Dhanteras 2012, 11 November, Subh Muhurat

Dhanteras, Sunday, Kartik Kishna Paksha, 11 November 2012

In the North India, Dhanteras is celebrated with full faith and enthusiasm on Trayodashi of Kartik Krishna Paksha. Apart from Dev Dhanvantri, Goddess Lakshmi and God Kuber are worshipped on this day. Yam Dev is also offered Deep Dan on this day. it is believed, worshipping Yam Dev on this day cancel any premature death. After worshipping Yam Dev, a lamp should be lit on the entrance door facing the south direction for the whole night. Few coins and kodi are put in this lamp.


Importance of Dhanteras
Purchasing new gifts, coins, utensil and jewellery is considered auspicious. During Subh Muhurat, Puja is performed and seven cereals are worshipped. seven cereals include wheat, Urad, Moong, gram,barely and Masoor. Golden flowers are used while worshipping Bhagwati. This day, white sweets are used in form of Navedy. Worshipping of goddess Lakshmi is considered favorable on this day.

Dev Dhanwantri was born on Dhan Trayodashi. Lord Dhawantri is the doctor of all God. Hence, many new inventions in the field of medical science are started on this day. It is auspicious to buy silver on the day of Dhantares.


Dhanteras Puja Muhurat 
1. Pradosh Kal
Pradosh Kal is the time of 2 hours 24 minutes after sunset. Deep Dan and Lakshmi Pujan is considered auspicious during this time.

On 11 November 2012, sunset time will be from 17:44 to 20:08 in IST. During this period, Taurus Lagna will be the fixed Lagna from 19:05 to 20:08. The muhurat time will bring wealth in Home and family.

2. Chaughadia Muhurat
11 November 2012, Sunday 
Amrit Muhurat from 06:10 to 07:37am 
Shub Muhurat from 09:04 to 10:32 am 
Char Muhurat from 17:49 to 19:22 
Labh Muhurat from 22:27 to 24:00 

Worshiping in the above mentioned Labh Muhurat increases the benefits. By the auspiciousness of Subh Muhurat, individual gets favorable health, wealth and longevity. Worshipping is Amrit Muhurat is considered to be most favorable.


Auspicious Muhurat in Evening 
The time of Pradosh Kal,fixed Lagna from 19:05 to 20:08 will be the most auspicious for the Pujan of Dhanteras. 

What to purchase on Dhanteras 
Bringing home the silver idols of Lakshmi and Ganesha, increases wealth, success and growth at house, offices and business organisation.

Lord Dhanwantri appeared in sea with an urn, hence, there is a tradition of buying utensils of this day. It is believed buying utensils or silver increases their count by 13 times. Also, buying seeds of dried coriander and keeping them in house increases wealth. On the day of Diwali, these seeds are sown in garden or farms. These seeds are the symbol of growth and wealth increment in a person’s life.

Dhanteras Pujan
The worshipping of Dhanteras should be done in Subh Muhurat. First of all 13 lamps should be lighted and Kuber in the Locker should be worshipped. Lord Kuber is worshipped and offered flowers and it is said the I worship you Kuber lord who sits on the best plane similar to Garudamani, holding Gadha in both the hands and wearing crown on head, dear friend of lord Shiva.

After this worship with incense sticks, lamps, Navedy and chant the following mantra

'यक्षाय कुबेराय वैश्रवणाय धन-धान्य अधिपतये 
धन-धान्य समृद्धि मे देहि दापय स्वाहा ।' 


Dhanteras Story
Once upon a time, a king ruled a state. After many years, a child was born in his house. An astrologer said about king’s child that the boy will die after 4 days from his marriage.

King felt very depressed on hearing the words of astrologer. To save his son from any such incident, king had sent the boy to a place where no lady used to live nearby. Once, a princess passed from that path. Prince and princess saw each other and fascinated. They decided to get married.

According to the predictions made by astrologer, exactly after 4 days Yamdoot can to take the life of the prince. Seeing Yamdoot, wife of prince started mourning. Yamdoot requested Yamraj to tell a way to save the life of prince. Yamraj said, if ,a person who worship him on the Trayodashi night of Kartik Krishna Paksha with lamps facing the south direction then he never has the fear of sudden death. Since that day, lamps are lighted outside the house in south direction on Dhanteras.

Happy Durga Pujo 2012

Chinese and Indian physical demand for gold to support higher price in coming days

The bulk of the world's GDP growth comes from emerging markets.

Developed nations are expected to post a 1.3% GDP growth rate in 2012, versus a 5.4% pace for emerging markets, according to Nomura economists.

Meanwhile, Chinese GDP growth in 2012 is pegged at 8.1% and India's GDP pace is forecast at 5.5%, says Nomura. While both China and India have seen slower growth rates this year from 2011, it stills smokes any numbers coming out of Western Europe, the U.S. and Japan.

Gold has rallied for many reasons in recent years, including safe-haven flows, a desire for wealth preservation, concerns over currency debasement, an inflation hedge, and in response to the massive global central bank monetary policy accommodation that has flooded the world's financial system with liquidity.

But, in the years ahead, perhaps one of the most important factors for gold investors to remember is physical demand from emerging markets nations, which continue to be the engine for global GDP growth.

Chinese and Indian physical demand for gold stems from a different place than most Westerner's desire to hold gold. Eastern physical demand stems from deep-seated cultural affinity for holding the yellow metal. It is tradition; it is a sign of having made it to the middle class. It is a way to save for a dowry. Jewelry is a way to display a family's wealth.

In Indian gold markets, jewelry is not priced with a rupee amount. The "price tag" simply reveals the number of karats of gold in the necklace or bracelet. The price of the jewelry is changing with real-time changes in the spot metals markets. The seller will calculate the current price of the necklace based on the spot gold pricing. A lot more like a trading floor than a jewelry store.

China is the world's fastest growing market for gold jewelry demand, according to the World Gold Council. And, Chinese consumers seek the highest levels of jewelry, with over 80% made from 24 karat gold. India is the world's largest market for gold jewelry. In the second quarter 2012, "India and China continued to dominate global consumer demand, accounting for a combined 45% of total jewelry and bar and coin demand," the World Gold Council said.

While recent figures have shown slowdowns in some of the pace of the physical demand, the trends do remain in place, and with a deep seated cultural affinity to buy and trust in gold, those trends will continue.

Unless Western nations are able to shift the current navigation courses for their economies, it will likely be emerging markets nations that will be driving the global growth engine in years to come. With those stronger growth levels comes more citizens rising into the middle class in those emerging economies and more individuals able to reach the milestone for success in their culture—physical gold ownership.

Forget about the Fed, global central banks and the potential for future inflation, emerging market physical demand for gold will be a strong and steady support to the rising price of gold for years to come.

Golden time for GOLD

Gold is on the rise after months of sluggishness.

After all, it’s been almost a year since the $1900+ record high was reached, yet the gold price hasn’t declined even 20%. Think about it… considering the 170% gold rise (from the 2008 low to the year ago record peak), gold has only given back 19+%.

Gold’s strength reinforces the reality of an unbalanced financial world.

Accumulation time is drawing to a close, but it’s still not too late to buy new positions.

Gold will now look promising by staying above $1630, but it’ll be clearly out of the woods above its 65-week moving average at $1650. How high could gold go?

GOLD TIMING: Bottom in & poised to rise further

Many of you know the ins and outs of favorite intermediate indicator.

This is pretty technical. But if you follow along I think you’ll agree that this indicator helps measure the timing and growth potential for each intermediate gold rise, as well as the declines. It’s worked well over the years, including during the bull market of the 1970s.

Bear markets also have these intermediate moves, but with subtle differences.

Gold is a cyclical market and its moves tell us a lot about the world and other markets. Right now, it’s telling us the 11 year bull market is alive and doing well.

SO WHERE ARE WE NOW?

Here’s a twist and some food for thought…  Gold fell from its September record high almost a year ago and it declined nearly 20% to its December low. This fall alone could’ve been a D decline because the indicator fell to the low area and gold tested its moving average.  The percentage decline was also in line with former D declines.

Then the 16% rise to the February high was within reason for an A rise, while the 14% decline from the February highs to the recent May lows was also normal for a B decline.

If this proves to be the case, and the B low is complete, then gold is getting ready to take off in another C rise. And if the bull market stays true to form, we’ll see a record high reached before the leg up is over!

Once gold closes and stays above $1650, we could see it jump up to the $1700 level. Above $1700 means $1800 would be the next target.

If gold rises in a C rise, similar to the 2006-2008 C rise, gold could then reach record highs near the $2200 – $2400 level.

An Ending Made For Gold - Golden

Over the past several months, the markets have tested investors’ conviction to gold. Since February, the price of the yellow metal has steadily stepped lower, rallying somewhat in May before falling again when Ben Bernanke disappointed by not providing the U.S. with more stimulus. Meanwhile, the dollar gained ground as global investors fled the euro.

In the ongoing eurocrisis, we won’t know the details of how Europe will clean up its debt mess for a while, but we’re pretty confident the story ends well for gold.

In one possible outcome presented by Bank of America-Merrill Lynch, austerity is “not the answer on its own” when it comes to restoring confidence in fiscal policies. Take a look at the levels of household and bank debt in the U.S. compared to Europe. Over the past few years, debt in the U.S. has decreased as the private sector has delevered.

In the eurozone, though, you’ll see that banks and households have maintained status quo when it comes to their levels of debt. On all three measures, loan/deposit, household debt/disposable income and debt/income, ratios have remained around the same level, according to BofA.

BofA’s economics team says that even though the long-term refinancing operation (LTRO) has helped in Europe, about 1.7 trillion euros are required to deleverage all the banks in the region. That means there’s more work to be done for Europe via a major deleveraging process, which will undoubtedly weigh on economic growth. To keep the eurozone’s head above water, more money will likely be needed, requiring the European Central Bank to start up its printing presses similar to what we saw in the U.S. over the past few years.

As gold bugs know, when central banks increase the supply of money, currencies become devalued and investors seek a better store of value. The excess liquidity in the market has historically found its way to riskier assets, benefiting gold.

This currency devaluation is what we believe will eventually bring Indians back to gold. Take a look at what gold costs in rupees. India has seen ongoing weakness in its currency as its economy has slowed. This has kept gold near record highs, causing the Love Trade in India to stumble.

The global easing binge from central banks around the world over recent months should have translated to higher commodity prices. This has not occurred: Not only has gold declined, but the price of oil has also decreased considerably, falling from a high of $110 to $78. "Shouldn’t all this accommodative policy by the Fed, ECB, SNB, BoE and BOJ be sending commodities to the moon?”

Lower commodity prices should be a signal to central banks that they are not doing enough.There is a hefty disinflation trend developing and given the amount of debt in the system—and the weakness of global aggregate demand—any signs of significant disinflation should be cause for grave concern. We cannot mix a lot of debt with a lot of deflation—that will be the end of us.

How Gold Demand Remains Resilient

Demand for gold was relatively resilient in the first quarter of 2012, with global demand falling 5 percent on a year-over-year basis, says the World Gold Council. Marcus Grubb, managing director of investment, calls this slight quarter decline in demand “noise in the context of 22 percent rise” in the price of gold compared to first quarter of 2011. Also, gold demand was very strong in the first three months of last year.


Gold faced a complex quarter, as you can see by looking at jewelry demand by country. There was a significant rise in demand for jewelry from Russia, Egypt, Indonesia, Taiwan, and China, according to the World Gold Council (WGC) compared to the first quarter of 2011.

Demand from Russia, which increased 28 percent compared to the same time last year, not only reflects stock building, but WGC says consumers had the wind behind their backs, with “historically low inflation, GDP growth, improving consumer confidence and real wage growth.”

The WGC says that Taiwanese jewelry demand was driven by “a strong wedding season, Chinese New Year gifting and gifts for babies born so far during this auspicious Year of the Dragon.” Indonesia’s increase also most likely reflects Chinese New Year, as retailers replenished supply after a strong buying season.

And, for the second quarter in a row, overall Chinese demand was higher than Indian demand, confirming China as the world’s largest gold market, says Mr. Grubb. China’s demand in the first quarter hit a record, bucking “the global trend by surging 10 percent to reach a new quarterly high” equating to 255 tons, according to the WGC.

Strong jewelry demand was offset by several other countries, including India, which was  negatively affected by imposed taxes and jewelers’ strikes. This caused an “unsettling quarter” for the country, says the WGC, which has historically seen strong jewelry demand over past quarters.

The higher price of gold likely caused a temporary setback in demand in countries such as South Korea, Saudi Arabia and Turkey. The WGC says South Korean consumers substituted silver and lower-carat gold as a result of increased prices.

What’s important to note is that during the past few years of the bull market for gold, we’ve seen continued resiliency in jewelry demand, remaining around 50 percent of total demand, says the WGC.

Gold supply remains modest, as mine production and recycled gold supplies increased 5 percent on a year-over-year basis. Mine production alone increased only 2 percent over the previous year, says the WGC, which follows the trend over the past four years. Mr. Grubb says he sees the trend continuing that older mines in South Africa are declining in production, and the higher-than-average production is coming from China, West Africa, Turkey and parts of Asia.

Overall, Mr. Grubb believes a high level of recycling is required as mine production only meets 2,800 tons of demand. Total demand for gold in 2011 reached 4,500 tons! The only way to balance the supply with the demand: keep an elevated gold price.

Major Bottom in Precious Metals Could Occur This Week

Normally catching a bottom is not difficult. Bottoms tend to occur instantly while market tops form during a process. Yet, I’ve found that bottoms of long-term significance do not occur instantly. Like tops, they take time to develop. For example, think about late 2008 to early 2009. Commodities hit their price low in December but the bottoming process began in October and wasn’t complete until May. Emerging markets hit their low in November but the process began in October and ended in March. Returning to the present, I see that Gold and Silver look set to retest their late December lows. My work lead me to argue that the metals will successfully retest their lows and soon emerge from what in the future will be considered a major bottom in-line with 2008, 2005 and 2001.

I began with a daily chart of Gold which shows its daily closing prices and a volatility indicator. The percentage figure refers to the percent bullish reading from the daily sentiment index. As I noted recently, each bottom in Gold (except 2008) has come during a period of low and declining volatility. Volatility is currently at a 9-month low while only 7% of traders are bullish on Gold.

Next, let’s take a look at the current Commitment of Traders Report (COT) for Gold which shows the commercial short position and open interest at the bottom. The current commercial short position has reached a 3-year low while open interest recently touched a two and a half year low.

Moving to Silver, I see the metal is nearing significant support at $27. Silver closed at $28.93 and has a bit of room to fall before testing $27 and the 600-day moving average, which has been an important pivot point since late 2008. The current daily sentiment index is 16%. I think, with another day or two of weakness in Silver, the daily sentiment index would decline to single digits. I also want to note that $26 is the 50% retracement of the entire bull market.

Silver, unlike Gold, has seen more interest recently as open interest has increased since late last year. However, open interest would have to rise 40% to reach the old high. Commercial traders are net short 17.9K contracts, which is a within a whisker of the 10-year low which was reached at the end of last December. 

Consider these emerging fundamentals with technical analysis. Technicals always lead fundamentals and markets tend to look six to nine months into the future. I am not predicting imminent action from the Fed or imminent money printing from the ECB. However, I am noting the emerging positive developments which will drive precious metals higher into 2013. Policy from the east is shifting towards easy. Europe will have to embark on some major money printing likely by the end of the summer. Finally, continued weakness in US data along with the strength in US Bonds and the US Dollar will facilitate the environment for the next round of Fed action.

I anticipate a bottom this month to be followed by a higher low in July or August. The fundamentals should become more clear by the end of the summer and would drive the precious metals complex much higher during the seasonally strong period. Remember, major bottoms take some time to develop. I believe a bottom is at hand and that is why last week I began to scale into some positions.

What Will Happen to Greece and Gold?

What Greek Elections Now Mean

Greece cannot form a government so expect elections within a month. We have come to the point where the bad news is out –the markets are telling us that Greece will likely leave the Eurozone and possibly the euro as their 10-year debt continues to trade at 27%. They may not pay out €436 million to creditors and keep it, fearing they will not get the next bailout tranche. Reneging on the obligation also would constitute a default triggering derivatives contracts and clauses requiring the settlement of other un-swapped bonds. Meantime the country has no government to make the choice. The country may run out of money by early July. The standoff has reignited concern that Greece will renege on pledges to cut spending as required by the terms of its two bailouts negotiated since May 2010

This blazes the trail for Spain to follow by asking, first, for a bailout. Portugal, Ireland, and potentially Italy are looking more and more each day like Greece. We’re now looking at the worst possible scene.

Whether this will happen or not is not the point for investors in gold and silver. The fact that markets are aware of this situation and are, in fact, discounting it is much more pertinent. If the euro doesn’t collapse and if these nations leave the Eurozone, then do not expect to see the Eurozone fall apart but to be much stronger having jettisoned the weak members. This would strengthen the euro enormously and send it back up towards the €1: $1.40 area. We do not think this is being discounted yet. The old rule that when the news is at its worst is the historic turning point of markets. With gold and silver moving with the euro, traders may keep the precious metals moving with the euro as it rises. This is where we are now.

Consequences in Greece

We have been witnessing a massive flight of capital out of Greece, out of the banks, i.e. Soc. Gen., that are large holders of Greek debt and even Greek money leaving to hide in the stronger member’s banks in the Eurozone. Any exit of Greece from the Eurozone would have to see their banks re-capitalized. Under the Maastricht Treaty, which formed the Eurozone, any member state can impose Exchange Controls for a short period of time while that country remains in the Eurozone. In Greece, that could happen just to close the exits and prevent a further run on the banks.

If the government decides to switch back to the Drachma, then expect to see the steps Argentina took when they switched from the U.S. dollar back to the Peso. These would automatically lead to the changing of all money, deposits and all, to Drachmas.

We would then envisage not just a two-tier currency –one for trade and one for capital. Expect the “Commercial Drachma” to trade at around 50% of the value of the euro and the “Financial’ Drachma” at a 30% discount to that. While this would stall imports, import replacement would spring to life inside Greece and a boom would begin. Tourism would likely roar as cheap holidays drew in huge volumes of tourists.

The central bank would impose draconian exchange controls grabbing all the foreign funds they could. Banks would be eager to return to Greece as they would see a sort of “scheme of arrangement” where they could bring in loans through the “Financial’ Drachma” and, provided the loans were given a 10-yr plus life, would be allowed to repay them through the “Commercial’ Drachma” giving them not just huge capital profits but a boost in their interest earnings over the life of the loan. The resulting low cost of labor and the financial incentives to manufacturers could see manufacturers move production there too. Such a positive outcome for nations that follow this path is normal.

Yes, many in Greece would struggle terribly; however, the core of their financial system would continue, and maybe even thrive.

The success or failure of a Greek exit from the Eurozone and probably the euro would depend entirely on how the financial side of the departure was handled.

It’s well known that Greeks love gold, and rightly so, especially when one considers what lies ahead for them. But they have been buying and preparing for this eventuality for the last two years.

Consequences outside Greece

The Eurozone banking system would suffer tremendous losses and would initially suffer the blows of lost confidence. Again, we’re seeing this now. The overall Eurozone has entered a mild recession that could get worse, but the same could apply to the U.S., travelling some distance behind, in a financial structure more capable of weathering such storms.

The fiscal and political unity in the States is responsible for the current strength of the dollar; however, should the global debt situation worsen and there is a maturing of other major, U.S. problems, then the U.S. will follow Europe; before this happens, however, the emerging world will need to reach the point where it equals the financial world of the developed side of the globe. The Yuan going global would start the process.

We would have to see a rapid expansion of the money supply in Europe as toxic national debt values shrank and needed a fresh injection of capital to replace lost value. We’re on the brink of another chapter of this right now. While this would undermine confidence in the euro and the dollar, the reality that these currencies are the only available means of exchange will continue to ensure their use and control over the developed world.

But the loss of confidence process would result in investors seeking to preserve the value of their wealth in gold and silver bullion even more than we have seen in the last few years. Many times have discussed just how gold would be used to reinforce the current currency system and how that process would become reality. More importantly, the institutionalization of gold in an active role in the monetary system would become a reality.

This would start in Europe, but the U.S. would dovetail into the developments as a cautionary reinforcing of its own monetary system too.

It may be that the public discussion over where Germany’s gold is held will lead to public pressure on Germany to repatriate it. If this happens, expect other nations in the develop0ed world to follow over time, accompanied by the recognition of gold’s importance in the reserves of a nation. This will highlight the desirability of gold in reserves to other nations outside the developed world and an acceleration of the demand for gold by the world’s central banks.

People wonder why gold is not already say $5000

People wonder why gold is not already say $5000 (it certainly could be) right now, given the fact that the US Fed alone and the US treasury have either given directly or bought (or guaranteed) up to $20 trillion USD worth of world bad debt/bonds/CDS/derivatives, you name it. That money went to US and European and other world banks and financial institutions into a literal rat’s nest of opaque levered multilayered contracts and leverage…


Jumping ahead

It would seem that the gold price should simply reflect all that money that was thrown out there, no? Answer at this stage? No.

Ok if all that incredible amount of money (and we are only talking the Fed at the moment, not the Chinese, the Japanese, nor the ECB all with say at least another close to ten $trillion USD worth, meaning in their own currency but we just use the USD to compare the amount here) they all threw into the flames….

Flames is a good analogy. What happened is this…They are attempting to keep alive a world awash in debt and all that money is merely being used to cover huge losses at financial institutions…which are basically like zombie banks now…and all the while the public funds are being depleted at a rapid rate.

Ultimately at the end of the day, all those trillions, which would have been far better spent say, paying off the total of US mortgage debt, like Iceland did, which would have caused a total resurgence of the US economy.

But they threw this money where it would not reach the general population. And since the general population is who accounts for the 70% of US GDP – i.e. consumption, and not only a few millionaires and billionaires, all that money was wasted…. Thus, clearly that money was literally burned, but with the cost of levering all the public governments and ultimately will cause interest rates to rise drastically. Ultimately. But the US has some time yet….
 


Phase Two

Phase one is debt deflation and money destruction. Gold is representing this situation perfectly, merely reflecting the inflated price of gold since (I am picking a date here) of about a 3 to one price hike in all goods and services (or make it 4 now) since 1980 when gold peaked at say $870 then dropped after Volcker raised US interest rates briefly to roughly 20 pct. which slammed US inflation which started in earnest after the oil shock…We have already discussed what phase one of a debt crisis does above. Let’s discuss Phase Two…I know these paragraphs are a bit dense but I like to write short concise stuff at times.

In Phase Two, after the central banks have realised that they have attempted to monetise the entire book value of the world markets (Probably Greenspan’s Gambit which is not well understood, where he stated he wanted to fight the next Great Depression, and probably thought he could simply monetise the markets in total and do a restart without an economic collapse) they will then have to start simply massively increasing public assistance and or direct aid to the rebelling and suffering populations. At this point, inflation starts up again and interest rates start rising, rapidly. In this scenario the UST rate could jump from say 2 pct. on the US ten year, to 5 in a matter of months or one year. Gold at that point will double.

Inflation will start to appear in all things, particularly oil and food. A sort of downward spiral which is self reinforcing will further contract the economy, the attempts to maintain all debts of all kinds will fall by the wayside, and people will focus on shelter and such only. The same will go for the public sector debts.

How close we are to phase two, and gold spiking to first say a jump from $2000 to $4000 is hard to say. But gold is headed there. In the meantime, the world is caught in an economic debt deflationary cycle, and until phase two is reached will meander between $1500 and $2000 for 2012, with the exception that a Mid-East war would probably spike oil, and possibly gold over $2000. But gold has a few problems there because oil price hikes cause economic contraction so that is a bit complicated.

Anyway, I have forecast gold to range from $1500 to $2200 for 2012 back in 2011, and have been right.

Record High Gold Prices Fail to Curb Global Demand

Despite a volatile year for gold prices in 2011, demand for the precious metal still remained strong. According to the latest World Gold Council’s annual report, gold demand totaled 4,067.1 tonnes, a slight increase from the prior year. Record low interest rates, inflation expectations and investment demand continued to drive the gold bull market.

The annual value for gold demand in 2011 equalled $205.5 billion, an all-time high and a 29 percent gain above the 2010 value. Jewellery accounted for $99 billion in gold demand, while investment demand was close behind with nearly $83 billion.  Interestingly, the majority of investment demand value was due to physical bar and coin demand, which represented $75 billion. As more investors remain sceptical and lose confidence in the global financial system, they turn to physical gold for protection. The annual report explains, “The bar and coin story is one which has traversed borders led by China, India and Europe, but other markets have also participated in terms of relative growth rates. Store of wealth demand, diversification, negative real deposit rates, the threat of inflation in developing markets, deflation in developed markets and currency debasement have all contributed to driving up demand over the last few years.”

In 2011, the average price of gold averaged $1,571 per ounce, which was more than 28 percent higher than its 2010 equivalent. While this contributed to the record annual value for gold demand, it also proved an argument against gold to be incorrect. Many gold critics claim that as gold prices increase, the supply of gold will also increase from people selling any form of gold they might hold. However, this is simply not true.  Despite a nominal record high of $1,900 per ounce, recycled gold declined by 2 percent. In fact, recycled gold supply has been declining since 2009, when it hit a peak of 1,694.7 tonnes. The WGC explains, “Despite the rise in prices, recycling activity was constrained by a combination of expectations for higher prices, acclimatisation to a higher current price level, economic growth and exhaustion of near-market supply.”

Record high gold prices also failed to significantly curtail the appetite for industrial demand. The technology sector demanded 463.5 tonnes of gold in 2011, down from 466.4 tonnes in 2010, but still above the 456.3 tonne average of the preceding five year period. Within the sector, electronic demand increased from 326.9 tonnes in 2010 to 330 tonnes in 2011. The dental segment is the one area that appears to be affected by rising gold prices. Dentistry gold demand fell 10 percent year-over-year to 43.8 tonnes. The WGC reports, “This result was driven by the elevated gold price and weak economic conditions which continued to encourage substitution both in favour of palladium and non-precious options, mainly cobalt-chrome and ceramic materials.”  However, dentistry represents a small portion of global gold demand, and will not have a material impact on prices.

Even though 2011 was filled with volatility and higher gold prices, the world still craves the only world reserve currency that can not be printed. The current trends that have fuelled the 11-year gold bull market remain in place. Furthermore, gold prices continue to receive additional support as central banks not only devalue fiat currencies, but also purchase gold themselves. “The net buying trend which started in Q2 2009 has proliferated, as emerging market central banks have continued to add gold on increasing concerns about the creditworthiness and low yields of their existing reserve assets. Both the euro area sovereign crisis and the sovereign debt downgrade in the US during the summer of 2011 have compounded these worries,” states WGC.  In the past two years, central banks have purchased more than 500 tonnes of gold.

In the Bullring With Gold

 

After prices fell 10 percent in December, many investors wondered if the bull market in gold was running out of steam. That was before Federal Reserve Chairman Ben Bernanke swooped in with a “red cape” and fired the bulls back up. Since the Fed reassured the world that interest rates will remain at “exceptionally low levels” for another two years, gold has jumped more than three percent.

UBS described the situation simply, “if investors needed a (further) reason why they should be long gold now, they got it yesterday … a more accommodative policy is a very good foundation for gold to build on the next move higher.”

To gold bugs, two more years of near-zero, short-term interest rates means negative real interest rates are here to stay, and this has historically been a strong driver for higher gold prices.

Bernanke and the Fed aren’t the only central bankers in the fiscal and monetary bullring. Brazil has cut its benchmark interest rate a few times and China lowered its reserve rate for banks in December. According to ISI Group, 78 “easing moves” have been announced around the world in just the past five months as countries look to stimulate economic activity.

One of the main weapons central bankers have employed is money supply, which has created a ton of liquidity in the global system. Global money supply rose 8 percent year-over-year in December, or about $4 trillion, according to ISI.China experienced a record increase in the three-month change in M-2 money supply following China’s reserve rate cut.

Together, negative real interest rates and growing global money supply power the Fear Trade for gold. The pressure these two factors put on paper currencies motivates investors from Baby Boomers to central bankers to hold gold as an alternate currency.

Adrian Ash from Bullionvault says global central banks are on a buying spree and they have been since the Fed cut interest rates by 25 basis points in 2007. Central bankers’ shift to buying gold was a significant sea change for the yellow metal.

You can see from the chart below that official gold reserves have historically been much higher, averaging around 35,000 tons. In the 1990s, central banks began selling, with reserves hitting a 30-year low right around the time the Fed began cutting rates. Adrian says that gold holdings are now at a six-year high with the current amount of gold reserves just less than 31,000 tons.

These are countries large and small. In December, Russia, which has been routinely adding to the country’s gold reserves since 2005, purchased nearly 10 tons; Kazakhstan purchased 3.1 tons and Mongolia bought 1.2 tons. UBS says “although reported volumes are not very large, it is still an extension of the official sector accumulation trend.”

 

Not all central banks are recent buyers, though. The “debt-heavy West” has sold its gold holdings, while emerging markets increased their gold reserves 25 percent by weight since 2008, says Adrian.

Reserves as a percent of all the gold mined has also declined, with “a far greater tonnage of gold ... finding its way into private ownership,” says Adrian. Since 1979, you can see the percentage of reserves to total gold has declined at a much faster pace as individuals increasingly perceived gold as a financial asset.

Adrian points to China’s Gold Accumulation Plan as a recent example of this trend. A joint effort between the Industrial & Commercial Bank of China (ICBC) and the World Gold Council (WGC), the program allows Chinese citizens to buy gold in small increments as a way to build up their gold holdings over time. The WGC reported in September that the program had established 2 million accounts during its first few months in operation and the amount is growing by the day.

These programs open the door for gold as an investment to a whole new class of people in China but that’s only a fraction of the tremendous demand for gold that we are seeing from China. In addition to the Fear Trade, gold is driven by the Love Trade, which is the strong cultural affinity the East, namely China and India, has to the precious metal.

In 2010, the Indian Sub Continent and East Asia made up nearly 60 percent of the world’s gold demand and 66 percent of the world’s gold jewelry demand, according to the WGC.

Indian jewelry demand has historically increased during the Shradh period of the Hindu calendar, but last year, high prices and a volatile rupee kept many Indian buyers on the sideline.

If you thought $1,900 was too much to pay for an ounce of gold, imagine how Indians felt when the rupee fell against the U.S. dollar, causing a gold price spike in rupees. Gold in Indian rupee terms rose more than 35 percent from July to November, roughly three times the magnitude of gold priced in U.S. dollars, yuan or yen. This currency swing significantly impacted Indian gold imports, which dropped 56 percent in the fourth quarter, according to data from the Bombay Bullion Association.

 

“Indian buyers will be back” after they adjust to the higher prices, says Fred Hickey. In one of his latest editions of “The High-Tech Strategist,” he cites late 2007 as a recent example when the Indian gold market experienced a similar rough patch. That year, gold demand in India fell off a cliff after prices spiked more than $1,000 an ounce in one quarter, tarnishing the country’s love affair with gold for a “brief period.” Fred says their cultural affinity for gold as an important store of wealth and protection against inflation will drive Indian buyers back into the market.

The trend was already changing in 2012, as UBS reported that the first day of trading saw physical sales to India were twice what they usually are, according to Fred. Although this is a very short time frame, I believe the buying trend will continue in this gold-loving country.

In China, “just as in India, gold is seen as a store of wealth and a hedge against inflation,” says Fred. Demand has been growing, especially in the third quarter, when China’s gold purchases outpaced India. “Physical demand for gold from the Chinese has been voracious all year,” says Fred. As of the third quarter, China had already obtained 612 tons, eclipsing its total 2010 demand, according to the WGC.

Across the Chinese retail sector, gold, silver and jewelry demand was the strongest performing segment in 2011, says J.P.Morgan in its “Hands-On China Report.” Growth in this segment far outpaced clothing and footwear, household electrical appliances, and even food, beverage, tobacco and liquor, all of which experienced more modest growth.

 

J.P.Morgan says the bulk of the increase came from lower-tier cities “where income levels are rising the fastest and improvements in retail infrastructure have allowed for rapid store expansion.”

Increasing incomes coupled with government policies that support growth have been the main drivers for rising gold prices. Take a look at the chart below, which shows the strong correlation between incomes in China and India and the gold price. As residents in these countries acquire higher incomes, they have historically purchased more gold, driving gold prices higher.

It is anticipated that the Year of the Dragon would spur an increase in the buying of traditional gifts of gold dragon pendants and coins. Gold buying did hit new records, says Mineweb, with sales of precious metals jumping nearly 50 percent from the same time last year, according to the Beijing Municipal Commission of Commerce.

This should serve as a warning to all of gold’s naysayer. Gold bullfighters beware—you now have to fight the gold bull while fending off a golden Chinese dragon.