Commodity Corner

Views on commodities and energy

from MacroScope:

Should central banks now sell gold?

Central banks in debt-strapped countries have a golden opportunity ahead of them, if you will excuse the pun, to help their countries' finances by selling their yellow metal holdings.

At least, that is the message that Royal Bank of Scotland's commodities chief Nick Moore has been giving in recent presentations -- and he thinks it might happen.   The gist is that gold is now at a record price but banks have not come close to  meeting their sales allowance for the year.

Under the Central Bank Gold Agreement there is a quota of 400 tonnes that can be sold by central banks within a 12 month period and with only about three months to go in the latest period less than 39 tonnes has been sold.  At today's price that remaining 361 tonnes is worth some $14 billion.

Moore believes that euro zone central banks in particular may increase their sales because of the record price and the deteriorating fiscal positions.  Furthermore, he reckons the price of gold will come down over the next 12 months as its  safe-haven appeal eases and inflation expectations fade.

from Summit Notebook:

That’s rich. I meant the wine.

Jeffrey Rubin

What do gold and wine have in common?

Price.

Well, too high of a high price, according to Jeffrey Rubin, director of research at Birinyi Associates, the stock market research and money management firm.

Rubin told the Reuters Investment Outlook Summit on Tuesday that he thought gold prices were "certainly a little frothy" at current levels and that he would rather be a buyer of the gold miners such as Newmont Mining Corp, Barrick Gold Corp, or Freeport-McMoRan Copper and Gold Inc. Gold hit an all-time high  above $1,250 an ounce on Tuesday as investors piled in due to fears that European credit contagion could lead to a double-dip recession.

from Global Investing:

It’s the dollar

Two graphs (from Scott Barber) to remind that what you get from assets depends on the currency:

from Global Investing:

Start building the bunker

They keep telling us that the recession is over so maybe now's the time to start worrying about inflation. That's the view many wealthy investors are already taking, reasoning that a little bit of the yellow shiny stuff will provide some comfort as we start piling our cash into wheelbarrows to do the weekly groceries shop.

It is gold exchange traded commodities (ETCs) that have seen the biggest investor inflows this year so perhaps it's not surprising that the gold price broke through $1,000 an ounce this week.

from From Reuters.com:

Mining gold in Russia’s remote Chukotka region

Chukotka, a region revived in the last eight years by the $2.5 billion investment of Chelsea soccer club owner Roman Abramovich, produced a fifth of Russia's gold in the first half of this year. Gold is the region's passport to growth after Abramovich quit as governor last July.

Only South Africa holds more gold than Russia, but Moscow's fragmented industry has struggled to access vast reserves in its inhospitable Far East. The region was first mined in the 1930s by prisoners of the Gulags set up by Soviet leader Josef Stalin.

from MacroScope:

Gold to go

Automatic teller machines (ATMs) -- 500 of them -- dispensing pieces of gold will be available around Germany, Switzerland and Austria by the end of this year.

That at least is the plan of German precious metals online trading company TG-Gold-Super-Markt.de. The ATMs, to be located at airports, railway stations and shopping malls, are intended to accustom ordinary people to the idea of investing in a physical asset such as gold, the thinking goes.
 
Thomas Geissler, the company's chief executive, said the gold ATMs might even improve relations between the sexes.
 
"I have yet to meet a woman who does not like a gift of gold. It's better than flowers. Flowers are more expensive. They wilt and you (as a man) don't get as many points at home as if you bring gold," he said.
 
A prototype ATM on display for a one-day marketing test at the main railway station in Frankfurt, Germany's financial capital, did indeed reward your correspondent with a 1-gramme (0.0353 ounce) piece of gold.
 
It cost the equivalent of $42.25 -- a 30 percent premium over the spot market price.

from Global Investing:

Gold offers double-edged shine

It was Goldman Sachs who famously predicted oil prices to reach $200 a barrel last year, but there are a school of bullish investors who forecast a substantial rally in gold.

Take Gold and Energy Advisor, which predicts gold will soon reach $2,500 an ounce (from today's $895) then to $5,000. The Florida-based firm argues that gold is the only asset class that’s not only private (as opposed to state-owned), but also liquid, portable, fungible, divisible, and valuable enough that a small amount can store a massive amount of wealth.

from Summit Notebook:

Investors hoarding gold?

This week we've brought you interviews with some of the world's best-known mining and steel companies. One thing that we've heard over and over again is: gold is king. Industry watchers say thinking of gold as an investment is not a bad idea. Check out Conway Gittens' story:

from Global Investing:

Attention, girls: Diamonds may not be your best friend

Marilyn Monroe, who sang "Diamonds are a girl's best friend" in the 50s, might be shocked to find out that the value of dimonds has fallen rapidly in the past six months.

According to Nomura, the average best price for to quality 1-Carat diamonds has fallen below $7,000 from hitting a multi-year high near $9,000 in September 2008.

Barrick’s El Dorado?

Photo

glacier1 Despite their calm assurances, executives at the world’s biggest gold miner Barrick Gold must be at their wits’ end over their stalled Pascua Lama project.

    For two years, Argentine and Chilean officials have been bickering over how to share the lucrative tax proceeds from the cross-border mine, which has been poised for construction to start since late 2006.
    One government official after another  has suggested the green light is imminent. But after making some impatient noises last year, Barrick seems to be biting its lip — resolved for an even longer wait.
    When Barrick reported fourth-quarter results last week, new Chief Executive Aaron Regent put on a brave face about the delay, but his pledge to give an update on the progress in the second quarter suggested a solution is still some way off.
    It is ironic that a diplomatic spat over sharing the spoils of the mine has put the ambitious and controversial project on ice.
    Pascua Lama straddles a freezing, inhospitable spot high in the Andes and faced a storm of protest from Chilean environmentalists before President Michelle Bachelet finally gave it the go-ahead.
    Late last year, an Argentine law protecting Andean glaciers looked like it might be the nail in Pascua Lama’s coffin until a surprise presidential veto kept it off the statute books.
    But none of that matters while the tax row drags on, and the harsh Andean winters mean construction is unlikely to be able to start now until September 2009 at the earliest.
    Company officials have declined to say how much it is costing to maintain the site. Some industry analysts have even hinted Barrick might abandon it altogether.
    But it will take a lot more for the Canadians to lose interest in Pascua Lama. One of the world’s largest untapped gold fields, the site will become even more appealing as prices for the metal nudge up to above $1,000 per ounce again.