Tuesday, November 20, 2012

Soros Buying Gold as Record Prices Seen on Stimulus

By Nicholas Larkin and Debarati Roy - Nov 21, 2012 5:39 AM GMT+0800 Gold’s 12-year rally, the longest in at least nine decades, is poised to continue in 2013 as central bank stimulus spurs investors from John Paulson to George Soros to accumulate the highest combined bullion holdings ever. Enlarge image Soros Buying Gold as Record Prices Seen on Stimulus. The metal will rise every quarter next year and average $1,925 an ounce in the final three months, or 11 percent more than now, according to the median of 16 analyst estimates compiled by Bloomberg. Paulson & Co. has a $3.66 billion bet through the SPDR Gold Trust, the biggest gold-backed exchange- traded product, and Soros Fund Management LLC increased its holdings by 49 percent in the third quarter, U.S. Securities and Exchange Commission filings show. Central banks from Europe to China are pledging more steps to boost growth, raising concern about inflation and currency devaluation. Investors bought 247.5 metric tons through ETPs this year, exceeding annual U.S. mine output. While both sides said talks Nov. 16 between President Barack Obama and Congress over the so-called fiscal cliff were “constructive,” the Congressional Budget Office has warned the U.S. risks a recession if spending cuts and tax rises aren’t resolved. “We see gold as a hedge against the follies of politicians,” said Michael Mullaney, who helps manage $9.5 billion of assets as chief investment officer at Fiduciary Trust in Boston. “It’s a good time to garner some protection in portfolios by having some real asset like gold.” Longest Streak Gold advanced 11 percent to $1,728.85 in London this year, headed for a 12th consecutive annual gain, the longest streak in data compiled by Bloomberg going back to 1920. Prices reached a record $1,921.15 in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities slipped 0.3 percent and the MSCI All- Country World Index (MXWD) of equities climbed 8.2 percent. Treasuries returned 2.7 percent, a Bank of America Corp. index shows. Bullion held through ETPs, the first of which listed in 2003, reached a record 2,604.2 tons yesterday, valued at $144.9 billion. That exceeds the official reserves of every nation except the U.S. and Germany, World Gold Council data show. The SPDR Gold Trust (GLD) alone holds 1,342.2 tons. Soros increased his investment in the trust to 1.32 million shares in the third quarter, the most since 2010, a Nov. 14 SEC filing showed. The stake, with each share representing about a 10th of an ounce, is valued at $221.4 million. Prices advanced 60 percent since January 2010, when Soros called gold the “ultimate asset bubble.” Michael Vachon, a spokesman for the 82-year-old who made $1 billion breaking the Bank of England’s defense of the pound in 1992, declined to comment. Official Reserves Paulson, who became a billionaire in 2007 by wagering against the subprime mortgage market, owns 21.8 million shares in the SPDR Gold Trust, making him the biggest shareholder, a Nov. 15 SEC filing showed. The 56-year-old raised his stake by 26 percent in the second quarter and his holding of about 66 tons exceeds the official reserves of nations from Brazil to Bulgaria to Bolivia. The New York-based hedge fund company reduced its investments in Anglogold Ashanti Ltd. (ANG) and Gold Fields Ltd., the third- and fourth-biggest producers. Armel Leslie of Walek & Associates, a spokesman for Paulson’s fund, declined to comment. Paul Touradji’s Touradji Capital Management LP sold all of its 82,000 shares in the SPDR Gold Trust in the third quarter, according to an SEC filing. Lone Pine Capital LLC, the hedge fund run by Stephen Mandel Jr., cut its stake by 31 percent to 2.6 million shares, and Dan Loeb’s Third Point LLC lowered its bet by 10 percent to 130,000 shares, filings showed last week. Officials from all three companies declined to comment. Nine Strategists While some investors expect stimulus to devalue currencies, the median of nine strategist estimates compiled by Bloomberg show the U.S. Dollar Index, a measure against six major trading partners, will average 82.8 next year, from 80.9 now. Steven Englander, Citigroup Inc.’s head of G-10 strategy, said in an interview this month that the currency market is signaling it isn’t yet convinced the Federal Reserve will fulfill its pledge to pump record amounts of cash into the economy through 2015. Third-quarter demand for gold fell 11 percent, the most since 2009, as China’s slowing growth curbed purchases, the London-based World Gold Council said Nov. 15. India, the biggest buyer in the quarter, consumed 24 percent less in the year’s first nine months as bullion priced in rupees reached a record in September. The Washington-based International Monetary Fund cut its 2013 forecast for world growth twice since July, to 3.6 percent. Inflation Adjusted While prices rose 25 percent since November 2010, the size of the futures market, based on contracts outstanding, fell 30 percent, bourse data show. The metal, down 3.7 percent from this year’s high, has yet to exceed previous records when adjusted for inflation, with its 1980 record of $850 equal to $2,398 today, data compiled by the Fed Bank of Minneapolis show. Hedge funds and other large speculators pared bets on a rally in futures traded on the Comex bourse in New York by 29 percent since Oct. 9, U.S. Commodity Futures Trading Commission data show. They’re still holding a net-long position of 140,162 futures and options, about 10 percent more than this year’s average, and increased wagers by 7.7 percent last week. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The European Central Bank said it’s ready to buy bonds of indebted nations and the Bank of Japan raised its asset-purchase program for the second time in two months on Oct. 30. Quantitative Easing Gold rallied 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011. Investors buying bullion as a hedge against inflation and a weaker dollar generally earn returns only through price gains, increasing its allure as interest rates decline. It rose sixfold since the end of 2000, beating the 34 percent advance in the S&P 500, with dividends reinvested, and the 91 percent return on Treasuries. The Dollar Index fell 26 percent. The first face-to-face meeting between Obama and leaders from Congress on the fiscal cliff yielded optimism and few details about how it would be resolved. The $607 billion of automatic spending cuts and tax increases is scheduled to take effect in January. U.S. equities and Treasuries rose Nov. 16 and gold futures were little changed. Options Trading Credit Suisse Group AG’s Tom Kendall, the most accurate gold forecaster tracked by Bloomberg over the past two years, sees prices averaging $1,880 in the fourth quarter next year and UniCredit SpA’s Jochen Hitzfeld, ranked second, expects $1,950. Deutsche Bank AG’s Daniel Brebner, the next most accurate, predicts $2,300 in the third quarter. Options traders are also bullish, with the seven most widely held contracts conferring the right to buy at prices from $1,800 to $2,200 between November and March, Comex data show. Central banks added to reserves for 19 consecutive months through August, the longest streak since 1964, IMF data show. Nations from Russia to South Korea to Mexico bought more to bring combined holdings to 31,461 tons, equal to about 18 percent of all the metal ever mined. Barrick Gold Corp. (ABX), the world’s largest producer, will report a 41 percent gain in profit to a record $5.04 billion next year, the mean of 10 analyst estimates compiled by Bloomberg shows. The Toronto-based company’s shares fell 25 percent this year and will gain 43 percent in the next 12 months, according to the average of 23 forecasts. Monetary Stimulus Analysts predict Newmont Mining Corp. (NEM) and AngloGold Ashanti, the next-biggest, will also report the most profit ever next year. “It looks as though global monetary stimulus is likely to continue, particularly in the wake of growing fiscal austerity,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion of assets. “That puts pressure on the monetary authorities to stimulate the economy and that will debase the currencies and put a bid under gold.”

Monday, November 19, 2012

BOJ seen defying easing calls as political pressure heats up

By Leika Kihara TOKYO, Nov 20 (Reuters) - The Bank of Japan is expected to stand its ground by keeping monetary policy unchanged on Tuesday in the face of calls from the country's likely next prime minister to pursue "unlimited" easing. The leader of the main opposition, Shinzo Abe, has put the central bank at the centre of economic debate ahead of a Dec. 16 national election that surveys show his party would win, signalling his government would put the bank under much greater pressure to ease policy. Abe has even suggested revising the Bank of Japan law, a step critics say is aimed at clipping the central bank's independence and forcing it to print money to finance public debt that is already double the size of Japan's economy. However, economists expect the central bank to keep monetary policy steady on Tuesday, having eased in September and October. It will prefer to hold fire so it can size up the government to be formed after the Dec. 16 vote for the powerful Lower House. Markets will also look to see how BOJ Governor Masaaki Shirakawa responds to the increased political heat when he addresses a media briefing following the policy meeting. "The BOJ will stand pat this month and probably ease in December by boosting bond purchases by 10 trillion yen ($123 billion)," said Izuru Kato, chief economist at Totan Research. "Even so, it will remain under pressure for more action." Japan's economy shrank 0.9 percent in the September quarter and given headwinds to growth in the current quarter, is widely expected to have slipped into a recession. The BOJ may reflect that by cutting its assessment of the economy and thus signal a readiness to loosen policy as early as next month. Abe, the leader of the Liberal Democratic Party (LDP), has called on the BOJ for bolder policy action, including "unlimited easing", pushing interest rates to zero or below zero and directly underwriting bonds issued to fund public works spending. The comments pushed the yen to a near seven-month low against the dollar and raised expectations the BOJ may act at its next rate review on Dec. 19-20, just after the election. The BOJ is unlikely to give in to some of the extreme demands, such as underwriting debt, but is weighing options beyond its asset-buying and lending programme, its main policy tool, having cut policy rates effectively to zero, sources say. For now, though, many central bankers prefer to hold fire to scrutinise the impact of easing in September and October, which brought the size of the asset buying and lending programme to 91 trillion yen -- roughly equal to Japan's annual state spending. Shirakawa has warned that flooding markets with cash alone will not push up prices when interest rates are already near zero. Japan has been dogged with deflation for years despite the BOJ's ultra-easy policy. The BOJ set a 1 percent inflation target in February and has eased policy four times so far this year. Abe has talked of setting an inflation target of 2 percent or 3 percent. Despite the political pressure, the BOJ is caught in a dilemma. Bank notes in circulation are rising and the balance of deposits that commercial banks park with the BOJ is at a record high of 44 trillion yen as a result of its ultra-loose policy. But bank lending rose a meagre 0.9 percent in the year to October, a sign the extra cash has not prompted companies and households to borrow more for new spending. Under the current law, the BOJ is free to set monetary policy. But the government nominates the governor, deputy governors and board members, which need parliament approval, giving it power to sway the direction of policy. Government pressure has frequently driven the central bank into easing policy, particularly when a rise in the yen raised calls for measures to ease the impact of the stronger currency on the export-reliant economy. While Abe's remarks have helped lift Tokyo share prices on expectations of bolder monetary stimulus, some analysts say his demands are unrealistic and they doubt whether he will stick to them once in power. Many economists also warn that threatening central bank independence or forcing it to underwrite public debt could trigger an unwelcome spike in bond yields by raising doubts in markets about Japan's ability to keep its fiscal house in order.

Thursday, November 8, 2012

ECB seen holding rates, waiting to unleash bond plan

By Eva Kuehnen FRANKFURT | Thu Nov 8, 2012 9:01am GMT (Reuters) - The European Central Bank is expected to leave interest rates on hold on Thursday, waiting instead to show its mettle with a new bond-purchase programme that is ready for use as soon as Spain asks for help. The bank said last month it was ready to buy bonds of debt-strained governments such as Spain and Italy once they had signed up to a European bailout programme. So far no request has been made, but the announcement alone has calmed markets. Underlying economic problems persist, however, and gloomy data indicated earlier this week that the euro zone economy risked shrinking more than expected in the fourth quarter, which the ECB could eventually respond to by cutting rates. ECB President Mario Draghi gave a downbeat assessment of the euro zone economy in a speech to German bankers on Wednesday. "Unemployment is deplorably high," he said. "Overall economic activity is weak and it is expected to remain weak in the near term. And the growth of money and credit are subdued." "In this context, inflation is well contained," he added. "We expect it to fall below 2 percent next year." While a Reuters poll gave an 80 percent chance the ECB will hold its main refinancing rate at 0.75 percent on Thursday, most of the 73 analysts polled expected it will be cut to a new record low of 0.5 percent within the next few months. The ECB's policymaking Governing Council began meeting at around 0800 GMT in Frankfurt. It announces its decisions at 1245 GMT. "We expect the ECB to remain firmly on hold," said Goldman Sachs economist Dirk Schumacher. "Neither the data that have become available since last month nor actions from euro area governments justify additional measures at this point." Before cutting rates further, the ECB will focus on making sure that its record low rates reach companies and households across the euro zone, a mechanism that has been broken by the debt crisis. The new bond-purchase plan -- dubbed Outright Monetary Transactions (OMT) -- is the ECB's designated tool to fix this mechanism. It just needs to be activated and that can only be done by the respective governments requesting a bailout. CALLING FOR HELP Investors and euro zone policymakers have been urging Spain to seek aid from Europe's bailout funds, but Spanish Prime Minister Mariano Rajoy has so far avoided seeking help, saying he wants assurances ECB intervention would bring down Spain's debt costs. Pressure has eased somewhat as yields on Spanish government bonds have dropped by around 2 percentage points since Draghi said in late July the ECB was ready to do "whatever it takes to preserve the euro" - a pledge that heralded the bond-buy plan. Some economists have now raised the possibility that the OMT might not have to be activated considering its impact so far. But Matteo Cominetta, European economist at UBS, said eventually the OMT would be put the test because of the large amount of Spanish sovereign debt coming up for renewal next year - roughly 140 billion euros according to Reuters data. "Next year, you will have a record supply of Spanish bonds up for renewal in a situation where macro economic data will remain very bad for a long time in Spain," Cominetta said. The European Commission said in its autumn forecasts on Wednesday that Spain would suffer a recession almost three times deeper at 1.4 percent in 2013 than the 0.5 percent contraction predicted by Madrid, unless it takes additional steps. The Commission also said the euro zone economy would barely grow next year, but pick up in 2014. Euro zone inflation eased in October to 2.5 percent year-on-year from 2.6 percent in September, thanks to slower energy price growth, though it stayed above the ECB target of below but close to 2 percent.