MENDRISIO/ZURICH, Switzerland, Dec 17 (Reuters) - Sealed off by grey concrete walls and barbed wire, the workmen in protective glasses and steel-toed boots at this smelter cannot work fast enough to meet demand from the nervous rich for gold.

This refinery near Lake Lugano in the Alps is running day and night as people worried about recession rush to switch their assets into something that may hold its value.

“I have been in the gold business for 30 years and I have never experienced anything like this,” said Bernhard Schnellmann, director for precious metal services at the refiner Argor-Heraeus, one of the world’s three largest.

“Production has dramatically increased since the middle of the year. We cannot cope with demand,” said Schnellman, wearing a gold watch on his wrist.

Spot gold hit a record $1,030.80 an ounce on March 17. It fell below $700 in late October, partly because investors sold their holdings to cover losses in equity and bond markets hit by the credit crisis, and is now around $830 an ounce.

The trigger for the price to rise again could come from a much weaker dollar, making gold cheaper for holders of other currencies, and a renewed aversion to paper assets as governments and central banks pump large amounts of cash into the economy, stoking inflation.

Smoke billows as the molten gold, like glowing butter, is poured. To cool it, the worker drops it into water. It hisses as it hits. Once hardened in moulds, the gold bars are embossed with the refinery’s seal. Workers wearing white gloves stack them into boxes like domino pieces.

Though Switzerland is not a gold miner, it is home to some of the world’s largest refineries, which process an estimated 40 percent of all newly mined gold.

Argor-Heraeus is part-owned by the Austrian Mint and a subsidiary of Germany’s Commerzbank. Commercial and central banks are its chief customers and it says it processes some 350-400 tonnes of gold and 350 tonnes of silver per year.

Customers buying gold bars, which can weigh more than 10 kg each, have to wait roughly a month, taking into account the year-end holiday season.

For those buying coins or ingots, which can fit into the palm of a hand, the delay is six to eight weeks. A year ago, these small products could be had within a couple of days.

Worries about the banking system globally have boosted worldwide demand for physical gold, the Gold Council said.

“Many (people) are afraid of leaving their money in banks,” said Sandra Conway, managing director at ATS Bullion in London, which sells bullion and gold coins to institutions and the retail market.

“It’s difficult to quantify, but I would say our turnover over the last three months has certainly doubled compared to the previous three months,” she said.

FULL CAPACITY

Other Swiss gold refiners also say business is booming.

“Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular,” said Fiorenzo Arbini, in charge of health and safety at Pamp, another large Swiss refiner.

“People used to buy certificates, now they want physical gold.”

Schnellmann said the Argor-Heraeus smelter is operating at full capacity, three eight-hour shifts a day. Conquering the backlog by hiring is difficult, because each candidate has to undergo a security check.

Gold refiners were established in Switzerland to supply the watch industry and, later, jewellery-makers in Italy.

Switzerland’s largest banks stepped in to replace a void in gold trading while the London gold market was shut after World War Two and again during a brief closure in 1968.

The former Soviet Union, another top gold producer, chose Zurich banks to handle most of its gold sales in the 1970s and 1980s.

“Gold has an image of being the asset of last resort. This could be viewed as old-fashioned but this is how enough people with enough money to matter think,” said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.

GOLD TOUCH

India, China and the Middle East remain the biggest gold importers, particularly for jewellery. But demand for physical gold has exploded also in Europe, the Gold Council said.

In Switzerland, home to the world’s largest private banking industry, demand for gold bars and coins shot up six-fold to 21 tonnes in the third quarter of 2008, more than in any other European country.

Retail investment in gold rose 121 percent in the third quarter of 2008, an important contributor to the overall increase in global demand, the Gold Council said.

In that period purchases of gold bars by retail investors, who often buy through commercial banks, rose nearly 60 percent, notably in Switzerland, Germany, and the United States.

There was a surge of interest among professional investors shortly after the collapse of Lehman Brothers in September.

Private bank Julius Baer in October launched a fund to invest exclusively in gold bars stored in highly secured vaults in Switzerland.

“The fascination with gold has been there since the beginning of civilisation,” said Schnellmann. “It cannot be explained: you can’t eat gold, you cannot build anything resistant with it and yet people want to hoard it.” (Additional reporting by Pratima Desai in London; Editing by Catherine Bosley and Sara Ledwith)

I find it interesting to note, that the common thought about gold is that it has peaked, is overbought, and will only go down from here.

This article gives a good argument as to why that may not be the case.

Your Road Map to the Bull Market in Gold

By Jeff Clark, editor, BIG GOLD

Does this sound like your world?

You trudge to the office, nervous about keeping your job. Some of your friends are out of work. The economy struggles, and recession seems just around the corner. Stores where you once shopped are now closed. Americans are still shooting and being shot at in the Middle East. The price of oil is far off its peak but remains high.

The government has promised action, but frankly you don’t like the president’s ideas nor trust the government’s judgment, since they don’t seem to notice that the budget and trade deficits are huge and show no sign of easing.

You invested in some gold and gold stocks, but they’re all down. Everything has lost value. Things are looking grim indeed.

If any of this sounds familiar, you’ve got a good memory. It’s what was happening in November 1975.

Yes, things didn’t look so rosy back then, either. And yet look how November 1975 fits into gold’s bigger picture:

Gold During the 1970s Bull Market

Now compare that chart to today’s…

Gold During the Current Bull Market

You’ll see that from 1970 to 1974, gold rose 400%. In our market (2000 to 2008), gold climbed 290% to its March 2008 peak.

From 1974 to 1976, gold fell 40%. In the current market, gold has fallen 31% in eight months, a much steeper decline.

Finally, during the three-year rise leading to gold’s peak of $850 in 1980, it gained 670% from its 1976 low.

This year’s gold price has been behaving much as it did in 1975.

So where will the price be a few years from now? I can tell you that Casey Research expects gold’s chart to look more and more like the 1970s before this is over. The U.S. government has only very recently fired the starting gun for racing inflation, but it has fired it very loudly.

In just the last two months, the Fed has increased the basic money supply (cash in circulation plus deposits held by commercial banks at the 12 Federal Reserve Banks) by nearly 50%. Nothing close to such a rapid increase has ever happened before in the U.S. It’s the kind of news that normally comes only from desperate banana republics. And it always means rapid price inflation is on the way.

What the Federal Reserve has done in the last two months guarantees high inflation. But the timing is unknown. In fact, it’s unknowable.

Looking at the past, a pop in the basic money supply gets felt strongly throughout the financial markets within six months or so. But that’s just the average experience, with some inflationary episodes running much faster and others running much slower. And our current situation is anything but average – very recent but extreme money growth colliding with a years-old but extreme credit crisis.

So we’ll have to sit and let the timing show itself. And if what you are sitting on is gold, you should sit comfortably. Patience served gold investors well in the mid-70s. It will serve them well again.

Regards,

Jeff Clark

By Ian Cooper | Tuesday, November 11th, 2008

What does it mean when a usually conservative International Energy Agency (IEA) issues a gloomy report?

It means that recent cheap oil isn’t going to last - and that $100 oil will soon be a part of our daily lives… again.

The IEA is warning that crude oil will average about $100 between 2008 and 2015 because of an unavoidable energy crunch. And that the biggest cause of that crunch is “under-investment” in new and existing fields, which are needed to make sure oil production can keep pace with growing demand and slowing supply.

The agency also believes that the world needs to invest some $350 billion a year through 2030 to keep up with oil depletion rates. They’re claiming that current oil reserves are falling nine percent a year, as compared to three to five percent forecasts from analysts.

So, consider this.

If the world is using about 86 million barrels of oil everyday, a depletion rate of nine percent would mean that we’d need to find and produce another 7.7 million barrels a day just to remain at breakeven.

That’s like saying we need another Saudi Arabia, which is delivering a little more than nine million barrels a day after recent cutbacks.

Worse, the International Energy Agency outlook report, being released tomorrow—November 12—reveals that the world will eventually need to increase its production by “64 million barrels a day, or the equivalent of six times the current production of Saudi Arabia.”

Recent currency volatility and financial institution fragility has been cited as the driving reasons for the record numbers of investors flocking to silver and gold in recent weeks looking for the stability and safe haven the metals have traditionally offered.  Global bullion refining capacity has been quickly overwhelmed by the sudden spike in demand for physical bullion supply.

“People are often surprised to learn there are less than seventy industry accredited refiners in the entire world” said AFE’s bullion treasury manager Simon Heapes this week, “refineries have been running three fully staffed shifts most of the year.  The industry is just not geared for such huge spikes in demand as we have seen in recent weeks”.

Many refineries are announcing long delivery delays and many are taking no further orders till Q1 quarter of 2009, particularly for refining of smaller investor type bars and coins, while North America coin dealers have been out of all stock for many weeks.

AFE announced this last week after weeks of record demand it continues uninterrupted supply to its clients with allocated good delivery bars through its network of long term supply relationships and unique global infrastructure.  “In peak times like these, long term multi-decade relationships are critical” commented AFE’s Founding Director, Philip Judge.  Meanwhile, AFE’s gold shekel distribution partner Joseph Wealth Systems is providing on time delivery to its growing numbers of customers and colleagues in 37 countries.

Sunday, October 19, 2008

It is axiomatic that the most leveraged gold market most often (95 percent of the time) sets the price of any cash market. First derivatives (listed futures) command price.  This remains true as long as the COMEX warehouse of gold is NOT meaningfully depleted by long gold contracts by taking delivery from the exchange warehouse.

As long as an exchange maintains a warehouse that historically overwhelms historical demand for delivery, then the first derivative, the COMEX listed gold future, will be the primary cause of price.

Taking delivery from the COMEX warehouse is not an easy process, as the system is designed not to violate your contract but to be a world-class pain in the ass. The COMEX requires re-assays, assuming that you wish to re-deliver. This then places another raving pain in the ass in your way.

The COMEX market is effectively an international 24-hour market as there is no location where you cannot buy or sell a COMEX clone.

Cash bullion gold, as opposed to the semi-cash markets that non-USA banks trade, is the only totally private means of buying and selling gold.

As currency problems increase, first the knowledgeable public such as you clean out the coin market.

This is the first time that the international coin markets have been cleaned out everywhere. This did not happen globally in the 1970s.

Large gold bars are still available in major markets but the backup inventory is getting low.

As long as the COMEX warehouse remains adequate and large bars still are available, the paper market, the leveraged COMEX market, will rule the price.

Only with a decline in COMEX warehouse inventories and a rundown in large bar supplies of the cash market will the cash bullion market command the price of the COMEX futures market.

It was not the buying by the Hunt Brothers that caused silver to move above $30 into the $50 area but rather the universal belief that the Hunts would take delivery, which would deplete or exceed the COMEX warehouse supply.

The war between paper gold and bullion gold is a war to determine which will take command of the price of gold, nothing more, nothing less. There will be no two markets trading at different prices. All this battle is about is if the bullion gold market is going to take the lead in making the singular price away from the traditional axiom that the most leveraged market makes the price.

I believe that bullion, in these most unique conditions, will command the one gold price, making it hard to impossible to manipulate the gold price via the paper gold market, as is the practice every day.

LINK TO ARTICLE HERE: http://www.gata.org/node/6794 

Williams writes: “Nichols reckons it has been central bank gold loans — even more so than official gold sales — that have really pulled the rug out from under gold. Gold loans by central banks are an alternative — and invisible — means of injecting liquidity into the banking system. These gold loans to banks and bullion dealers by the leading central banks are probably a significant multiple of outright official sales.

“In simple terms, a central bank may lend or deposit gold with a banker or bullion dealer who simultaneously sells forward. Even with the recent substantial increase in gold-lending rates, at the end of the day the dealer receives cash in the transaction at a cost that may be advantageous to short-term money-market borrowing costs. Central banks have great freedom to lend gold outside their government-mandated rescue programs and these lending activities are typically hidden by their accounting practices.”

That is, more market manipulation by central banks, kept secret from the public and most investors, concealed on the central banks’ own books, but executed through a few favored financial houses that can trade on their knowledge of the secret government policy and make huge profits for providing the central banks with cover.

LINK TO FULL ARTICLE CAN BE FOUND HERE: http://www.gata.org/node/6789 

10:20p ET Monday, October 13, 2008

Dear Friend of GATA and Gold:

Commissioner Bart Chilton of the U.S. Commodity Futures Trading Commission, who has been amazingly conscientious and cordial in correspondence with many GATA supporters, told two of them by e-mail today that the commission is not only investigating the silver market, which was announced on September 25 (http://www.gata.org/node/6672), but is “also looking at other markets, including the gold market, as part of our ongoing efforts.”

Since Chilton is associated with producing interests, farm interests (http://www.cftc.gov/aboutthecftc/commissioners/bchilton.html), he may be expected to be more skeptical of financial/manipulative interests than other CFTC commissioners. And since he is a member of the commission’s Democratic minority, he may have less influence than commissioners allied with financial interests. But our side plainly has gotten his attention and that of his agency, and everyone who has agitated with the CFTC should feel good about that.

CHRIS POWELL, Secretary/Treasurer

Gold Anti-Trust Action Committee Inc.

LINK HERE: http://www.gata.org/node/6778

By: Ted Butler

On Friday, October 10, the price of silver crashed, falling almost 25% from its price level 24 hours earlier. It is down roughly 50% from where it traded a few months ago. While a broad array of markets fell sharply in price that day and over the past few months, from oil to gold to grain to just about every commodity, none fell as sharply as silver. As regular market observers know, this is usually the case. I intend to explore why this is usually the case and what I think readers should do about it.

Does the sharp price decline mean that conditions have changed and that silver is no longer a great investment? I know it is human nature to assume that when the price of a commodity drops sharply in price, that there must be more of that commodity coming to market, or less demand. This is what we have all learned. But the facts in silver suggest something else entirely.

In my opinion, if conditions have changed, they have become more compelling and silver is an even better investment as a result of the price markdown. There is no great current or prospective increase in the supply of real metal coming to market. And if industrial demand does fall in the future due to deteriorating world economic conditions, it will be accompanied with falling production at current prices. Certainly, there is no evidence of anything but phenomenal investment demand.

Premiums on virtually every form of real silver have been sky-rocketing recently, especially on Friday’s price collapse. These premiums are the highest they have been in history, reaching 60% for certain items, like Silver Eagles. This is the clearest proof there is no developing glut of silver, as the price declines on the COMEX might otherwise suggest to some. At a minimum, the premiums dictate that none of this silver will be melted into bullion.

The purpose of this article is not primarily intended to encourage you to buy real silver, as it seems obvious to me that you understand that already. I’d rather explain the price decline, and what you can do about it (aside from continuing to buy silver).

FULL ARTICLE: http://www.investmentrarities.com/10-13-08.html