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Major emerging economies are seeking to raise their central banks' gold reserve holdings as fears of a sharp depreciation in the U.S. dollar mount, senior industry officials said on Monday.
Investors have been piling into gold as a safe haven as the the world's worst financial crisis since the 1930s depression sent global stock markets crashing.
"What we are seeing is a reassessment of the risk associated with the high exposure to the dollar. Obviously at the moment you see the dollar appreciating 25 to 30 percent against most currencies around the world, but a lot of that is obviously driven by liquidity."
European central banks, which hold about half of global gold reserves, saw gold sales fall to their lowest levels since 1999, according to Grubb as governments store the precious metal as a buffer against worsening markets.
"Sales were underneath the Central Bank Gold Agreement (CBAG) cap ... the cap was about 400 metric tonnes and I think they sold 356 tonnes ... something is going on."
Jim and Michele discuss the recent activity in Gold, the gravity defying dollar, and the disintegration of the economy.
In the past, hedge funds, which depend on absolute returns to earn high fees, had avoided gold because it does not produce any yield and costs money to store and insure. But those issues have become less important as central banks have pushed interest rates to nearly zero, reducing the yields on currencies.
Hedge fund investors who made money last year by betting against investment banks are now buying gold as a way of betting against central banks.
The gold bulls include David Einhorn, founder of hedge fund Greenlight Capital, who last year came under the spotlight for his short selling of shares in Lehman Brothers, after arguing that the bank did not have enough capital to offset its exposure to falling property prices. Other funds looking at gold include Eton Park and TPG-Axon, investors said.
Investors such as Mr Einhorn are turning to gold because they are worried about the response of the US Federal Reserve and other central banks to the global economic crisis. A bet on gold is essentially a bet against all paper currencies.
“The size of the Fed’s balance sheet is exploding and the currency is being debased. Our guess is that if the chairman of the Fed is determined to debase the currency, he will succeed,” Mr Einhorn wrote in a recent letter to his investors. “Our instinct is that gold will do well either way: deflation will lead to further steps to debase the currency, while inflation speaks for itself.”
Mr Einhorn’s comments – and the revelation he is buying gold itself – are in line with the views held by other large institutional investors in Europe, according to bankers in London. The head of commodity sales at one major bullion bank told the Financial Times that he had never been so busy dealing in gold for large investors in his life.
Silver prices are poised to outperform gold while moving dramatically higher later this year due to increasing investment demand, attendees of the world’s largest mining conference in Toronto were told earlier this week.
Speaking at the Prospectors and Developers of Canada Association (PDAC) annual convention, German investment fund manager Oliver Frank told a packed room at the “Accessing European Capital” forum that silver will likely end the year in the $25 range. This bold projection is almost double current silver prices.
A late 2009 surge in pent-up buying demand, particularly among Europeans, will prove to be the catalyst to silver reaching historic new highs, added the CEO of the Butzbach-based investment fund, Silver Capital AG.
He also believes that heightened global investment demand will also help gold to breach the hallowed $1,500 mark by year’s end – an appreciation of about 60% over its March ‘05 spot price close.
Yet, he believes silver should enjoy a bigger percentage boost in value because physical demand has been consistently outstripping supply in recent years.
“In Europe -- Germany in particular -- everyone is trying to buy silver bars and coins, rather than gold, but there just isn’t the physical supply available. Global above-ground inventories are severely depleted. So, people these days just can’t get their hands on enough silver,” Frank said
He added that all of these developments will prove to be a boon to ‘emerging primary silver producers’ (ones that don’t extract silver merely as a by-product of gold or base metals mining). This is especially the case now that silver is about to establish a sustained trend reversal, he predicted. It will lead to silver revisiting the $15 level over the next three months, before re-establishing its $20-$21 highs of 2008 by late summer.
Singapore's GIC sees more distress in markets
SINGAPORE, March 10 (Reuters) - An official from the Government of Singapore Investment Corp (GIC) said he expects more weakness in financial markets in the next 12-18 months, and recommended investors hold gold and other safe assets such as government bonds.....
10 March 2009 - Consolidated financial statement of the Eurosystem as at 6 March 2009
Items not related to monetary policy operations
In the week ending 6 March 2009 the decrease of EUR 37 million in gold and gold receivables (asset item 1) reflected the sale of gold by one Eurosystem central bank (consistent with the Central Bank Gold Agreement that came into effect on 27 September 2004) and a purchase of gold by another Eurosystem central bank.
Originally posted by questioningall
I predict - the July period......... when it shoots up for good.
More importantly, silver is in backwardation in London, one of the major markets for trading physical silver. I first drew attention to this phenomenon in my alert on February 15, 2009, noting therein that "silver has been in backwardation since January 21st". Unbelievably, silver is still in backwardation - an incredible and to my knowledge, unprecedented 38 trading days in a row!
What's more, the backwardation is not just one or two months forward. It presently extends three months forward, but during this period silver has been in backwardation for as long as twelve months forward, which is truly phenomenal - and exceptionally bullish.
One can only reasonably conclude that there is considerable stress in the market for physical silver.
Backwardation means that people are increasingly demanding real, physical metal, and not paper promises. It also means that people are starting to doubt the promises of the silver shorts, namely, those banks that have promised to deliver silver at specified future dates. Finally, it means that these banks have made promises to deliver metal that in the aggregate are greater than the physical silver they actually hold. If that weren't true, these banks as well as other holders of physical silver would sell what they own in the spot market in exchange for a futures contract, profiting from the difference in this price disparity. In time, their transactions would eventually eliminate the backwardation. But the backwardation has not been eliminated. Thus, given that the backwardation has remained for 38 days, one can only conclude that there exists an acute shortage of physical silver.
Backwardation is an abnormal state for the precious metals, and markets do not tolerate abnormal states. Arbitrageurs step in to profit whenever markets create unusual opportunities, like the one now existing in silver. But the backwardation prevails. No one is stepping in to sell physical silver in exchange for future delivery, so there is only one possible conclusion. There is not sufficient physical silver available at current prices to meet demand. So unless the shorts can somehow come up with the physical silver they need to meet their obligations to deliver and thereby relieve the backwardation, the price of silver needs to climb higher. It needs to rise high enough to induce holders of physical silver to sell their metal, which the shorts need to buy to meet their obligations to deliver.
"A very good friend in the City today (I've known him for circa 25 years--he is dean of London bond analysts and well informed, spoke with someone he knows in Zurich about precious metals. Zurich friend told Steve that the Fed and Bank of England have been borrowing gold from the ETFs to desperately suppress gold price cuz if it breaks out (presumably above 1000 significantly) 'the game is over'. Same Zurich source also said silver is poised to literally explode at that point."
Fed Move Puts ‘Strong Bid’ Under Commodities, Gartman Reports
March 19 (Bloomberg)
....“What the Fed has done is put a strong bid under the commodities such as copper, steel, perhaps the grains, perhaps too energy, but most certainly the precious metals for the long and foreseeable future"....
We also cannot ignore that the largest of the largest gold futures traders, the traders classed by the CFTC as commercial, have been reducing their collective net short positioning at a fast clip and those same commercial traders now hold a really quite small net short position for silver historically speaking (Gold Newsletter subscribers see the Gold COT and Silver COT sections for much more about that).
The bottom line for this report is that while momentum still probably indicates the path of least resistance is for lower gold and silver very short term, both are reaching levels that are much more attractive for longer-term investors. In the case of silver specifically, a bona fide global shortage of the second most popular precious metal looks to be getting underway.
Regardless of whether or not the net short positioning of the U.S. banks represents “legitimate hedging” of corresponding long positions in other markets, as some analysts and the CFTC have argued, it is abundantly clear that these two banks dominate the COMEX silver market from a short point of view. A position capturing 96% of all the action on one side of a market as small as the COMEX silver market is, by definition, an extremely concentrated position.
The fact that the banks held only short positions and no long positions at all argues against the position being the collective action of multiple clients of the banks. The one-way trade on the COMEX also suggests that the banks have a considerable vested interest in silver trading in one direction – down.
Notice, however, that the last time that the two U.S. banks held so much of the net short positioning was in December 2008, with silver then trading at $9.57 the ounce. The banks then held 98.6% of all the commercial net short positioning on the COMEX. Silver went on to test as much as 50% higher to the $14.60s since then.
The enormously concentrated short positioning of the two large U.S. banks may not be sinister at all. It may be the result of “legitimate hedging” as we have been led to believe. Indeed, we have seen the price of silver advance in the past while the banks held such overwhelmingly large, one-sided short positions that would obviously have benefited from lower silver prices – even recently. Yes, even though the bank’s net short positioning appears sinister, it could possibly be benign, but to many analysts it just plain smells of rotten eggs served with anchovies.
So long as the regulators at the CFTC and the SEC continue to allow the banks to accumulate overwhelmingly large one-sided positioning on the short side (and to go unexplained) it will remain grist for the mills of the conspiracy-minded among us. That is a shame, because otherwise bright and sensible investors may end up avoiding the silver game entirely on the basis of conspiracy-minded complaints, concluding that the silver game is “rigged,” or something along those lines.
With the silver futures contango as flat as a slate pool table, rapidly dropping silver inventories at the COMEX, with the COMEX commercials apparently in a hurry to reduce their net short positioning and with extremely high premiums and spotty availability for retail physical silver products, we have to give silver a more bullish bias going forward.
A number of different factors have converged, creating what could be a lift-off point for the price of silver (and gold). This confluence of readily verifiable factors shows the silver market to be in a low risk and high reward situation. The factors involve both the paper and physical silver markets. The only question, as always, is if the manipulators, led by JPMorgan and protected by the CFTC, can thwart the set up once prices rally.
The structure in the paper markets, as defined by the CFTC’s latest Commitment of Traders (COT) and Bank Participation Reports, as well as the year-end OTC Derivatives Report by The Office of the Comptroller of the Currency, are extremely bullish on any objective historical basis. This means that the commercials, as a whole, have a greatly reduced total net short silver position after the recent engineered sharp sell-off. Normally, when the commercials have forcibly liquidated as many leveraged longs as possible, prices stop declining and begin to rally. This is the rhythm of the market.
Despite the big reductions in net commercial short positions, the ongoing manipulation in silver (and gold), based upon a freakish short concentration, is still evident. If anything, the short concentration has grown more extreme. In COMEX gold futures, the four largest shorts hold more than 98% of the entire commercial net short position. In other words, without the 4 large shorts, there would be little or no commercial short position in gold futures at all. Bank Participation Report data show that three or less U.S. banks are the big shorts, while foreign banks are net long.