Gold heading quickly back above $1,000 and silver $22
Posted on 08 June 2008 with no comments from readers
Expect to see a rapid recovery in precious metal prices this week on the back of oil’s huge spike. Gold and silver prices motored back to close at $902 and $17.57 an ounce on Friday, recovering somewhat from the March sell-off.
In just the same fashion as oil caught the shorts short last week anybody shorting precious metals is in for a nasty surprise. For if the oil spike confirmed anything on Friday it is that the commodities boom is far from over. Why?
Inflation is always about money. The US has inflated its money supply by around 17 per cent over the past year, according to economists who recreate the now no longer published M3 with M2 and MZM. Money has to go somewhere and presently investors are backing commodities in a self-fulfilling virtuous cycle.
With global asset classes like real estate and even equities in a deflationary cycle with de-leveraging the order of the day thanks to the credit crunch, new hot money is looking for a home and finding the commodities complex.
And once momentum starts in an asset class there are three discernable stages to the process. With precious metals we are in phase two as investor interest is only just beginning to bite and the wall of worry being climbed is slippery.
However, the next phase is the boom. Then prices will move in an exponential spike until they reach an unsustainable level. Just to reach inflation-adjusted, all-time highs gold will have to touch $2,400 an ounce and silver perhaps $100 an ounce. And markets usually overshoot.
This could be a hot summer for precious metals with oil prices bubbling at these levels – oil and gold have a 90 per cent correlation – and there is a possible upside of $200-a-barrel over the next 18 months to two years, if you subscribe to the Goldman Sachs house view. The time to buy precious metals is now while prices are low.
Depressed gold and silver junior exploration stocks are the best buy but anything linked to precious metals will gain in price as the metals rise in value. Gold is a safe haven for investors and a hedge against inflation but silver generally has the better performance in a financial crisis.
It will be an exciting and profitable 18-24 months for Arabian investors in precious metals while many other global asset classes are going to be very disappointing.
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HSBC debuts in gold
By Wang Lan (China Daily)
Updated: 2008-06-06 10:12
In what is being widely seen as a major step toward globalizing China’s gold market, HSBC yesterday became the first overseas bank to start trading gold on Shanghai Gold Exchange (SGE) after gaining approval from China’s banking regulator.
Tong Gang, the press officer of Shanghai Gold Exchange, told China Daily: “The transaction volume traded by HSBC today (Thursday) on SGE amounted to 17 kilogram of gold in purity Au9995.”
“It is an exciting policy to allow overseas banks access to China’s gold market,” said Tong. “A closer tie between China’s gold market and the global market is expected to be established.”
Along with HSBC, Standard Chartered Bank and Canada’s Scotiabank were also given SGE memberships earlier this year.
Industry experts said the opening of Shanghai’s gold market to overseas banks is widely considered a major effort to help increase the liquidity of the domestic gold market and bring in the foreign expertise that can promote the development of the market in the longer term.
Richard Yorke, group general manager, president and CEO of HSBC China, said: “The opening of the gold market to overseas banks is another exciting development for China’s financial market.”
“HSBC China is pleased to remain at the forefront of the new market developments. Our trading at the exchange will enable us to share our international experience and expand our participation in China’s financial markets as well as our service scope,” Yorke added.
Could China be about to diversify out of the US dollar? Shame HSBC is so bearish on gold, although here the bank is saying one thing and doing quite differently.
Money Week says today:
Michael Hampton, who is the best trader I know, uses all sorts of cycles and technical indicators in his work and is continually looking for fractal (repeating) patterns. Among other things, he has what he calls his simple ‘ten for’ rule. Let me explain.
He argues that a 1970s dollar had about ten times the value of a 2000 vintage dollar. For example, the S&P averaged around 100 in the 1970s. It is over 1,000 this decade. Similarly the Dow averaged around 800-1,000, while for the Noughties that figure is around 10,000. Gold began the ‘70s at $35, it began the ‘00s at almost $300.
By the same reckoning, he argues that if gold went to $850 last time, it could spike to $8,500 this time.
He uses the same argument for oil. It went from low single-digits to $13 by the end of the 1974 oil crisis. Now oil has gone from $10 to over $130. By the end of the decade oil went from $13 to almost $40. So Mr Hampton, not unreasonably in my view, has a possible eventual target of $400 for oil (which he sees by 2012-13, by the way).
Supposing I bought GBP100k gold (eg via the Perth Mint), and it shot up in value like you propose it might do.
Please suggest some optimum (legal) methods of buying and selling to avoid the UK Government taking huge proportions of my gain away in Capital Gains Tax, etc, etc.
Thanks!
PS to my comment a few minutes ago – if I bought the gold with my Limited Company (IR35 notwithstanding), would that be a useful mechanism – or would I just get hammered in a different way?
I am not an expert on UK tax but unless you are resident offshore, or your company is offshore you will pay tax – and concealing it is illegal.