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India, Iran, Oil, and Gold

On January 25, 2012, in Commodities, by Tim

The Iran oil embargo and freeze of its central bank assets approved by Europe the other day has had an interesting unintended consequence – and not just another threat by Iran to block the Strait of Hormuz. According to this Debka report, India has agreed to pay for Iranian oil with gold instead of U.S. dollars and China is expected to follow suit.

So far, there has been no official confirmation of this story and, at the moment, I’d have to agree with this commentary at Commodity Online that it’s probably best viewed as a rumor, but, if both India and China do intend to pay for their $25 billion per year in oil purchases from Iran with the yellow metal, that could result in a lot of gold being mobilized.

Of course that wouldn’t necessarily mean that the gold price will rise. India could simply exchange their currency for gold, transfer ownership of the gold to Iran in exchange for oil, and then Iran could exchange that gold for whatever currency they desire, having no net effect on gold demand. But, it certainly won’t hurt the gold price and will surely further diminish the reserve currency status of the U.S. dollar.

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Gold: Where it comes from, where it goes

On January 24, 2012, in Commodities, by Tim

Here’s another one of those infographics, this one on the subject of the shiny yellow metal from the folks at Trustable Gold, and it provides a pretty good summary of where the barbarous relic comes from and the many forms of investment it takes (click to enlarge).

The Gold Tree Infographic

What’s interesting about the bottom half of the chart is that the world’s number one gold producer – China – has a relatively small amount of identified underground gold reserves. If investment demand continues to increase, we might just run out of the stuff.

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“Something Needs to Change”

On January 23, 2012, in Commodities, by Tim

This story at Mineweb by Ross Norman of Sharps Pixley about a possible return to a gold standard echos my feelings on the issue, a subject that, with the recent rise of New Gingrich in the polls, is likely to get more attention in months ahead.

Economists broadly do not favour a return to a gold standard. The University of Chicago conducted a poll of 40 leading economists none of whom supported the move. But it is also clear that something needs to change. So long as policy makers make over-extended promises on the one hand (to ensure re-election) and overextend the printing presses with the other then we will continue to see inflation and currency declines as those shown below.

Since 1971 the US dollar has lost over 85% of its value by official (CPI) measures. Truly the thief in the night and that’s just not right. To use the words of President Hoover in 1933 – “We have gold because we cannot trust governments”.

Simply put, the U.S. and/or the world can’t go back on a gold standard unless the price of gold goes substantially higher, which, come to thing of it, is where it’s headed anyway. But figures like the $45,000 an ounce suggested by Norman just seem impossible, though, come to think of it, $2,000 an ounce seemed kind of impossible just a few years ago.

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The Remarkable Rise in the Price of Silver

On January 23, 2012, in Commodities, by Tim

[Following are excerpts from the current issue of the Weekend Update at Iacono Research. To learn about the services provided as part of this investment newsletter click here and to begin a subscription before rates rise sharply next month click here.]

A stronger euro and a weaker dollar have worked wonders for the once-thought-dead gold bull market and silver turned in its most impressive weekly performance in almost three months as the world continues to marvel at the surging demand for precious metals in China, a trend that could accelerate as policy makers there shift from fighting inflation to spurring growth.

For the week, spot gold rose 1.7 percent, from $1,639.70 an ounce to $1,667.00, as silver surged over the $30 an ounce mark, rising 8.2 percent from $29.77 an ounce to $32.20. Gold is now up 6.4 percent for the year, but down 13.3 percent from its high last summer, while the silver price is up 15.6 percent in 2012 but remains 34.9 percent below its early-2011 peak.

The late-2011 surge in Chinese gold imports discussed here last week made its way into a featured Wall Street Journal story($) on Wednesday in what was a very favorable take on the subject. I’ve always considered the Wall Street Journal to be the most even-handed mainstream financial media outlet when it comes to gold as an investment and the positive closing comments indicate to me a growing acceptance of this theme:

[To continue reading this story, please visit Seeking Alpha.]

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Warming Up to Newt … Well, Maybe a Little

On January 19, 2012, in Currencies, Economy, by Tim

It could be that GOP Presidential hopeful Newt Gingrich is just trying to siphon off some of Rep. Ron Paul’s supporters as Gingrich narrows Mitt Romney’s lead in South Carolina, but, whatever the motivation, his recent talk about the U.S. returning to a gold standard has made this a more interesting race in recent days as reported at CNN/Money.

Republican presidential candidate Newt Gingrich is calling for the United States to think about returning to the gold standard.

Speaking at a foreign policy forum in South Carolina on Tuesday, Gingrich advocated a “commission on gold to look at the whole concept of how do we get back to hard money.”

Gingrich, a former Speaker of the House, has spoken in favor of a “hard money” policy in the past, but these were his strongest comments to support reinstating the gold standard.

Gingrich would model his “gold commission” after one put in place after Ronald Reagan was elected, when the nation was battling double-digit inflation. But even then, the commission overwhelmingly rejected the idea of a return to the gold standard.

One of only two members of the 17-member commission to endorse a return to the gold standard was Ron Paul, one of Gingrich’s rivals for the GOP nomination.

Gingrich is shown above indicating how much the U.S. dollar is worth relative to the last time the U.S. was on a gold standard (no, not really).

Also see this story at the New York Sun where more details are revealed about how Gingrich and the rest of the GOP field feel about the shiny yellow metal and its role in the world.

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All the Gold Bugs in China

On January 16, 2012, in Commodities, by Tim

[Following are excerpts from the current issue of the Weekend Update at Iacono Research.]

Many analysts thought a death knell sounded for the gold bull market last month. However, driven by surging investment demand in China, as evidenced by record-high imports from Hong Kong, and the recapturing of the 200-day moving average, the gold price added to its gains from the first week of the year, while silver mounted an even bigger surge.

All this occurred despite a stronger trade-weighted dollar (that normally moves opposite of metal prices). However, credit downgrades late on Friday and an expected further decline for the euro are sure to test the recent enthusiasm for precious metals in the days ahead.

For the week, the gold price rose 1.4%, from $1,616.60 an ounce to $1,639.70. Silver briefly topped the $30 an ounce mark for the first time in a month, before ending slightly below that mark. That’s up 3.5% from $28.75 an ounce to $29.77. Gold is now down 14.7% from its high last summer while the silver price remains 39.9% below its early-2011 peak.

Surging Chinese gold demand and soaring premiums in advance of the Lunar New Year were by far the dominant stories for precious metals last week. The Hong Kong Census and Statistics Department reported a record 103 tonnes of gold entered the mainland from Hong Kong in November, up from 86 tonnes in October as shown below via Reuters.

[To see the graphic associated with this story, continue reading at Seeking Alpha.]

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