Thursday, May 11, 2006

 

Funds And Speculators Catch The 'Gold Bug'

Some reports on the volatile currency and precious metals action. "U.S. precious metals shot to fresh highs on Thursday, carried by another wave of investment buying. Aggressive buying by funds and speculators drove the latest gains in a long-time rally fueled by strong demand, a weak U.S. dollar and growing diversification into commodities, dealers and analysts said."

"June delivery gold finished up 2.2 percent, or $15.80 higher, at $721.50 an ounce on the New York Mercantile Exchange. A $1 jump in crude oil futures helped spark some of the gold buying as a hedge against inflation, dealers said. Oil was at $73.25 a barrel."

"Less hedge selling by miners, strong interest in exchange-traded funds, soaring copper, and near-term supply tightness in platinum also supported gold, analysts said. As to the dollar, analysts said its upside was limited as investors increasingly expect U.S. interest rates to peak soon, after the Federal Reserve raised rates for the 16th straight time Wednesday, taking the fed funds rate to 5 percent. The dollar fell to a 12-month low against the euro on Thursday, benefiting gold as a U.S. currency alternative."

"Silver rose above $15.00 an ounce for the first time since January 1981, rising as much as 5.9 percent on Thursday. COMEX July silver settled at $14.9350, up 65.5 cents or 4.6 percent, dealing from $14.15 and $15.20. Spot silver advanced to $14.94/15.04, versus its last close at $14.20/30. The London fix was at $14.43."

"Across the floor at NYMEX, July platinum futures reached a high of $1,299.50 an ounce, before ending at $1,295.60, a rise of $35.90 or 2.9 percent. Spot platinum climbed to $1,293/1,298. June palladium shot up $9.80 or 2.5 percent to $400 an ounce. Futures earlier hit a four-year high of $401.10. Spot rose to $395/400."

"Investors are now looking ahead to Friday's release of the U.S. trade deficit for March, which is expected to widen to $67 billion. 'We really need a trade (deficit) number below $62 billion for a positive dollar reaction,' said Kathy Lien, chief fundamental analyst at Forex Capital Markets. 'Anything worse than $67 billion will further cause an extension in the euro to $1.30,' she added."

"Speculation that China and other Asian countries may be turning to gold as a way to reduce their foreign reserve holdings, mostly denominated in dollars, on a weakening U.S. dollar is also spurring investor sentiment, participants said."

"'With all the rumors still about of China and the Iran issue still playing on people's minds, the dollar's not really driving gold at the moment,' said Darren Heathcote, trading head at Rothschild Australia. 'The pure weight of funds going into commodities is driving prices, not just fundamentals,' he said."

"Despite gold's steep rise, some advisers say it could go higher. Although it is approaching its nominal peak of $850, it is far below its real or inflation-adjusted high. According to the Bureau of Labor Statistics inflation calculator, $850 in 1980 would be worth $2,100 today."

Comments:
You have to wonder when the San Francisco Chronicle starts reporting on gold. Here is an item they rightly bring up:

'Barclays Global Investors followed in January 2005 with the iShares Comex Gold Trust, which trades as IAU. It has acquired almost $1 billion worth of gold.'

'(Warning to investors: The Internal Revenue Service has determined that an investment in these trusts is a 'collectible.' As a result, if held for more than a year, profits are taxed at 28 percent, the federal tax rate on collectibles. They do not qualify for the reduced rate -- 10 or 15 percent -- on long-term capital gains.)'
 
Any opinions of this investment vehicle as a way to short the dollar?

RYWBX
 
kc,

Boy, you don't screw around... $25K minimum investment in that fund. I hadn't heard of this one before.

Sounds interesting, but I can't help but wonder about the ability of the fund managers to juggle all those derivatives in a true market meltdown.
 
yikes. I hold IAU in a conventional IRA, so I wonder if I'll get hit with with the 28% mallet when I'm a geezer.

ouch! quit it!
 
This article clarifies the taxation of gold:
http://www.onwallstreet.com/article.cfm?articleid=2522&pg=ros
 
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