In Nervous Market, Gold Gains Respectability

Byron Wien, the investment strategist, has been forecasting the future for decades. But this is the first year that he has officially recommended gold in his model portfolio.
And at the beginning of this month, Mr. Wien, vice chairman of Blackstone Advisory Partners, said he was maintaining his 5 percent allocation to gold for next year.
The metal has become the insurance policy of choice for many sophisticated investors. Even among those who were never gold bugs, there is now a belief that it has its place in a portfolio.
Mr. Wien’s view comes despite the fact that gold, which was up 29.5 percent in 2010, was up an additional 20.7 percent at the end of October of this year, according to Mr. Wien’s most recent report — nearly double the increase for real estate, the second-highest increase among Mr. Wien’s recommended asset classes.
His decision to continue recommending gold comes even while some investors feel that after such a steep run, prices may fall. The returns reflect the hard reality that as governments print money, thereby debasing the value of their currencies, gold still looks like a sensible option.

Central bank gold buying to rise from 142 to 450 tons in 2011 says World Gold Counci

Purchases of gold bullion by the central banks of the world will rise from 142 tons last year to 450 tons in 2011, predicts the World Gold Council. However, gold industry experts are still expecting a pull-back in gold prices as global equity markets fall sharply over the next two months as the eurozone crisis comes to a head.
IMF data shows that the central banks of the world added a net 142 tons of bullion to their reserves last year. The tripling of purchases this year has added to the upward pressure on the gold price helping to make gold the second best performing commodity after gasoil.
Price rises
Bullion is up 19 per cent at the time of writing, despite a fall back to around $1,680 from a peak of $1,923 an ounce. Holdings by exchange traded funds in gold rose by 79.5 tons in November alone, the best monthly inflow since July. The combined holdings of the so-called paper-gold ETFs is now higher than all but four of the world’s central banks.
Bloomberg also highlighted the bullish position in the futures market where the price is set. That said the price of gold fell by 3.5 per cent last week as the S&P lost 4.7 per cent in its worst Thanksgiving Week since 1932.
There is a high correlation between movements in all major asset prices at the moment. Basically falls in stocks trigger margin calls and that means that investors also have to dump other assets like gold too.
Equity markets
Therefore if global equity markets continue to weaken over the next couple of months – and there is nothing on the horizon at the moment to suggest a reversal is coming – then gold and silver will also decline in value.

Euro debt crisis could launch gold to record highs above $2,000/oz

Gold has confounded market watchers by refusing to behave like a safe-haven and instead has tracked equities over the past few weeks, but the escalating European debt crisis could see bullion ditch its risk-asset mantle and return to record highs.
The debt problems of some of the smaller euro zone states have mortally wounded the premierships of Greece's George Papandreou and of Italy's Silvio Berlusconi and hounded the euro to one-month lows against the dollar and eight-month lows against the pound as confidence evaporates over the ability of Europe's leaders to stem the spread of the crisis.
Gold has risen 4 percent this month, having touched its highest in 7 weeks above $1,800 an ounce this week, still back from the $1,920.30 record reached early in September, but pointing towards $2,000 judging by current options positions.
Unlike previous phases of market turmoil, such as the aftermath of the 2008 collapse of U.S. bank Lehman Brothers, when gold lost as much as 7 percent in a single day, or during this May's commodities "flash crash" that stripped 3 percent off the price in two days, investors and analysts say gold looks unlikely to be sucked into a vortex of mass selling.
"Whenever you get total panic, even gold goes down, because people take profit on their gold positions. When people start losing money very rapidly, they close down all positions including the ones that are sitting on a profit," said Jesper Dannesboe, senior commodity strategist at Societe Generale.
"That's why you had that gold sell-off in September, when everything was in panic mode. You don't have quite the same panic mode right now. It's (an environment of) moderately bad news and that tends to be bullish for gold," he said, although no-one is yet placing bets on what happens if the euro melts down.
CASH FOR GOLD
In periods of extreme risk aversion and volatility, gold can hitch itself to more growth-dependent assets and succumb to broad selloffs, especially if investor panic is such that the desire for the safety of cash is the driving force. In September, the gold price shed more than 20 percent in two weeks as investors scrambled to cover losses in other markets.

Kazakhstan to build 3rd gold refinery in 2012

Kazakhstan plans to begin construction of a third gold refinery next year to process an expected increase in volumes of the precious metal, the country's Industry Ministry said on Monday.
State miner Tau-Ken Samruk will run the refinery, which will have capacity to produce 25 tonnes of bullion per year and could cost up to $30 million to build, the ministry's committee of industry told Reuters in a written reply to questions.
Kazakhstan, Central Asia's largest economy, has ambitious plans to raise annual gold output to 70 tonnes or more by 2015. It produced 27.5 tonnes of gold in the first nine months of 2011, including 12.5 tonnes of refined gold, official data show.

Italy's issues push gold higher

Asia stood above $1,790 ahead of London's opening this morning with the euro at €1: $1.3771 and the gold price in the euro at €1,299.83.  
The Fix was set at $1,794.00 with the euro price Fixed at €1,301.509 while the euro was at €1: $1.3784.
The gold price held just slightly below that level at $1,793.00 while the euro weakened slightly ahead of New York's opening to €1: $1.3767 making the price of gold in the euro €1,302.39.  The London gold Fix remains the dominating factor for the gold price.
The silver price rose but only slightly at $34.77 ahead of London's opening. It is struggling to break the $35 level and stay alongside gold. Thereafter, remarkably it slipped to $34.82 ahead of New York's opening.
Gold _{(very short-term)}
The gold price should be subject to Berlusconi's political survival today.
Silver _{(very short-term)}
The silver price should be subject to Berlusconi's political survival today.
Price Drivers
The Eurozone crisis has shifted gear to a higher one as Italy's Prime Minister, Berlusconi is the subject of another vote of confidence, but this time he may not make it. With debts of €1.8 trillion, more than 120% of Italy's GDP and sluggish, if any growth; if Italy turns to the Eurozone for help then the very survival of both the euro and the Eurozone is doubtful.
It has taken over two years to sort out the much smaller Eurozone member's debt crises of a much smaller scale. Italy's problems are just too much to swallow. This is what the rising gold price is telling us now. For the first time the survival of the entire Eurozone is questionable. What is not being highlighted is the massive flight of capital to Germany [so much that the German Bunds won't be able to absorb it]. This leaves these debt-distressed nation drained of capital. Whether in the euro or not, it is unlikely that the governments of these nations will be able to resuscitate growth there. To do so they will have to meet German standards, which they have never been able to do in the past.

Gold Fields Q3 earnings up, but shy of expectations

South Africa's Gold Fields, the world's fourth largest gold producer, reported a 58 percent surge in third quarter earnings on Thursday fuelled by gold's record run but fell just short of analysts' bullish expectations.
The group also said it was now aiming to produce 3.5 million ounces of gold in 2011, the bottom end of a targeted range of 3.5 to 3.7 million ounces, as it tries to take full advantage of sky-high bullion prices.
The company said it expected to hit this target "despite the recent wage-related industrial action and higher than expected safety-related stoppages which disrupted the South African operations."
The average gold price was up about 13 percent to just over $1,700 an ounce during the quarter to the end of September compared to the previous one.
In rand terms it was up around 20 percent and both trends flowed to Gold Fields' bottom line as about 50 percent of its output comes from South Africa.
As expected, the group said its production for the quarter rose three percent to 900,000 ounces, a figure it had already flagged.
Its adjusted earnings per share leapt to 291 cents from 184 cents in the previous quarter. A Reuters poll of six analysts had seen the number coming in at 303.5 cents. (Reporting by Ed Stoddard; Editing by Ed Cropley)