Thursday, August 31, 2006
Deals Send Message Gold Is Undervalued
The Associated Press has some currency numbers. "The dollar rose against the euro and yen Thursday after Washington released generally upbeat data and the European Central Bank hinted at an upcoming interest rate hike. The Commerce Department reported Thursday that consumers boosted their spending in July by the largest amount in six months. Incomes also rose, reflecting stronger wage growth."
"Meanwhile, a separate report showed that orders to American factories dropped by 0.6 percent in July, the biggest decline in three months."
"Earlier on Thursday, the ECB left its key refinancing rate unchanged at 3 percent Thursday. However, bank President Jean-Claude Trichet then pledged 'strong vigilance' on inflation, wording that on previous occasions has signaled a rate rise is a month away."
"The New Zealand dollar gained 1.3 percent against the U.S. currency today, the most among 16 major currencies tracked by Bloomberg. The South African rand dropped the most, losing 1.61 percent."
"Gold futures climbed Thursday, garnering strength from Iran's continued regusal to bow to U.N. demands that Tehran cease enriching uranium, but prices still ended the month with a loss of 2%. Gold for December delivery closed at $634.20 an ounce on the New York Mercantile Exchange, up $8.10 for Thursday's session, but down $12.60 from the contract's month-ago closing level of $646.80."
"December silver tacked on 36 cents to close at a three-month high of $13.03 an ounce, ending 13% above the month-ago close. October platinum closed up $13.70 at $1,251.20 an ounce. It closed at $1,241.60 on July 31. December palladium added $3.40 to end at $348.70 an ounce Thursday, closing 7.9% above the month-ago level."
"Traders also digested the latest merger in the metals sector Thursday. Goldcorp, another miner with operations in Nevada, Mexico and Central America. The deal values Glamis, using Wednesday's closing prices, at $51.49 a share, a 33% premium to its closing price."
"Goldcorp's stock fell 9.2% to close at $27.66, but shares of Glamis closed at $46.12, up 18.7%, after trading as high as $48.07. The strength in the Glamis shares sends a message that some gold assets, and perhaps gold itself, are undervalued, said Nell Sloane, an analyst at NSFutures.com."
"'The merger further consolidates the production and sales of the gold supply and the communication from [Goldcorp] indicated that none of the company's production or reserves would be hedged, and that is already widely known but to some, that suggests that the de-hedging pattern continues and physical supply is crimped,' Sloane said in daily commentary. Glamis Gold shares climbed as much as 24% on news that Goldcorp will acquire the miner for $8.6 billion in stock."
The Financial Times. "Mining companies are generating so much cash at the moment due to high metals prices that it sometimes appears hard for them to know how to spend it."
"Several large groups, such as Anglo American, Antofagasta and BHP Billiton, have unveiled special dividends and share buy-back plans in recent months as a way to give that cash back to shareholders. And some are beefing up their pipeline of projects."
"Whether the acquisitions are paid for with cash or shares, mining executives have been given the confidence to strike ambitious deals by the fact that they are in the middle of the strongest commodities boom for several decades, and are making record profits. 'There are more deals going on as mining companies have more cash, and less to spend it on,' says one London-based mining analyst."
"Bolstering further the country’s creditworthiness, the Reserve Bank of India’s gold reserves value have increased a whopping 49.19% in the last one year, from $4.4 to $6.6 billion, as on the week ended August 19. This was against a mere 6.5% increase when compared to the previous year. In the previous year, gold reserves increased from $4,123 million to $4,395 million."
"Madan Sabnavis, chief economist at NCDEX Ltd, said, 'The increase in value of the gold reserves gives the comfort to the nation that in the worst case scenario, it can pledged for getting loans as happened in 1991 when the country was on the verge of a bankruptcy. Therefore, central banks would prefer to hold on to gold even though it does not earn any return.'"
"The central bank has categorically denied that it has not converted any additional reserves into gold during the reporting period. 'The entire rise in the gold reserves in the last one year is due to the price of gold,' a RBI spokesman said."
"According to London Fix data, the price of gold increased from $438.6 per ounce to $652.25 per ounce, an increase of 42.5%, during the same period."
"This massive increase in gold valuation has taken place when there was a valuation loss of dollar against major currencies. The dollar valuation accounted for a decline of $5 billion in total domestic forex reserves during 2005-06 as against a valuation gain of $2.4 billion in 2004-05."
"Anticipating the US dollar to weaken in the short to medium term, there are few central banks who are contemplating to convert some of its reserves into non-US dollar assets, especially gold, United Arab Emirates being one of them."
"Meanwhile, a separate report showed that orders to American factories dropped by 0.6 percent in July, the biggest decline in three months."
"Earlier on Thursday, the ECB left its key refinancing rate unchanged at 3 percent Thursday. However, bank President Jean-Claude Trichet then pledged 'strong vigilance' on inflation, wording that on previous occasions has signaled a rate rise is a month away."
"The New Zealand dollar gained 1.3 percent against the U.S. currency today, the most among 16 major currencies tracked by Bloomberg. The South African rand dropped the most, losing 1.61 percent."
"Gold futures climbed Thursday, garnering strength from Iran's continued regusal to bow to U.N. demands that Tehran cease enriching uranium, but prices still ended the month with a loss of 2%. Gold for December delivery closed at $634.20 an ounce on the New York Mercantile Exchange, up $8.10 for Thursday's session, but down $12.60 from the contract's month-ago closing level of $646.80."
"December silver tacked on 36 cents to close at a three-month high of $13.03 an ounce, ending 13% above the month-ago close. October platinum closed up $13.70 at $1,251.20 an ounce. It closed at $1,241.60 on July 31. December palladium added $3.40 to end at $348.70 an ounce Thursday, closing 7.9% above the month-ago level."
"Traders also digested the latest merger in the metals sector Thursday. Goldcorp, another miner with operations in Nevada, Mexico and Central America. The deal values Glamis, using Wednesday's closing prices, at $51.49 a share, a 33% premium to its closing price."
"Goldcorp's stock fell 9.2% to close at $27.66, but shares of Glamis closed at $46.12, up 18.7%, after trading as high as $48.07. The strength in the Glamis shares sends a message that some gold assets, and perhaps gold itself, are undervalued, said Nell Sloane, an analyst at NSFutures.com."
"'The merger further consolidates the production and sales of the gold supply and the communication from [Goldcorp] indicated that none of the company's production or reserves would be hedged, and that is already widely known but to some, that suggests that the de-hedging pattern continues and physical supply is crimped,' Sloane said in daily commentary. Glamis Gold shares climbed as much as 24% on news that Goldcorp will acquire the miner for $8.6 billion in stock."
The Financial Times. "Mining companies are generating so much cash at the moment due to high metals prices that it sometimes appears hard for them to know how to spend it."
"Several large groups, such as Anglo American, Antofagasta and BHP Billiton, have unveiled special dividends and share buy-back plans in recent months as a way to give that cash back to shareholders. And some are beefing up their pipeline of projects."
"Whether the acquisitions are paid for with cash or shares, mining executives have been given the confidence to strike ambitious deals by the fact that they are in the middle of the strongest commodities boom for several decades, and are making record profits. 'There are more deals going on as mining companies have more cash, and less to spend it on,' says one London-based mining analyst."
"Bolstering further the country’s creditworthiness, the Reserve Bank of India’s gold reserves value have increased a whopping 49.19% in the last one year, from $4.4 to $6.6 billion, as on the week ended August 19. This was against a mere 6.5% increase when compared to the previous year. In the previous year, gold reserves increased from $4,123 million to $4,395 million."
"Madan Sabnavis, chief economist at NCDEX Ltd, said, 'The increase in value of the gold reserves gives the comfort to the nation that in the worst case scenario, it can pledged for getting loans as happened in 1991 when the country was on the verge of a bankruptcy. Therefore, central banks would prefer to hold on to gold even though it does not earn any return.'"
"The central bank has categorically denied that it has not converted any additional reserves into gold during the reporting period. 'The entire rise in the gold reserves in the last one year is due to the price of gold,' a RBI spokesman said."
"According to London Fix data, the price of gold increased from $438.6 per ounce to $652.25 per ounce, an increase of 42.5%, during the same period."
"This massive increase in gold valuation has taken place when there was a valuation loss of dollar against major currencies. The dollar valuation accounted for a decline of $5 billion in total domestic forex reserves during 2005-06 as against a valuation gain of $2.4 billion in 2004-05."
"Anticipating the US dollar to weaken in the short to medium term, there are few central banks who are contemplating to convert some of its reserves into non-US dollar assets, especially gold, United Arab Emirates being one of them."
# posted by Ben Jones @ 3:44 PM 
