Dubai Gold - DoBuy Gold

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Dubai - "The City of Gold" is more popular worldwide that the other name "The CIty of Lights" and "The City that Cares" As one of the foremost shopping destination in the world,Dubai leads in the global gold and jewellery trade,retaining its poisition through excellence in quality and service.The free trade policies of the rulers of the country,flexible laws,excellent infrastructure,in addition to the many tourist attractions,have enabled Dubai to realise this rare distinction.

Setting the trend for the new millenium,the third edition of THE CITY OF GOLD 2000, containing updated,comprehensive information on the jewellery trade in the United Arab Emirates, and Dubai in particular,aims to promote this vital sector of the ecomomy,Dubai is the supply hub for gold in the Middle East and 90 percent of all jewellery,the buyer is assured of the quality that he or she deserves,that is Quality at the world's best price.

The recent decision by Dubai's Department of Ports and Customs to do away with the four Per cent tax applied to all gold imports of jewellery sold during International Jewellery Dubai Exhibition (IJD) has had a positive response.The decision to extend the exemption period maximises business opportunities.Such incentives significantly enhances sales as it reduces costs and ultimately,the savings are passed on to consumers in the region.

Glittering gold,dazzling diamonds,exciting emeralds,radiant rubies and sensuous sapphires from different parts of the world continue to be showcased at different jewellery shows held throughout the year by various organisations and trade groups.Light and routinely wearable designs from HongKong compete with mindboggling sets from italy and india that display fine craftsmanship , outstanding designs and exclusivity,not forgetting the clocks amd watches studded with sapphires and diamonds.

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“A few years ago, when you heard about plans like these, you would have thought, ‘They’re crazy—plonkers,’” says John Cussen, his British skepticism fully evident. He is the general manager of Amusement Whitewater, a Dubai-based firm specializing in amusements and themed construction. He is referring to the plans for tourism development in Dubai and the often outrageous character—both in terms of expense (in the billions) and theme (artificial islands in the shape of a jigsaw-puzzle map of the world)—these projects take on. “But in Dubai,” he says, “the impossible happens.”

Everything’s Big in Dubai
On the calm shores of the Gulf in the United Arab Emirates, nothing is done on a small scale in Dubai. Every new project is the biggest or tallest or most expensive in some category, reflecting local pride, of course, but also establishing Dubai as a place of limitless ambition. Once known for its importance in the gold and spice trades, Dubai has risen spectacularly out of the desert to become one of the world’s great tourism and business destinations.

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Consider some of the more recent projects and announcements. The World, an attraction to be located about four kilometers offshore, will consist of 250 artificial islands in the shape of a map of the globe. Private and commercial interests will be able to develop the islands as they see fit. Imagine being able to buy your own Florida or France. Nearly $1.8 billion will go toward creating these islands just off Dubai’s most exclusive beachfront area.

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The World might seem preposterous if not for the fact that the Palm, a collection of islands in the shape of a palm tree, has already been built with 100 million cubic meters of sand and rock. Just offshore and visible from Jumeirah Beach, the Palm has increased Dubai’s coastline by 60 kilometers. Nearly 2,000 private beachfront villas have been sold and 25 boutique hotels are planned, along with a generous array of amusements, water rides, and other family entertainment. Construction of these facilities should begin soon. The response has been so enthusiastic among investors and developers that Palm II has already been announced, which will be, naturally, larger than its predecessor.

The island resorts make Dubai’s original “impossible” idea look tame. The Hydropolis—“the world’s first underwater luxury hotel”—is slated to be completed by late 2006 at a cost of half a billion dollars. Everything Dubai touches seems to turn to gold.

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Dubai’s formula for this magical transformation is tried and true. It is extremely friendly to foreign businesses and developers, who operate tax free.

And thanks to Dubai’s location, businesses have access to 2 billion people in the region—the Middle East, the Indian subcontinent, Northern Africa, Eastern Europe, and Central Asia.

But the emirate can handle it.

Dubai has spent the past decade or so developing its basic infrastructure—roads, luxury hotels, business parks—and fostering an open and tolerant society. Plus, Dubai’s airport can accommodate 24 million people per year (a third terminal, to open in 2006, will boost capacity to 60 million). People come to Dubai to work and play, and the government, which strictly limits political activity, ensures that these activities can occur unencumbered.

A Treasure Trove
Dubai has always been an offshore haven for trade and a magnet for visitors. With a calm narrow inlet from the Persian Gulf, Dubai has a natural harbor that became the heart of a trading settlement along a busy route.

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In 1894 the ruling sheikh granted tax exemptions to foreign traders, so Dubai became a hub for gold and spice trading, as well as a crossroads of cultures stretching from Arabia to India to the Horn of Africa—a position it still enjoys. Dhows, traditional wooden cargo vessels, plied these routes, and still do today. Pearling and fishing also became important to the local economy.

Oil was discovered in Dubai in 1966, though its resources were shown to be modest compared to nearby Abu Dhabi, which had struck oil a decade earlier and sits atop nearly 10 percent of the world’s proven oil and gas reserves. Dubai’s government set out to diversify its economy. Reliance on natural resources gave way to manufacturing and light industry, which was in turn superceded by services, including tourism. Today these sectors are the largest contributor to Dubai’s GDP at 16 percent.

Local Culture
Dubai’s history and culture are beautifully presented at the Dubai Museum through a series of life-sized dioramas and displays. Entering the room, the visitor steps off a dhow in the 1950s and into Dubai’s souq, its traditional market. It is evening. Lanterns glow in the spice and gold stalls. You can hear the sounds of traders hawking their wares and blacksmiths hammering iron. Sacks of grain wait to be unloaded from the dhow. Lights wink along the city’s low skyline of windtowers—an early form of natural air conditioning—on a painted mural. You can tour a Bedouin home and visit an oasis in the desert, where tribesmen gather around a fire. There is even a point where you find yourself seemingly underwater, peering up at the dangling legs of a pearl diver hanging off the side of a small dhow.

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Dubai is ever conscious of its image in the region and the world. It is a conservative Islamic culture that takes modernity on its own terms. Hamad Bin Mejren, the manager for missions in Dubai’s Department of Tourism and Commerce Marketing, calls Dubai “Twenty-first Century Arabia.” He praises the emirate’s can-do attitude, which stems from confidence in the traditional aspects of its culture—hospitality, openness, an emphasis on family. These values have enabled Dubai to create an environment for world-class tourism in a region often plagued by conflict. “Dubai is unique in its ability to combine safety and leisure,” Bin Mejren says.

While one might suspect that Dubai would have seen a decline in its tourist arrivals after September 11, 2001, as air travel became increasingly restricted and government warnings were constantly issued, Dubai actually experienced an upsurge. The period from 2001-2002 saw its largest tourism increase. In 2003, nearly 19 million passengers passed through the Dubai airport.

Growing Pains
Fuelling Dubai’s aggressive growth is the need to overhaul its current infrastructure, which is barely adequate (at the moment the city only has 30,000 hotel rooms). From 1991 to 2002, hotel stays increased from 700,000 to 4.75 million. Emirates Airline, the UAE’s flag carrier, has expanded its service to include New York, Chicago, and San Francisco—its first direct flights to the United States—and is investing $15 billion to procure new aircraft. Dubai is banking on the fact that its place in the global economy, as a hub for business and tourism, will continue to grow. There is plenty of money in the Gulf region, Northern Africa, and India, and Dubai, with its long exposure to these regions, aims to capture it. Opportunities abound in Europe and the United States, as well.

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So Dubai is eager to grow the value of its brand. It operates 14 overseas offices to promote tourism, trade, and investment. It also has a knack for grabbing headlines in the business pages, both for its ambition and its whimsy. Work has begun, for example, on the Mall of the Emirates, billed as the region’s largest shopping mall. Dubai already has about 40 fully appointed malls, but each tries to offer something unique. In addition to retail and food, the Mall of the Emirates will present the world’s largest indoor ski resort—in the middle of the desert. “We’ll import the snow from Denver,” jokes Bin Mejren. Located in Dubai’s western quarter, the Mall of the Emirates will capitalize on the growth from the Palm and World projects.

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Dubai’s integration of entertainment elements, including themed attractions and waterparks, into retail and hospitality facilities invites comparisons to Las Vegas, another ambitious city rising out of
the desert sands. Salem Bin Desmal, deputy director general of the Dubai Development and Investment Authority (DDIA), accepts the comparison but adds, “Without the gambling—emphasize, without the gambling.” Dubai’s interest is in family-oriented tourism, so the entertainment and amusement offerings move in that direction.

The “Disneyland of the Region”
The DDIA is charged with coordinating Dubai’s largest tourism-related project, possibly the largest ever undertaken anywhere. Dubailand, with 45 projected tourism, leisure, and entertainment projects, will occupy 1.5 billion square feet and should attract nearly $6 billion in investment. Multiple theme parks and waterparks are “the heart of the project,” says Bin Desmal. “Our vision is for this to become the Disneyland of the region.”

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Dubailand will become its own city, complete with independent municipal services for tenants, provided at the highest standards for safety and efficiency. An integrated transportation system, including a monorail, will bring visitors from other parts of Dubai, including the airport. This new city will have a unique look and feel. “It is very important to create a new identity,” says Bin Desmal.

Dubailand will be divided into six components: Attractions and Experience World for thrill rides and hi-tech entertainment; Sports and Outdoor World for arenas and training facilities for international cricket, rugby, football, and other sports; Eco-Tourism World for nature- and desert-based attractions; Themed Leisure and Vacation World for resort hotels, spas, and fitness facilities; Retail and Entertainment World for shopping (including the Mall of Arabia to supercede the Mall of the Emirates); and Downtown for movies, restaurants, and nightclubs.

Bin Desmal says that these attractions will all complement, rather than compete with, one another. The four major theme parks, as part of the larger entertainment facility, he says, “are vital to the success of the project as a whole. Disney has proved this is possible.”

One challenge for these parks is to be able to function year-round. While Dubai enjoys near-constant sunshine and warm temperatures, the late summer months can be unbearable with extreme, even dangerous, heat and humidity. A theme park will have to provide plenty of shade and a mix of indoor and outdoor components, including keeping some queues for rides in the air conditioning.

For all its international press, Dubailand is still geared toward the Arab and Asian markets and will be in keeping with the interests and tastes of those regions. Much of the theming, including the Arabian Legends park, will be based on the 1001 Nights, the collection of tales that draw on the cultures of Arabia, India, and Iran. A Pharaohs theme park will bring North African and Egyptian culture to the fore. There will also be plenty of heritage centers, in addition to technological and science-oriented projects. Dubailand will make the diversity of the region’s cultures available to a global audience.

When Dubailand was announced in the fall of 2003, it was a challenge to the emirate’s doubters, even those who had seen the Palm projects take hold. The scale and variety of Dubailand beg a comparison, even given the ambition and scope of Disney’s international ventures. Dubai is projected to attract 15 million tourists annually by 2010, up from 4.7 million in 2002. It has all the pieces in place, not least of which is the fact that visitors can bank on being safe and well served during their stay. Plus, Dubai has plenty of momentum. It is the place to be, not only for an increasingly large segment of the world’s tourists, but also for investors, developers, construction firms, theme park designers, hoteliers, tour operators, and retailers.

As Amusement Whitewater’s John Cussen says as he considers the challenges here, “People have a passion for Dubai. There are challenges here you won’t get anywhere else. This is an extremely exciting place to be.”

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Dubai consumes 85 tonnes of gold a year; the figure has doubled in five years.

Traditionally, gold and Dubai are closely related. What is this attraction between the two?

Dubai is the World Gold Councils regional headquarters for the Middle East and India. According to statistics more than two thirds of the population buy gold atleast once a year and 48 per cent of this is used as gifts. Only 28 per cent of this is for personal use. Another interesting fact is that 95 per cent of visiting tourists buy gold.

Studies indicate that on an average every person buys five pieces of gold jewellery ever year, each piece worth $400, incurring a yearly expenditure of $2,000 on an average. Ninety per cent of the jewellery is purchased as plain gold while 10 percent is gem set. Also 90 per cent of all jewellery in Dubai is imported. These come from Bahrain, India, Italy, Malaysia, Pakistan, Saudi Arabia, Singapore and Thailand. This is mainly because in the jewellery market Dubai is the supply hub for the Middle East. Gold is re exported to other gulf countries and Iran, Egypt, India and Pakistan. About 90 per cent of all jewellery sold is above 21 carat, while the rest is 18 carat.

Dubai boasts of 400 gold shops, the densest concentration in the world. Its gold souk has 250-odd shops in half a square km area. At any given time, about 10 tonnes of gold are on display in jewellery shop windows. Here jewellery is sold on gold price plus making charges unlike in the west where it is price per piece.
Dubai consumes 85 tonnes of gold every year the figure has doubled in 5 years. Its is the worlds 2nd largest redistributor of bullion, imports 360 tonnes and re exports almost all of it. As there is low customs duty and no tax, jewellery is cheaper here than where it originates, for example, Italian jewellery is cheaper in Dubai than in Italy.

Interestingly 80 per cent of residents intend to buy gold in the next year . Dubai can boast of hosting the worlds single largest gold raffle draw. 57 kgms are given away in the month during the Dubai shopping festival. In Dubai, gold is the most popular raffle prize.
A total of 150 kgms of gold was given away in the last year by supermarkets, milk diaries, shopping malls, cookie makers and car dealers etc. Dubai made the worlds longest gold chain during DSF 99. The chain was made in 22 carat gold and measured 4.2 km. Around 9,600 people bought the chain in neckwear and bracelet size pieces. The chain was made by a Dubai company and sponsored by South Africans Anglo gold with the support from the world gold council.

http://yelwan.com/jewellery/allur_gold.asp

Wednesday, June 02 - 2004 at 14:21

The Bubbles Mr. Greenspan has created!

Dr. Faber continues to recommend staying out of markets, with lower bond prices and much higher interest rates on the horizon. In particular he is concerned about the US housing market. Asset inflation always comes to a bitter end.

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Credit has to be given to Mr. Greenspan. By bailing out the S&L Associations in 1990 he contributed to the creation of the emerging market bubble of 1994, which led to the Mexican crisis.

Then, by bailing out Mexico - with the then acting Treasury Secretary Robert Rubin's help - he contributed to the emerging market debt excesses that led to the Russian crisis and the LTCM debacle of 1998.

Again he bailed out the system with an enormous liquidity injection and created in the process financial history's biggest bubble – the NASDAQ bubble of 1999/2000.

But until then, Mr. Greenspan was only a 'serial' bubble blower. He managed to create bubbles, but only one at the time and in different asset classes, at different times and in different parts of the world. But this time around, we have to give him far more credit for his monetary achievements and nominate him for a Nobel Price in bubble creation.

After all, he is the first central banker in the history of capitalism who has managed to not only create a credit bubble in the US, which has led to the entire mortgage refinancing scheme, excessive household borrowings, over-consumption, and a growing current account deficit, but he has also miraculously managed to create bubbles all over the world – in stocks and bonds of emerging economies, the currencies of Australia, New Zealand and South Africa, in housing, and lastly in Chinese capital spending, which is now growing by more than 40% per annum, as well as in commodity prices.

In addition, as a result of the growing US current account deficit, which is offset by current account surpluses in Asia, he has managed to create a bubble in foreign exchange reserves of Asian central banks. Japanese foreign exchange reserves have exploded on the upside since year 2000, whereby the same situation of soaring foreign exchange reserve growth can be found in China as well as in most other Asian countries.

So, what terrorists are to peace loving citizens – we must exclude from these Mr. Bush & Co – Mr. Greenspan is to sound money, which is not supposed to lose its purchasing power. In short, he is for the honest saver, who depends on the purchasing power of his money to be maintained for his retirement or for his children' sake, the world's most dangerous man!

In the meantime, US industrial production is hardly growing, as can be seen from the continuous decline in commercial and industrial loans.

So, all Mr. Greenspan has created is a huge financial and asset bubble everywhere in the world, but no real improvement in the US economy, which is like a drug addict and requires more and more credit to stay afloat. As someone once said, in order to avoid a hangover, you must keep on drinking…

The problem, however, is that the US requires an increasing amount of credit growth in order to keep real estate and stock prices up and to make them move higher, which in turn supports the US consumer's excessive consumption. But, at the same time, while asset prices in the US are soaring, output is not rising for the simple reason that the market has discounted this 'evil' Fed induced con game.

We all know from basic economics that the only way in which monetary policy can really affect output is if it comes as a surprise – and this only in the short-term. If, however, everybody knows that monetary policy will be easy, everybody will move prices instead of output, and the monetary expansion will be "neutral" at best.

But what is now suddenly happening is that the investment community, through the market mechanism, is beginning to catch on to the fact that there is much more credit growth out there than productive capacity, and therefore prices have risen in some cases, such as for commodities, very rapidly.

It would seem to me that the realization by the investment community that Greenspan's game cannot end well has begun to reverse expectations. Suddenly, out of the blue, the bond market has collapsed and brought down stock and commodity prices along with it.

As I have maintained before, this is not a time to play hero like the brain-damaged president of the US in Iraq. It is a time to stay of out of all assets and be patiently waiting for better buying opportunities. In particular, I am concerned about the US housing market.

In some areas of the US, housing prices have been rising at almost 30% per annum in recent years and overall prices have doubled since 1997. The question, therefore, arises when this housing boom, which was fueled by ultra low interest rates and allowed people to refinance their homes, will come to an end.

This is an important question because US consumption since year 2000 was not driven by capital spending and employment gains, but purely by asset inflation in the housing market, which allowed people to take out larger and larger mortgages and spend the additional funds (well understood, 'borrowed funds') on consumer durables such as cars and consumer non-durables.

Now, however, there is a problem with the housing market. If the US economy continues to strengthen, interest rates, which are negative in real terms, will have to rise considerably and this could lead - if not to a housing crash - so at least to a less buoyant market. In addition, the inventories of unsold homes are at a record.

Therefore, should higher interest rates, driven by a stronger economy, lead to less home purchases by individuals, home-builders who are holding these inventories could get hurt quite badly.

I would, therefore, recommend to all investors who believe that the US economy is expanding solidly to sell all homebuilding companies' stocks here or on any rebound.

Personally, however, I am not so sure about the strength of the US economy, since consumption is purely driven by additional borrowings and government spending, which leads to larger and larger budget deficits. In fact, I have just bought some US treasury bonds with the view that, in the next few weeks, investors' expectations about future growth could be somewhat disappointed.

After all, every asset-inflation, which drove consumption in the past, such as was the case in Japan in the late 1980s and in Hong Kong prior to 1997, came to a bitter end. Thus, with bond prices being near-term oversold, any disappointment about economic growth could lead to a modest or even strong rebound in bond prices.

If you look at the figure below, which shows the recent performance of 10 years US Treasury bonds, it would appear that there is some support around this level and that a modest rebound is probable.

Still, this short term rebound aside, bonds may shortly be completing a longer-term head-and-shoulders top, which would mean that in future we could see lower bond prices or much higher interest rates.

Such an outcome could spoil all other asset inflation parties and lead to lower home, commodity and stock prices. Therefore, once again, patience and staying aside from the markets may be the best option.

http://www.ameinfo.com/news/Detailed/40587.html

Saturday, February 10 - 2001 at 10:31

Go for gold to beat the coming currency crisis!

While most investors are very well aware of the concept of buying low and selling high, their action is often far more indicative of a pattern of buying high and selling low.

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Thus it should come as no surprise that the heaviest buying of mutual funds specializing in one sector of the market always occurs after this sector already had a huge rally. Take for instance the recently much discussed high tech sector. Most of the buying of high tech funds and Internet stocks took place between October 1999 and October 2000, right around the top of the NASDAQ and the peak of most high tech companies.

Today, I should like to advocate the purchase of a group of stocks, which has over the last twenty years been the worst under-performer. This group consists of gold mining companies around the world, all of which have a combined stock market capitalization of only $30 billion.

In other words, you could buy the world's entire gold mining industry for just $ 30 billion. A bargain when you consider that Cisco and Microsoft alone had earlier last year a combined stock market capitalization of more than $1 trillion, and that Amazon.com was valued at its peak at $35 billion!

In addition, the market value all the world's gold mines is tiny when compared to the world's total stock market capitalization of around $35 trillion. Before going into my main argument for investing in gold and gold shares, let me discuss some of the gold market's fundamentals.

Every year in the 1990s, physical gold demand has exceeded the annual supply of approximately 2,500 tons - valued at present at about $35 billion - by about 300 to 500 tons. Compare this to the annual supply of bonds in the world, which amounts to about $3.5 trillion and it becomes evident, how small the supply of gold is.

Then consider this. In the year 2000, Indians bought about 850 tons of gold. In other words, in India, where the GDP per capita is only $300 per annum, every man, woman and child bought almost 1 gram of gold each. If gold became one day as popular as platinum or the NASDAQ is at present, and every person in the world bought just one gram of gold, it would generate an annual demand of 6,000 tons, which is about 2.5 times its annual supply from mines.

Also, noteworthy is the fact that the outstanding gold short positions amount to between five and eight years of production. So if a gold market rally took place - for whatever reason - massive short covering could drive the gold price far higher than anyone currently thinks possible.

Then, if we compare the price of gold to the Dow Jones Industrial Average in the US, it is clear that gold has never been as cheap as right now. In 1980, when the gold price reached more than $800 per ounce, you could have bought with one ounce of gold an entire Dow Jones, which at the time was hovering around the 800 level.

Today, it would take you more than 40 ounces of gold to buy a Dow Jones. Ergo, stocks are now by historical standards high, while gold is extremely low.

So, why is it that gold has performed so poorly when the fundamentals for buying gold seem to be rather compelling? Gold has performed poorly, especially given the above mentioned imbalance of demand over supply, because central banks in Europe have been massive sellers of their gold holdings over the last few years.

Moreover, there may have been some concerted effort by the US Treasury, the Fed and a number of banks to depress the gold price through active market manipulation. It has been alleged that such manipulation of the gold market was designed to artificially depress the gold price in order to give Americans the impression that there is little inflation in the system, and also to protect some financial institutions' huge short positions. Should the gold market rally in earnest, the gigantic short positions could never be covered, given the fact that they amount to a multiple of the annual supplies.

In my opinion, however, the year 2001 could mark a decisive turn in the fate of gold, not so much because of the favorable fundamentals, which I mentioned above, but because of the following sequence of events. The US economy is rapidly decelerating and, I think, there is a good chance we could experience an unpleasant deflationary recession this year, in the course of which corporate profits will collapse and corporate bankruptcies soar.

Now, it is obvious that the Fed, which through its irresponsible monetary policies created history's biggest financial bubble, will do everything it can to avoid such a painful recession. This means that Mr. Greenspan will to stimulate the economy, aggressively cut interest rates and ease monetary conditions - this at any cost!

This monetary intervention could, however, have some unpleasant side effects, the way interventions into a free market always do. Cutting interest rates may namely not help the still overvalued Nasdaq very much, nor will it lead to a lasting improvement in consumption. But it could lead to a pick up in the price of commodities, a rise in the rate of inflation and a massive fall in the value of the US dollar against the Euro.

Moreover, aggressive easing by the Fed will likely lead not to lower, but rising long-term interest rates, which would necessitate even more monetary injection into the financial system. I should like to remind our esteemed readers that if there is at present one dominant consensus in the world, it is the belief among investors that interest rates will decline.

However, I think that aggressive easing by the US Fed may very well lead to rising long term rates as long term bondholders' inflationary expectations rise. Thus, while short term rates decline, long term rates may rise and, therefore, I am no longer very positive about the US bond market.

In fact, a monetary crisis at some point, if not in 2001 then later, is almost a certainty. And when such a crisis strikes, or more likely already before, investors will begin to have second thoughts about the health of the monetary system, and lose faith in the omnipotence of central banks to steer and fine tune economic activity.

At that point, I would expect the gold price to rise very sharply, as more and more economists and policy makers will demand that the world needs a monetary system, which is totally independent from the Fed's monetary policies. Policy makers will then advocate, at least, a partial return to a gold standard, which actually served the world very well throughout its existence in the 19th and 20th century.

Hence, if you believe, as I do, that the continuous debt buildup in the world and the excessive monetary expansion we experienced in recent years is in the long run simply not sustainable, a small investment in selected gold and gold shares should offer a true diversification. An investment in gold is also the best hedge against the Fed's continuous irresponsible monetary policies and against the impending bear market in Mr. Greenspan's popularity.

Investors should gradually build up positions in a basket of gold equities such as Newmont Mining (market capitalization $2.6 billion), Homestake Mining, Placer Dome, ASA, Harmony, AngloGold, Franco Nevada and Agnico-Eagle.

Since 1985, there have been 13 minor gold market rallies with an average rise in the price of bullion of just 8%. However, the average rise in gold shares was 22%. Just consider if gold rallied 30% or more, how gold shares would perform!

Given their low combined market capitalisation, a doubling or trebling in price would not surprise me. From a risk/reward point of view, I, therefore, regard gold stocks to be very attractive. In the meantime, I also recommend to sell long term US Treasury bonds as US monetary policies may lead to more inflation and rising long term interest rates.

http://www.ameinfo.com/news/Detailed/16517.html

Saturday, April 05 - 2003 at 12:53

All that glitters is not gold for traders

Soaring prices have sent Gulf gold-buyers running for cover. Can the regional industry bounce back? A report from the souks.

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The annual Hajj pilgrimage is traditionally a time of peak gold demand in the Gulf. Muslims making the holy journey to Mecca invariably mark their odyssey with a trip to Saudi Arabia's gold souks, stocking up on jewelry to commemorate their once-in-a-lifetime trip.

Elsewhere in the Gulf, those who stay home flock to their domestic gold markets to buy gifts for friends and family as they celebrate the Eid al Adha religious holiday. In each of the three years to 2002, Middle East gold demand peaked in the first three months, thanks largely to Hajj and Eid demand.

This year it's a very different story. Official figures are not yet out, but anecdotal evidence suggests demand has slumped. 'We expect lower offtake in tonnage terms,' says Moaz Barakat, Middle East director of the World Gold Council (WGC), an organization funded by gold producers to promote the metal.

The same is true across the region. In the UAE, home to the region's most dynamic gold market at the Dubai gold souk, demand is down by up to 50 percent on last year. 'Our business has shrunk substantially,' says Joy Alukkas, managing director of Alukkas Jewellery, one of the leading networks in 22-karat jewelry. 'There is no hiding the fact that the gold jewelry business this time around is very poor.'

The Dubai Shopping Festival (DSF), which ran for a month from mid-January, saw a flurry of gold promotions as retailers tried to lure shoppers back. But the word on the street is that they enjoyed little success. While overall visitors to Dubai were up 40 percent on DSF 2002, jewelry sales were at best flat, at around 275 million dirhams ($75 million). Of that figure, a far greater amount was spent on gold's precious rivals, particularly diamonds, than in previous years.

What caused such a dramatic collapse in gold demand? In short, the price. The price of gold, set by traders on international commodity markets, has rocketed in recent months. In February 2002, gold was selling for around $280 per ounce. By February 2003, it hovered just below $380 per ounce, though the price briefly dropped to $340 per ounce by mid-March.

'Only those who cannot postpone buying are spending on gold jewelry, such as for a wedding,' says Tushar Patni, chairman of Abu Dhabi Gold and Jewellery Group. He says, 'Business at Abu Dhabi's gold souk is down by at least 50 percent.'

The surge in the gold price over the past 12 months throws up a number of searching questions. What forces have sent gold prices skyward? Where is the gold price headed in 2003? And what are the likely implications for the region's gold industry?

A host of factors have conspired to send gold prices ever higher in recent months. But if one word could sum up the reasons, it's 'uncertainty.' Investors view gold as a safe haven in times of political and economic turmoil. Recent months have seen both escalate, as military tension mounts in Iraq and global capital markets continue to languish in the doldrums.

Investor skepticism about buying shares in the wake of the Enron and WorldCom scandals has forced them to look for alternative asset classes. At the same time, the weakness of the US dollar has given gold a further shot in the arm (they traditionally move in opposite directions, and the current downturn in the dollar's value has proved no different).

Ironically, the surge in the gold price has come at a time when demand for gold is at an historic low. How is this possible? Because the gold price is set by traders dealing financial derivatives in New York, London and Hong Kong, not by shoppers buying necklaces in downtown Doha.

'This is a 'new' gold market,' explains Leonard Kaplan, gold analyst with Prospector Asset Management. 'The price is being determined not by the actions of the users or producers in their purchases and sales of physical product, but by the psychology of the investor and speculator.' Speculative 'long' positions are at their highest level in history, while bullish sentiment on the gold desks at investment banks has not been so rampant since 1980.

It is clear that powerful forces have driven prices to current levels. But can they sustain gold at $370 per ounce indefinitely? As ever, crystal ball gazing is fraught with difficulty. Some analysts feel a 'bubble' is inflating on the back of gold hysteria that, like the technology equity bubble of the late 1990s, will burst sooner or later.

'Internationally, the funds are long by some 13 million ounces,' says Tawhid, chairman of the Dubai Gold and Jewellery Group. 'I believe that if not today then tomorrow, they will have to offload those long positions.' That would send the price of gold spiraling down. 'It might be a drop as large as the increase we have seen.'

Others argue the current gold price is sustainable. 'In the absence of science [in predicting] economic recovery of markets, analysts expect a strong gold price for the remainder of 2003,' says WGC's Barakat. Indeed, some bulls believe the price has a long way to go before it reaches a plateau.

'Gold is, in my opinion, most certainly in a long-term secular bull market, for all the right reasons,' says Kaplan. 'As the US dollar continues to falter, as the equities markets continue their slide, as the paradigm shift from 'paper' assets to 'hard' assets builds a bit of momentum, as the budget deficits of the United States swell, it becomes apparent that gold must rise in response.'

What does the consensus say? A recent poll by news agency Reuters underlines the uncertainty in the market. It asked some 20 trading houses for a best guess on the average gold price for 2003. Forecasts ranged from $300 per ounce to $400 per ounce, a significant margin. The average was around $342 per ounce.

Kaplan argues that Iraq holds the key to future price movements. 'A peaceful solution to the Iraqi war, whether it comes as a result of a quick and decisive war or by other means, will turn investor psychology around very quickly and a vicious drop will be seen. On the other hand, if the Iraqi situation becomes worse than the market believes, the gold market will scream higher. All depends on the news at this point.'

For Gulf gold traders, it is a case of wait and see. They are 'price takers' in the gold price equation, and have to get on with their business whatever the yellow metal fetches. But for some, any change in the gold price – or change of heart by gold buyers – may come to late.

In early February, Dubai-based Gulf News reported that one gold trader with shops in Dubai and Sharjah had already been forced out of business by the sharp downturn in trade in recent months. The report was unconfirmed, but such stories are increasingly common among gold sources in the UAE.

Indeed, the timing of the recent downturn could hardly be worse for gold sellers: physical gold demand in the Middle East has been falling steadily for years. In Saudi Arabia, consumer demand fell from 250 tons in 1997 to 165 tons in 2001, according to WGC figures. Full-year figures for 2002 are not yet published,
but no one doubts that demand in the kingdom took another big hit. Some observers argue that it is only a matter of time before shops are boarded up across the region's gold souks.

Not everyone agrees. Regional gold heavyweights, such as Dubai Gold and Jewellery Group Chairman Tawhid Abdullah, insist the impact of recent demand pressures is being overplayed. He puts the downturn in business in Dubai's gold souk at nearer 10-15 percent.

Crucially, he makes the distinction between traders in 22-karat gold, targeting the Indian market, and those selling 18-karat gold, aimed at the high-end Arab and Western markets.
'The impact has been very minimal at the high end,' says Tawhid. 'For these people, it doesn't matter if something costs $400 or $500. Asian buyers are more price-sensitive, and we have seen demand about 10-15 percent lower at this end.'

WGC's Barakat is similarly bullish. 'Dubai's gold trade is experiencing lower traffic compared to the earlier part of 2002, mainly for local customers. tourist sales are still going at the same levels as in the past due to the large differential in prices between Dubai and Europe.' Barakat argues that the recent high gold price will ultimately convince buyers of the metal's true worth.

'The current high prices will only create a positive impact on the customer,' he insists. 'No matter what the price, gold offers a store of value like none other and continues to be seen as an investment rather than expenditure.'

Barakat and Tawhid have a vested interest in talking up the gold market. But they have a point, and it would be wrong to overstate the drop in regional gold demand. The Gulf remains one of gold's most buoyant markets. A recent report by Saudi Arabia's National Commercial Bank pointed out that in 2001, the kingdom was the world's fourth biggest gold consumer. Consumers in Saudi Arabia bought nearly 8 grams of gold each, compared with the global average of around 0.5 grams.

On the technical side, bankers in Dubai are in talks with many of their gold-trading customers about ways to ride the current storm. Jeff Rhodes, of Standard Bank in Dubai, says few of the city's gold traders hold much cash in the bank – they prefer to hold their wealth in gold inventory. While this is understandable, it can lead to cash flow shortages in times of crisis.

'When business is booming this is fine, albeit shortsighted,' says Rhodes. 'But when the market is slow, the gold jewelry held in stock can become a passive and wasting asset.' He is encouraging traders use their gold inventory as collateral, a move that will help them manage their cash flow better in the lean times.

PR campaigns and innovative banking techniques should help most Gulf traders cope with short-term downturns. Whether they will help them survive in an era of structurally reduced demand is another matter entirely. All eyes will be on the regional gold market when Hajj comes around again in January 2004. But only the most optimistic gold traders are banking on a speedy return to the good old days.

http://www.ameinfo.com/news/Detailed/23246.html

Thursday, February 19 - 2004 at 14:40

Investor demand to push gold price higher in 2004

In December, the monthly average price of gold exceeded $400 per ounce, its highest level since 1996. Investment demand, driven by increasing global geopolitical risk and dollar weakness, helped propel the price of gold higher by over $70 per ounce in 2003.

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In addition, hedge unwinding by gold producers and limited gold production also underpinned gold prices.

In 2004, the price of gold is expected to continue rising, reaching levels comparable to those seen in the early 1980s during the last oil price shock. Factors that pushed gold prices higher in 2003 will again drive gold prices higher in 2004.

Most important for gold prices will be the strength of investor demand. Increasing global geopolitical instability, further dollar depreciation and growing risk of dollar devaluation will all strengthen investor demand for gold.

Demand from producer de-hedging will continue at last year's pace. Gold supply is expected to remain nearly stable. Gold production will increase slightly while central bank sales of gold are expected to decline. With investor demand expected to increase and supply to hold roughly stable, the price of gold should approach $500 per ounce by the end of 2004.

The key factors in creating investment demand for gold in 2003 were increasing global geopolitical instability and dollar depreciation. Last year global geopolitical risk was pushed to its highest level since the Korean War. The increasingly unilateralist foreign policy of the Bush administration was the primary factor driving global geopolitical risk higher.

Unilateralism has defined U.S. positions on issues ranging from trade to the global environment. However, the most profound and damaging expression of unilateralism has been through the pursuit of the war on terrorism. The invasion and occupation of Iraq explicitly contravened the United Nations and abrogated international law.

This severely damaged U.S. foreign relations with many countries, most notably France, Germany and Russia. In addition, the war on terrorism has also inflamed tensions between Israelis and Palestinians, and increased instability on the Korean peninsula.

Lastly, the war on terrorism has not subdued global terrorism. Terrorist strikes have become more frequent. The U.S. presidential election will be fundamental to pushing global geopolitical instability higher in 2004. Continued hardening of unilateralism, driven by electoral politics, will further strain U.S. foreign relations and intensify instability in the Middle East and the Korean peninsula.

Most importantly, the probability of a major terrorist strike in the U.S. and against U.S. interests abroad is increasing. As in 2003, the U.S.-centric nature of global geopolitical instability argues for further dollar depreciation this year.

Last year the strong dollar policy advocated by the U.S. Treasury since the mid-1990s was subtlely abandoned. It is generally assumed that dollar policy was changed in order to improve the competitiveness of U.S. exports, spurring growth of manufacturing jobs. It is more probable that dollar policy was changed, with heavy influence from the Federal Reserve, in order to counter building deflationary pressure in the U.S. economy.

According to the advance estimate of gross domestic product released by the U.S. Bureau of Economic Analysis on January 30, deflation of durable goods prices accelerated to –3.7 percent in 2003 from –2.9 percent in 2002. Durable goods purchases accounted for 20 percent of total U.S. gross domestic product in 2003. In addition, deflation remained stubborn in non-residential fixed investment prices. This investment accounted for a further nine percent of U.S. gross domestic product last year.

To counter deflationary pressure, the U.S. Treasury, at the behest of the Federal Reserve, will continue earnestly exporting U.S. deflation, via dollar depreciation, to the rest of the world in 2004. In addition to abandonment of the strong dollar policy, the economic threat posed by the staggering twin U.S. deficits are likely to push the value of the dollar lower in 2004.

Last year, the U.S. current account deficit was estimated to have reached a record 5.1 percent of GDP while the U.S. general government deficit, which includes both the federal and state governments, was likely to have approached six percent of GDP. This year, weaker U.S. economic growth will ease the current account deficit toward four percent of GDP. However, very loose fiscal policy will push the general government deficit toward seven percent of GDP. The era of massive twin deficits in the U.S. has returned.

The last such episode, which occurred in the mid-1980s, heralded a 30 percent decline in the real effective exchange rate of the dollar. By comparison, the real effective exchange rate of the dollar has depreciated by less than 10 percent over the past 18 months.

Nearly $1 trillion of foreign capital is funding the U.S. public sector and current account deficits. About $800 billion of this foreign money is invested in U.S. government, agency and corporate bonds. The size of these deficits and the nature of their funding make the dollar very vulnerable to depreciation, and long-term interest rates exposed to upward pressure. Higher longterm interest rates will strongly undermine the growth of credit that has been crucial to U.S. personal consumption expenditure and overall economic growth in the past two years.

Assuming that dollar depreciation remains controlled, the dollar/euro exchange rate should exceed 1.40 by the end of 2004. The yen/dollar exchange rate should reach about 98 by the end of 2004. The weight of foreign investment in the U.S. financing the large twin deficits indicates that the risk of much greater dollar weakness is substantial.

Expected dollar depreciation, the large current account and fiscal deficits and increasing geopolitical instability, driven by U.S. electoral politics, make the dollar a very unlikely safe haven for global investors. Foreign capital flight from the U.S. could easily trigger a large dollar devaluation.

Increasing global geopolitical instability, weak U.S. economic fundamentals and the preponderance of foreign investment in U.S. fixed-income securities imply dollar depreciation will continue in 2004 and suggest the possibility of a large dollar devaluation. These factors are expected to increase the demand for gold among investors. In the past two years, producer dehedging has also contributed to improved demand for gold.

De-hedging, or reversal of forward gold sales by mining companies, has gained momentum with industry consolidation, pressure to improve accounting transparency and rising gold prices. Producer de-hedging created demand for 423 tons of gold in 2002 and an estimated 400 tons in 2003. In 2004, de-hedging is expected to induce demand for another 400 tons of gold. Fabrication demand for gold is expected to increase by around one percent this year after growing by an estimated three percent in 2003.

Against the background of increasing investor demand for gold, continued producer de-hedging and steady fabrication demand, the supply of gold is expected to be steady. Gold production from mining has been nearly stable over the past two years. Consolidation among mining companies and mines has led to consolidation of gold production.

Gold production should increase by only around one percent in 2004 to 2,625 tons. Apart from mining production, the other significant component of gold supply has been central bank sales of gold reserves. In 1999, 15 European central banks agreed to limit their sale of gold reserves to a total of 400 tons annually for five years.

This agreement expires in September but will very likley be extended for another five years. Speculation surrounds the scope of the next central bank agreement. Expectations for the amount of gold these central banks will agree to sell annually range from 400 tons to 650 tons.

While at least two more European central banks are expected to join the next gold sales agreement, the aggragate amount of gold that these banks will sell is very unlikely to increase sharply due to the impact that such a change would have on prices.

In 2002, total central bank sales of gold amounted to 559 tons. Central bank gold sales are estimated to have increased slightly to about 575 tons in 2003. This year, renegotiation of the central bank gold sales agreement is expected to slow central bank gold sales to about 500 tons.

The final element of supply is scrap. Supply from scrap was 835 tons in 2002 and an estimated 865 tons in 2003. Rising gold prices have encouraged an increase in scrap supply. This year, scrap supply, pushed higher by rising gold prices, will probably climb toward 900 tons. The rise in scrap supply will moderate the decline in supply from lower central bank gold sales. Overall, the total supply of gold should be relatively unchanged this year. With gold supply steady, demand – specifically investment demand – will determine gold prices this year.

As in 2003, investment demand will benefit from global geopolitical instability and dollar weakness. However, this year, geopolitical instability and dollar weakness are very likely to intensify, pushing the price of gold toward $500 per ounce. Gold and gold mining stocks will remain an attractive investment and hedging vehicle in 2004.

Over the next few months, the price of gold is expected to be volatile. This volitility will come as a result of speculation ahead of the next central bank gold sales agreement. However, once this agreement is finalized, probably in the second quarter, the price of gold will move higher. The price of gold will continue to rise as the U.S. presidential elections approach in November.

http://www.ameinfo.com/news/Detailed/35090.html

United Arab Emirates: Wednesday, December 10 - 2003 at 10:42

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