You Also Hold Three Aces
in Your Hands Right Now
Ace #1 — The sovereign risk crisis leads
governments to boost their gold purchases
Starting today, Turkey’s central bank is allowing banks to keep up to 10% of their required reserves against lira liabilities in gold.
Should the banks decide to utilize the plan as a whole, the central bank will provide approximately 5.5 billion (Turkish lira) in liquidity to the markets.
The central bank’s gold reserves stood at $6.1 billion (USD) as of October 21, based on a price of $1,624.50 per troy ounce, according to Bloomberg News. (Gold has since climbed, touching $1,800 in Tuesday’s trading.)
The bank said the shift to allow gold deposits against foreign-currency reserves added 21.6 tons of gold valued at $1.2 billion as of October 28.
Today’s change for lira reserves could add 55 tons of gold, valued at $3 billion — raising Turkey’s total gold reserves to more than $10 billion.
The country’s cash reserves of $85 billion are more than its current annual trade deficit — so look for more gold accumulation activity here.
Of course, Turkey might not be the largest buyer of gold among emerging-market countries. Its reserves are small compared to Russia’s $526 billion in international currency reserves and Brazil’s $352 billion.
But the biggest reserve number is China’s $3.2 trillion, and that leads me to your …
Ace #2 — The ‘Love Trade’ Keeps Seasonal
Demand Strong for Physical Gold
There is some real seasonal demand for gold coming from late-year jewelry-buying for the Christmas season. Yet U.S. consumer sentiment remains near a record low. And the National Retail Federation anticipates holiday sales rising a modest 2.8% this November and December.
So if there’s going to be demand for gold, it will have to come from China and India. And we’re already seeing it, as rising household incomes and a tradition of giving gold as gifts are buoying China’s gold demand.
Through the end of the year, India is in its “wedding season.” Gold is a traditional offering not just for newlyweds, but it’s also an expected expenditure for religious holidays and celebrations, such as the annual Festival of Lights, Diwali.
But the momentum won’t stop after the celebrations in India are over for the year. In China, 2012 is the “Year of the Dragon” and retailers expect to sell gifts in the form of gold dragon statues, zodiac coins, jewelry and other commemorative items.
Not surprisingly, China is the world’s second-largest gold consumer. Although Beijing does not publicly disclose its gold imports, analysts consider the Hong Kong import figures a good directional proxy for the country’s total gold overseas buying. According to the Hong Kong government data, China imported a record 56.9 metric tons in September, a sixfold increase from 2010.
Gold may have many uses, but the most important may simply be peace of mind. Which means that with …
Ace #3 — Gold as a Safe Haven Isn’t
Going Out of Style Anytime Soon!
Fed chairman Ben Bernanke said last week that the Fed is depending on hope and patience to see if its continuing strategies of “Operation Twist” and zero interest rates will grow the economy out of recession.
His reasoning is that the “low rates of resource utilization and a subdued outlook for inflation over the medium run” would likely “warrant exceptionally low levels for the Federal Funds rate at least through mid-2013.”
Translation: He’s saying that real interest rate, net of inflation, will remain negative for at least another year-and-a-half.
Fortunately, this rate-cutting trend is not only an American phenomenon. The central banks of faster-growing emerging-market countries like Brazil, Indonesia and Turkey have all recently cut rates to keep their economies growing.
If we’re headed for this type of global economic doldrums that Bernanke envisions with real interest rates under 2%, then gold is clearly a better store of value. And the metal’s price has shown just that.
Could Gold Really Be
Too Hot to Touch?
However, gold’s recent strength may also be the source of short-term weakness. Spot prices have risen 25% year-to-date and made some investors less-aggressive about accumulating at current levels.
It’s not just individuals who are afraid of getting burned on all the hot money in gold right now. Last weekend, I met with an institutional trader who has decided to sit out the market for the next two months.
In effect, he’s telling me he’s done so well this year that anything he touches has the potential to decrease his returns — which he dearly needs to keep positive to attract more capital next year.
If you multiply this example by the number of investors who have made quick kills in currencies, stocks and other commodities this year, then instead of a surge in prices, we could see another short-term downdraft and added volatility near-term.
Eventually, this money could flood back in, as the odds are against those who ignore gold as an investment over the next 12-18 months and/or as a trade in the next few weeks. With the events and conditions that should provide some support for even-higher prices in the new year, don’t pass up a chance to own some gold reserves of your own before the next big wave of buying pushes prices even higher.
Now let’s zero in on the past two weeks’ performance …
Rudy Martin | November 11, 2011
Oil’s Set to Double (With Hardly Any Notice)
For 23 months now, Dr. Kent Moors has been showing his readers how the oil market really works. After 31 years advising the Big Boys, he would know.
And now he’s taking things a big (and bold) step further. This is the oil story no one is telling right now.
Of course, hardly anyone is connected enough to do so, not like Kent. That’s why the profit potential is so unusually big.
Historically, November has been the strongest month of the year for gold equities, with gold miners’ stocks rising more than 8%. Will this repeat in 2011?
The cards clearly have been dealt to benefit gold investors. And if you’re a buyer or plan to be …
An executive at a key gold producer in China said earlier this week that gold prices are currently “unreasonable” and, thus, unsustainable.
We must not be looking at the same data, because I see a great opportunity to make money with the shiny yellow stuff this holiday season.
Sure, gold took a bit of a breather after touching the $1,900 mark this summer. But while the S&P 500 has outperformed gold over one- and three-month timeframes, the intermediate- and short-term time frames belong to gold.
In fact, there are three big reasons why gold should be shining as an investment right now, which I’ll detail in a moment. But first, let’s take a look at how gold has performed vs. the S&P 500 since July.An executive at a key gold producer in China said earlier this week that gold prices are currently “unreasonable” and, thus, unsustainable.
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