OT - Gold Shoots To a Record As Europeans Seek Safety

The question is if those safety-seeking Europeans are rational or not.

From The Wall Street Journal, 12 May 2010, page C1.

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By CAROLYN CUI And LIAM PLEVEN

Alarmed at the plunging value of their currency, Europeans are leading an exodus out of the euro and into gold.

The burgeoning demand pushed gold for delivery this month up 1.6% to settle at an exchange-record $1,219.90 on the Comex division of the New York Mercantile Exchange. The gains continued in electronic trading after the close, where gold reached $1,233.50 an ounce.

The euro has slumped 13% against the dollar in the past six months and five percentage points of that has come since the beginning of May. The sharp decline has pushed investors around the globe into safe havens?from the U.S. dollar to Treasurys?but among the most popular is gold.

Anecdotal evidence shows Europeans are leading the charge.

ETF Securities, a London-based fund manager, had an inflow of $490 million into its gold-backed funds in the past two weeks. All of that came from European investors, said Nick Brooks, the firm's head of research and investment strategy.

The flight to gold "is not a short-term trend," Mr. Brooks said. "Sovereign debt problems are going to be with us for a longer term."

Gold has been hitting records in euro terms since February. On Tuesday, it reached ¤960.41 in London, a rise of more than 26% this year, more than twice the gains of gold in dollar terms.

Signs of renewed wariness about Europe's fate emerged across markets. The Dow Jones Industrial Average fell 36.88 to 10748.26.

In the credit markets, a closely watched measure of banks' reluctance to lend, the gap between the London interbank offered rate and overnight indexed swaps, called the Libor-OIS spread, rose to 0.2 percentage point, an eight-month high.

And Treasury debt, seen as among the safest investments, continued to thrive. The government had no trouble finding buyers at an auction of three-year Treasury notes. And the 10-year Treasury note gained, pushing its yield down to

3.53%.

Meanwhile, at the Austrian Mint in Vienna, demand for gold coins and bars has soared. Since April 26, the mint has sold 243,500 ounces of gold, compared to

205,300 ounces in the entire first quarter, said Kerry Tattersall, marketing director for the Vienna-based organization.

"It's been exclusively European," Mr. Tattersall said. "I've seen no orders from America, no orders from Japan," he said, a change from the first quarter.

The Mint sells Vienna Philharmonic gold coins weighing up to one ounce and gold bars weighing up to one kilo, mainly through banks in Austria and Germany and gold dealers around the world.

"We saw very strong flows of money coming from European customers," said Adrian Ash, head of research at BullionVault, an online gold trading service provider.

So far in May, 39% of BullionVault's new customers have been from the euro zone, compared to 21% on average since the start of 2009, Mr. Ash said. He attributed the demand to "anxiety over the euro."

The euro's fall was halted only briefly early this week, when European governments announced a $1 trillion bailout package aimed at supporting troubled nations.

The euro clawed back some ground, rising to about $1.30, but has since retraced much of its gains and was at $1.2683 in late U.S. trading.

The flight by Europeans into gold indicates that they still harbor serious concerns about the potential consequences of the bailout, such as rising inflation or slowing growth, both of which would harm the value of their relatively new currency. As long as Europe's problems persist, gold could still rise against the euro.

Gold is typically seen as a hedge against a fall in paper currencies, and the most watched of those is the greenback.

Many investors who piled into gold last year did so amid worries that the U.S. dollar would be the currency in trouble. But with Europe struggling and the U.S. looking relatively strong, the euro has become the target.

"You'll miss the whole picture by focusing only in the U.S.," said Juan Carlos Artigas, investment research manager for the World Gold Council.

Gold and the dollar have, in fact, been generally rising and falling together since April 16, said Walter Zimmermann, chief technical analyst of United-ICAP.

"Our understanding for this has to do with the whole debacle in the euro zone," Mr. Zimmermann said. "The U.S. dollar and gold are the two big beneficiaries of the flight of capital from euro-based investments."

For all the rising demand, gold remains well below its inflation-adjusted high: $2,309.18 hit in January 1980.

?Mark Gongloff contributed to this article.

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Reply to
Joseph Gwinn
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Gold is costly to own and to sell. If you want a gold position, buy GLD a gold ETF that trades at 1/10 of an ounce prce of gold. Get a discount broker and you can get in and out for less than $10 each way. Or buy gold mining stocks.

Reply to
Bill McKee

I think the more accurate question is whether they're tossing their hats in with the winning variety of mass neurosis.

Reply to
Ed Huntress

Joe, thanks for a great article. Yes, lots of people are piling into gold and, a little more puzzling, into the US treasuries. I completely stay away from gold. I may miss a huge rise, but I do not care.

Amusingly, I have been doing the opposite to some of the trends that you mentioned, and bought some Dec 2012 put options on long term Treasuries.

i
Reply to
Ignoramus16466

When I owned silver, back a few years ago, it cost me nothing to store it. I owned about 40 lbs, IIRC. At most you would pay for a security deposit box.

i
Reply to
Ignoramus16466

Not reported was the fraction of the buyers who are Greek.

I must say that I don't think gold will stay at this height for long, but if I were a European (or especially a Greek), I would be looking for a safe harbor, and this is a traditional use for gold. The issue will be preservation of capital, not investment return per se. And there must be some real good buys around.

Joe Gwinn

Reply to
Joseph Gwinn

Joe, I will reply to you later, but here's one more article.

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Gold is setting records again, boosting the holdings of central banks, Armageddon worrywarts, and ordinary people who own gold bars, coins and jewelry.

But few individuals stand to benefit as much as low-profile billionaire Thomas Kaplan. A New York-born commodities magnate who earned a doctorate in British colonial history at Oxford, Mr. Kaplan oversees an empire devoted largely to gold.

Many fund managers and high-rollers have allocated small percentages of their portfolios to gold as a hedge against inflation. But Mr. Kaplan is the bull of bullion. He has gone further than perhaps any other major investor, betting the majority of his wealth on gold and other precious metals. And it reflects his deeply held conviction that global economic instability could bring rising demand for gold.

Through his firm, Tigris Financial Group, and affiliates, Mr. Kaplan has loaded up on bullion and bought up properties in 17 countries on five continents, where geologists are exploring for more. Tigris subsidiaries have taken stakes in mining companies, including tiny firms that have yet to produce an ounce.

Though he won't disclose how much physical gold he owns, Mr. Kaplan, who is 47 years old, controls up to 30% of the shares in some so-called junior miners. Together, his holdings amount to a nearly $2 billion bet on gold, more than the Brazilian central bank's bullion is currently worth.

Thomas S. Kaplan

Chairman and chief investment officer of Tigris Financial Group

47 years old

Doctorate in philosophy from Oxford University

Doctoral Thesis Title: 'In the Front Line of the Cold War': Britain Malaya and South-East Asian Security 1948-1955

Gold Holdings: nearly $2 billion

Family: married, with two children

"I've reached a point where I feel the only asset I have confidence in is gold," Mr. Kaplan said in an interview at Tigris's midtown Manhattan headquarters.

Mr. Kaplan's views are shaped by a concern, shared by many investors, that heavy government spending hasn't contained the woes facing the financial system. Gold hit an exchange record of $1,242.70 a troy ounce at the Comex division of the New York Mercantile Exchange on May

12, days after euro-zone leaders announced a nearly $1 trillion bailout for ailing member states.

He has experience with how supply and demand can drive the price of raw materials. His doctoral thesis studied Britain's involvement after World War II in Malaya, home to prized rubber and tin. That taught him how far people and governments will go to secure natural resources.

Wanting to apply his insights, he went to Israel to advise hedge funds. His nose for finding valuable resources was developed at firms he started that explored for silver and natural gas, which helped him make his fortune.

On Demand and Supply Gold miners are struggling to make major discoveries and it takes years to bring new finds into production. If people want to stock up on gold in a hurry, it will be hard to ramp up production enough to satisfy them, Mr. Kaplan believes.

"You've got a perfect storm with no apparent solution," he said. "If the world does well, gold will be fine. If the world doesn't do well, gold will also do fine ? but a lot of other things could collapse."

Mr. Kaplan is known in the mining industry for his all-in approach. "When he likes something, he dives in with both feet," Egizio Bianchini, a banker at BMO Capital Markets in Toronto, said of Mr. Kaplan, whom he has worked with in the past.

In his charitable endeavors, Mr. Kaplan works similarly. In 2006, he co-founded Panthera Corp., whose "single-minded pursuit" is preserving the world's endangered wild cats, he wrote in an open letter on the group's site in which he cited inspirational quotes by Winston Churchill, Edward R. Murrow and Marcus Aurelius.

Mr. Kaplan is also president of the board of directors at New York's

92nd Street Y, a prominent cultural organization that is a magnet for New York's elite. And he is a benefactor of Eternal Jewish Family, a group dedicated to uniform rules governing conversions to Judaism whose leader resigned last year amid an alleged sex scandal.

In some cases, Mr. Kaplan has invested in gold miners that have also attracted the attention of fellow billionaires, such as George Soros and John Paulson.

Mr. Kaplan put money into one firm, Gabriel Resources Ltd., in late

2007 after Mr. Paulson, who made billions of dollars betting against housing markets, mentioned how low the stock had fallen while they attended "The Nutcracker" at the New York City Ballet.

"I'm there," Mr. Kaplan recalls was his response.

In early March, Mr. Paulson's firm, Paulson & Co., and Quantum Partners, Ltd., an investment fund run by Soros Fund Management, invested $100 million and $75 million, respectively, in NovaGold Resources Inc., a Canadian miner, paying $5.50 a share. Their move came a year after Mr. Kaplan, who has $69 million invested in the company, acquired 30% of the firm for $1.30 a share.

Gold prices are up 7.4% this year, after rising 24% last year, which was the ninth straight up year for bullion. Mr. Kaplan thinks that greater gains are coming. "I wouldn't even say we're in a bull market yet," he said.

But Mr. Kaplan has concentrated risk in a volatile sector, and he knows the potential pitfalls better than most.

In 2008, for instance, a company that Mr. Kaplan founded, Apex Silver Mines Ltd., went bankrupt, felled by the terms of a loan made after Mr. Kaplan left the company in 2004. The company emerged from bankruptcy last year, and now operates as Golden Minerals Co.

In January 2009, Mr. Kaplan received a so-called Wells notice from the Securities and Exchange Commission related to what the company said were "impermissible payments" of $125,000 to government officials by executives at a South American subsidiary.

The SEC delivers Wells notices to inform recipients that it may bring an enforcement action, providing an opportunity for the recipient to persuade the agency not to pursue charges. No charges have been filed against Mr. Kaplan. An SEC spokesman declined to comment.

Concentrated Risk Mr. Kaplan's current investments also carry risk. Gabriel Resources owns Europe's biggest undeveloped gold deposit, in Romania, but has been waiting for government approval for years. He has $100 million at stake in the company.

Mr. Kaplan acknowledges the dangers involved in investing in small mining companies. "It's not the kind of thing I would suggest for widows and orphans," he said.

And, he added, he isn't > >

Reply to
Ignoramus16466

I did read this article.

Mr Kaplan makes us all look like pikers.

He will be very right, or very wrong.

If he is right, he can buy Greece, replace its current management (the Greek government), and run it as an Ancient History Theme Park.

Joe Gwinn

Reply to
Joseph Gwinn

Hard to buy food with a "stock"

Hard goods are far far better.

Pre 64 silver coins, gold coins etc etc

Gunner

Reply to
Gunner Asch

Gunner Asch on Sat, 22 May 2010 21:41:40 -0700 typed in rec.crafts.metalworking the following:

Gold as an "investment" is best done though buying a stock. The group that makes money in a gold rush are the ones selling shovels and beans. But in an economic crisis, an inflationary spiral, currency market collapse, or the like, commodities are "king". A bushel of wheat is a barrel of oil (or was, once upon a time), and similar exchanges. In a deflationary spiral, where the prices are falling, cash is king, as what I buy to day cost less tomorrow. So I can put off buying until tomorrow. I'm inclined to go with silver, mostly because I can buy more ounces, and make "change."

Reply to
pyotr filipivich

Best done with through buying a stock? How do you cash it if you need a head of cattle or a horse?

Gunner

Reply to
Gunner Asch

I used to own silver (40 lbs or so).

Silver used to have two main uses, which were use in electrical industry, as well as making photographic film. The latter use is rapidly disappearing.

In the above post, I have not seen the discussion of price (is gold/silver cheap by some measure), and whenever you do not pay attention to proce, trouble is just around the corner.

i
Reply to
Ignoramus13363

Gunner Asch on Mon, 24 May 2010 01:42:39 -0700 typed in rec.crafts.metalworking the following:

Ameritrade. I think they're charging $8 for a transaction these days. Unfortunately, the wire fees can add up, between the sending and the receiving subtracts $29 from the cash. You can figure the math on how much a stock needs to increase in price before you can show a profit (before taxes.) - now you see why 'penny stock' can be so much "fun" - real easy to make tons of money. All it has to do is double (say from 5 cents to 10) and then you sell all ten thousand shares. I've 200 cash in the account, subtract the commish, I've 190. That buys me 1900 shares at ten cents a share, but I'm already down $20 for the buy and eventual sale. Twenty buck divided by 1900 is a penny a share. In other words, that price has to go up at least two cents before I start showing a profit. But, if I want to "rebate" my profits in a timely manner - wire the money to my checking account - add another 29 bucks. (Yeah, and it doth bite the wax tadpole.) That adds another penny and a half to the shares. so now that 10 cent stock has to clear 13 cents a share - and if it is going to do that anytime soon, why do you think it is selling for 10 cents a share...? Anyway, if I wanted to make money in gold, silver, copper, primarily I'd buy stock in the companies. If I want to have "hard cash" for emergencies - then buying the actual metal (etc) is a different reason for buying "gold".

NB - that is if I wish to make lots of money through gold stocks. If I want lots of the shiny metal, it might be a better idea to take up the trade of "gold miner"/prospector. _Might be_ But don't expect to get filthy "I'll buy the Caddy, you got lunch" "one staircase for going up, another for going down" "pee in a solid gold chamber pot" rich. It might happen, just don't plan on it. Of course, that is trading my labor for a commodity, which I can then exchange for other things.

Or I can buy an ounce of gold (jewelry, coins, bullion) a month, averaging my costs, as well as the occasional case of Jim Beam, some silver (same as for the gold), some toilet paper, etc, etc, etc - you know the drill.

Reply to
pyotr filipivich

I would..and do...go with your last paragraph. Things are NOT going to get better for a long time..and based on what Ive read here and there...we are still a very long way from the bottom yet. Despite the "cheering" of the news writers.

Gunner

Reply to
Gunner Asch

Gunner Asch on Mon, 24 May 2010 14:38:31 -0700 typed in rec.crafts.metalworking the following:

Ayup.

Now, if Only I'd started making these moves ten years ago - Five years ago!

If I knew then, what I know now, I'd still have the same problems, but at a higher cash level.

Reply to
pyotr filipivich

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