Tuesday, June 28, 2011

Indian Gold

India is estimated to be the largest user of gold in the world.

According to an analyst at Standard Chartered bank, Sudhir Chakraborty, India imports an average of 22 billion dollars worth of gold and silver in a year.
Just recently India imported almost 9 billion dollars worth in a single month. A 500 percent surge from April to May according to Mineweb. May’s imports were up 222 percent compared to 2010.

What is happening here?

A rapidly rising inflation of 8.65 percent is being attributed to the hungry demand for precious metals.

"Rapid inflation is eroding the earnings of the common man. One has to understand how the import of gold has reached $9 billion for a month, while the yearly average is around $22 billion," said Sudhir Chakraborty, bullion analyst at Standard Chartered bank.

"Even as inflation and a widening trade deficit to $15 billion in May continues to weigh on the minds of Indian investors, the demand for fresh gold has continued to grow. This is very confusing, especially when one sees it against the backdrop of a 400% rise in the value of the rupee over the last decade." said bullion analyst Anand Patnaik with a brokerage firm.

And India's central bank, the Reserve Bank of India's decision to grant licenses to seven more banks to import bullion has contributed to the demand.

And just recently, Karur Vysya Bank, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, Punjab and Sind Bank, South Indian Bank, State Bank of Mysore and State Bank of Travancore were added to the list. In fact, since the start of this year some 30 banks in India have been granted permission to import gold and silver.

As jewellers are now getting easy supplies, this is also helping to push up demand.

India's commerce and industry minister Anand Sharma releasing some trade figures recently and pointed out that imports in pearls and precious stones, have risen 24.6% to $ 5.20 billion, gold and silver by 222% to $ 13.5 billion and iron and steel by 13% to $ 1.80 billion.

Rajesh Shukla of the centre for Macro Consumer Research recently pointed out, "People in India have accepted high inflation as a reality of life." Noting that Indians use gold as a hedge against inflation, Shukla said this would be partly responsible for the spike in imports and added that high imports reflected a strong demand for the yellow metal, despite the weakening of the rupee.

"The gold story is puzzling," added A. S Kirolar, a financial analyst. "Consumers are shying away from stocks and bonds and heading to safe assets like gold and real estate, but one cannot understand this given the meagre 12% growth in imports of petroleum and oil products."

Another analyst Shabir Lakdawala, stated that demand for precious metals in 2010 was way stronger than in previous years. "In 2009, India had reported a 19% decline, when the worst monsoon in nearly four decades had dented bullion sales." he said.

According to the World Gold Council in their new publication 'India: Heart of Gold', Indian gold demand has grown steadily 25 per cent despite a 400 per cent price rise of the rupee in the last decade, India is reaffirmed as a key driver of global gold demand, with an expected increase by over 30 per cent in real terms.

This research indicates that by 2020 the cumulative annual demand for gold in India will increase to excess of 1200 tonnes or approximately Rs. 2.5 trillion, at current prices and Indian gold looks set to be the biggest gold holding in the world in the not to distant future.

Tuesday, June 21, 2011

Buy Gold at your Local ATM

"Today, there is no government agency, that would pay for the payment promises of Alexander the Great, Julius Caesar, Louis XIV, Peter the Great, Napoleon or Hitler. They were powerful men in their time, but no bank will cash their checks today. If you take a gold bar, however, that once lay in their treasuries, you will receive its equivalent value anywhere in the world. The durability and universality of gold gives it a money-like authority, that no other money has." (William Rees-Mogg – former chief editor of the London Times)

It will not be long now before one can buy gold at your local ATM.

Currently there are 50 or so ATMs around the planet in which one can deposit cash and watch the machine spit out a small gold bullion bar. These are dotted over the planetary landscape with most currently being in Germany and Abu Dhabi.

In Abu Dhabi the cheapest gold ingots range between Dh450 and Dh550 (500 Dh or AED equals around 133 US dollars) depending on the existing gold price.

The general manager of the Emirates Palace hotel, Hans Olbertz, stated how happy he was to introduce the gold-plated Gold to Go machine to the luxury hotel's marble lobby a year ago.

"The Emirates Palace is already a very attractive venue for guests and visitors, and the gold machine adds another dimension of attractive luxury within the hotel," Mr Olbertz said. "We have a lot of people taking pictures in front of the machine, and buying gold with the Emirates Palace logo as a fantastic souvenir to take back home and give as a gift."

Any day one can see the constant flash of cameras as people stop just to take a picture of the gold ATM. Nour Yahya, 29, was just one who was impressed by the concept. "I wasn't going to buy the gold, but I really couldn't resist, it's just such a cool idea," she said.

Each day around 150 transactions are made by tourists and guests of the hotel according to Mr Olbertz pointing out that it is, "a significant rise from the 50 to 100 pieces of gold that were sold daily a year ago." Mr Olbertz went on, "It hasn't lost any of its attraction over the past year, even with the rise in the price of gold," he said.

"When we have big groups of tourists coming in, they just love it, and if one of them buys gold, the others are quick to follow."

Tourists also do not view their purchases as investments, Mr Olbertz commented, despite gold selling for about US$1,500 (Dh5,509) an ounce in today's market.

"This is more about buying a souvenir with beautiful packaging and the logo of the hotel; something they cannot get anywhere else in the world."

Thomas Geissler, the chief executive of Ex Oriente Lux AG and managing director of Gold to Go, said the 2.5 gram piece of gold, engraved with the hotel's logo, has proven to be the most popular of all the machine's offerings.

"The 1-gram piece is no longer available, because we have plans to replace it with something even more special," he said indicating that a 1-gram gold coin will be introduced into the machine in coming weeks. It is considered to be the only one of its kind that can be used as legal tender, but is more popularly a commemorative coin.

"There are plans to place two more Gold to Go machines around Abu Dhabi, in undisclosed locations. The machines are ready," Mr Geissler said, "and we are just waiting for the final paperwork before we reveal our plans."

Earlier this year, the machines were placed on the ground floor and the 124th floor of the Burj Khalifa, as well as in the Dubai Mall, in the Mall of the Emirates and in the Atlantis Hotel.

"We are really happy to have come to the UAE, where there is so much interest in our gold vending machine," Mr Geissler said.

"And although we have plans for more machines in Abu Dhabi, our love and respect will also go to the first one we installed, in Emirates Palace."

The GOLD to go® gold vending machines come in a variety of versions. Each machine can either be safely bolted to the floor or to a back wall. The location of each machine is chosen with great care and must fulfil a number of criteria before being accepted as a secure location.

The special gold leaf finishing is a true eye catcher. Menu navigation is works with a 19″ inch touch screen. The ATM can be delivered with optional advertising screens.

All GOLD to go® gold vending machines accept the standard credit cards and one can also pay cash anytime.

The software application of the GOLD to go® ATM's is controlled by an internal which is connected to the German system-network via a secure VPN tunnel. Data connection is conducted via a LAN.

Each Gold ATM can issue up to ten products. It is easy to use with a Self-explanatory user interface via a 19 inch touch screen in the local language or multilingual. It also has a windowed showcase of all the products available for verification of purchase decision. There is money laundering and fraud protection incorporated into the machine.

The cost of the gold bars are updated every ten minutes and there is Comprehensive security mechanisms for goods issue and charging and you also get a receipt with the gold bar when you purchase.

Gold ATMs can be currently found in:

Augsburg, Augsburger Aktienbank
Berlin, Galeries Lafayette
Bretten, Pohl und Lawetzki GbR
Essen, Einkaufszentrum Limbecker Platz
Metzingen, Galizia Factory Store
Munich, DAB Bank AG
Reutlingen, Juwelier Depperich
Wiesbaden-Schierstein, Deutsche Golf AG

United Arab Emirates:
Dubai, Atlantis The Palm Hotel
Abu Dhabi, Emirates Palace Hotel
Dubai, Burj Khalifa – AT THE TOP, 124th level
Dubai, Burj Khalifa – AT THE TOP, ground floor
Dubai, Galeries Lafayette – The Dubai Mall
Dubai, Ski Dubai

Bergamo, Orio al Serio International Airport

Las Vegas (NV), Golden Nugget Hotel and Casino

There are plans to introduce the gold ATM in major cities around the world. The Gold ATMs are not just a novelty anymore, but a serious availability to buy gold on the spot and it will not be long now before you will be able to buy gold at your local ATM.

Friday, June 03, 2011

Buy Treasury Bonds or Buy Gold

Buy treasury bonds or buy gold? That is the question. Treasury Bonds have always traditionally been a safe haven to preserve capital. At least up until now. Times change however and now treasury bonds are looking very shaky indeed.

US Treasury Bonds have, for years, been considered the safest bonds or way of saving money in the world. The U.S. government has never, to date, defaulted on a loan. One has always been assured that one will be paid back on US treasury bonds. U.S. government bonds have always been considered among the safest in world. Also called Treasuries, the interest payments, although extremely low, are exempt from local and state taxes even if not from Federal income taxes.

Although it is extremely unlikely the US government would default on repayment of Treasury Bonds, the value of putting ones assets into them is now in question.
In short Long term bonds are going in the opposite direction to gold.

The chart above shows the real picture. While treasury bonds, once the benchmark for asset preservation, are now flat, gold has increased around 25 percent more than US Treasury Bonds.

The chart shows the green line representing the price of one ounce of gold (GLD), measured in U.S. dollars. The blue line represents the price of long-dated U.S. Treasury bonds (TLT), also denominated in U.S. dollars. In terms of dollars, gold went up about 25% over the last year. Treasury bonds were flat.

The importance of this shows up in the interest rate paid and the value of the dollar as against the value of gold. It may sound simplistic but the more the value of the dollar decreases the less each dollar is worth. The less each Treasury bond is worth also and the less value each dollar of interest becomes.

This is distinctly different to the value of one ounce of gold.

The spot price of gold is set each day in London and called the "gold fix." This is the price at which members of the London Bullion Market Association (LBMA) will readily sell gold. Although this was the tradition for many years the price these days, is now "fixed" in three currencies: dollars, euros, and pounds. So when you ask what the price of gold is now, you are more than likely to get that day's "PM gold fix" price fixed each day at 3 p.m. London time to coincide with the market open in the U.S.

Porter Stansberry of the Stansberry Report stated, "People demand gold when their local currency becomes unreliable. People demand gold for savings during periods of global uncertainty. But most importantly of all, people demand gold when they no longer trust their government… which explains the antipathy between government-backed central banks and gold."

“The prices of U.S. Treasury certificates (especially the long-dated variety) are heavily influenced by inflation expectations. To understand why, you have to remember the coupon payment on bonds is fixed. So if the Treasury issued a new 30-year, $1,000 bond today, at current interest rates, an investor would be paid a coupon of roughly $17.50 every six months. That represents a 3.5% annual interest rate. The bond would be said to trade at "par" at this yield.”

Say for example an investor buys a 30 years $1000 bond today at current interest rates. He will receive, at the end of the 30 year period, a total of 60 coupons totalling 1050 dollars in income. So with the principal an investor can expect 2050 dollars in total for the privilege of investing 1000 dollars for 30 years. Not the healthiest return and when you consider the impact of inflation you can expect a real value to the investor over all of a return (including capital) of around 580 dollars. A humungous loss for the investor.

Compare this to the value of gold increasing over a 30 year period. From under 100 dollars to over 1500 dollars. A 1500% increase minimum.

As Porter Stansberry states, "This chart lays bare the false claims of our politicians, bankers, mainstream economists, and media that the economy is recovering, our debt levels are manageable, and the American way of life is safe and sound."

And to answer the question, buy treasury bonds or buy gold, it seems obvious that an increase of 1500 percent is far healthier than a loss of over 1500 dollars.