Gold and silver a little ahead of themselves

Gold and silver a little ahead of themselves - Nichols

In the short term gold and silver are likely to decline but, according to Jeff Nichols looking out beyond the next month or two, both will be in a renewed cyclical upswing

Interviewer: Geoff Candy

GEOFF CANDY: Welcome to this week's edition of Mineweb.com's Gold Weekly podcast. Joining me on the line is Jeffrey Nichols. He's the managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital. There's an old market cliché that gets trotted out every year around this time and I thought if I don't do it someone else is going to and given that gold is at $1,500 an ounce and it's the beginning of May, is it time to sell and go away?

JEFFREY NICHOLS: In the short run this year in particular, the markets for gold and silver have gotten a little ahead of themselves - the run up that we have seen in the last month or two has come to an end - we are now in a correction phase and in the very short run gold and especially silver will probably go a little lower but looking out beyond the next month or two - gold and silver will be in a renewed cyclical upswing and I expect prices by year end to be significantly higher than they are today for both metals.

GEOFF CANDY: You talk about a cyclical uptrend and perhaps reaching a peak at this stage. How much of a downside are we likely to see in the cycle and where are we in the greater cycle if you will with gold and silver?

JEFFREY NICHOLS: On the greater cycle we have a long way to go and several years ahead of us of generally rising prices for gold and silver. In the short run the markets, as I said, have gotten ahead of themselves. Silver especially has been driven in large measure in recent weeks by short term speculative buying and momentum buying. Now that the momentum has switched into reverse many of those who went long silver are now going short silver and we could see quite a correction back down perhaps to $35 or $38 an ounce.

GEOFF CANDY: On the gold side of things, how much lower is it likely to get because there was a very interesting piece of research that came out of RBC today talking about cash costs and the miners themselves have a lot of work to do on the cost side because costs have increased so much. Is there a floor in sight above $1,000, I suppose is a better way to put it.

JEFFREY NICHOLS: We could easily see a $10 or $20 drop in the price of gold in the next week or two but beyond that the fundamentals are so overwhelmingly positive for gold and there's a long list of them that are going to support gold over the next year or two or three. Those are the main operators, the main drivers. At the top of the list you have US monetary and fiscal policy but there are a lot of other factors that are also not so much related to the US. The growth in Chinese demand is likely to continue, the growth in Indian demand is likely to continue, the growth for continued buying by central banks is likely to continue and we have also a growing market for gold with new participants coming into the gold market - people in institutions who weren't investing in gold in past cycles are now beginning to invest, taking a look at gold and some are buying in significant quantities. We have seen some institutional buyers buy gold by the tonne, literally in the last half year. That type of buying activity is likely to continue and most of these are very long term holders, particularly ones that are taking delivery and holding bullion in their own vaults or in bank vaults are very unlikely to sell any time soon. These are long term holders.

GEOFF CANDY: Who are these holders? Where are they coming from?

JEFFREY NICHOLS: The most obvious in the last few weeks, we saw an announcement by the Texas University Endowment Fund which is the second largest endowment in the US after the Harvard University Endowment Fund - announced that they had bought some 20 tonnes of gold and were taking delivery, putting it in a HSBC warehouse in New York City and planning to hold onto it for a while. We have seen some hedge funds do likewise and even some insurance companies in the last year or two have begun to invest in gold. A few years ago that would have been unheard of.

GEOFF CANDY: Are we seeing a trend towards more physical delivery of gold do you think or is that something to continue going forward or are we likely to see the rise of other instruments and perhaps jewellery as well.

JEFFREY NICHOLS: Really all of the above. You will see more individuals and institutions taking physical delivery or participating through vehicles that assure them that there is real gold held in a vault some place on their behalf, whether it's an ETF in which the gold isn't specifically allocated to a particular investor or some of the gold trusts that have sprung up or have grown in the last few years which are actually holding gold in a safe deposit box or in a vault on behalf of a particular investor. So these new mechanisms that have come into play in the last few years are having a significant impact and they are taking physical gold and putting it in depositories or in bank vaults where it is off the market for a period of time, so it's much different from the purchaser of a derivative whether it's a future's contract or an option or some other instrument who is very apt to sell at the first negative turn in the market.

GEOFF CANDY: Looking at recent events and clearly the death of Osama Bin Laden is likely to heighten geo-political risk over the short to medium term, how do you see this playing out with regard to the safe haven play?

JEFFREY NICHOLS: I think the world is still vulnerable to terrorism with or without Osama Bin Laden and in the very short run it is even more apt if we have some reaction from some terrorists in the US or elsewhere - but over time I don't think it's going to really much matter. We are in an age of terrorism. It's something that people are in a sense maybe getting used to and it's unlikely to have any significant long term or lasting impact on gold or silver prices. I suppose if you had an attack of some sort there might be a quick reaction but I don't think it will last. Really the market is driven by fundamentals, supply and demand and those are the fundamentals that are likely to govern in the next few years.

GEOFF CANDY: Two questions to close off with. The Akshaya Tritiya Festival is happening on 6 May in India. There has been a lot of buying ahead of that on any dips that we have seen. How important is this festival in particular but the festival season coming up for the gold market at this stage?

JEFFREY NICHOLS: It's very important. India is one of the largest markets for gold and silver for that matter, in first or second place with China. The market continues to grow as the economy does well - as more people in India enter the middle class and have more disposable income, some of that is likely to go into gold - some of it is likely to go into silver. There is as you said, heightened buying during the Festival season coming up which is a big plus. On the other side of the coin you have rising interest rates in India and just in the last day or two the Reserve Bank of India jacked up rates again. That may have some short term negative impact but over time the real driver in India, as in China, is growing income, growing wealth some of which as a matter of custom and tradition goes into gold and silver but increasingly there's a new wave of investment in both of these countries. Part of it is also related to the introduction and growing popularity of new investment vehicles in both countries and suit their populations including ETFs and bank deposit programmes and other new vehicles that are going to aid Indian and Chinese and other in South East Asia to participate in the gold market in a way they haven't in the past.

GEOFF CANDY: Finally, if we look at the US market and there were a lot of understandable implications with regard to S&P's credit watch in terms of US sovereign debt, how do you see this playing out with regard to inflation and currency weakness in the US?

JEFFREY NICHOLS: I see it really as being quite significant. In fact it may be the single most important driver of gold prices in the next couple of years. The inability of the US to get its federal budget under control and to at least have some promises of reducing the significant debt overhanging the US economy is really a troubling matter and is putting the Federal Reserve in a position of literally having to finance the US federal deficit through the printing of money. It's very inflationary. It's depreciating the value of the dollar against foreign currencies and it's one of the main driving factors supporting the rising gold trend.

Eleven factors that could drive gold to $5000

Eleven factors that could drive gold to $5000 - Jeff Nichols

$1700 gold this year, $2000 next and possibly $3000 or perhaps $5000 this decade before it eventually falls back are Jeff Nichols' predictions for the gold price.

NEW YORK -

Specialist gold analyst, Jeffrey Nichols, has continually been ratcheting up the number of reasons he sees for being bullish on gold, however, as he told Mineweb on the sidelines of the New York Hard Assets Conference this week, some of these are really expansions of the multitude of factors he had already pointed out to his followers in previous analyses.

But Nichols's reasoning is still worth mentioning as he has been very correct in his predictions for the direction of the gold price over the past few years, even if perhaps some of his price predictions have not quite been achieved - at least not yet. One needs to classify Nichols as a cautious gold bull - he is not one to make forecasts of enormous gold price increases in the short term, although he does feel the price has a fair way to go yet.

Let us look at his eleven reasons:

1. The U.S. Fed's policy of an unprecedented level of money creation, coupled with zero (or effectively negative) interest rates

2. Difficulties in reaching agreement on the U.S. budget, coupled with enormous U.S. sovereign debt and eroding creditworthiness

3. The ongoing depreciation of the U.S. dollar which he sees no end to under the current economic regime.

4. Accelerating global inflation. This is being brought about by rising industrial and agricultural commodity prices globally.

5. Fear of sovereign debt defaults in Europe and doubts on the viability of the Euro as a continuing common currency amongst all its participants.

6. MENA unrest and the consequent threat to global oil supplies

7. Growing affluence in the developing world - particularly among nations like China and India whose citizens have a propensity towards gold accumulation as their personal wealth store and guard against inflation and unforeseen events.

8. The move by Central Banks to become buyers of gold rather than sellers.

9. The onset of vehicles like ETFs which make it easier for the investor to buy gold.

10. The increasing acceptance of gold as an investment class amongst major investing institutions.

11. Limited growth in global mine production of gold.

Overall in Nichols' view these factors all come together to generate a growing gap between global supply and demand.

To these we might add ever rising mining costs - it is becoming increasingly expensive to mine gold, in particular outside the dollar area as the effects of a product which is paid for in depreciating dollars, while input costs continue to rise in local currencies, take their toll. Although many mining companies quote seemingly low cash costs, there is no standard definition of how these are calculated and they frequently do not incorporate some ongoing financial and capital costs. There are a fair number of mining companies out there who will find it difficult to remain profitable with gold below $1,000, while the cost of developing new mines becomes more and more costly as often now the tenor of the deposits becomes lower and lower and mines may need to be developed in areas of increasing political and geographical risk.

Nichols went on to expand on each of the eleven reasons for bullishness in the gold market mentioned above and ended with his predictions of where the gold price will likely run. He reckons gold's fortunes remain very bright with all these supportive price drivers and looks for new all-time highs in the months ahead. He does stick his neck out on a specific price prediction and reckons gold has every chance of reaching $1700 by the year end, $2000 in 2012 and "possibly $3000 or even $5000" before a time when he feels the cycle may eventually reverse later in the decade.

He also prefers physical metal to gold stocks as being a safer bet. While the upside potential in stocks may be higher he considers these as also carrying significant additional risk - although he does feel there is a place for these as part of a precious metals portfolio.

RHB Islamic sasar RM20 juta

KOTA BHARU 28 April - RHB Islamic Bank yakin produk pembiayaan pajak gadai Islamnya atau Ar-Rahnu mampu mencatatkan jumlah transaksi sehingga RM20 juta pada akhir tahun ini, selepas lapan bulan dilancarkan.

Ketua Pegawai Eksekutif merangkap Pengarah Urusannya, Abd. Rani Lebai Jaafar berkata, perkhidmatan Ar-Rahnu yang dimulakan di cawangan RHB Islamic Bank Kubang Kerian di sini, berpotensi besar untuk dikembangkan berikutan minat tinggi masyarakat tempatan menyimpan barangan kemas.

Beliau berkata, jumlah golongan yang bekerja sendiri, peniaga kecil dan usahawan wanita yang ramai di negeri ini juga menjadi faktor kepada produk ini diperkenalkan di sini bagi membolehkan mereka mendapatkan pembiayaan alternatif dan modal.

Katanya, pajak gadai Ar-Rahnu itu akan diperluaskan ke cawangan lain dengan sasaran awal ialah Kuala Terengganu, Terengganu; Bangi, Selangor dan Kuching, Sarawak.

"Kelantan dipilih sebagai tapak awal produk Ar-Rahnu kami kerana melihat kepada minat mendalam masyarakat negeri ini terutama golongan wanita yang gemar menyimpan barang kemas.

"Pembiayaan Ar-Rahnu kami memberi peluang kepada mereka yang kesempitan untuk mendapatkan keperluan tunai dan juga modal perniagaan dengan pembiayaan sekurang-kurangnya RM100 sehingga RM50,000.

"Produk ini terbuka kepada semua warganegara Malaysia berumur 18 tahun ke atas dengan tempoh gadaian antara enam bulan sehingga setahun," katanya selepas Majlis Pelancaran Produk Pembiayaan Pajak Gadai Islam (Ar-Rahnu) dan Fiesta Perbankan Islam 2011 bank itu di sini, hari ini.

Hadir sama, Ketua Perbankan Transaksi RHB Islamic Bank, Tengku Panglima Raja Tengku Mohamad Rizam Tengku Abdul Aziz; Pengarah Wilayah Timur Kumpulan Perbankan RHB, Nazri Othman; Ketua Perbankan Runcit RHB Islamic Bank, Zulkahairi Zabiri dan Pengurus RHB Islamic Bank Kubang Kerian, Norliza Abdul Shukor.

Abd. Rani berkata, urus niaga pajak gadai Islam itu akan menggunakan empat jenis konsep syariah iaitu Qardhul Hasan, Ar-Rahnu, Wadiah Yad Dhomanah serta Al-Ujrah dan mereka menerima emas jenis 999, 950, 916, 875, 835 dan 750 untuk digadai.

Jelasnya, RHB Islamic Bank sehingga kini mempunyai 12 cawangan di seluruh negara dengan lebih 250,000 pelanggan dan perkhidmatan perbankan berasaskan syariah itu turut disokong oleh 196 cawangan konvensional Kumpulan Perbankan RHB lain.

Beliau berkata, RHB Islamic Bank mengunjurkan penambahan cawangan-cawangan bank itu di negeri yang belum ditembusi seperti Kedah, Melaka, Perlis dan Pahang.

Source: http://www.utusanonline.com.my/utusan/info.asp?y=2011&dt=0429&pub=Utusan_Malaysia&sec=Korporat&pg=ko_02.htm

REVOLUTION IS BORN

April 23 2011, Masjid Saidina Umar al-Hattab, Damansara Heights, Kuala Lumpur. This is The Day. On this day the Dinar Revolution was born in Malaysia. What has happened before, including 12^th August 2010 Launch of Dinar Kelantan, was a prelude to this decisive moment – THE 23^rd APRIL 2011.

On the 23^rd April at 9:30am Dinar activists from various locations and groups gathered in Masjid Saidina Umar al-Hattab in Damansara Heights, KL, to announce that Muslims of Malaysia declare unconditional war on Riba at all fronts and will fight Usury in closed ranks under one leadership, WORLD ISLAMIC MINT.

To that end a cooperative of dinar users has been just formed and is called KODINAR. All dinar activists, wakalas, researchers and mere users in Malaysia shall join the cooperative which will become one single nation-wide vehicle providing network and legal footing for the rapidly growing movement. KODINAR expects to have at least 20,000 members by the end of 2011 and 100,000 in 2012. Each member will have membership card entitling him to a number of privileges but most importantly making him/her part of the most dynamic social movement in the country. KODINAR will have its website that will list in a structured order all its members who offer products or services. In the next few years the KODINAR's catalogue will be more popular than Yellow Pages.

The first Wadiah institutions – developed and endorsed by World Islamic Mint (WIM) – will soon be opened in Kota Bharu and Kuala Lumpur to serve the KODINAR members with Shariah-compliant safekeeping and payment facilities; wadiah account holders will be able to transfer funds by means of Internet and SMS payment technologies. Muamalat Research Unit of International Islamic University Malaysia is collaborating with WIM on development of Gold Dinar ATM, dinar prepaid cards and debit cards, the latter be integrated with Wadiah accounts. The Wadiah is not intended to replace the physical coins with electronic ones but only to complement the primal structure which will always be physical, that is actual coins in the hands and pockets of people. The Shairah Council of WIM has officially stated the Zakat cannot be paid with electronic dinars (through wadiah accounts) but must be paid with physical gold and silver coins by the owner of wealth to Islamic authority hand to hand.

The 23^rd April is the first in the mega-series of KODINAR Meetings that will continue every Saturday at the same time and place: Masjid Saidina Umar al-Hattab, Damansara Heights, 9:30am. The program is as follows:

1. Testimonials. Anyone is welcome to tell his/her story of using Halal Money

2. Explanation on architecture of Dinar Economy

3. Explanation on KODINAR

4. Signing up to KODINAR (the registration forms will be available)

5. Arming the participants with promotion pamphlets and stickers

6. Buying and selling Dinar&Dirham

7. Dirham Market. After the gathering anybody can bring his/her goods and products (anything) and sell them in specially allocated space at the masjid premises. Sidi Mazli agreed to shift for the time being his market initiative from Shah Alam/Bangi to Damansara Heights, for consolidation purpose.

Who should come to KODINAR Meeting? Any muslim and non-muslim who decided to choose Honest and Sound money of Islam. Those who denounce the deception and fraud of paper money and the Banking Mafia (in short Bafia). Those who believe in organic and sustainable way of living. All moral folk who feel responsibility for future of this country and indeed the planet.

“We were receding from Riba for the last 300 years until almost nothing left behind but today we stopped, we completely stopped, and from now on we push Riba back until it disappears from Malaysia. It took the usurers 300 years of enormous struggle with people and nature to establish their evil system that doesn't work, let alone that it doesn't make sense. But it will take us 3 years to establish Muamalat because the whole creation is in favour of it”, – said Prof.Umar Ibrahim Vadillo, the founder of WIM and the author of the two most urgent fatwas of our time, Fatwa on Paper Money and Fatwa on Banking.

“Our slogan is ONE UMMAH – ONE CURRENCY. Since the inception in 1992 WIM strives to develop the best circulating gold and silver coins for the Muslim World. It has gathered the most prominent scholarship in the Shariah monetary field. WIM is non-commercial organization with the sole purpose of determining and monitoring the unified global standard for Islamic Dinar and Dirham. In the same way as Euro integrated West Europe Gold Dinar and Silver Dirham will integrate the Ummah. But unlike Euro the Islamic currency has no inflation, never had and will never have. As of now we have only the government of Kelantan minting the standard coins in Malaysia; recently the governments of Selangor and Kedah have expressed interest to mint their dinar and dirham compliant to the global standard ”, – said Irwan Ambak, Director of World Islamic Mint Malaysia, the Malaysian chapter of WIM.

As the Age of Science coming to an end the heart of man is yearning for Truth. The Gold Dinar cannot be understood with intellect but with heart it can easily be.

See you next Saturday, 30^th April. Bring along your friends. Free entrance. For enquiries phone the organizer at 019-218 3317 (Hajj Awaludin).