Chinese mining firm files judicial review against Ottawa
The judicial review by Zijin could be a test case on how other Canadian companies approach their deal making with regards to Chinese investments.
Gold prices punched through the $1900 level on Monday after falling by almost $200 an ounce in two days only two weeks ago. This rebound comes in spite of a series of margin hikes for gold futures by the CME, the Hong Kong Mercantile Exchange, the Shanghai Gold Exchange as well as the Thai Exchange. Obviously traders are confident that betting on the long side is worth the risk. I believe the initial leg of this rebound occurred almost as soon as gold hit $1702 an ounce. And, I see prices soon making new record highs in the short-term despite all the regular drivel made by the same usual gold critics. Only two weeks ago they were screaming their regular disparaging remarks and warning people of an impending bubble in the gold market. I wonder what they have to say now.
One interesting view came from analysts at Wells Fargo & Co led by Dean Junkans. According to the report, speculative demand from investors has pushed the gold market into a “bubble that is poised to burst” after prices surged to a record this year.
“We have seen the economic damage” of past bubbles and “feel compelled to ring the warning bells,” Wells Fargo analysts said in a report dated August 16, 2011. .
“There could be substantial risk to gold once the fear that the world is coming to an end subsides,” Junkans said in a telephone interview from Minneapolis. “We are worried about the downward risk.”
A week later, Erik Davidson, the deputy chief investment officer at Wells Fargo and one of the authors of the report, said in a telephone interview with Bloomberg, “The motions that you are seeing are now indications of a market pop.”
In South Africa I have never seen so many so called “investment advisors” be so
consistently wrong for so long. While they are entitled to their own opinion, it gets too much when they continue to denigrate gold. They have been doing this since it was less than $500 an ounce! Surely, by now they must wonder what is going on or at least recognize that the yellow metal has been and remains in a very strong bull market. It is a wonder why the presenters of the various TV business channels even bother to ask these pinheads for their opinion on gold anymore as it is abundantly clear that they know nothing about the gold market. Recently, I received calls from numerous clients who asked me if I heard one presenter on a popular South African radio channel completely slam gold. Evidently in his almost hysterical antagonism towards gold he warned his listeners against owning gold. Yet, while he continues to propagate misinformation about gold, the price keeps moving upwards. However, there is a plus to these individuals. You see sometimes these so called “experts” are so wrong so consistently they can act as a trading indicator. In order to have a successful trade, simply do the opposite of what they say. You don’t even need to look at a chart. You can even name your trading system after them.
Friday’s non-farm payroll report from the US was dismal and shows that the momentum in the US labour market has stalled. Non-farm payrolls showed zero growth in the job market disappointing all market expectations which were looking for a gain of around 90,000. The discouraging news raised expectations of market participants that the Fed will engage in some form of stimulus which will of course boost prices of precious metals. The unemployment rate was unchanged at 9.1%.
While fears of a deepening global recession continue to worry investors, the never ending problems in the Eurozone also give investors cause for concern. Yields on 10-year Italian bonds rose to 5.21% — well above the 5% level that is considered to be the top rate desired by policy makers. On August 08, the ECB purchased Italian and Spanish debt to help calm markets after 10-year rates had spiked to around the 6% level. And, once again Greece was in the spot light after a team of European and International Monetary Fund officials pulled out of Athens when they apparently disagreed over the country’s deficit figures and how to make up for a growing budget shortfall.
An initial loan package, agreed to last year, has since been supplemented by a second bailout deal, but which now hangs in the balance amid demands by some Eurozone countries for guarantees from Greece in the form of collateral. Without that fresh aid, Athens could default on its obligations.
The Greek Finance Minister Evangelos Venizelos denied that there was a rift with the auditors over the country’s ability to meet deficit reduction targets set by the foreign creditors. Mr. Venizelos said that Greece’s economy was expected to contract by “up to 5%” but would not give a figure for the Greek budget deficit, broadly expected to overshoot a deficit target of 7.6% for 2011 by up to one percentage point. Greece has been given ten days to come up with proposals to put the austerity plan back on track and the talk between Greece and IMF will resume on September 15.
Even though European bank stocks plummeted during August, the recent $200 drop in gold probably received more attention in the media. Yet, when the price of gold moves upwards, it goes almost unnoticed. In August Europe’s banks were forced to accept losses of more than 20% on their Greek bonds, which were already trading down by approximately 50%. Royal Bank of Scotland’s accountants decided to actually mark their bonds to the market and took a $1.2 billion loss. The stock collapsed as a result. However, most of Europe’s banks didn’t mark their Greek debt to the actual market price. They merely took losses of around 20%. Banks such as Societe Generale, Deutsche Bank, BNP, Unicredit and Belgium’s Dexia for example have understated their real losses which mean that sooner or later, these banks are going to have to take additional losses on these assets, probably more than double the losses they’ve already taken. That alone would make some of them insolvent. Likewise, almost all of the Greek banks would be left insolvent by a 50% decline in the value of Greece’s government bonds.
Perhaps now, you may understand why I have been so vociferous in my comments about the debt problems in the Eurozone and the US as well as the rhetoric that we constantly hear from leading political figures, policy makers and economists. Most of them have been wrong and they have failed to find a suitable solution to the current global monetary system. If something is not done soon, we will enter the point of no return and the only way from having your savings totally wiped out will be by owning gold.
As investors turn to safe haven assets amidst this turmoil, we can expect to see higher gold prices. In addition, and while I do not recognise them as a safe haven investment, investors will turn to US Treasuries. And, when it comes to currencies unless the SNB intervenes in the currency market I believe we will see further gains in the Swiss Franc.
I have long advocated having at least 10% – 30% of your portfolio in physical precious metals. Since early 2003, this has turned out to be profitable advice, as gold and silver have outperformed most other asset classes.
If you consider the state of the US economy, as well as the instability of global economies, burgeoning global sovereign debt, massive budget deficits of most major western governments and the fact that we are in a global currency crisis, I believe it is more important than ever for investors to own gold as a portion of their portfolios. Inflation, depression, and sovereign default are all possible scenarios I see on the horizon. And, if we see the collapse of the international dollar system, then gold and silver may be the only viable currency for global trade.
I firmly believe that gold is your best insurance in today’s turbulent markets. It is not about seeking yields, it is about protecting your wealth. Historically, it has been proven that gold is an effective preserver of wealth. It is the classic hedge against inflation and can provide a cushion of savings in even the most extreme economic environments. There is not a country on this Earth that doesn’t demand gold, and if you still don’t own any now is the time. But, make sure you buy the physical bullion.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.
