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Derivatives dealing hits record levels
11:43p ET Thursday, November 17, 2005
Dear Friend of GATA and Gold:
As the dispatch appended here shows, even the
Financial Times is starting to recognize that
gold demand lately has been met only because
central bank dishoarding has compensated for
declining mine production -- and now central
banks are turning buyers even as mine
production continues to decline.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Rally in Gold Unlikely to Run Out
of Steam, Conference Hears
Financial Times, London
Friday, November 18, 2005
http://news.ft.com/cms/s/4d2f88ae-57d7-11da-8866-00000e25118c.html
The mood among gold bugs is more upbeat than it has been for many
years. Gold prices are approaching 18-year highs. Even central
bankers, who have been net sellers of gold for the past 40 years,
have expressed conditional support for increasing their gold
reserves.
Gold dealers have worried for the past two years that the rise in
gold prices from their lows of $250 in 1999 would come to an end
simply because gold rallies have not lasted this long since gold was
freely floated in 1968. But continued demand for the precious metal
has continued to sustain the rally.
"I am getting calls from people I have not spoken to in 15 years
asking me about gold," said one Swiss banker this week at the annual
London Metal Bullion Market Association precious metals conference
in Johannesburg.
In spite of the higher prices, jewellery demand is resilient, while
investment demand has picked up through the launch of tracker gold
funds, known as exchange traded funds. At the same time, gold mine
supplies have remained flat.
Philip Klapwijk, executive chairman of GFMS, the precious metals
consultancy, told the LMBA conference that gold was less important
to central banks because they were more focused on yield and, with
gold lending rates near zero, gold lending activity had dropped.
However, central bankers said that gold still had an important role
to play in their portfolios.
Mr Klapwijk said gold accounted for about 9 percent of the $4,355
billion of the central banks' global combined gold and foreign
exchange reserves. This compared with gold's share of 15 percent of
the $2,011 billion in total reserves held at the end of September
1999.
Maria Guegina, head of external reserves management division at the
central bank of the Russia, said calculations by the Russian central
bank found that about 10 percent of reserves in gold would be
appropriate. This compared with a current holding of 5 percent, or
500 tonnes.
Central bankers from South Africa and Argentina made similar noises.
Kenneth Rogoff, the former chief economist at the International
Monetary Fund, told the conference that central banks in Asia that
had accumulated large dollar reserves in the past five years should
reduce their dollar exposure through diversification into other
assets such as gold because there was a greater chance of a "serious
global recession, and a higher probability of a nuclear attack on a
US city in the next seven years." Such talk is music to a gold bug's
ears.
Peter Zllner, executive director of Oesterreichische Nationalbank,
the Austrian central bank, said his bank held more gold than US-
denominated assets, even though the bank has halved its gold
reserves to about 300 tonnes in the past 10 years.
"Gold continues to be an important asset in a diversified portfolio
because it provides stability against US dollar volatility," said Mr
Zllner.
Central bank gold holdings have been one reason why gold is unlike
other commodities and is not valued on supply and demand trends, as
the 31,000 tonnes in official bank vaults equates to about 10 years
of annual demand.
However, official gold sales of about 500 tonnes a year since the
Central Bank Gold Agreement in 1999 have helped balance the gold
market, as mine production has remained relatively flat for the past
eight years and is now not enough to fill annual gold jewellery
demand. Gold output has matured among traditional producers -- South
Africa, the US, Canada, and Australia.
David Davis, mining investment analyst at Andisa in Johannesburg,
estimates South Africa's 2005 gold output of 300 tonnes to be the
lowest level in 80 years, as higher operating costs from rising
steel, diesel, and labour costs, a stronger rand, and declining gold
grades have resulted in a 30 percent fall in gold output in the past
five years.
Mr Davis estimates that if no new gold reserves are found, current
gold mine supply will fall to less than 50 tonnes in the next 25
years.
"The higher cost of mining and the gold supply outlook are becoming
more of a factor on gold prices," said Paul Merrick, vice-president
commodities at RBC Capital Markets.
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----------------------------------------------------
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The Moneychanger
Box 178
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1-888-218-9226, 931-766-6066
----------------------------------------------------
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