks to set for further ramp ups through the end of 2018 and into 2019.
In particular production in Australia, the world’s second-largest Gold producer, may rise to a record this year and next as a stream of new projects come on line. Comments from Australian mining consultancy Surbiton Associates in the Sydney Morning Herald highlighted how Australian gold miners, among the lowest cost globally, have enjoyed high margins in recent years, with output boosted by the strengthening US dollar, which has in turn ‘supercharged’ Australian dollar prices.
MicroCap Australian Gold explorer focus – ECR Minerals
While the giants such as Newcrest Mining, AngloGold, Newmont Mining and Barrick Gold Corp tend to dominate the headlines, this upturn in sector activity has seen a marked increase in funding for small and microcap Gold exploration companies. Following a strategic financing round in July 2018, microcap Gold exploration company ECR Minerals has delivered a steady stream of exploration news updates, which has resonated among institutional and retail investors during Q3. ECR are conducting exploration activities across their numerous projects in Victoria, which is by far the most accessible and productive area of gold in Australia. In the 70 or so years from the 1850’s until the 1920’s, approximately 2,100 tons of officially recorded gold was recovered from Victoria and today it continues to be a favourite area for metal detector prospecting.
Listed on London’s AIM market, ECR’s exploration projects underway include Avoca, Bailieston, Moormbool and Timor gold projects in Central Victoria.
In mid September, ECR announced that it had ‘identified eight principle targets within the Company’s five exploration licence areas’ and had developed an exploration programme ‘designed to test surface gold mineralisation across the licence areas.’
At the end of September the Company confirmed gold mineralisation, with 22 samples from 76 containing gold grades ranging from 0.5 g/t to 67.4 g/t (2.17 ounces per ton). Their second assay results proved positive too, with 29 samples delivering gold mineralisation ranging from 0.56 g/t Au to 22.9 g/t Au;
ECR’s next rock chip sampling results will come from the Creswick area, where prior mapping has revealed a large gold system. Sounds promising.
So whether you’re buying bullion, investing into Gold majors as a proxy for the yellow metal or speculating on Microcap Gold explorers, the shiny near term outlook for Gold, and in particular Gold explorers operating in Australia looks unlikely to be tarnished
Gold has a bad reputation among some investors. The shiny metal has long been seen as “the investment choice of the cranky and the fearful”, says Andrew Bary in Barron’s. It yields nothing, and in the words of Warren Buffett, it just “looks at you”. It has certainly fallen out of favour this year. The price has fallen by 11.2% since 22 January to just under $1,200 an ounce – that’s more than 35% below its peak of $1,900 in 2011.
As a result, however, gold looks “inexpensive”. This may prove a good time to top up your holdings in this out-of-favour asset class. Investors should hold 5%-10% of their portfolio in gold.
Hedge against higher prices
For one thing, inflation is beginning to pick up around the world. The yellow metal has served as hedge against inflation eroding the value of stocks and bonds. “Gold was $20.67 an ounce 100 years ago and that bought a good men’s suit,” as Bary points out. “At $1,200 an ounce, the same is true today.”
It has also done well in times of crisis – used as a safe haven for centuries, it’s an asset that tends to thrive on bad news. Gold rallied by 17% in the six months after Lehman Brothers collapsed – a time period when the S&P 500 fell by more than 40%.
Gold is rare – all the gold mined in the world would fit into two Olympic-sized swimming pools – and that makes it valuable. Annual new mined supply adds less than 2% to the global total, so it’s not easy to boost supplies of gold quickly. With paper money, on the other hand, the printing presses can produce more in minutes. That’s why “people have historically viewed [gold] as a hedge against government depreciation of local currency”, Keith Trauner of the GoodHaven fund management group told Barron’s.
Cryptocurrencies have been touted as an alternative to gold, as it is also expensive to mine more of them. But bitcoin, which dropped 55% this year, remains highly volatile, and it’s still very difficult to trade. According to some, meanwhile, gold’s role in protecting against inflation may have been overstated. “If you strip out the 1970s, you find the relationship between gold and inflation is quite weak,” Brian Lucey, professor of international finance at Trinity College Dublin, told Reuters.
“That is because you have a very different inflation regime in the late 1980s and 1990s than you had in the 1970s.” Back then, double-digit inflation was the norm. “We’re not going back to that.”
But prices are set to rise as labour markets tighten, and central banks are poor at containing inflation. There are also still plenty of investors scarred by the 1970s, which bodes well for demand. This week’s big gold merger (see page 9) should also spur interest. Time to stock up
With both stocks and US Treasury prices at all time highs the market is sensing that something has to give, and that something may just be more QE, which likely explains the move higher in gold to coincide with both risk and risk-haven assets. As of moments ago, gold rose above $1,370, and was back to levels not seen since 2014. Curiously, the move higher is taking place after Friday’s “stellar” jobs report, suggesting that someone does not believe the seasonally-adjusted numbers goalseeked by the BLS.
And while we reported last week that one way investors are rushing into the anti-QE safety of gold is by buying paper gold derivatves such as ETFs, which rose above 2,000 tons for the for the first time since 2013, many others have bypassed paper claims on gold such as GLD entirely, and are rushing into physical.
Case in point, Japanese savers who, fearing domestic confiscation, have been accumulating gold in Switzerland. It’s not just the Japanese: as Nick Laird shows, the past week saw the second largest ever increase in physical gold holdings, as the total published holdings of physical funds rose by 2.5 million ounces to 85.8 million, second only to the 4 million ounce increase in early 2009.
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Excerpt from Market Watch article by Myrap Saefong and Rachel Kong-Beals
Full article here
Interest-rate policy can influence demand for nonyield-bearing assets like gold, putting them in competition with those offering yields. The cautious path for both central banks has bolstered the case for continued bullish bets on metals.
The Fed seems likely to take no action on rates while “data continue to present a mixed picture of the economy,” said George Milling-Stanley, head of gold strategy at State Street Global Advisors. So the market will probably “suffer bouts of uncertainty ahead of future Fed meetings this year.”
George Milling-Stanley, State Street Global Advisors. “In the continued absence of any surprises from policy makers, the gold price could still see further gains in 2016,” he said. “A price of around $1,350 by year-end could be sustainable.”
Rounding out metals trading, July copper HGN6, +1.99% rose less than a cent, or 0.3%, to $2.232 a pound. July platinum PLN6, +1.32% rose $25.30, or 2.5%, to $1,050.70 an ounce, while June palladium PAM6, +0.74% added $14.70, or 2.4%, to $624.35 an ounce.
Meanwhile, the iShares Silver Trust SLV, +1.43% the world’s largest physically-backed silver exchange-traded fund, marks its 10th anniversary Thursday. According to the Silver Institute, it accounts for 94% of all U.S. silver ETF holdings. It was trading 2% higher Thursday.
Watch the TipTV Daily Market Roundup with Brand CEO Alan Green & Zak Mir. Stocks discussed include ASOS (ASC), Michael Page Intl (MPI), British American Tobaccos (BATS), Just Eat (JE.), ITV (ITV) plus the outlook for Gold.
Looking at the surge in most commodity prices since Christmas indicates that the world is on the verge of a new economic boom but it does not smell like that to me. Every bear market has its rallies and this is the grandaddy of all bear markets so a major rally should not have come as a surprise, except to the experts, commentators and industry big wigs who, having failed to forecast the long slump, got it wrong again and failed to anticipate the present rally.
Oil rallied by 50% in February and March but oil statistics are notoriously unreliable especially in emerging market countries. 800,000 barrels of oil go missing every day and nobody knows why and nobody knows where but disappear they do. Storage levels are expected to come down but even they are inaccurate and are not as high as generally assumed. Non Opec oil supplies are expected to contract this year for the first time since 2008.
One oil expert forecasts that Brent crude will reach $85 per barrel by the end of this year, whilst the majority claim that the Saudis will keep prices at between $35 and $45 per barrel for the rest of the year. The truth is that the Saudis still control the price of oil. They have forced the closure of 1,000 rigs in the US alone and they want to keep it that way. Rigs generally break even at $40 – $45 per barrel. The Saudis still have the punch to keep the price at under $40 per barrel to ensure that those US rigs remain closed whilst it gets a price at which it can survive..
So there you have it. The price of oil for the rest of 2016 will be somewhere between the high thirties and $85 per barrel but what reason is there for the rally to continue.
Iron ore is firmly in a bull market and has soared by 44% since mid December. The Australian government has forecast iron ore at $56 per tonne in 2017. Despite gloom about the Chinese economy, China’s imports of iron ore are still growing and this year, will for the first time, reach 1 billion tonnes.
In the first 3 months of 2016, gold has risen by 15%, its largest quarterly rise in 30 years but now it looks as if that rally is beginning to stall.
However you look at it, its a guessing game but looking at the real world in which most of us have to live, it does not feel that we are on the verge of a new golden age of prosperity.
In February Canada sold off all its gold reserves, leaving just a tiny 77 ounces as a keepsake. In fact Canada had been slowly selling off its gold reserves since 1965 but this final divestment came as something of a shock, reminiscent of Gordon Browns 3 year fire sale of the UK’s gold reserves for which he received a miserly $275 per oz. Out of 100 central banks Canada now ranks 100th, behind Albania at 99th. If the UK had kept its gold reserves they would now be worth $16 billion even at todays reduced prices.
Maybe Canada thought gold, which at the beginning of the year was forecast to slide down to about $900 per oz before the end of the year, was a no brainer. Instead it has now surged to $1269. Why couldn’t Canada have waited just one month, for its sale.The answer may be because the world was panicking and the price of all commodities were collapsing like a badly built house of cards.
This was not just a price adjustment as global economies weakened, it was a rout which had gone on month after month as commodity prices fell to unbelievable levels. Until January we were in a commodity slump the likes of which had not been seen in a lifetime, except that strange signs were beginning to appear. In 3 months the price of iron had risen by 69% from the days of doom and devastation which had seen the price slump to $37 per tonne.
Then on the 8th March the world went crazy. Iron ore enjoyed its largest ever one day rally with a rise of nearly 20% taking the price up to $62 per tonne. Out came the champagne as other commodities joined the party. But the cork was soon back in the bottle. Only 7 days later iron ore had dropped to $51.70 and on the 8th March came the big collapse with a one day fall of 7%. The party, not surprisingly, was over.
Can world economies survive this unexplained volatility in the prices of its main commodities. The world fears and faces deflation, so gold, the hedge against inflation surges.There is a huge surplus of energy, so oil surges. It looks like everything has surged and nobody knows why. Is the real reason for such irrational behaviour, panic, fear of being caught short, fear of being caught long, fear of not being seen at the party.
The Chinese have at long last officially admitted that their economy has crumbled and that their growth statistics were a mere fiction. Nobody still knows the real truth about the Chinese economy, the worlds powerhouse and thus commodity prices rise and fall violently as hope replaces despair, almost on a daily basis.
The world’s central banks have used their last round of ammunition in attempts to stave off deflation and it has not worked. The cupboard is bare, more panic. When overnight panic buying, replaces overnight panic selling, there is a major problem.
Have we now seen the last throw of the last dice in the last chance saloon. I think so.
by Debbie Carlson at The Guardian
China is wobbling, oil is plummeting, Britain is threatening to quit Europe. And the gold bugs couldn’t be happier. With a 15% gain in 2016, gold’s rally has its diehard fans excited. But for how long?
This is the metal’s best start since 1980, when gold prices rallied about 270% to then all-time highs of $850 an ounce on an oil-supply shock crisis and raging inflation. This year gold prices are higher on worries over economic weakness in China and Europe, and the Bank of Japan’s surprise move to negative interest rates.
All the bad news has stoked some concerns of a recession, if not a full-blown economic crisis, like in 2008. After that meltdown gold prices doubled, lifting values to more than $1,900 by 2011, a nominal all-time record.
Gold prices ended 2015 in a funk, but the global stock markets’ shakiness and global economic worries “were just what the doctor ordered for gold bulls”, said Sean Lusk, director of the commercial hedging division at Walsh Trading.
Gold bugs dream of a time when the metal’s value will soar, lifted by economic doom and hyperinflation from central banks’ extraordinary monetary policy to revive global growth. Gold bugs’ dreams have been deferred, but will this time be different? Is the yellow metal’s current strength a harbinger of another move like 1980 or 2011?
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By business reporter Emily Stewart
Gold prices have dipped today as markets rebound, but this year the precious metal has seen a meteoric rise.
“In US dollar terms the gold price is up around 15 per cent, currently trading around [the] $US1,250 an ounce mark,” said Jordan Eliseo, the chief economist at ABC Bullion.
“In Australian dollars the performance is even better. We’re now back above $1,700 an ounce, up the better part of 20 per cent for the year in just six weeks.”
Gold enjoyed the biggest rally in more than seven years last week, rising 5.5 per cent on Thursday alone.
After peaking at almost $US1,900 in 2011 the gold price has been on the slide until this year.
“Certainly from a macro perspective, gold is the go-to at this point in time,” said Taylor Collison resources analyst Ryan Armstrong.
“The market has seen a real deterioration in recent weeks.”
Central banks are driving a lot of the demand for gold as they diversify away from the US dollar.
According to the World Gold Council, banks have bought over 336 tonnes in the second half of last year, an increase of 25 per cent.
The US has the biggest reserves at over 8,000 tonnes.
However, it is not just central banks buying up gold.
China is the largest market for bullion and coins in the world as consumers look for a safe haven due to the weakening yuan.
“We’re also seeing institutions and the like starting to adopt gold into their portfolios and in Australia the biggest increase in demand is coming from self-managed super funds,” said Mr Eliseo.
“Where if I look at our business as an example, demand is running at six times pre-GFC levels.”
Australian mines produce around $15 billion worth of gold each year and the vast majority of it is refined at the Perth Mint.
Full ABC News article here