Gold price may rise further

Investors find ‘safe haven’ in precious metal

By CHOONG EN HAN (The Star)

KUALA LUMPUR: The price of gold may surge further following Standard & Poor's (S&P) downgrade on US credit ratings as investors look for a “safe haven” in the precious metal.

The price of gold climbed above US$1,700 an ounce yesterday following the downgrade of long-term US credit rating.

“The unprecedented S&P downgrade sent shock waves over global equities and commodities markets, driving gold prices to record highs as investors sought the bullion as a safe haven,” said Phillip Futures Pte Ltd analyst Ong Yi Ling.

The next key focus would be on the Federal Open Market Committee meeting scheduled for today. Investors are looking for indications from the Federal Reserve's policy setting committee on its next course of action.

“We expect the Fed to continue its low interest rates, but the wild card would be hints of possible future quantitative easing measures which would benefit gold prices,” said Ong.

Singapore-based Phillip Futures also raised its year-end target of gold to US$1,800 an ounce, with anticipated slower US economic growth coupled with Europe's sovereign debt problems.

“Gold price has gone up by 14% since July, and the market may claw back some of its gains in the near term as the sudden surge in price may just be a knee jerk reaction towards recent developments,” Ong said.

Meanwhile, a Singapore-based head of bullion said gold price might still have some upside amid global economic uncertainties, with the price for the precious metal likely to hover around US$1,800 an ounce by year-end.

“Market talk is that prices may hit US$2,000 by year-end, but personally I would not be so bullish, as we are currently at the crossroads; if the economy starts to shrink, gold prices would follow suit,” he said.

Investors seeking safe haven bet on gold

PETALING JAYA: Gold prices are on the way up again as concerns over debt levels in the United States and the eurozone prompt investors to move their funds to safe-haven assets.

Investors were also betting that rising agriculture commodity prices would mean higher food prices after the Standard & Poor's GSCI Spot Index, a measure of 24 commodities, rose for the third consecutive week.

Gold, also seen as a hedge against inflation and volatility, has seen gains since 2009 as an impasse over how to lower the US deficit continued.

Investor fears have also heightened amid concerns that deficit levels in eurozone members Italy and Spain could not be sustained in the long term.

A Bloomberg report said gold futures climbed for nine straight sessions to July 15, which is the longest rally since November 2009.

Analysts who spoke to StarBiz said prices would rise above the US$1,600 per ounce level in the near term due to inflation in China and the debt crises in the United States and the eurozone.

Singapore-based Phillip Futures Pte Ltd analyst Ong Yi Ling said gold was likely to rise to US$1,650 in the August to September period as demand was traditionally strong during that time.

She said that with Federal Reserve chairman Ben Bernanke not discounting another round of fiscal stimulus, this signalled to the markets that the recovery in the world's largest economy could still be a drag on global growth.

Ong added that demand for gold in China was high as both an investment and retail purchase. Investors like it as a store of value and hedge against inflation while rising incomes have allowed retail customers to buy the metal, according to Ong.

She, however, noted that price volatility would increase as prices rose.

Meanwhile, a Singapore-based gold trader attached to a bank said gold prices would likely rise to US$1,615 in the next one to two weeks before the market rebalanced from the price rise.

“Funds are flowing to gold from securities due to the volatility of the US and European markets but may return to the US market as second-quarter financial results may beat expectations,” he said.

According to Brad Durham, an EPFR managing director, there was fear in the markets of a potential downgrade of US debt and more negative news from the eurozone.

“It was a good, old-fashioned flight-to-safety trade,” he said in a Bloomberg report.

Data from the US Commodity Futures Trading Commission also showed hedge funds and other money managers lifted their net-long gold position by 25%, which is the biggest jump since the week ended Sept 8, 2009.

Another Way to Look at Cheap Gold Stocks

I got this article from my friends,Alfian..i just want to share...good article

By Jeff Clark, editor, S&A Short Report
Friday, May 20, 2011

The gold sector looks ready to bounce.

It's been a rough year for gold stocks. Even though the price of gold is up 5% so far in 2011 (near $1,500 an ounce), gold stocks are underwater. The Market Vectors Gold Miners ETF (GDX), for example, is down about 10% for the year.

And as my colleague Steve Sjuggerud pointed out, you see the same pattern over the longer term, too:

Over the last three years, the price of gold is up over 60%... But gold stocks (as measured by the big gold stock fund GDX) are up less than 20%.

This action has a lot of gold stock investors scratching their heads.

With the commodities complex selling off a bit recently in reaction to a bouncing dollar, many gold bugs are throwing in the towel. They're selling their stocks. And in the process, they're creating some bargains in the gold sector.

Lots of big-name gold stocks like Newmont Mining (NEM) and Agnico-Eagle Mines (AEM) are trading at historically low valuations. The gold sector itself trades at a discount to the S&P 500. The dividend yields on many of the larger companies are higher than the rate on two-year Treasurys.

You don't often see gold stocks trading this cheap. The sector is approaching oversold levels and is at least due for at a short-term bounce.

Take a look at this chart of the gold sector bullish percent index (BPGDM)...

A bullish percent index (BPI) is a measure of overbought and oversold conditions for a market sector. A sector is overbought when the BPI runs above 80, and it's oversold when the BPI drops below 30. Typically, the best time to buy into a sector is after the BPI has reached oversold levels and starts to move higher.

As you can see from the chart above, the best buying opportunity of the past two years for gold stocks was in February 2010 (the blue circle).

Of course, we don't always have to wait for the "best" time to buy to take advantage of opportunities. The red circles on the chart indicate "good" spots to jump into the gold sector. Each spot occurred right after a deep decline in the sector and proceeded with a sharp rally higher. The BPI dropped sharply each time, but didn't quite fall to "oversold" levels.

Look at how GDX behaved each time...

So while the best time to jump into the gold sector is when the BPI drops below 30 and turns higher, the BPI can point out other good times to buy, too. I believe we're approaching one of those times right now.

The gold sector bullish percent index is acting similar to how it was last year. It bottomed in late January/early February... ran higher for a few months... then dropped hard in May. That action led to a bounce in the sector that popped GDX 15% higher in one month.

That's the sort of bounce we should see this year as well.

It's certainly possible, however, that the gold sector will just keep dropping until the BPGDM drops below 30 and the sector becomes officially oversold. You'll want to have plenty of cash available to buy gold stocks if we ever get to that point.

But given the bargain basement pricing of many gold stocks, it's worth it to take a small bullish position in the sector right now.

Best regards and good trading,

Jeff Clark

Dont: Use paper currency, not gold dinar

KUALA LUMPUR: Islamic countries should continue to use paper currency instead of gold dinar, said professor of comparative economic history at International Centre for Education in Islamic Finance Dr Murat Cizakca.

History had shown that the return to coinage system could increase interest rates and inflation would be difficult to control, he said.

Speaking at a public lecture on Islamic Gold Dinar: Myths and Reality organised by Association of Chartered Islamic Finance Professionals and Inceif yesterday, he said money should serve as a medium of exchange, not as a commodity.

“We need to continue with paper currency, and the central banks controlling paper currency should have full autonomy,” he said.

He added that gold supply was dominated by non-Islamic countries.

“The gold dinar will be exposed to speculation as the gold price also has its ups and downs. Islamic countries should continue to use paper currency and increase trade among each other,” he said. - Bernama

Prof. Dr. Murat Çizakça
Professor of Islamic Finance at INCEIF
Member of PDP(Senate), Kuala Lumpur, Malaysia

Prof. Murat Cizakca received his B.A degree in economics from the University of Leicester in England (1968) and M.A. and PhD degrees also in economics from the University of Pennsylvania in the U.S.A (1978). His main specialisation is economic history and he is known for his application of the principles of economic history to Islamic business and finance.