Thursday, December 20, 2012

Harvey Organ's - The Daily Gold and Silver Report: Japan signals ...

Japanese Pension Funds With $3.4 Trillion In Assets Seek Safety In Gold

Today?s AM fix was USD 1,699.50, EUR 1,289.26 and GBP 1,048.10 per ounce.
Yesterday?s AM fix was USD 1,690.00, EUR 1,285.27 and GBP 1,043.21 per ounce.

Precious metals crept higher yesterday and closed with very slight gains for both gold and silver.?

Gold closed up 0.22% or $3.80 to $1698.00. Silver closed with a marginal gain of 0.12% - up 4 cents to $32.21/oz.

Prices crept gradually higher in Asian trading prior to some retrenchment in early European trading.

U.K. inflation held at the highest since May in November as higher food, electricity and gas costs kept consumer-price growth above the Bank of England?s target.

The fastest price rises were seen in the cost of fruit, bread and cereals, as well as in energy bills, the Office for National Statistics (ONS) said. Inflation is now expected by many investors and economists to creep up further next year as further increases in electricity and gas prices take effect.

Many traders are on the sideline as trading slows down prior to Christmas. The focus remains on U.S. lawmakers attempts to cobble together a deal to avert the 'fiscal cliff'. There is optimism that a deal can be done to avert fiscal disaster.

While this may be the case in the short term - another short term political panacea which fails to address the very poor deep rooted structural fiscal challenges may lead to an even greater fiscal disaster in the course of President Obama's second term.

The fundamentals which have led to another annual gain in 2012 (8% in dollar terms) remain in place.

Ultra loose monetary policies from the U.S. Federal Reserve, the Bank of England and other central banks will provide support, as currency debasement and rising inflation leads to continuing demand for bullion.

These fundamentals are leading to broad based global demand for gold - from retail investors to institutions and pension funds. Japanese pension funds are increasingly looking at gold according to an article in the Wall Street Journal this morning.

Diversification into gold is taking place in order to protect against sovereign risk, debasement of currency risk and inflation risk.

In March 2012, Okayama Metal & Machinery became the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Okayama manages pension funds for about 260 small and mid-sized companies in the Okayama area.

"By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, the fund's chief investment officer. "Yields become stable if you put small amounts into as many types of holdings as possible."

Of its 40 billion yen ($477 million) in assets, the fund has invested around ?500 million-?600 million in gold, he said.

Initially, the fund aims to keep about 1.5% of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to ?escape sovereign risk?.

Other pension funds in Japan are following their lead according to the Wall Street Journal.

Japanese pension funds are diversifying into gold "largely to mitigate the damage from possible market shocks".

Japanese pension funds invest mainly in domestic stocks and bonds. Until recently, none have looked to gold or other physical assets.

For example, Japan's Government Pension Investment Fund, the world's largest public pension, held 64% of its assets in domestic bonds, 11% in domestic stocks, 9.0% in international bonds, and 12% in international stocks, as of end-September. The remainder were in short-term assets.

This strategy has produced meager returns at a time when bonds offer historically low yields and the stock market has stagnated.

Worse yet, when crises have roiled the markets, big funds such as the GPIF have seen red. The GPIF lost 7.6% in the 2008 fiscal year, when the global financial crisis struck, and a less-painful 0.3% in the 2010 fiscal year, when the euro-zone debt crisis spooked markets.

Gold, whose price movement isn't historically correlated with those of stocks or bonds, can protect portfolios from being damaged too badly in times of market stress, investment managers say. Low interest rates also justify holding non-yielding gold in place of cash.

Mitsubishi UFJ Trust and Banking Corporation said it has secured more than Y2 billion in investments from two pension funds for a gold fund it started in March.

Gold is also used as a hedge against inflation, which is becoming a bigger concern as global central banks buy ever-more bonds, market watchers say.

The Bank of Japan has increased its purchases of Japanese government debt from the market and is under political pressure to do more. Shinzo Abe, Japan's next prime minister, has said he wants the central bank to employ "unlimited easing measures" to achieve a 2% inflation target.

"Responding to inflation is becoming one issue," said Hiroaki Nakaoka, sales manager for SPDR ETF Japan at State Street Global Advisors (Japan) Co.

Higher inflation could drive up interest rates and erode the value of the Japanese government bonds in which pension funds have invested most of their money.

In some ways, Japanese pension funds are merely tracking a trend that has already been seen in other developed markets, industry watchers say. Gold's potential to offset inflation-linked losses has already prompted some U.S. and European pension funds to buy small volumes. The Teacher Retirement System of Texas pension trust fund, for example, held $235 million of SPDR Gold Shares GLD +0.19% out of its total investment net value of $111.1 billion, as of end-August.

The emergence of gold exchange-traded funds has enabled pension funds to invest in gold without holding the physical product. Some funds restrict themselves from investing in physical assets. The first ETF backed by actual gold was introduced in Japan in June 2008.

ETFs "opened the door" to investment in gold, said Tetsu Emori, chief fund manager at Astmax Investment Management Inc., which manages ?70 billion in assets. Roughly 60% of its portfolio is invested in commodities, with gold accounting for the largest portion.

In March 2011, Mizuho Trust & Banking Co. started incorporating gold in a package product for pension funds that invests in various assets, including gold ETFs. Gold accounts for about 3% of the package. The product has attracted ?180 billion in investment from about 200 pension funds.

The vast majority of pension funds continue to shy away from gold, an investment that offers no yield and, in the case of physical gold, actually costs money to store.

But the potential for market turmoil and expectations of inflation could change that, industry experts say.

The global pension market is of a huge scale - with the Japanese pension market alone worth some $3.4 trillion.?

Even a small allocation by pension funds internationally to gold would result in a significant new source of demand which could be a new fundamental factor which propels prices higher in the coming years.

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The Queen: on seeing the gold bars at the Bank of England:

"Regrettably not all of them belong to us"



(courtesy GATA/Wall Street Journal)



?Section:?Daily Dispatches

10:27a ET Tuesday, December 18, 2012

Dear Friend of GATA and Gold:

Becoming today the first British monarch to attend a Cabinet meeting since George III in 1781, Queen Elizabeth remarked on her visit last week to the Bank of England's gold vault, which was greatly publicized in the United Kingdom. (See?http://www.gata.org/node/12030.)

In a receiving line at 10 Downing St., addressing the chancellor of the exchequer, the UK treasury secretary, George Osborne, the queen said, "I saw all the gold bars. Regrettably not all of them belong to us."

Osborne replied that Britain still has some gold left, and apparently that was that -- nothing about swaps and leases and the purposes thereof, particularly secret currency market intervention to sustain the Anglo-American financial establishment that is bankrupting much of the Western world. (Seehttp://www.gata.org/node/12016.)
If any of our British friends happen to run into the queen -- and she?does?get around, being the most conscientious and selfless public servant in Britain -- they might let her know that GATA would be delighted to make a presentation to her about what her chancellor apparently won't tell her about her kingdom's gold and its former gold.

Of course under one of the basic U.K. laws -- is it the Act of Irrelevance? -- the sovereign and her immediate family are forbidden to do much more than serve as fodder for celebrity programs on television and the celebrity columns in the newspapers. But since there are no serious financial journalists anymore, one has to start somewhere, and if the queen could just keep talking about gold, maybe the issue eventually could break into "Inside Edition," "Entertainment Tonight," and People magazine if not "60 Minutes," "Panorama," and The Wall Street Journal.

The Telegraph's story about the queen's visit to the Cabinet meeting, posted at the link below, contains a 1-minute, 53-second video of the event, with the queen's exchange with the chancellor about gold coming at the 1-minute mark:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

The Wall Street Journal report of Japanese pension funds seeking the safety of gold:

(courtesy Wall Street Journal/GATA)

?Section:?Daily Dispatches

By Kosaku Narioka
The Wall Street Journal
Tuesday, December 18, 2012

TOKYO -- A small number of pension funds in Japan have started to invest in gold for the first time, largely to mitigate the damage from possible market shocks.

Japanese pension funds invest mainly in domestic stocks and bonds. Until recently none have looked to gold or other physical assets.

For example, Japan's Government Pension Investment Fund, the world's largest public pension, held 64% of its assets in domestic bonds, 11% in domestic stocks, 9.0% in international bonds, and 12% in international stocks, as of end-September. The remainder were in short-term assets.

This strategy has produced meager returns at a time when bonds offer historically low yields and the stock market has stagnated.

Worse yet, when crises have roiled the markets, big funds such as the GPIF have seen red. The GPIF lost 7.6% in the 2008 fiscal year, when the global financial crisis struck, and a less-painful 0.3% in the 2010 fiscal year, when the euro-zone debt crisis spooked markets.

Gold, whose price movement isn't historically correlated with those of stocks or bonds, can protect portfolios from being damaged too badly in times of market stress, investment managers say. Low interest rates also justify holding non-yielding gold in place of cash.

Among those moving into gold is Okayama Metal & Machinery Pension Fund, which manages pension funds for about 260 small and mid-sized companies in the Okayama area. It started buying gold in March.

"By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, the fund's chief investment officer. "Yields become stable if you put small amounts into as many types of holdings as possible."

Of its 40 billion yen ($477 million) in assets, the fund has invested around Y500 million-Y600 million in gold, he said.

Mitsubishi UFJ Trust and Banking Corp. said it has secured more than Y2 billion in investments from two pension funds for a gold fund it started in March.

Gold is also used as a hedge against inflation, which is becoming a bigger concern as global central banks buy ever-more bonds, market watchers say.

The Bank of Japan has increased its purchases of Japanese government debt from the market and is under political pressure to do more. Shinzo Abe, Japan's next prime minister, has said he wants the central bank to employ "unlimited easing measures" to achieve a 2% inflation target.

"Responding to inflation is becoming one issue," said Hiroaki Nakaoka, sales manager for SPDR ETF Japan at State Street Global Advisors (Japan) Co.

Higher inflation could drive up interest rates and erode the value of the Japanese government bonds in which pension funds have invested most of their money.

In some ways Japanese pension funds are merely tracking a trend that has already been seen in other developed markets, industry watchers say. Gold's potential to offset inflation-linked losses has already prompted some U.S. and European pension funds to buy small volumes. The Teacher Retirement System of Texas pension trust fund, for example, held $235 million of SPDR Gold Shares GLD -- 1.01% out of its total investment net value of $111.1 billion, as of end-August.

Partly because it is seen as a hedge against inflation, the price of gold has more than doubled since the end of 2007, rising 103% to $1,695.75 an ounce Monday, according to the daily London fixing price.

The emergence of gold exchange-traded funds has enabled pension funds to invest in gold without holding the physical product. Some funds restrict themselves from investing in physical assets. The first ETF backed by actual gold was introduced in Japan in June 2008.

ETFs "opened the door" to investment in gold, said Tetsu Emori, chief fund manager at Astmax Investment Management Inc., which manages ?70 billion in assets. Roughly 60% of its portfolio is invested in commodities, with gold accounting for the largest portion.

In March 2011, Mizuho Trust & Banking Co. started incorporating gold in a package product for pension funds that invests in various assets, including gold ETFs. Gold accounts for about 3% of the package. The product has attracted ?180 billion in investment from about 200 pension funds.

The vast majority of pension funds continue to shy away from gold, an investment that offers no yield and, in the case of physical gold, actually costs money to store.

But the potential for market turmoil and expectations of inflation could change that, industry experts say.


end

What!!!! Kitco??? worried about gold market manipulation? ?It can't be so....

(courtesy GATA)

?Section:?Daily Dispatches

2:50p ET Tuesday, December 18, 2012

Dear Friend of GATA and Gold:

The afternoon metals market roundup by Jim Wyckoff at Kitco News takes note of growing suspicion of manipulation in the gold market. Wyckoff writes:

"Tuesday's major selloff in the gold market, amid no major, fresh fundamental news to move prices so sharply, once again has many market watchers scratching their heads. The past few weeks have seen similar unexpected, and seemingly inexplicable quick downside price moves in gold and silver. Many traders and investors are wondering (and many are frustrated) regarding the role of 'manipulators' in the gold and silver markets.

"Watching, trading, and analyzing the markets on a full-time basis for more than a quarter century, there is no doubt in my mind that bigger players in the market place can and do manipulate markets -- on a short-term basis. The big boys like to catch the market in thin, low-volume conditions so they can have as big of a desired price impact as possible when they execute their bigger trades. Such activity is not exclusive to the gold and silver markets. It happens in nearly all traded markets -- and it is nothing new.

"What is important to remember is that no individual trader or individual firm can control (manipulate) a market's price for very long. Even the major central banks of the world have tried manipulation in the currency markets (central bank intervention to the tune of billions in currency) with only marginal initial success and not a lasting impact.

"Regarding any longer-term conspiracy to manipulate the price of gold or silver (lower), I cannot say for sure if that is the case or not because I have never had the time to completely research the matter. However, I do know that by looking at the longer-term monthly chart for gold I see that prices are in a solid 11-year-old uptrend and that gold has been one of the best upside market performers of any asset class for the past 11 years. If some big outfit has been trying to manipulate gold to the downside, it has not worked very well for them the past 11 years."

Of course GATA long has addressed the "controlled retreat" of central banks in the gold market and we're not going to belabor it today, but the documentation of central bank intervention in the market remains available to Wyckoff and anyone else who wants to make the time to visit our documentation archive here:

Of special interest recently are two confidential reports by the International Monetary Fund dated 1999 and disclosed by GATA this month.

The first is a survey by the IMF about central bank gold leasing, which concluded that about 15 percent of official gold reserves were on loan in 1999. The amount now is almost certainly much higher. That report is here:

The second is a report to the IMF's Executive Board about transparency in central bank accounting, which discloses that Western central banks objected to reporting their gold loans and swaps because doing so would impair their secret intervention in the currency markets:

Imagine if a Kitco News reporter ever tried to interview central banks about these reports and to interrogate them about their activities in the gold market.

But for the time being we'll have to settle for Wyckoff's musing, headlined "P.M. Kitco Metals Roundup: Gold Down Sharply, at 3.5-Month Low, on Technical Selling, Stops Hit; Manipulation Discussed" and posted at Kitco here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

A detailed look at the role of silver for China.

(Michele Smith/silver investing news)

The structure of the silver industry in China is almost unrecognizable from the situation 20 years ago, a new?reportfrom?Thomson Reuters GFMS states. In 1990, China was a relatively small player in silver. Now, the nation is responsible for 17 percent of global demand and produces 14 percent of the world?s silver. GFMS? latest research reveals that China?s expanding role in the silver market has been driven by the liberalization of its silver industry and over a decade of economic growth. After the revolution in 1949,?gold?and silver mining did not feature in the People?s Republic?s economic planning, GFMS explains. Investment in the industry was limited and private trading and personal ownership of the metals was forbidden. Get the latest Silver Investing News articles delivered to your email inbox.?Learn more

China?s low level of silver production in the early 1980s raised concerns among State Council members, who decided that local production needed to expand in order to support industrialization and move the country toward self-sufficiency.

In 1983, regulations that covered the various aspects of the silver and gold industries, from production to export, were rolled out. The People?s Bank of China (PBOC) was granted monopolistic authority to set prices and buy and sell silver.

That initiated the rise of China?s silver production, which resulted in China becoming a surplus producer by the end of the 1980s. Production surpluses continued in the 1990s, and by 1997, the PBOC realized state stocks were more than sufficient for China?s fabrication needs.

Authorities eventually came to see silver as a metal with which to test deregulation. Exploratory sales from state stocks began in 1998. In 2000, an official trading platform was designated and China?s monopoly on silver ended.

China?s silver supply

China is now the third-largest producer of silver after Peru and Mexico.

GFMS estimates that from 1998 to 2006, government stock sales totaled almost 350 million ounces (m/oz), more than 4 percent of global silver supply during that period. However, the firm confidently assumes that the PBOC has stopped selling silver as its stock levels are no longer ?excessive.? Its remaining silver will play a role in diversifying China?s reserve portfolio away from US dollars, the firm notes.

Still, total supply has grown from 94.2 m/oz?in 2002 to 281.5 m/oz?in 2011, the firm reports.

This growth was largely the result of China?s decade-long GDP growth, which drove industrial development by averaging 10 percent annually. Rising commodity prices also accelerated exploration and development.

Mine production more than doubled during this time, increasing from 52.9 m/oz?in 2002 to 104.6 m/oz in 2011. That growth is incidental as it was mostly due to China?s need to supply fabricators with base metals, GFMS explains. The volume of primary silver production in China is limited. 95 percent of its domestically mined silver originates as a by-product, mostly from?lead-zinc?deposits.

Despite this rapid supply growth, China experienced its first silver market deficit in 2002; that deficit grew to 23 m/oz in 2011. This gap has been filled in large part by hefty increases of imported base metal concentrates.

According to GFMS, since 2007, the largest source of silver supply in China has been base metals containing silver. Supply from that source increased from a mere 20.4 m/oz in 2002 to a peak of 150.3 m/oz in 2008.

China?s silver demand

GFMS states that China?s fabrication demand has grown about 12 percent per year from 2000 to 2011, representing a rise in offtake from 48.7 m/oz to 159.5 m/oz.

That is in stark contrast to the rest of the world, where fabrication demand has posted a double-digit fall over the same period, the report notes.

If China?s fabrication demand is viewed in segments, industrial demand is the largest slice. Within that segment, electrical and electronic applications represent the largest slice. Over the past decade, China has also become the world?s largest silver jewelry fabricator.

Growth in China?s investment demand is another notable development. With the liberalization of the market, Chinese investors? participation has grown, elevating the nation from being ?a marginal player just a few years ago ? [to] the world?s leading market for both physical investment and paper trading? today.

An explosion in local precious metals purchases has been driven by macroeconomic conditions in China and abroad, states GFMS. For example, the firm explains that Chinese households have a great deal of cash savings that need to find a home. Yet the property market has been volatile and is now more heavily regulated, the stock market has seen heavy losses and interest rates on savings are close to zero in real terms.

Investment has traditionally been dominated by coins as silver bars were only made available in mid-2009. Last year, China accounted for 8 percent of global net purchases of these products.

Interest has also grown in silver contracts. The launch of silver contracts on the Shanghai Futures Exchange (SHFE) in May means that three exchanges now offer silver paper trading. GFMS notes that the SHFE has become an important commodity exchange for silver futures trading on a global basis, ranked only after the COMEX.

China silver outlook

As long as the outlook for economic growth in China remains positive, the nation is expected to continue playing a major role in the silver market.

Its use and production of base metals are slated for growth, which should result in an increase of by-product silver supply. GFMS also forecasts strong increases in production from primary sources as new projects are realized.

Growth in paper trading could be dramatic, the firm states. Further growth in coin and bar demand in upcoming years is expected as people place their trust in precious metals as a store of value and inflation hedge, notes the firm.

Urbanization and rising incomes also paint a bright picture for silver in China. As GFMS points out, the urban population only exceeded 50 percent in China for the first time last year. That compares to 80 percent in the countries that make up the Organisation for Economic Co-operation and Development and presents a bullish case for demand growth for silver-bearing products.

end



OK!!! Let's get the crooks into ?the copper game and relieve a little pressure on the gold/silver front:


(courtesy GATA/London Financial times)

?Section:?Daily Dispatches

SEC Approves JPMorgan Copper ETF

By Emiko Terazono
Financial Times, London
Monday, December 17, 2012

A JPMorgan-backed investment vehicle that aims to track the price of copper has won the approval of US regulators in spite of strong opposition from users of the metal and senior politicians.

The Securities and Exchange Commission on Monday approved the exchange traded fund, which is backed by physical buying of copper, opening the door to easy investment in the metal. The regulator's approval comes despite opposition from Carl Levin, chairman of the powerful Senate subcommittee on investigations, on the grounds that the proposed products "would allow speculators to create a squeeze on the market."

Senator Levin said that the SEC's approval of the ETF was "a blow to American businesses and consumers" and that it would "increase copper prices and volatility, and undermine market efforts to produce prices in response to supply and demand by copper users."

The SEC said it did not see the products disrupting the supply of copper available for immediate delivery and gave the go-ahead to NYSE Arca, the exchange, to list the JPMorgan ETF. NYSE has a separate request to list a rival BlackRock iShares copper ETF, which is now likely to go ahead too.

Leading US copper users have argued that the ETF would even "wreak havoc" on the global economy, given the metal's use in electrical wiring, which makes it essential to the manufacturing industry.

Companies such as Southwire, Encore Wire, Luvata, and AmRod as well as trading house Red Kite said the launch of the products would result in a "substantial artificially induced rise in near-term copper prices."

JPMorgan said it could not comment until the launch of the copper ETF, but in a previous submission to the SEC the bank had countered that the product would not consume metal but would merely hold it.

If and when the metal is needed by real consumers, the investors can sell their shares in the ETF and the copper will be available to the market within days.

Its regulatory filings suggest JPMorgan's ETF could hold 61,800 tonnes -- the equivalent to 27 per cent of the copper held in the London Metal Exchange's global network of warehouses.

The regulator said it believed the physical copper ETF would "provide another way for market participants and investors to trade in copper" and could enhance competition among exchanges.

The SEC added that the new copper ETFs would "provide investors another investment alternative, which could enhance a well-diversified portfolio" and "could increase competition among financial products and the efficiency of financial investment."

Source: http://harveyorgan.blogspot.com/2012/12/japan-signals-purchase-of-massive.html

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