Gold In The Low $600s?

Gold In The Low $600s?

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By David Galland, Editor, The Casey Report 19 Nov 2008 at 01:24 PM GMT-05:00

Oflate, I have read a number of analysts, Jim Rogers even, who haveexpressed the view that gold could dip to the mid- to low-$600 level.

<!-- Article Intro Ends --> STOWE,Vermont (Casey Research Advertorial) --  Could happen, but I think not.Already, buyers of physical gold are finding anything near $700 to becheap and so are helping to build a floor under the monetary metal. Onthat topic, a friend sent this item along last week… 

(Gulf News, Nov 12) Riyadh:There has been an unprecedented demand for gold in the Saudi marketrecently, with over 13 billion Saudi riyals (Dh12.75 billion) beingspent on the yellow metal during the last two weeks. 

Demand i****pected to rise still higher as more investors turn to gold as a safehaven in the midst of the global financial crisis, according to marketsources. 

Sami Al Mohna, an expert on the gold market, said thetrend had resulted in a substantial rise in the gold reserves of Saudiinvestors. 

Since soaring to an all-time high of $1,033.39 per ounce in March this year, gold has plummeted 30%. 

Gold for December delivery on Monday rose $8.60 to settle at $726.80, roughly the same level at which it traded a year ago. 

"ManySaudi investors see this as the right time for making investments ingold as its price is the most reasonable one at present," said Al Mohna.

Needless to say, the Saudis have a lot of money. Not just a lot… but a really, really, big, stupendous mountain of the stuff. 

Oh, and like you and me, they’re human. 

Whichmeans they can’t help but glance through the morning’s financial news,adjust the reading glasses, and think, “Blessed Mohammed! This isgetting really, really serious. Maybe just a little extra gold underthe tent right now wouldn’t be such a horrible idea.”

Theyaren’t alone. We are getting regular reports that at these prices,demand is soaring in India--where price inflation is now running around11%, and brisk sales have pretty much wiped out physical supplies ofsmall coins and bars in the U.S. and Europe… among other corners of theworld. 

On that score, a few days ago, correspondent Jim G. sent along the following…

Most of you are probably aware that there’s a shortage of gold bullion coins at the retail level. 

What does that mean?

 

TodayI decided to purchase some gold bullion coins. So I called theNorthwest Territorial Mint, one of the larger operations in the countryor at least the Northwest, so I’ve been told.

 

Icalled to see what the availability was. The operator put me through tosales, where I sat for 30 minutes. I finally got in my car and drove 40minutes there, all the while still on hold. When I finally got there, awoman went in the back to see about bullion coin availability. She wastold they were back ordered with 30,000. Not dollars, orders. If Iplaced an order today, they thought they could fill it in 16 weeks.

 

To sum, I’m buying… if you know a seller.

While we already know $750 is no magicnumber below which gold cannot fall or below which it cannot loiter, Itake no small comfort in the fact that there is a clear increase indemand at that price. In time, as the dollar continues to participatein the fiat currency race to the bottom, that number will ratchethigher and higher still.

Maybe not overnight, but in the next six months to a year, certainly… or as certain as anyone can be about anything these days.

Onething that could get the show on the road pronto-like has to do withthe continuing presence of the other 900-pound gorilla in the room,foreign dollar holders. Like the Saudis, the Chinese have at theirfingertips a lot of greenbacks. Actually, not just a lot, but enough toremake the Great Wall. 

And they, too, are humans. 

Andso, over their morning cup of tea, they finger the abacus whilewatching the daily financial news and say, “Holy Mao! This is gettingreally, really serious. Maybe just a little extra gold in the rice jarright now wouldn’t be such a horrible idea.”

On that front, here’s some news from Hong Kong…

(The Standard, Hong Kong. Nov 14) -- The mainlandis seriously considering a plan to diversify more of its massiveforeign-exchange reserves into gold, a person familiar with thesituation told The Standard. 

Beijing isconsidering changing its asset allocations during the financial tsunamiin order to build up gold reserves "in a big way," the source said.

 

China'sfears about the long-term viability of parking most of its reserves inU.S. government bonds were triggered by Treasury Secretary HenryPaulson's US$700 billion ($HK5.46 trillion) bailout plan, which maymake the U.S. budget deficit balloon to well over $1 trillion thisfiscal year.

 

The US government will fund thebailout by printing new money or issuing huge amounts of new debt,either of which will put severe pressure on the value of the greenbackand on government bond yields.

The United States holds 8,133.5tonnes of gold reserves valued at $188.23 billion. China holds goldreserves of just 600 tonnes, worth only $13.89 billion.

 

Beijing'sreserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futuressenior vice president Colleen Chow Yin-shan said.

In another article from Bloomberg,the head of China’s gold association commented that he thought Chinacould triple its reserves.

And there was this quote from that same article.

China has the world's biggestforeign-exchange reserves at $1.9 trillion, according to data compiledby Bloomberg. It is also the largest overseas holder of Treasuriesafter Japan. China's demand for gold jumped 23% in 2007, making it theworld's second-largest consumer. 

The Asian nationmay buy more gold for its reserves on concern the $700 billion U.S.bank bailout will cause declines in the dollar and Treasuries, theStandard newspaper in Hong Kong reported today, citing an unidentifiedperson.

In the final analysis, we can’t say withcertainty what path gold will take between now and the time this crisisis over. But until I can see some tangible evidence that it has lostits value as money, I’m a happy holder and, at under $750, a buyer. 

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David Galland is the managing director of Casey Research, LLC. The Casey Reportis a monthly letter focused on helping readers get profitablypositioned in powerful long-term trends. In recent months, subscribershave made big profits shorting bank, real estate, and financial stocksthrough easy-to-buy, easy-to-sell ETFs. To allow new subscribers to seefor themselves if The Casey Report is right for them, a two month trial offer is available. Learn more now.

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