FOOD FOR THOUGHT: Going For The Gold (part 1)

Tuesday, March 2nd, 2010

Even the just may sin with an open chest of gold before them – Latin Proverb

There seems to be a lot of chatter around the street that Gold will fall due to the dollars recent strength, which the experts say will reduce investment demand. The correlation between the dollar and gold remains firmly in positive territory,” says Barclays Capital analyst Suki Cooper in a note. “Currency movements are likely to lead gold’s price trajectory in forthcoming sessions.” Also the Fed raised the discount rate recently as part of the normalization of lending, according to Chairman Bernanke, but some think this could signal higher rates down the road.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were down about 2.4 percent this year after advancing 45 percent last year. “Investment demand in 2010 is progressing at a more modest pace relative to the second half of last year, judging by more subdued inflows” into ETFs, said Anne-Laure Tremblay, a London- based analyst at BNP Paribas SA.

On the other hand, the widely speculated decrease in investment demand certainly has not kept some major investors from taking very large positions in Gold, particularly GLD, the SPDR Gold Trust.

According to Bloomberg, billionaire George Soros’s of Soros Fund Management LLC, more than doubled its holding in the biggest gold exchange-traded fund in the fourth quarter, after bullion advanced 8.9 percent to a record.

“The $25 billion New York-based firm became the fourth- largest holder in the SPDR Gold Trust, adding 3.728 million shares valued at $421 million, according to a filing with the U.S. Securities and Exchange Commission yesterday. Its investment was worth about $663 million, the fund’s largest single investment, as of Dec. 31.

Soros was quoted earlier as saying, “Considering the extent of the oil price decline, gold has remained very resilient as we predicted. Big money interests realize that the long term gold/ oil ratio favors higher gold prices and or lower oil prices.” The current gold to oil ratio is approximately 14 to 1.

Also there has been a steady decrease in mine production, especially South Africa, where mines have gotten too deep and dangerous to produce like they did in the past. Unfortunately, the rest of the world has not made up the difference. World output has fallen by 1 million ounces annually since 2001 and the problems in Chile won’t help.

Chile is the world’s largest producer of copper. It has the world’s most productive mine at Chuquicamanta. Northern Chile also has rich, high-grade iron-ore deposits, mainly in the Coquimbo area. Most of the ore is exported, and the rest is used by the local iron and steel industry. Chile is also home to American Barrick’s massive Pascua-Lama gold and silver project, Kinross’ Lobo Marte, and their joint venture project at Cerro Casale. Chile could be facing problems in the coming months and this will impact its almost all mining operations. Apparently the 8.8-magnitude quake displaced more than 1.5 million people and severely damaged 500,000 homes.

The China Investment Corp and the central banks of China and India also have been acquiring gold through the ETF. China Investment, the $300 billion sovereign wealth fund based in Beijing, took a 1.45 million-share stake in the SPDR Gold Trust worth $155.6 million, according to a SEC 13F filing posted on Feb. 5.

“The dollar is weak and people are just shifting their money into a safer haven,” Tetsuya Yoshii, vice president for derivative products at Mizuho Corporate Bank Ltd., said from Tokyo today. “Central banks are adding gold to their reserves and we’re going to see more people adding gold to their investment portfolio as they shift into safer stuff.”

Institutional investor Paulson & Co. held the largest number of shares of GLD as of Dec. 31, with 8.65 percent, or 31.5 million shares. In addition to that, he has launched a Gold Fund that he put an incredible $250 million of his own money into. Now, Soros has upped his stake in GLD to $663,000,000 and China owns $155,600,000 of GLD.

These are some new developments in the ETF market. In addition to this, India bought 200 metric tons of gold from the International Monetary Fund in the bullion market (half of what they were offering), and China could be ready to do the same.

This will be discussed further in part 2. View Related Post Here

NEW – Weekly Blast from the Past!!