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Big selloff in silver is likely -- time for miners to buy their own metal
By Choy Leng Yeong
Bloomberg News
Monday, October 11, 2004
http://quote.bloomberg.com/apps/news?
pid=10000086&sid=agSnHMbsUztk&refer=latin_america
Gold may rise for a sixth straight week on speculation
that higher fuel costs will increase the precious metal's
allure as a hedge against inflation, a Bloomberg survey
showed.
Twenty-two of 43 traders, investors and analysts
surveyed from Sydney to New York on Oct. 7 and Oct.
8 advised buying gold, which is sold in dollars. Fourteen
recommended selling the metal, and seven were neutral.
Gold rose 5.5 percent since early September as oil surged
21 percent, reaching a record $53.40 a barrel Oct. 8. High
costs for heating oil, diesel, and natural gas may pinch the
economy and force the Federal Reserve to slow
interest-rate increases. Concern that rising rates would
damp inflation and boost the dollar sent gold to a six-month
low in mid-May.
"Higher oil prices are certainly inflationary," said Stephen
Leeb, who manages $100 million at New York-based Leeb
Capital Management, which has 4 percent in gold equities.
"At the same time, they force the Fed to hold interest rates
lower than they would like, and they also exacerbate our
trade deficit. All three impact positively on the price of
gold."
Gold futures for December delivery rose 0.8 percent last
week to a six-month high of $424.50 an ounce on the
Comex division of the New York Mercantile Exchange,
close to the 15- year high of $433 reached April 1. Prices
are up 13 percent since reaching this year's low May 13.
A futures contract is an agreement to buy or sell a
commodity at a specified price and date.
The majority of gold investors and analysts correctly
predicted the market's direction 13 times in the 25 weeks
since the debut of the Bloomberg survey, including the
past six weeks.
Gold has moved almost in lockstep with oil in the past
month at a correlation coefficient of 0.91. The maximum
reading is 1. The coefficient measures the degree to which
two variables move in unison.
Crude oil, up 64 percent this year, may rise next week,
a separate Bloomberg survey of analysts showed. Refiners
may not secure enough imports to make up for the drop in
output from the Gulf of Mexico, where production
platforms were damaged by Hurricane Ivan.
Some investors buy gold in times of inflation. Gold
futures soared to $873 an ounce in 1980, when U.S.
consumer prices rose 12.5 percent from the previous
year.
U.S. consumer prices rose 2.7 percent in the year ended
in August, compared with 1.9 percent for the 12 months
ended in January, government figures show. They may
rise by 3.5 percent in the next six months, the highest
since May 2001, Leeb said.
The average retail price of a gallon of gasoline in the
U.S. has risen 28 percent this year to $1.938. The
Reuters/CRB index, which tracks 17 commodities including
heating oil, gold, hogs and coffee, reached a 23-year high
of 287.62 last week.
Starbucks Corp., the largest U.S. chain of coffee shops, on
Oct. 6 raised its average price per cup by 11 cents in North
America to cover higher ingredient costs. It was the first
increase since August 2000.
"Higher oil prices are alerting everyone to the inflationary
forces building in the economy," said James Turk, managing
director of Channel Islands-based Goldmoney.com, which
stores about $24 million of gold for owners in 102 countries.
"I remain bullish both on the short-term and the long-term
prospects for gold."
Gold reached to a six-month high on Oct. 8 after U.S.
companies added fewer jobs than forecast last month,
sending the dollar to its biggest decline in two weeks against
the euro.
Payrolls climbed by 96,000 jobs, the Labor Department said.
Economists expected 148,000, the median of 74 forecasts in
a Bloomberg survey.
The dollar fell amid speculation the Federal Reserve will skip
an interest-rate increase at one of its two meetings this quarter.
Rising rates increase the opportunity costs of holding gold
compared with other investments, such as bonds that pay
interest and stocks that offer dividends.
Higher oil prices also contributed to a wider U.S. trade gap,
causing the current account deficit to reach a record $166.2
billion in the second quarter, the Commerce Department said
last month.
The dollar fell against the euro and yen last week after
Federal Reserve Bank of Dallas President Robert McTeer
said the U.S. current-account deficit will lead to a decline in
the value of the dollar. He was the third Fed official in a
month to link the dollar to the deficit.
A widening gap raises concerns that more dollars will have
to be converted to other currencies to pay for imports. Gold
reached a 15-year high on April 1 as the dollar fell to a record
against the euro.
"We've got to see an attack on the 2004 high of around $430
at some point soon -- maybe next week or the week after,"
said Graham Birch, who helps manage about $4 billion in
assets at Merrill Lynch & Co. in London.
Hedge-fund managers and other large speculators increased
their net-long position in Comex gold futures in the week
ended Oct. 5 for a third straight week, the U.S. Commodity
Futures Trading Commission said Oct. 8.
Net gold purchases rose 39 percent to 114,092 contracts, the
highest since April 13, the Washington-based commission
said. Speculators amassed 144,253 contracts in early April,
the most since at least February 1983.
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RECOMMENDED INTERNET SITES
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Free sites:
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http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.freemarketnews.com/
http://www.investmentrarities.com/
http://www.kuik.com/KH/KH.html
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
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http://www.resourceinvestor.com/
Subscription site:
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Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
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