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Gold Still a Long Term Hedge and Less Volatile than Equities - WGC

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Published : April 20th, 2012
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Category : Market Analysis





Gold’s London AM fix this morning was USD 1,642.00, EUR 1,249.91, and GBP 1,022.73 per ounce. Friday's AM fix was USD 1,646.50, EUR 1,258.41and GBP 1,030.80 per ounce.

Silver is trading at $31.57/oz, €24.06/oz and £19.69/oz. Platinum is trading at $1,582.50/oz, palladium at $657.20/oz and rhodium at $1,350/oz.

Cross Currency Table – (Bloomberg)

Gold dipped $10.90 or 0.66% in New York and closed at $1,639.30/oz yesterday. Gold initially traded sideways to lower in Asia then started gaining in early European trading.

Gold prices remained steady today after recovering from four sessions of mild losses. Worries that Spain’s debt problems would hurt the euro saw investors move into US Treasuries and German bunds and saw gold supported.

While the Spanish auction was a success this morning leading to increased risk appetite, the risk of contagion remains and this should support gold.

Competitive currency devaluations continue and the BRIC’s are becoming more aggressive in this regard.

Brazil joined India in aggressively cutting interest rates. Brazil cut by 75 basis points to 9%, its sixth straight reduction since August. Official figures show that annual inflation remains quite high at 5.24 percent in March.

Also bullish for gold is China’s central bank statement that “it plans to increase the reverse repo operations and cut the reserve requirement ratio to increase liquidity supply at an appropriate time.”

Data published for market watchers includes the following: 12.30 (GMT) US Weekly Jobless claims, 2.00 (GMT) US Existing home sales for March, 2.00(GMT) Eurozone Consumer Confidence for April, 2.00 (GMT) Philadelphia Fed business activity index for April.

Gold Still a Long Term Hedge and Less Volatile than Equities - WGC
Gold was one of the few asset classes to deliver positive returns last year, and its price appreciation was generally higher in currencies other than the US dollar, the World Gold Council notes in its report on Q4 investment statistics and commentary yesterday.

The World Gold Council notes that over the past 37 years, gold has shown a negative correlation with stocks.

Gold in USD (Simple Day Moving Averages – 100, 200, 300)

“Put simply, gold has not had a significant relationship with equities. The price of gold is driven by a unique set of factors, often quite at odds with those driving other assets, particularly equities. Infrequently these factors coincide, and also equally infrequently, equities and gold will move in the same direction, but not for the same reasons.”

The recent apparent short term correlation between gold and stocks is just that - short term.

Gold’s weakness has been again due to dollar strength and the dollars often strengthen when stocks fall.

In recent years, stocks have tended to fall when the U.S. dollar is rising, and vice versa – and gold tends to move in the opposite direction to the dollar and other fiat currencies.

“While the short-term daily correlation between gold and the S&P 500 might indicate a slightly positive correlation in the recent period, long term correlations remain at or close to zero,” the WGC said in its report. “In other words, the inclusion of the U.S. dollar as an explanatory variable to gold prices makes the S&P 500 beta insignificant.”

Importantly, the long term correlation of gold to equities remains statistically insignificant.

The WGC points out that while gold’s price volatility increased during August and October, it rose less than that of the equity market – illustrated in the S&P 500 volatility – which is what typically occurs during periods of higher uncertainty in financial markets.

As such, while gold prices were not immune to the effects of financial markets swings, its volatility was considerably more stable than that experienced by equities.

While the World Gold Council is an advocacy body for the gold industry, their research is highly rigorous and has yet to be contradicted – even by certain PhD economists who declared gold a bubble at $1,000/oz and said spam was a superior safe haven.

The excellent research can be read here and is a must read for anyone who wishes to protect and grow wealth in the coming years and for all investment providers and advisers who take their fiduciary duty seriously.

For breaking news and commentary on financial markets and gold, follow us on Twitter.


(Bloomberg) -- Record Gold Seen by Top Analysts as Funds Retreat
Gold, in the 12th year of a bull market, will reach a record in the fourth quarter as central banks maintain record-low interest rates, even with hedge funds the least bullish since 2009, the most accurate analysts said.

Bullion will average $1,900 an ounce in the fourth quarter, 16 percent more than now, according to the median estimate of the top five precious-metals analysts in Bloomberg Rankings in the past two years.

The analysts surveyed by Bloomberg -- Deutsche Bank AG’s Daniel Brebner, UniCredit SpA’s Jochen Hitzfeld, TD Securities Inc.’s Bart Melek, Citigroup Inc.’s David Wilson and Prestige Economics LLC’s Jason Schenker -- predicted an average of $1,680 this quarter and $1,800 the next.

Borrowing costs from the U.S. to the euro region are the lowest ever, boosting the appeal of gold, and investors’ holdings are within 0.7% of a record. The most widely held option confers the right to buy at $2,200 by July.

Gold gave up most of its gains this year on signs the global economy will avoid another recession.

Demand for physical metal held steady on mounting concern that policy makers will need to intervene again to sustain that growth. Bullion rose about 70 percent as the Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 to June 2011.

“I don’t think the Fed or any central bank can abandon the policy of easing and as economies weaken and more money is printed, gold will get stronger,” Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee $1 billion of assets, said by phone April 13. “People have lost faith in governments. The overall fear of a worsening debt crisis in Europe will send gold higher.”

Treasuries Lose

The metal rose 4.9 percent to $1,640.95 this year, and is now 8.4 percent below this year’s high of $1,790.75 reached Feb. 29. The record quarterly average of $1,706.38 was set in the three months through September, when prices peaked at $1,921.15. The Standard & Poor’s GSCI gauge of 24 raw materials gained 4.4 percent since the start of January and the MSCI All-Country World Index of equities advanced 8.9 percent. Treasuries lost 0.1 percent, a Bank of America Corp. index shows.

Gold rose more than sixfold since the start of 2001, the first year of the bull market, as the MSCI All-Country World Index advanced 13 percent. Treasuries returned 86 percent.

Holdings in exchange-traded products backed by bullion expanded 1.6 percent to 2,394 metric tons this year, valued at $126.7 billion, according to data compiled by Bloomberg. The seven most widely held options on futures traded on the Comex in New York give owners the right to buy at prices ranging from $1,800 to $2,300, bourse data show.

Gold Trust

John Paulson, who manages about $24 billion in his New York-based firm Paulson & Co., told investors April 16 that he took some of his own money out of the company’s $6.8 billion Credit Opportunities Fund and put it into the $1.2 billion Gold Fund, according to a person familiar with the matter. Paulson already holds the biggest stake in the SPDR Gold Trust, the largest ETP backed by bullion. The 56-year-old is seeking to make up for record losses in 2011.

His bullishness contrasts with other money managers and speculators, who are cutting their combined bets on higher prices. They now hold 109,511 U.S. futures and options, from 197,552 at the end of February and the fewest since January 2009, Commodity Futures Trading Commission data show.

Demand for bullion coins is also weakening. Sales by Australia’s Perth Mint, which processes all of the country’s bullion, declined 9.6 percent last month. The U.S. Mint sold 210,500 ounces in the first quarter, 30 percent less than a year earlier, data on its website show.

Imports by India, the second-biggest buyer, may drop 40 percent this quarter after jewelers shut stores to protest a new tax, the Bombay Bullion Association said April 2. Global jewelry demand will decline 3.8 percent to a three-year low of 1,888 tons in 2012, Barclays Capital predicts.

Global Equities

About $4.79 trillion has been added to the value of global equities this year on growing investor confidence that stronger growth will boost corporate profits. The International Monetary Fund raised its forecast for 2012 global growth to 3.5 percent on April 17 from 3.3 percent.

Fed policy makers Janet Yellen and William C. Dudley endorsed the view last week that the central bank should hold its target rate for overnight loans between banks near zero through 2014. Gold generally earns investors returns only through price gains.

Bank of Japan Deputy Governor Kiyohiko Nishimura said yesterday the central bank is ready to implement additional easing if necessary. The European Central Bank has engaged in a 1 trillion-euro ($1.3 trillion) long-term refinancing operation, or LTRO, since December to provide liquidity to the region’s lenders.

Gold in JPY (Simple Day Moving Averages – 100, 200, 365)

Monetary Fund

The 17-nation euro zone will contract 0.3 percent this year, as world growth slows from 3.9 percent in 2011, the IMF forecast. China, the engine of the global recovery, expanded 8.1 percent in the first quarter, the slowest pace in almost three years, government data showed April 13.

Demand for gold also may be buoyed by investors seeking protection against weakening currencies. The metal priced in euros jumped 20 percent in the past year, compared with a 9.9 percent gain in dollar terms.

Some are holding gold to hedge against inflation as central banks pump more money into financial systems. A measure of traders’ inflation expectations used by the Fed to guide monetary policy reached 2.78 percent on March 19, the highest since August. That compares with 3.63 percent in October 2008.

Central banks are joining investors in buying gold, adding 439.7 tons in 2011, the most in almost five decades. They may buy a similar amount this year, the London-based World Gold Council estimates. Citigroup predicts purchases of 400 tons and Deutsche Bank forecasts 500 tons.

“People are worried about currency debasement and with real interest rates where they are there is no yield lost by locking your money into gold,” Mihir Worah, who manages Pacific Investment Management Co.’s $22 billion Commodity Real Return Strategy Fund from Newport Beach, California, said by phone April 13. “We would be buyers. We have a modest overweight on gold and expect central banks to be net buyers this year too.”

(Bloomberg) -- Azeri Fund Says Gold Holdings at 2.8 Tons as Investment Started
Azerbaijan’s State Oil Fund, known as Sofaz, started investing in gold in the first quarter, raising its holdings of the precious metal to 2.8 metric tons, according to a statement e-mailed today.

The fund, established in 1999, manages all state revenue from oil and natural gas and had $32.4 billion in assets as of April 1, an increase of 8.6 percent since the start of this year, Sofaz said in the statement. The Caspian Sea nation is the third-biggest energy producer in the former Soviet Union after Russia and Kazakhstan.

(Bloomberg) -- Sudan May Double Gold Exports to 50 Tons This Year, Sahafa Says
Sudan may more than double gold exports to 50 metric tons in 2012 from 24 tons last year, al- Sahafa reported, citing Mostafa al-Bakry, head of the gold department at the country’s central bank.

Earnings from shipments of the metal may jump to $2.4 billion from $1.2 billion, the Khartoum-based newspaper said. The North African country produced 14 tons of gold in the first quarter, it said.

(Bloomberg) -- IShares Silver Trust Holdings Unchanged at 9,637 Metric Tons
Silver holdings in the IShares Silver Trust, the biggest exchange-traded fund backed by silver, were unchanged at 9,636.69 metric tons as of April 18, according to figures on the company’s website.

April 18 April 17 April 16 April 13 April 12 April 11

2012 2012 2012 2012 2012 2012

Million Ounces 309.827 309.827 308.370 308.370 309.244 309.487

Daily change 0 1,456,383 0 -873,837 -242,736 0


Metric tons 9,636.69 9,636.69 9,591.39 9,591.39 9,618.57 9,626.12

Daily change 0.00 45.30 0.00 -27.18 -7.55 0.00

NOTE: Ounces are troy ounces.
SOURCE: iShares Silver Trust

(Bloomberg) -- Spain Sells 2.54 Billion Euros of Bonds, Meeting Maximum Target
Spain sold 2.54 billion euros of two-year and 10-year bonds, compared with a maximum target of 2.5 billion euros.

The Treasury sold its 10-year benchmark bond at an average yield of 5.743 percent, compared with 5.789 percent on the secondary market before the auction, and 5.403 percent when it last sold them in January. It sold two-year securities at 3.463 percent.

Demand for the 10-year debt was 2.42 times the amount sold, compared with 2.17 at the Jan. 19 sale, and the bid-to-cover for the bonds maturing in October 2014 was 3.28.


Gold stable after 4-day losing streak on Spain woes - Reuters

Gold is still a hedge: WGC
– Globe and Mail

Syria selling gold reserves as sanctions bite: sources
- Reuters

Yen Falls Versus Most Peers on BOJ Easing Speculation, Japan Trade
Deficit - Bloomberg


HFT Pirates And Their Academic Friends – The Big Picture

Dennis Gartman – Love Him or Hate Him? - GoldSeek

Grantham Explains How To "Survive Betting Against Bull Market Irrationality" – Zero Hedge

Bank Failures, Disorder, Massive Panic & Gold – King World News

Mark O’Byrne




Data and Statistics for these countries : Australia | Azerbaijan | Brazil | China | India | Japan | Jersey | Kazakhstan | Russia | Spain | Sudan | Syria | All
Gold and Silver Prices for these countries : Australia | Azerbaijan | Brazil | China | India | Japan | Jersey | Kazakhstan | Russia | Spain | Sudan | Syria | All
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Mark O'Byrne is executive and research director of which he founded in 2003. GoldCore have become one of the leading gold brokers in the world and have over 4,000 clients in over 40 countries and with over $200 million in assets under management and storage.We offer mass affluent, HNW, UHNW and institutional investors including family offices, gold, silver, platinum and palladium bullion in London, Zurich, Singapore, Hong Kong, Dubai and Perth.
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