Peter J. Cooper’s Weblog

November 22, 2008

Perth Mint stops taking new gold orders amid huge demand

Filed under: Gold & Silver — peterjcooper @ 11:31 am

50gramperthmintgoldbar400The Australian, Sydney
Saturday, November 22, 2008

Fears of the unknown long-term effects from the global financial crisis have sparked a new gold rush.

With retail and wholesale clients around the world stocking up on the precious metal, the Perth Mint has been forced to suspend orders.

As the World Gold Council reported that the dollar demand for gold reached a quarterly record of $US32 billion (A$50.73 billion) in the third quarter, industry insiders said the race to secure physical gold had reached an intensity that had never been witnessed before.

Perth Mint sales and marketing director Ron Currie said the unprecedented demand had forced the Mint to cease orders until January, with staff working seven days a week, 24-hour days, over three shifts to meet orders.

He said Europe was leading the demand, with Russia, Ukraine, Middle East, and US all buying — making up 80 per cent of its sales. One European client purchased 30,000 ounces for $33 million.

“We have never seen this before and are working right at capacity. And we are seeing it from clients in the shop buying one ounce, right up to 30,000 ounces from overseas clients,” Mr Currie said.

Robert Jaggard, manager of bullion and rare coins dealer Jaggards, said business had picked up strongly and he expected it to increase further.

“All around the world there has been a heavy run on physical gold and there is a shortage of supply,” he said.

Mr Jaggard, who has been dealing in gold for 40 years and is an agent for the Perth Mint, said some clients were buying up to $1 million worth of gold, paying a premium above the spot price.

November 20, 2008

$3.5bn Saudi gold deal huge against $6.5bn consumer record

Filed under: Gold & Silver, US Stocks — peterjcooper @ 12:06 pm

6a00e55291c5fc883300e55489e5488833-800wiThe revelation of the purchase of $3.5 billion worth of gold by a group of Saudi Arabian investors over the past month is a huge gold deal when you consider that total record third quarter spending on gold by consumers was $6.5 billion.

Since the story broke on this blog I have received an email from an individual claiming to have personally handled the Saudi deal and confirming its veracity. But nobody appears to have a clue where the gold came from or who actually bought it.

Public sales of gold coins and bars reached their highest levels for more than a decade in the third quarter while gold exchange traded funds saw record inflows as revealed by the World Gold Council in its latest Gold Demand Trends report.

Record demand

The WGC said consumers spent $6.5 billion in buying 232.1 tonnes of gold coins and bars in the third quarter of 2008, an increase of 121 per cent in volume terms over the same period a year ago, and the strongest growth since the mid 1990s. In the first nine months of this year, net retail investment in coins and bars reached 443.6 tonnes, 10 per cent more than all of 2007.

Germany and Switzerland saw a surge in demand for coins and bars in the third quarter with net retail investment of 19 tonnes and 21 tonnes respectively, up 533 per cent and 500 per cent compared with the same period a year ago.

Exchange Traded Funds also saw record buying interest with inflows of 150 tonnes in the third quarter, up 8 per cent over the same period last year, with investors spending more than $4.2billion accumulating holdings in ETFs. Lehman’s implosion in September led to a jump in ETF inflows, which surged by an unprecedented 100 tonnes in just five consecutive trading days.

Jewellery demand

Strong growth was also seen in the jewellery sector where demand reached 647.6 tonnes in the third quarter, up 8 per cent compared with the same period last year, and taking spending to $18.2 billion. India, the world’s largest jewellery market saw demand reach 178.5 tonnes up 29 per cent compared with the same period last year as consumers rushed to take advantage of lower prices ahead of the Diwali festival in October.

Why then have gold prices fallen in the third quarter? It certainly defies the laws of supply and demand. As commented elsewhere on this blog the problem is that the Comex paper futures market sets the spot price of gold, and as hedge funds have sold this paper the price of gold has fallen.

This has, however, just further whetted consumer appetite and for once retail investors are acting rationally and buying on falling prices. That prices could suddenly reverse upwards, and soar ahead is also obvious. It just needs the hedge funds to stop their disposals, which must surely be almost done.

November 18, 2008

Silver ETF for Dubai as they fly in bullion for the Hunts of Arabia

Filed under: Gold & Silver, UAE Stocks — peterjcooper @ 4:42 pm

silveralertprofilelogo2The Dubai Multi Commodities Center is understood to be putting the finishing touches to an exchange traded fund for silver with a launch likely next month as demand for silver has surged in the past six months.

Local bullion dealers are having to fly heavy silver bullion bars in from around the globe to meet demand as traditional sources closer to Dubai have been exhausted. The DMCC has successfully established itself as a regional hub for commodities trading over the past few years, and has its own swanky new business park with its gold, silver and diamond towers.

City of Gold

Around 20 per cent of the world’s physical gold trade is conducted through Dubai which used to be the epicenter of gold smuggling to India thirty years ago when import taxes were sky high. Nowadays Dubai is a convenient logistics center for commodities traders and still tax free.

The details of the silver ETF are being kept under wraps for the launch but plans seem advanced. Local jewelers have long used silver in a 25:75 amalgam with gold to create white-gold which is popular with consumers.

But clearly the ETF is an strictly an investment product, and demand for the shiniest of metals has been rising strongly, as evidenced by the high premiums now being paid on coins and bullion locally.

ETF price advantage

The latter also gives the ETF a natural advantage. Its price will be closely linked to the lower spot price for physical silver, and not be inflated by the high premiums now paid on physical silver.

Investors will no doubt appreciate this keen pricing advantage, and hope to also profit from the leverage silver offers to the gold price. In previous gold price booms silver has outperformed the yellow metal, and the gold-to-silver price ratio has fallen sharply.

Will the new Dubai silver ETF have a big enough impact on the tiny global silver market to send prices higher like the Hunt Brothers did in the late 1970s when they cornered the market? Well, nothing succeeds like success and a silver ETF in Dubai looks like being the right product in the right place at the right time.
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November 17, 2008

Cash is king, but gold is the crown prince in waiting!

Filed under: Gold & Silver, US Dollar, US Stocks — peterjcooper @ 2:36 pm

tutankhamun-and-the-golden-age-of-the-pharaohs864_mainpicture‘We have just been in Bahrain and everybody is cashed up!’ one banker told me today. My reply was that if everybody is now in cash then it just has to be the wrong place to be! Thinking about it there are some very good reasons to worry about a large cash position.

Quite apart from the contrarian argument that the crowd is always wrong, you have to consider what is happening to the supply of cash. We know that with the sell-offs in global capital markets there is plenty of demand for cash, what about the supply?

Money supply out of control

Another banker today showed me a chart of US money supply growth over the past few months, and highlighted a 111 per cent increase. This compared with something like 15 per cent money supply growth in the early 1930s as the US authorities grappled with the Great Depression!

There is an absolute tsunami of money coming into the system. What happens when the supply of something exceeds the demand: the price drops. And that is exactly what is going to happen to the US dollar - the authorities are about to inflate away their debt problem.

It is so simple: the debt stays at the same nominal amount, you print more money and the real value of the debt falls. Of course in the real world that also means a bond market collapse as inflation will make both the coupon and real value fall.

I wonder how long it will be until cash is deposed as king of the investment world? My guess is that it will not be long after the sell-off ends. How long will that take? It could be at the end of the year as the hedge funds attempt to square their positions, or it might be next spring after another lurch downwards in stock prices.

The bottom for stocks will be the top for cash and treasury bonds. Then inflation will start to emerge and depose cash from its temporary throne. Who will be the new king?

Gold and silver

Step forward precious metals to take a bow. Everybody knows that gold is inversely correlated to the US dollar and that silver is leveraged against the gold price. But why have precious metals taken so long to claim their crown in this financial meltdown?

The straight answer is that hedge funds have been selling assets across the board and turning gold into dollars, or at least the paper gold of futures contracts into greenbacks. The physical demand for gold and silver has been growing strongly all the time, hence the silver coin shortage and the $3.5 billion Saudi gold purchase.

Once the hedge funds stop selling, and you always do eventually run out of assets to sell, then gold and silver prices will rally, and the rush out of cash and into precious metals will do something pretty spectacular to the price. Gold and silver stocks, languishing at a 40-year low, should jump and deliver phenomenal performance for new investors and repay the patience of long-term holders.
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Islamic hedge funds take another leap forward

Filed under: Gold & Silver, Islamic Finance, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 1:34 pm

45262-barclaysHedge funds with no leverage, options or futures might sound like a product stripped to the bare essentials of short and long equity strategies, but that has not deterred the $50 million seeding of the BlackRock Global Resources & Mining Fund by the Dubai Multi Commodities Centre.

At a press conference today fund arrangers Barclays Capital and Shariah Capital refused to give a target for how much the fund intends to raise when it goes public in December. However, the DMCC has now seeded four Islamic hedge funds with a total of $200 million and hopes for billions of dollars in subscriptions.

Shariah Capital’s Eric Meyer, the driving force behind the world’s first Islamic hedge funds, says this is a big day for his industry which fills a market niche for Shariah compliant investment. His company has developed tools for screening stocks to ensure they comply with Islamic principles such as low gearing, and a technique that allows shorting in compliance with Shariah.

Scholarly advice

The group also has its own in-house Islamic scholar to monitor movements within the portfolios on a daily basis to ensure nothing ‘haram’ creeps into the asset base. At the same time, each of the funds is run by a best-of-breed fund manager with huge experience in stock picking.

For example, John C. Hathaway of Tocqueville Asset Management manages the gold fund. He points to the 40-year low in gold stock prices as a buying opportunity, and says that massive money supply inflation means dollar weakness would resume very shortly.

This is indeed a bizarre time to launch a new hedge fund. But as Mr. Meyer argues these are not traditional hedge funds because they use zero leverage. Only in the facility to go long and short are they hedge funds in the strict sense.

Commodities will boom

But the timing might actually prove auspicious with stock prices around the world at such lows, and conservative stock-picking by expert fund managers looks a good strategy, particularly when focused on commodities which may recover rather quickly as multi-trillion dollar stimulus packages inflate the world economy.

It has been notable that Islamic equity funds have performed well in the downturn because avoiding heavily borrowed companies is a plus in such times. The only quibble is that staying in lowly geared companies is not good for growth in an upturn. But then we have to get there first.
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$343bn Saudi foreign reserves in ’safe’ assets, nothing for IMF

Filed under: Dubai Property, Gold & Silver, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 9:02 am

23049-20512-gold21Vice-governor of the Saudi Arabian Central Bank Mohammed Al Jasser told journalists in Dubai yesterday that the Kingdom’s $343 billion in foreign reserves were held in ‘very liquid, safe, minimal risk’ international assets. ‘Our bank exposure to international markets is extremely small’ he added.

His comments followed remarks by Saudi Finance Minister Ebrahim Al Assaf in Washington that the Kingdom has no intention of tapping into these funds to recapitalize the IMF. ‘There were lots of rumors that we are coming here to pay the bill, there is no such thing,’ he said.

However, His Excellency emphasized that Saudi Arabia would make good its promise to invest $400 billion in the oil and gas sector over the next five years. Saudi Arabia has responded promptly to the global financial crisis to secure its domestic economy, cutting interest rates, lowering bank reserve requirements, guaranteeing bank deposits and injecting billions into its banking system.

Brown’s blundering

But it appears that last week’s visit to the Kingdom by the hapless British Prime Minister Gordon Brown has backfired as his request for money to boost the IMF’s war chest has been ignored.

Al Assaf commented: ‘This is his opinion. This is not our opinion. We are not going to pay more than others. We have been playing our role responsibly and will continue to play our role, but we are not going to finance these institutions just because we have large reserves.’

Mr. Brown’s blundering diplomacy is part of his quest to flood the world with money to avoid a deep recession that will surely cost him his job when he faces his first-ever general election as Prime Minister. As Finance Minister he presided over the UK housing boom and a massive expansion of public spending, now seen as reckless domestic economic management which has left Britain the worst exposed economy in the global financial crisis.

Domestic investment for global benefit

Saudi Arabia is acting responsibly in looking to invest its money in long term economic infrastructure rather than short-term, highly inflationary spending by desperate Western politicians. New supply is the way to prevent another oil crisis, not handing money to the IMF.

It is also not surprising that local Saudi investors are also choosing to invest in sound money like gold, of which a group of businessmen recently bought $3.5 billion, apparently just before the price correction of the past couple of weeks.

Caution now reigns among Persian Gulf investors who have seen early investments by their sovereign wealth funds in Western banks decimated by stock market crashes. The feeling is that markets abroad need to find a bottom while good investments can be found closer to home in national infrastructure development.
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November 16, 2008

Superfund backs gold, sees $2,000 medium term

Filed under: Gold & Silver, US Dollar, Video — peterjcooper @ 4:59 pm


This is an interesting interview with Superfund’s Johann Santer who thinks stimulus packages will deliver inflation and support gold prices in the medium term. He can see $1,000 within three months and $1,500-2,000 an ounce further out.
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Gerald Celente buys gold, predicts US revolution

Filed under: Gold & Silver, Oil Prices, US Dollar, US Stocks, Video — peterjcooper @ 3:50 pm


If only Gerald Celente had not been right so many times before. If you visit YouTube there is a complete library of correct predictions. He recommended gold first in 2006. Now he is talking about the breakdown of law-and-order in America as the country experiences a period worse than the Great Depression. He sees President Obama’s mission impossible for what it is - I just hope he is wrong!
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November 15, 2008

What does the $3.5bn Saudi gold rush in two weeks mean?

Filed under: Gold & Silver, Oil Prices, UAE Stocks, US Stocks — peterjcooper @ 8:22 am

saudi1_200revThe revelation on this blog, actually sourced from what appears to be a reliable story in the Gulf News, the leading regional newspaper, that Saudi Arabia has spent a total of $3.5 billion on gold over the past two weeks has naturally attracted huge worldwide interest.

I can not verify the source but all I can say is that this has the hallmarks of a genuine story, based on my 25 years in financial journalism. First, it was buried on an inside page and the amount was given in UAE currency later in the story - hardly the action of somebody looking to manipulate the gold price, more an indication that the sub-editors did not understand the importance of this story.

Second, this is how the best stories emerge from Saudi Arabia - the market is not very transparent but insiders do notice big changes and pass this information on, and it surfaces as well sourced rumor. I am afraid this is about as good as it gets in the Middle East.

Truth in rumors?

After 9/11 we had rumors about chartered 747s flying full of gold and dollars back to the Kingdom to avoid the increased scrutiny of US regulators. Was it true? Real estate here is said to have boomed on the back of this new money - that certainly happened, did the transfer? We do not know for sure.

So what is going on? By whom and why are these gold purchased being made? Again we can only indulge in informed speculation - nobody is ever going to give an on the record comment on this.

However, we do know that the Saudi stock market has crashed over the past two weeks. There has been an enormous amount of money cashed out. The obvious source of the money for gold purchases has to be that money.

The problem for Saudis is that by cashing out of local stocks they get their own riyals in exchange, and riyals are effectively US dollars due to the currency fixed link. The US dollar is presently high, so diversifying into another asset class makes sense.

But what do you buy? What is safe these days? Dubai villas, perhaps but the rest of regional real estate is crashing? US stocks - you must be joking?

Conspiracy nonsense

I think some of the conspiracy theorists are wide of the mark. People love to come up with elaborate rationales for actions. It is laughable to see Saudi Arabians rushing to buy gold as a conspiracy to bring down the West. The West has brought that on itself, and the Saudis are just trying to find an effective shelter for their wealth from that collapse.

Gold and silver are precious metals with a limited supply that retain their value over time. Also if we are in a repeat of the late 1970s, as this author believes, then cash and gold are the safe havens, with silver probably the best of all, if very volatile.

Therefore, my lesson to draw from the Saudi gold rush is that very much higher gold prices are coming and investors in the Kingdom are making a logical choice ahead of the global pack. If you can not beat them I would join them and preserve your capital.

Incidentally, what I would like to know is who is buying? The report in Gulf News makes it sound like the broad mass of local investors, not the government, and that would explain why such a report has surfaced. If it was the government we would not have heard about it.

So this is just a local flight to a safe haven asset class by people panicking about plunging local and global stocks. But $3.5 billion in two weeks is a big shift in demand for gold in a short period.
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November 13, 2008

Saudi Arabia buys $3.5bn of gold in two weeks

Filed under: Gold & Silver — peterjcooper @ 8:55 am

welcome21There has been an unprecedented surge in Saudi gold purchases in the past two weeks with over $3.5 billion being spent on the yellow metal, reported Gulf News citing local industry sources.

Gold market expert Sami Al Mohna told the leading regional newspaper that this buying had substantially increased the gold reserves of the country: ‘Many Saudi investors see this as the right time for making investments in gold as the price is the most reasonable one at present’.

He said gold was seen as a traditional safe haven at a time of global financial turmoil. Gulf regional stock markets have fallen very sharply since early October, leading to an exodus of cash which needs to find a safe haven.

Gold is currently trading at prices similar to a year ago, and 30 per cent off its March peak. Saudi investors clearly think this is the right time to buy and are piling into gold.

News about the Saudi gold rush is bound to fuel speculation about the alleged large physical gold transactions that have been taking place at prices will above the spot price set in the futures market. It is very unlikely that such a large hoard of physical gold could have been bought for the depressed current price.

Market analysts such as the legendary gold bug Jim Sinclair have pointed out that if less than two thousand millionaires insisted on delivery of physical gold at the end of their futures contracts, as is their legal right, then the spot gold market would jump to new highs.

Saudi Arabian investors have spotted a bargain, and it may be a much better one than they think.
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