Monday, November 19, 2012

Soros Buying Gold as Record Prices Seen on Stimulus: Commodities

After today I will give Gold a rest. QB

Gold’s 12-year rally, the longest in at least nine decades, is poised to continue in 2013 as central bank stimulus spurs investors from John Paulson to George Soros to accumulate the highest combined bullion holdings ever.
The metal will rise every quarter next year and average $1,925 an ounce in the final three months, or 12 percent more than now, according to the median of 16 analyst estimates compiled by Bloomberg. Paulson & Co. has a $3.62 billion bet through the SPDR Gold Trust (GLD), the biggest gold-backed exchange- traded product, and Soros Fund Management LLC increased its holdings by 49 percent in the third quarter, U.S. Securities and Exchange Commission filings show.
Gold’s 12-year rally, the longest in at least nine decades, is poised to continue in 2013 as central bank stimulus spurs investors from John Paulson to George Soros to accumulate the highest combined bullion holdings ever. Photographer: Chris Ratcliffe/Bloomberg
Audio Download: AIS Capital’s Hummel Sees `Sunset for Dollar,’ Nov. 19
Central banks from Europe to China are pledging more steps to boost growth, raising concern about inflation and currency devaluation. Investors bought 247 metric tons through ETPs this year, exceeding annual U.S. mine output. While both sides said talks Nov. 16 between President Barack Obama and Congress over the so-called fiscal cliff were “constructive,” the Congressional Budget Office has warned the U.S. risks a recession if spending cuts and tax rises aren’t resolved.
“We see gold as a hedge against the follies of politicians,” said Michael Mullaney, who helps manage $9.5 billion of assets as chief investment officer at Fiduciary Trust in Boston. “It’s a good time to garner some protection in portfolios by having some real asset like gold.”

Longest Streak

Gold advanced 10 percent to $1,723.79 in London this year, headed for a 12th consecutive annual gain, the longest streak in data compiled by Bloomberg going back to 1920. Prices reached a record $1,921.15 in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities gained 1 percent and the MSCI All- Country World Index (MXWD) of equities climbed 7.9 percent. Treasuries returned 2.8 percent, a Bank of America Corp. index shows.

Why Are We Watching the Gold Trade So Closely?

Purple Palace Abandoned Shows China Shadow-Banking Risk

Niu Dianqing stopped his motorbike at a construction site in China’s Inner Mongolia one morning last month. The front door was locked.
Sculptures of horses stand in Genghis Khan Square in the new district of Kangbashi in Ordos, Inner Mongolia, China. Designed for 300,000 people, Kangbashi, the new urban center of Ordos prefecture, may have only 28,000 residents, Bank of America-Merrill Lynch said last year. Photographer: Nelson Ching/Bloomberg
Residential apartment buildings stand in the new district of Kangbashi in Ordos, Inner Mongolia, China. Photographer: Nelson Ching/Bloomberg
A general view shows the skyline of the Dongsheng district of the inner Mongolian city of Ordos. Photographer: Ed Jones/AFP/Getty Images
A cement truck drives down a street in the new district of Kangbashi in Ordos, Inner Mongolia, China. Photographer: Nelson Ching/Bloomberg
“They said they will pay me this month, but it seems I’m fooled again,” said Niu, who supplied nets for protecting workers from falling off bamboo scaffolding at the half- completed Purple Palace, a development including a luxury hotel and three residential buildings in the city of Ordos. “The doorman was still here last week, but now even he’s gone.”
Special Report: Banking in the Shadows
The developer, Ordos Jin’ao Property Development Co., owes a lot more than the 10,000 yuan ($1,604) Niu is trying to collect, and it isn’t only suppliers who are out of the money. Dozens of investors nationwide have put 445 million yuan of savings into funding Purple Palace’s construction.
The two-year investment vehicles they purchased, called trusts, promised an annual interest rate of at least 10 percent and return of principal in March 2013. With at least 1,000 similar projects having ground to a halt this year in Ordos, where over-investment has resulted in a building boom gone bust, tens of thousands of investors risk default.
“The risks are significant there, and something must be done by the government to stop potential defaults of property trusts from spreading nationwide,” said Lian Ping, an economist at Shanghai-based Bank of Communications Co. “Trusts have become too large to fail.”

Sorghum Liquor

Trusts, targeting people with at least 1 million yuan to invest in alternatives to low-yielding bank accounts, are the fastest-growing segment of China’s nebulous world of shadow banking. They make up more than a quarter of the country’s estimated $3.35 trillion in non-bank lending, according to an Oct. 16 report by UBS AG chief China economist Tao Wang, or about 45 percent of the country’s gross domestic product.
Shadow banking worldwide is a $67 trillion industry whose size “can create systemic risks,” the Financial Stability Board said in a Nov. 18 report. The business in China, which includes banks’ off-balance-sheet vehicles such as commercial bills and entrusted loans, as well as underground lending by individuals, flourishes because more than 90 percent of the nation’s 42 million small companies can’t get bank loans.