The golden 'love affair'

According to some analysts - the price could easily go through
$1,000 an ounce. Early Thursday morning, the precious metal made its way to
fresh 25 year highs, easily moving through the $710 per ounce mark.

"I think $1 000 is by no means an outrageous forecast," said Nick Moore,
global commodities analyst at ABN Amro in London.

There are a plethora of international developments which are contributing
to the price increase:

* Iran's nuclear ambitions

Not least of the factors causing investors to run for gold is Iran's
dogged stance on developing its nuclear capacity. The country insists on
continuing with a nuclear program despite US concerns that the program is
intended to create weapons rather than deliver power. It seems (and this is
quite usual in an international 'dispute' of this type) that neither party
is prepared to back down. And that in turn means some form of preventative
activity on America's part is inevitable.

* A weak US currency

At the same time, the once powerful dollar looks set to continue its
slide. The US Federal Reserve has had to raise US interest rates 16 times
in a row - with warnings of more to come. The US dollar is weak - and
investors are looking to gold as a safe store of value going forward.

* A worldwide hunger for commodities

World demand for commodities is insatiable right now. While analysts
squabble about where the demand emanates from and how long the demand will
exist, smart investors are making fortunes buying commodities. While gold
is not a commodity in the same category as base metals (copper, tin, zinc
and the like) it certainly has no problem keeping pace with the price
surges...

this thread will continue...

well interresting since last i posted on this thread a while back seems that petrol prices will be going up and here is some other news for you home owners out there

The bond trader I spoke to, however, noted that bonds had weakened ahead
of the MPC because some minority views held that we could go as high as 100
basis points on Thursday, and this changed sentiment with traders becoming
a lot more defensive.

Also important at the moment is that South Africa's credit extension
increased above 23% to 23.89%, and this is above expectations. We also had
producer inflation at 7.5%, way above the previous 5.9%.

It seems the writing's on the wall - interest rates are going up tomorrow,
but barring any shocks, the tightening cycle should be short-lived...

we live in hope...

It really is amazing how much the gold price has gone up. What I can't understand is why this isn't helping us so much. I remember when the gold price was around $270 and everyone was all "Wow" about it.

What would it take for the gold price to actually help us, from an economy side that is.

Toxin said:

It really is amazing how much the gold price has gone up. What I can't understand is why this isn't helping us so much. I remember when the gold price was around $270 and everyone was all "Wow" about it.

What would it take for the gold price to actually help us, from an economy side that is.

Click to expand...

Since most of SA's gold is exported the place where any benefit will be most evident is in the balance of payments. Exporters earn huge amounts of foreign currency that helps to reduce the inflationary effect of the rampant consumption (importing) currently being experienced in SA.

South Africa's reserve bank governor wore a red tie late last week, and
this set a few hearts racing. Some market watchers viewed his demeanor on
the day, together with the tie, as a bad omen...

But then the tide changed, towards the end of his speech he perked up and
announced just a 50 basis point increase, which was largely expected and
already discounted in the market.

This pushes the repo rate between the central bank and other banks to 8%
and pushes up prime lending rates to 11.5%.

Board member of The Zurich Club in South Africa, economist Chris Hart,
said while watching the governor he had expected a bombshell, but there
wasn't in the end. He said 50 was expected, but those traders who were
playing around by hedging at up to 100 would have to do some fast moving.

Chris also said that he viewed the entire speech as positive because the
governor spoke about broad issues affecting the decision-making process and
Chris felt this showed a more holistic view was now being adopted.

In other words, the bank is not just looking blindly at inflation, but it
taking the inflation effects into account on the one had, and the effect of
a too-high policy on the economy into account, on the other.

So while some expected the worst it worked out okay in the end. We have
got rates up slightly and more importantly, the reading of the whole thing
is that we're not being overly hawkish either.

This leads me to believe out tightening cycle will be a lot shorter than
it could be and we should only get another two more increases in the
current cycle.

Then it will be flat for some time as everything is absorbed.

And then...

Well let's hope we will be in line for radical reductions!

Wednesday, August 9, 2006

Talking of the euro, Mr Rand is behaving in a decidedly robust fashion and
raising the spectre it could help keep inflation under control to some
extent as it keeps our imports cheaper.

But our Mr Rand is no saint and it would be foolhardy basing any sort of
decision-making on his upcoming partying ways, or lack thereof.

As it stands emerging market currencies are undecided as short-covering on
the dollar is expected to see the recent strength, or rather consolidation,
being short-lived. But the outlook for the dollar also seems pretty bearish
at the moment, and this is why commodity currencies are looking a lot
healthier. I wouldn't bet much on them staying strong forever as our
current account deficit continues to widen and our import growth remains
strong (meaning more rands have to be sold to buy the imported goods).

It is all about inflation right now as the reserve bank's recent monetary
meeting indicated again the key concerns leading up into 2007 will be
inflation breaking above 6%, and these concerns remain firmly in place.

Some analysts have been moderating their forecasts for inflation since
what can be viewed as a less hawkish statement. A bit of interesting
research comes our way from ETM (Econometrix Treasury Management), where
they say some analysts are incorrectly looking at a bout of dollar weakness
through the remainder of 2006 on account of a view of a peak in US rates
being reached.

ETM warned against being too optimistic on the inflation outlook just yet,
even though a strong rand scenario would change the inflation outlook.

They list some key points that could change the scenario at the drop of a
hat:

-- An under-recovery in our petrol price
-- Food prices remaining on the rise

Added to this is oil has just this week reached a new all-time record of
$78.64/barrel, which does not help at all.

Our Mr Rand is certainly no Mr Reliability and based on a number of nasty
gremlins lurking in the shadows I would be inclined to anticipate another
two 50 basis point increases (bringing the total to 200 basis points and a
repo rate of 9% and prime of 12.5%) before we see any hope of a resumption
of a down cycle.

Friday August 11, 2006

The US Fed decision to pause their rate tightening for the first time in
over two years (ending an unbroken run of 17 rises since June 2004) has not
gone unnoticed.

The rand immediately dashed for higher ground on the dollar weakness and
was as low as 6.69 to the dollar at one stage, only to stabilise at around
the 6.75 mark.

The dollar suffered on the back of the news as the euro shot up to 1.2863.
This was the key reason for the rand to do so well. But the question
remains - could this be a short party?

There is no doubt that Mr Inflation (Bernanke) is going to get overly
concerned once again if the consumer boom continues unabated for another
month. There is no question, while he may have paused, the trend is still
up and he could well cut again before finally driving the last nail home
for consumers.

At best, the rand's moves are tentative and I believe traders will still
be looking to sell into the rand strength.

Traders, in fact, will be focusing on the 6.70 level and will be
interested to see if the currency can hold ground above this level for any
sustainable period.

Key inflation concerns still remain, including:

-- Higher consumer inflation going forward
-- Oil and food prices on the rise
-- The Fed may tighten once again
-- Current account deficit continuing to widen

Based on all the risks it would be premature reading too much into the
recent rand and bond strength. This could change at the drop of a hat as
soon as we absorb these big local factors, together with the fact that the
US still remains highly volatile from an inflation perspective.

Saturday August 12, 2006

Gold is the lifeblood of South Africa's industry and economy. The price of
the yellow metal and the rand are key ingredients in our trading decisions
down here - but the two bedfellows are not always happy...

If gold rises, it means there is potential for a large number of JSE
listed shares - as long as the rand plays along and doesn't strengthen too
much and at exactly the same time.

This past week we noticed something pretty strange - the gold price
pulling back together with oil, and the dollar strengthening as a global
terror plot was foiled.

It seems analysts thought because airlines were going to be grounded for a
while there would be lack of demand for oil. This led oil to tumble by $2 a
barrel on the day, and gold to be pulled down with it as investors sought
safe haven currencies like the dollar.

But this logic was not to last forever and within just one day the oil
price had rebounded back to $76 per barrel level, with Barclays Capital
saying they believed the up trend was still in tact and were targeting the
$84-$85 level.

What we now need is for the rand to stay weak and gold to rise in tandem
with the oil price.

A local rand trader I chatted to said he thought the rand was about to
weaken further to the 6.84 to the dollar level as the dollar corrected, and
there you have the perfect scenario of gold up and the rand weak. Gold
stocks in SA, which I believe are undervalued, should therefore be in for a
reasonable week if this re-balancing takes place together with a weak
rand.

We live in hope, but I do believe our gold stocks should pick up at some
stage to catch up with their global counterparts - especially when they're
producing great results due to the higher gold and other commodity prices.

Wednesday, August 16, 2006

I recently attended the launch of a novel innovation for South Africans -
the new South African Hedge Fund Index, launched Tuesday by the Bond
Exchange of South Africa (BESA) and Clade Investment Management.

While this index only has 20 funds that are being tracked (out of a
universe of 50 legible for selection), it is good news for South African
investors who have been in the dark for too long on hedge funds.

Hedge funds began with the very purpose of boosting returns when things
turn tough. While results have not been great lately, at least now we will
have some transparency.

The fund will target open-ended funds only, meaning the index will track
those funds you can invest in, and will avoid funds that were highly geared
and became 'closed' fairly soon.

An interesting tidbit of news is CEO of BESA, Garth Greubel, said at the
launch, two more indices relating to the corporate bond and money markets
were also on the cards.

"We are very excited about the hedge fund index and are working on two
more indices. A corporate bond index could be launched in the fourth
quarter of this year and a money market index in the first quarter of next
year," said Greubel.

At least things are starting to happen on all these fronts and investors
are being given opportunities to make more informed decisions.

Director of Clade Investment Management, Carl Liebenberg, said growth in
hedge funds in South Africa had mirrored international precedent with
approximately 12 billion rand invested in approximately 84 domestic hedge
fund managers. He said the first hedge fund in the Clase BESA universe was
launched in July 1998 and as of March 2006 the number in this universe had
grown to 50 with 7.4 billion in assets.

"Investors will be able to see how hedge funds can add value to a
portfolio," said Liebenberg.

Liebenberg said because hedge funds in South Africa were not regulated, no
central database existed and thus, the population of hedge funds had to be
estimated. He however, sent out an open invitation to hedge fund managers
to apply for inclusion.

BESA said as of April 2006, 20 hedge funds of the 50 funds qualified for
inclusion in the South African Hedge Fund Index.

Among the key eligibility criteria are the fact that a fund must have a
minimum asset base of 30 million rand and be open ended i.e. open to new
investments.

BESA said the index would be based to March 2004 and updated monthly.

So while hedge funds offer some exciting potential, it is great to be able
to put the managers on the spot as far as performance goes.

The performance of hedge funds has generally beaten bonds, but
underperformed equities. Watch this space as we enter a more trying time
for equities!

Sa Hedge Funds

Could someone supply more facts or an opinion on the following.

I am looking for an SA fund of hedge funds to invest in which has a minimum subscription level of not more than R500 000. In my search I have thus far found the following.
The African Harvest fund of hedge funds. Minimum subscription R100000. The problem I have with this fund is that it is in the form of an endowment which means the investment has to made for a period of at least 5 years. The management fees also seem very high (1.5% p.a. + 20% of out performance of benchmark (CPIX + 5%)), considering that the underlying funds already charge fees of this magnitude. It was only launched in March 06 so there is no track record.
The Clade SA Inevitable Hedge Fund Index. The minimum is R100000 and the management fee is 1% p.a. However this index doesn’t compare well with the Nedbank Hedge Fund Review. It’s return for the year to May 06 was 22% vs 26.6% for the Nedbank average, and over 2 years to May 06 the returns were 21% vs 28.4%. Could this difference be ascribed to the fact that the Clade index excludes closed funds (and their supposedly superior performance), or are there other hidden charges involved in investing in this fund.

Sunday August 27th 2006

I attended an enlightening talk by leading South African political analyst
Allister Sparks this week, who just returned from a trip to the Middle
East.

In a nutshell, he is not positive about the prospects for peace, or for
the chance of an oil price back at the $30 or $40 levels it was at not too
long ago. In fact, after looking at some of the pictures and listening to
the first-hand insights, we can kiss a cheap oil price goodbye forever.

Sparks says the Middle East region as a whole remains in turmoil. While
there may be a short lull after the recent cease-fire and Iran looking at
the possibility of negotiations, there won't be any solution short term to
any part of that volatile region.

He added this would continue to affect economies everywhere due to the
impact on the price of oil.

"The US was self-sufficient in oil until the mid-1950's when consumption
overtook production. The mid-70's was the key when a long, slow decline
occurred in US production - which reflects what is happening worldwide,"
said Sparks during the Stanlib annual international investment conference
in Johannesburg this week.

Sparks said a 50% increase in consumption from China in the next 25 years
and the fact current consumption far exceeded production needed to be added
to the current mix.

"Previous defaults were made up by more pumping, but the overall market is
now so tight that a crisis anywhere causes a spike in the oil price," he
added.

"There are many crises now and this is why we are seeing all the spikes,"
said Sparks.

The Gulf region controls 64.3% of the world's known global resources and
according to Sparks there are "not many more resources are likely to be
found".

"The Gulf is the fuel tank of the industrialised world without which the
whole thing cannot run," he explained.

"If anything happens there it is likely to affect production," he said.

Sparks said the "jugular" of this region was now controlled by Iran, which
had become the regional superpower thanks to George Bush.

Sparks concluded during a visit to the Middle East and Israel last month
he had noticed a surge of anger in the Arab world pouring out every day in
Arab news.

$100 oil here we come! The recent pullback in the price is going to be
temporary.

It's a pity but Sparks was warned against showing some of the more
controversial pictures he'd taken around the conflict - but be that as it
may - it is not pretty for global politics or for investors not hedged
against rising inflation.

"The recent pullback in the price is going to be
temporary."

That is when the petrol goes down to 35c in september then after about 3 and a half weeks we'll start looking at the 100$ oil price tags oo can't wait !