Thursday, December 19, 2013

Gold Tumbles, Putting Brakes on Long Rally


Barring a rebound of unprecedented scale, the price of gold is set to notch its first annual decline in 13 years and its biggest drop since 1981. Gold is down 29% year-to-date.
On its way up, gold attracted legions of investors large and small, including big-name hedge-fund managers such as Paulson & Co.'s John Paulson, Greenlight Capital Inc.'s David Einhorn and Third Point LLC's Dan Loeb. They bet that the Federal Reserve's extraordinary stimulus launched after the financial crisis would weaken the dollar and stoke inflation, raising gold's value as a form of protection.
Many investors got burned this year when Fed officials began to hint at scaling back the central bank's bond-buying program designed to boost growth. Inflation had remained subdued even after the Fed pumped more than $3 trillion into the economy. The dollar weakened in 2009 and much of 2011 but strengthened again.
The Fed's decision on Wednesday to begin trimming bond purchases further undermined an investing thesis that was already on precarious ground, market experts say.
Gold prices on Thursday fell 3.3% to $1,195 an ounce, the lowest close since August 2010.
"The reasons to own gold have just evaporated," said Jeffrey Sherman, commodities portfolio manager with DoubleLine Capital LP, a Los Angeles money manager that oversees $53 billion. Mr. Sherman said DoubleLine sold its gold holdings at a loss after a steep drop in prices this past spring.
Other fund managers are exiting as well. Third Point sold a long-held gold position in the second quarter. Earlier this month, hedge funds and other money managers as a group held the smallest bet on rising gold prices since 2007, according to data from the U.S. Commodity Futures Trading Commission.
Representatives for Third Point and Greenlight Capital declined to comment.
Mr. Paulson is one of the most high-profile casualties of gold's selloff. Known for reaping billions from wagers against the housing market, Mr. Paulson started a gold fund in January 2010 when the metal was trading around $1,100 an ounce and marching higher. He even offered investors in other funds shares that were denominated in gold.
Mr. Paulson's gold fund is down 63% this year through October, according to documents presented at his annual investor day last month. The fund managed $370 million as of last month compared with about $1 billion near the start of the year.
The firm, however, added in the materials that its "thesis remains intact" and that it considered 2013 a "pause mode" in a long-term upward trend. A representative for Paulson declined to comment on Wednesday.
While many hedge funds took a hit from gold's fall, money managers who invest with decades in mind, not quarters, see the decline as reason for optimism.
"You've had this watershed moment," said Sameer Samana, a senior international strategist with Wells Fargo Advisors. "The economy's starting to firm. Instead of inflation expectations ticking higher and interest rates lower, the opposite is going on. That's really gotten the steam to come out of gold."
Gold hit its all-time high of $1,888.70 an ounce in August 2011, when investors were digesting a European debt crisis, the unprecedented downgrade of the U.S.'s credit rating and the prospect of another round of bond-buying from the Fed.
Roaring stock markets have further dimmed gold's appeal as a haven. The Dow Jones Industrial Average reached a new high on Thursday and shares in Europe and Japan have posted double-digit gains this year.
While gold prices increased steadily starting in 2001, the rally accelerated in the wake of the financial crisis. After the collapse of Lehman Brothers Holdings Inc., central banks began to take drastic measures to forestall a collapse of the financial system. Gold prices doubled in the following three years.
The financial innovation in the 2000s that helped bring gold into the mainstream also has played a role in the metal's downfall. Gold ownership for investment purposes essentially was prohibited in the U.S. between 1933 and 1974. After their introduction in the U.S. in 2004, exchange-traded funds became among the most popular tools investors used to buy gold.
The amount of gold held by ETFs is down 30% this year as investors shifted to stocks and other assets. Analysts say the ETF selling helped accelerate gold's downward spiral.
While gold is down, few investors think it is going to be relegated to the fringe of financial markets anytime soon.
After buying gold became easier, some wealth-management advisers began recommending that investors hold a small percentage of their portfolios in gold as part of a diversification strategy.
Institutional investors from pension funds to university endowments bought gold.
Some are holding on.
"I look at gold purely as a hedge" against declines in currencies, said Scott Malpass, chief investment officer with the University of Notre Dame's investment office. Mr. Malpass said the fund had sold some of its gold in recent years as prices rose, but that it has no immediate plans to cash out entirely. The endowment holds less than 0.5% of its $8.7 billion in assets in gold bars, Mr. Malpass said.
Some retail investors also haven't lost faith. The U.S. Mint's gold-coin sales to dealers, a measure of retail investors' appetite, was up 29% in the first 11 months of the year compared with the same period in 2012.
Robert Gordon, president of a real-estate settlement business in Leesburg, Va., was among the retail investors who saw this year's decline as a buying opportunity.
"For years we've been saying the chickens will come home to roost" in the form of higher inflation, he said. "Eventually someone has to pay the piper."
Still, gold prices are widely expected to remain under pressure as the Fed unwinds its crisis-fighting measures. Credit Suisse analysts, who were among the market watchers who said 2013 would mark the end of gold's streak, named a bet on lower gold prices as their top raw-materials trade for 2014.
Famed commodity investor Jim Rogers says he is keeping the gold he owns, but has entered into derivatives contracts to guard against declines in the value of the metal. "I wouldn't buy gold right now under any circumstances," Mr. Rogers says.
—Rob Copeland and Gregory Zuckerman contributed to this article.

http://online.wsj.com/news/articles/SB10001424052702304866904579267753420462942

Wednesday, December 18, 2013

Global shares up as Fed draws taper's sting; dollar in demand

A pedestrian holding an umbrella walks past an electronic board displaying graphs of the recenent movement of Japan's Nikkei average outside a brokerage in Tokyo December 19, 2013. REUTERS-Yuya Shino
1 OF 5. A pedestrian holding an umbrella walks past an electronic board displaying graphs of the recenent movement of Japan's Nikkei average outside a brokerage in Tokyo December 19, 2013.
CREDIT: REUTERS/YUYA SHINO
(Reuters) - Asian share markets rose on Thursday after the Federal Reserve drew the sting from tapering its stimulus by recommitting to low interest rates, leaving Wall Street at record heights and the dollar galloping above 104.00 yen for the first time since 2008.
The dollar was a major beneficiary, surging as far as 104.37 yen at one point before pausing at 103.99. The euro toppled back to $1.3685, from a $1.3811 top.
The slide in the yen was viewed as positive for Japanese exports and profits, and thus for the Nikkei .N225 which climbed 1.6 percent to threaten its peak for this year.
After months of agonizing, investors took the Fed's decision to trim its bond buying by $10 billion to $75 billion a month as a modest step and one the U.S. economy could well withstand.
Crucially, the Fed softened the blow by making its forward guidance even more dovish.
"It likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the committee's 2 percent longer-run goal," the Fed statement said.
Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York, noted the Fed's forecasts for the funds rate had also been trimmed out to the end of 2016.
"This is a very dovish taper-lite where the Fed has done its utmost to provide an offset with forward guidance," said Ruskin.
"It tends to elevate the importance of the inflation rate in decision making should it be meaningfully undershooting target, which is very constructive for risky assets."
The market seemed to agree, with the Dow .DJI ending Wednesday up 1.84 percent, while the S&P 500 .SPX gained 1.66 percent and the Nasdaq .IXIC 1.15 percent.
Stocks gained from Sydney .AXJO to Seoul .KS11, while MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ00 00PUS> edged up 0.1 percent.
Shanghai broke ranks with a drop of 0.1 percent .SSEC after China's central bank declined to add liquidity to the banking system, pushing up money market rates, [ID:nB9N0I002I]
LOW FOR LONGER
The Fed's message that tapering was not tightening looked to have resonated in debt markets as Fed fund futures held broadly steady out to the early 2016 contracts. A first hike in the funds rate is not fully priced in until November 2015.
Treasury yields were stable for three years ahead, while rising at the longer end as the yield curve steepened. Yields on 10-year notes increased 5 basis points to 2.89 percent, but remain below their 2013 peak of 3 percent.
Still, tapering could be a double-edged sword for some Asian countries since it could accelerate the "great rotation" of funds out of emerging markets and into developed world assets.
Indonesia, the Philippines, Thailand and Malaysia have all been hit to a varying extent in recent months.
The Indonesian rupiah hit a fresh five-year low, though the Fed's move was welcomed by Deputy Governor of Bank Indonesia, Perry Warjiyo.
"The announcement provides more clarity for the direction of Fed monetary policy," the deputy governor told Reuters.
"That would be positive for financial market stability, including rupiah stability, going forward. A more visible U.S. economic recovery would also help Indonesian exports."
Others are also better prepared for the change. Notably the mood around India has improved enough that the country's central bank could hold off on hiking interest rates on Wednesday, surprising many.
The fallout in commodity markets was generally muted. Gold was the main casualty slipping to $1,220 an ounce and uncomfortably close to the year low at $1,211.80. Copper fell the most in nearly three weeks to be down 0.5 percent.
Oil prices took only a small hit, with investors perhaps encouraged by signs of a pick up in global growth.
Brent crude eased 25 cents at $109.38 a barrel. U.S. oil futures edged back 7 cents to $97.73 a barrel but are still up over a dollar on the week so far.

(Editing by Shri Navaratnam, Eric Meijer and Simon Cameron-Moore)

Monday, December 16, 2013

The Charts Are Crying for a Gold Bottom, Again


The charts are starting to say that gold is near a bottom, but after more than two years of being wrong, technicians have become reluctant to listen.
Gold has been trending lower since peaking above $1,900 an ounce in September 2011. It fell nearly 40% to the June 2013 lows around $1200 an ounce, before bouncing. After a near two-month rally through late August, gold turned lower again, and now sits just above its June lows, settling at $1,235.70 on Friday.
Mark Arbeter, chief technical strategist at S&P Capital IQ, said while there are some signs suggesting a big rally could be in the works, he’d rather not make that call, yet.
“I’d rather sit on the fence here. I’ve tried to pick too many bottoms,” Mr. Arbeter said. “If you’re on the wrong side [of a bear market], it kind of just wears you out.”

There’s an old Wall Street saying, that Warren Buffett has professed to follow: The time to buy is when no one else wants to. Mr. Arbeter acknowledged that his reluctance to call a bottom may be one of the signs suggesting gold may have finally reached one. But he’d still rather wait for more technical evidence, because the downside risk seems too great.
“What we need to do here in the near term is reverse this downtrend by breaking above this bearish trendline since August,” Mr. Arbeter said. That trendline currently extends to about $1,300 an ounce.
To snap the long-term trend, however, he said gold has to get above the August high, “which would complete a very large double-bottom” pattern to suggest the bear market was over.
“Then the serious money will start buying,” Mr. Arbeter said.
If gold falls below the June low around $1,180 an ounce, “there’s a real possibility we to go $1,000 or lower,” Mr. Arbeter said. That would reflect at least a 19% decline from current levels.
But what makes him thing a rally is more likely is the bullish technical outlook of the gold miner sector on the weekly charts.
The Market Vectors Gold Miners ETF (GDX) fell below its June low of $22.21 last month, and hit a five-year low of $20.56 last week. But while prices have made a lower low, some widely-followed momentum indicators, such as the Relative Strength Index, have been trending higher for the last six months.
Chart watchers believe this bullish technical divergence suggests downward momentum has run out of steam. Eventually prices should follow momentum higher, they say.
“That’s a classic set up for a reversal,” Mr. Arbeter said. “The mining stocks tend to underperform during downtrends, then at times can outperform when gold is going higher.”
“That could be a sign that the overall gold market is bottoming,” he said. While he would be reluctant to aggressively scoop up gold, if he had to do something now, he might have a “nibble.”

Sunday, December 15, 2013

Gold eases as Fed meeting looms, stimulus outlook eyed

Getty Images
Gold edged lower on Monday as investors nervously eyed the U.S. Federal Reserve's last policy meeting of the year to gauge whether the central bank would stick to its monetary stimulus.
Silver slipped after data showed that growth in activity in China's vast factory sector slowed to a three-month low in December.
Volumes, however, were thin as traders waited for the outcome of the Fed meeting before taking any big positions.
"We suspect that the central bank will likely not do anything at its meeting, but will likely use the occasion to telegraph its intentions of an imminent move," INTL FCStone analyst Edward Meir said.
"This will likely set up a weaker tone in gold heading into year-end, with a good chance that we could take out our 2013 lows in the process."
Spot gold eased 0.2 percent to $1,235.80 an ounce by 0320 GMT, while silver fell 0.5 percent.
Gold has lost more than a quarter of its value this year - its first annual decline in 13 years, as investors channel money into riskier assets such as equities from safe-haven gold.
Prices could come under further pressure if the Fed decides to taper its $85 billion monthly bond purchases, denting the precious metal's appeal as a hedge against inflation.
Fed policymakers gather for the last time in 2013 for a two-day policy meeting that concludes on Wednesday.
Chairman Ben Bernanke said in June the Fed is expected to begin slowing the pace of bond purchases later this year and would likely end the program by mid-2014. However, in recent meetings officials have stressed the need for a strongereconomy, leaving investors in the lurch about the timing.
In the physical markets, buying was quiet as consumers were hoping prices would drop further this week after the Fed meet.
Demand in the second half of this year has paled in comparison to the first half, when gold prices fell sharply over a short period of time attracting buyers worldwide.

Saturday, December 14, 2013

10 Countries Sitting On Enormous Mounds Of Gold

Gold looks like it is on its way to its first annual drop in 13 years.
This is bad news for central banks that have been diversifying their foreign reserves to include gold,but at a slower pace than in 2012. 
A new report from the World Gold Council showed that year-to-date central bank gold reserves increased by nearly 300 tonnes.
Global official gold holdings totaled 31,913.5 tonnes as of December 2013, according to the latest report from the World Gold Council.
We pulled the numbers on the 10 biggest official reserves.
Note: CBGA refers to the Central Bank Gold Agreements. The first Agreement (CBGA 1) ran from September 27, 1999 to September 26, 2004.  The second Agreement (CBGA 2) ran from September 27, 2004 to September 26, 2009. The third Agreement (CBGA 3) will run for five years from September 2009.

10. India

Official gold holdings: 557.7 tonnes
Percent of foreign reserves in gold:
8.4%
The government has been trying to deter people from purchasing the precious metal and some like Jim Rogers attribute the price decline to lowered emerging market demand. Gold imports have been blamed for the nation's high current account deficit.  India's central bank governor Raghuram Rajan has previously said the country can pay off its debt in gold.

9. Netherlands

Official gold holdings: 612.5 tonnes
Percent of foreign reserves in gold:
54.0%
A large portion of the Netherlands' gold reserves are held in the U.S, and some are held in Canada and the UK. About 10% is expected to be held in Amsterdam. Earlier this year the Netherlands wanted to repatriate its gold.

8. Japan

Official gold holdings: 765.2 tonnes
Percent of foreign reserves in gold:
2.6%
Japan's gold reserves were at just 6 tonnes in 1950, and its central bank registered its first serious jump in gold holdings in 1959, with purchases increasing by 169 tonnes from the previous year.
In 2011, the Bank of Japan sold gold topump ¥20 trillion into the economy to calm investors after the tsunami and nuclear disaster.

7. Russia

Official gold holdings: 1,015.1 tonnes
Percent of foreign reserves in gold:
8.3%
Russia's central bank gold holdings crossed the 1,000 tonne mark for the first time in Q3.

6. Switzerland

6. Switzerland
REUTERS/Michael Buholzer
Official gold holdings: 1,040.1 tonnes
Percent of foreign reserves in gold:
8.3%
In 1997 proposals were announced to sell a portion of the country's gold reserves because they were no longer considered to be "necessary for monetary policy purposes," according to the World Gold Council. In May 2000 the country began selling 1,300 tonnes of what it considered to be surplus gold. 1,170 tonnes were sold under CBGA1 , and 130 tones were sold under CBGA2. Switzerland has announced no plans to sell gold under CBGA 3.

5. China

5. China
REUTERS
Official gold holdings: 
1,054.1 tonnes
Percent of foreign reserves in gold:  1.2%
Gold still accounts for a very small percent of China's $3.7 trillion in foreign exchange reserves, compared with the international average of 10 percent. Building up gold reserves will be crucial to China as it moves to internationalize its currency, and hopes to make it a reserve currency, according to theFinancial Times.

4. France

Official gold holdings: 2,435.4 tonnes
Percent of foreign reserves in gold:
66.1%
France sold 572 tonnes of gold under CBGA 2, and outside of the agreement France transferred about 17 tonnes to the Bank for International Settlements in late 2004 as part purchase of BIS shares. France announced no plans for sales of gold reserves under CBGA 3.
Bank of France has said it won't sell gold reserves because it provides confidence and diversification and can absorb volatility in its balance sheet, Reuters reported.

3. Italy

3. Italy
REUTERS/Denis Balibouse
Official gold holdings: 
2,451.8 tonnes
Percent of foreign reserves in gold:
67.2%
Italy sold no gold under CBGA 1 or 2 and has announced no sales under CBGA3. But in 2011, Italian banks were looking to the Bank of Italy to buy gold and bolster their balance sheets ahead of stress tests.

2. Germany

Official gold holdings: 3,387.1 tonnes
Percent of foreign reserves in gold:
68.7%
German reduced its gold holdings in October. The Bunesbank sell six to seven tons to the finance ministry every year.  Germany sold gold under CBGA 1 and 2 for the purposes of minting commemorative gold coins. In the first year of CBGA3 (2008 - 2009), the Bundesbank sold approximately 6 tonnes, and it has sold 4.7 tonnes of gold since September 7, 2011.

1. United States

1. United States
REUTERS/Michael Dalder
Official gold holdings: 8,133.5 tonnes
Percent of foreign reserves in gold:
71.7%
The U.S. had its largest gold reserves in volume terms in 1952, when reserves totaled 20,663 tonnes. Holdings first fell below the 10,000 mark in 1968.