PRECIOUS METALS: Gold, Silver Surge as Fed Reveals Easing Plans

--Gold, silver surge to six-month highs after Federal Reserve announcement

--Comex December gold rises 2.2% to settle at $1,772.10 a troy ounce

--Comex December silver settles 4.5% higher at $34.778 an ounce

--Easy-money policies can boost demand for precious metals as a U.S. dollar, inflation hedge

--Platinum supported by calls for strike in top producer South Africa

(Adds details on trading halt in the seventh, eighth paragraphs.)


By Matt Day and Nicole Friedman

NEW YORK--Gold and silver climbed to six-month highs Thursday, as the Federal Reserve's announced round of bond buying sparked a retreat in the U.S. dollar and in demand for a hedge against potential inflation down the line.

The U.S. central bank said that it would buy $40 billion of mortgage-backed securities each month and that it could extend those purchases if the U.S. labor market doesn't improve. The Fed also said it would extend its program known as Operation Twist, under which it sells short-term bonds and buys longer-term bonds in an effort to lower borrowing rates.

Gold and other precious metals can gain from easy-money policies similar to the ones announced Thursday as investors seek a hedge against the inflation that can result. Such policies by the Federal Reserve also can take a bite out of the dollar, drumming up demand for dollar-denominated gold.

Gold for September delivery gained $38.50, or 2.2%, to settle at $1,769.10 a troy ounce on the Comex division of the New York Mercantile Exchange, the highest settlement since Feb. 28. The most actively traded contract, for December delivery, rose $38.40, or 2.2%, to settle at $1,772.10.

The September silver contract rose 4.5% to settle at $34.716 a troy ounce, the highest since March 1.

The Fed also extended its outlook for low interest rates to mid-2015, from its previous outlook of late 2014. Low rates can send investors looking for higher yields into precious metals.

Trading in gold was halted by Comex operator CME Group Inc. (CME) twice Thursday as volume spiked before and after the release of the release of the Fed's statement. A CME spokesman said the exchange halted trading for less than a minute at 12:14:47 p.m. EDT, and again at 12:31:20 p.m. EDT.

The exchange uses such trading halts to prevent excessive price volatility.

The Fed's action was widely expected after Chairman Ben Bernanke and other officials hinted at the central bank's willingness to act should economic growth in the U.S. weaken. Gold futures gained 9% between Aug. 2 and Wednesday's close.

Even after those gains, "I think that you had a lot of people sitting on the sidelines just wanting to make sure there wasn't a surprise here" on Thursday, said Matt Zeman, head of trading with Kingsview Financial.

The day's gains could spark another leg higher in gold in the weeks ahead, said Adam Klopfenstein, a senior market strategist with Archer Financial Services.

Gold spent much of this summer in sideways trading, as investors worried about the global economy preferred the U.S. dollar at the expense of precious metals. That sparked some talk that gold's 11-year bull run could be set to stumble, and speculators grew cautious toward the metal.

After the Fed's announcements, "I think we're going to see a lot of the [gold] skeptics throwing in the towel," Mr. Klopfenstein said, adding that some of those traders were closing out bets on lower prices Thursday. "Gold is having an impressive run."

On top of the Fed news, platinum gained an additional price boost as labor unrest continued in South Africa four weeks after violence erupted at a mine owned by Lonmin PLC.

Platinum mine workers called Thursday for a nationwide strike across the sector to begin Sunday. South Africa produces 75% of the world's platinum, according to chemicals and precious metals company Johnson Matthey.

Platinum for October delivery settled up 1.8% at $1,679.50 a troy ounce.

Demand for physical platinum could exceed supply next year, said TD Securities, which forecast that prices would rise above $1,825 a troy ounce in the second quarter of 2013.

http://online.wsj.com/article/BT-CO-20120913-714170.html

Gold as a strategic asset for European investors

During a period of extraordinarily serious economic uncertainty in the eurozone, continued concerns about economic growth in the US heading into an election year, and the possibility of an economic slowdown in China, we wanted to examine the relevance of gold as a strategic asset for euro-based investors to protect their portfolios and to mitigate the systemic risks being faced.

A new study from New Frontier Advisors (NFA) entitled, ‘Gold as a strategic asset for European investors’, was commissioned by the World Gold Council to address these concerns. The NFA’s respected optimiser is used to analyse the statistical significance of gold for adding diversification value to an investment portfolio from the currency base and perspective of a € based investor. It takes a conservative strategic return expectation that the long-term real return of gold is equal to zero.The findings suggests that an optimal strategic allocation to gold for euro-based investors ranges from 2-3% for the most diversified and lowest risk portfolios, to between 4-9% for portfolios split 50/50 between equities and bonds and as high as 10%, for portfolios with the majority of assets in equities.

The NFA study makes a valuable contribution towards the World Gold Council’s own body of investment research, adding further third-party evidence to the case for gold as a foundation asset which provides insurance against extreme events. We believe that the relevance of gold as a strategic asset is likely to continue to grow in a world characterised by sluggish economic performance, poor investment returns, currency wars and high individual and systemic risk. Gold has unique properties which can protect European investor’s portfolios against the systemic risks being faced.

-Diamondne.ws

Gold Jewelry Demand +24% to $26B in 3Q11

Global demand for gold during the third quarter of 2011 surged 59 percent year on year by value to a record $57.7 billion, according to the World Gold Council. Gold demand by volume rose 6 percent from one year ago. Demand from the jewelry sector fell 10 percent in terms of volume to 465.6 tonnes, nonetheless, due to much higher prices for the precious metal, the value of gold demand rose 24 percent to a record $25.5 billion.

According to the World Gold Council’s ''Gold Demand Trends report for Q3 2011,'' jewelry demand from China increased 13 percent year on year to 131.0 tonnes, equivalent to $7.3 billion (RMB 46 billion). The bulk of the increase came from smaller cities as retail chains expanded their networks to meet increasing demand fuelled by rising income levels, the World Gold Council explained. However, gold jewelry demand from India was sluggish, compounded by high inflation rates and greater volatility in the local gold price. Overall, India's gold jewelry demand in the third quarter fell 26 percent by volume to 125.3 tonnes. In value terms, however, India’s gold jewelry demand rose 2 percent to $6.20 billion (INR 314.50 billion).

Investment demand comprising of bars and coins as well as exchange traded funds (ETFs) declined 18 percent to 78 tonnes by volume, but trade value gained 12 percent to $3.86 billion (INR 195.78 billion) during the quarter. Combined gold demand in India fell 23 percent to 203.3 tonnes, which, despite the decline, ranked India as the the largest market for the yellow metal. Ajay Mitra, managing director for Middle East and India for the World Gold Council, said, ''One of the largest reasons for the decline in volumes is that the trade destocked tremendously in the third quarter because of the volatility. They are not sure at what price they are going to stock up themselves.''

He added that the middle class in India’s urban cities have been readjusting their budgets and therefore their priorities in the third quarter. Mitra said that World Gold Council is optimistic that the fourth quarter will post positive growth because of Christmas and India’s wedding season. “While there is a bit of uncertainty in Europe it is not as critical as it was a couple of weeks back. So there should be good demand globally,” he added.

He stated that during Diwali there was robust demand for gold and gold jewelry from semi-urban and rural Indian markets, but demand in the larger cities was on par or slightly down compared with 2010. ''The upcoming festive season, however, is expected to usher an increase in the demand for gold as we look forward to periods of increased price stability resulting in Indian consumers being able to build gold purchases into their household budgets,'' Mitra said.

The World Gold Council concldued that India’s successful monsoon season this year should yield good crops, which in turn should help ease food inflation, while also bolstering rural incomes, thereby boosting the demand in first quarter of 2012.

Marcus Grubb, the managing director of investment at the World Gold Council, said, ''Unsurprisingly investment demand for gold was a key driver during the third quarter. Increasing levels of inflation, the U.S. credit rating downgrade, a worsening euro-zone sovereign debt crisis and the lackluster performance of many assets drove investors to increase holdings in gold in order to protect their wealth.

Given gold’s proven risk mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating.

''The long-term fundamentals for gold remain strong with a diverse and growing demand base coupled with constrained supply-side activity,'' he said.

The quarterly average price for gold rose 39 percent year on year to $1,702.12 per ounce, while the gold price closed at a new record of $1,895 an ounce in London (PM Fix) on September 5 and 6. Global gold investment demand reached a record $25.6 billion. Demand for gold bars and coins increased 78 percent to $21.4 billion. Gold ETFs and similar products witnessed inflows of 58 percent higher than one year ago.

Central bank net purchases amounted to 148.4 tonnes, as they continued to increase their allocation to gold as a percentage of total reserves, during the third quarter. Gold supply rose 2 percent year on year to 1,034.4 tonnes and mine production increased by 5 percent to 746.2 tonnes.

-Rapaport