Nifty Daily chart update - 30 June 2011

Dear Members,

Hope you have enjoyed the rally in Nifty as per my last update on 23 June 2011, below.

Nifty did bounce back 8% from possible double bottom as expected (Nifty update on 23 Jun 2011), now watch for 50% retracement level @ 5767 and Trend line resistance @ 5700 (If nifty able to cross and close above 38.2% retracement level @ 5632 today or tomorrow).

Happy Trading.

Thanks,
Commodity Daily

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---------- Forwarded message ----------
Date: Thu, Jun 23, 2011 at 6:28 PM
Subject: Nifty Daily chart update - 23 June 2011

Dear Members,

As you can see in the attached chart Nifty topped @ 6338.50 on 05-Nov-2010. Nifty was trading in range of 6200-5800 for a while before it breakdown below the triangle formed between this period on 11-Jan-2011 @ 5698 and completed our (600 point) expected correction by making bottom @ 5177.7 on 11-Feb-2011. As nifty was oversold it did break through the resistance level of 5600 on 25-Mar-2011 with gap and surged to 5944 level on 06-Apr-2011, which is near the 61.8% retracement level @ 5902 (Movement of 1160 point correction from Nov-2011 Top to Feb-2011 Bottom, also a trend line resistance - green line in the attached chart) and plummeted dramatically to 5328 level on 25-May-2011 as nifty failed to cross 61.8% level. After 600 point dramatic correction nifty rose 300 points to 5600 level again in first week of June 2011(the same resistance level faced in early Feb-Mar 2011 period) but failed to sustain at that level and made another bottom of 5195 on 20-June-2011. (which is nearby the earlier bottom formed @ 5177.7 on 11-Feb-2011, Possibly a double bottom )

In the period of 8 months (Nov-2010 to June-2011) nifty made three LH (Lower High) @ 6338.5 on 05-Nov-2010, @ 6181.05 on 04-Jan-2011, @ 5944.45 on 06-Apr-2011 and made possible double bottom @ 5177.7 on 11-Feb-2011, @ 5195 on 20-June-2011. Nifty 50% and 38.2% retracement levels are 5767,5632  respectively for the above said 8 Months of movement of Nifty from Nov-2010 to June-2011, Nifty must cross and close above this two levels to validate this possible double bottom. However, if Nifty fail to do so and break below this two bottom, it may correct up to 4600 level in coming moths. (Another view is forming from the chart is Nifty either forming big Triangle with 8 months time frame or Head and shoulder pattern with 6 month time frame, which is yet has to be confirmed)

Happy Trading.

--
Thanks,
Commodity Daily

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.

Nifty Daily chart update - 23 June 2011

Dear Members,

As you can see in the attached chart Nifty topped @ 6338.50 on 05-Nov-2010. Nifty was trading in range of 6200-5800 for a while before it breakdown below the triangle formed between this period on 11-Jan-2011 @ 5698 and completed our (600 point) expected correction by making bottom @ 5177.7 on 11-Feb-2011. As nifty was oversold it did break through the resistance level of 5600 on 25-Mar-2011 with gap and surged to 5944 level on 06-Apr-2011, which is near the 61.8% retracement level @ 5902 (Movement of 1160 point correction from Nov-2011 Top to Feb-2011 Bottom, also a trend line resistance - green line in the attached chart) and plummeted dramatically to 5328 level on 25-May-2011 as nifty failed to cross 61.8% level. After 600 point dramatic correction nifty rose 300 points to 5600 level again in first week of June 2011(the same resistance level faced in early Feb-Mar 2011 period) but failed to sustain at that level and made another bottom of 5195 on 20-June-2011. (which is nearby the earlier bottom formed @ 5177.7 on 11-Feb-2011, Possibly a double bottom )

In the period of 8 months (Nov-2010 to June-2011) nifty made three LH (Lower High) @ 6338.5 on 05-Nov-2010, @ 6181.05 on 04-Jan-2011, @ 5944.45 on 06-Apr-2011 and made possible double bottom @ 5177.7 on 11-Feb-2011, @ 5195 on 20-June-2011. Nifty 50% and 38.2% retracement levels are 5767,5632  respectively for the above said 8 Months of movement of Nifty from Nov-2010 to June-2011, Nifty must cross and close above this two levels to validate this possible double bottom. However, if Nifty fail to do so and break below this two bottom, it may correct up to 4600 level in coming moths. (Another view is forming from the chart is Nifty either forming big Triangle with 8 months time frame or Head and shoulder pattern with 6 month time frame, which is yet has to be confirmed)

Happy Trading.

--
Thanks,
Commodity Daily

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.

Over The Counter Gold And Silver To Be Illegal Beginning July 15

Trading Of Over The Counter Gold And Silver To Be Illegal Beginning July 15

Zero Hedge
June 19, 2011

One small step toward Executive Order 6102 part 2, and one giant leap for corruptcongressmankind.

Important Account Notice Re: Metals Trading

We wanted to make you aware of some upcoming changes to FOREX.com's product offering. As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.

In conjunction with this new regulation, FOREX.com must discontinue metals trading for US residents on Friday, July 15, 2011 at the close of trading at 5pm ET. As a result, all open metals positions must be closed by July 15, 2011 at 5pm ET.

We encourage you to wind down your trading activity in these products over the next month in anticipation of the new rule, as any open XAU or XAG positions that remain open prior to July 15, 2011 at approximately 5:00 pm ET will be automatically liquidated.

We sincerely regret any inconvenience complying with the new U.S. regulation may cause you. Should you have any questions, please feel free to contact our customer service team.

Sincerely,
The Team at FOREX.com

So far we have only received this warning from Forex.com. We are waiting to see which other dealers inform their customers that trading gold and silver over the counter will soon be illegal.

It appears that Forex.com's interpretation of the law stems primarily from Section 742(a) of the Dodd-Frank act which "prohibits any person [which again includes companies]from entering into, or offering to enter into, a transaction in any commodity with a person that is not an eligible contract participant or an eligible commercial entity, on a leveraged or margined basis."

 

 

Some prehistory from Hedge Fund Law Blog:

The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Act") has changed a number of laws in all of the securities acts including the Commodity Exchange Act.  Two specific changes deal with certain transactions in commodities on the spot market.  Specifically, Section 742 of the Act deals with retail commodity transactions.  In this section, the text of the Commodity Exchange Act is amended to include new Section 2(c)(2)(D) (dealing with retail commodity transactions) and new Section 2(c)(2)(E) (prohibiting trading in spot forex with retail investors unless the trader is subject to regulations by a Federal regulatory agency, i.e. CFTC, SEC, etc.).  According to a congressional rulemaking spreadsheet, these are effective 180 days from the date of enactment.
We provide an overview of the new sections and have reprinted them in full below.
New CEA Section 2(c)(2)(D) – Concerning Spot Commodities (Metals)
The central import of new CEA Section 2(c)(2)(D) is to broaden the CFTC's power with respect to retail commodity transactions.  Essentially any spot commodities transaction (i.e. spot metals) will be subject to CFTC jurisdiction and rulemaking authority.  There is an exemption for commodities which are actually delivered within 28 days.  While the CFTC wanted an exemption in which commodities would need to be delivered within 2 days, various coin collectors were able to lobby congress for a longer delivery period (see here).
It is likely we will see the CFTC propose regulations under this new section and we will keep you updated on any regulatory pronouncements with respect to this new section.
New CEA Section 2(c)(2)(E) – Concerning Spot Forex
The central import of new CEA Section 2(c)(2)(E) is to regulate the spot forex markets.  While the section requires the CFTC to finalize regulations with respect to spot forex (which were proposed earlier in January), it also, interestingly, provides  oversight of the markets to other federal regulatory agencies such as the CFTC.  This means that in the future, different market participants may be subject to different regulatory regimes with respect to trading in same underlying instruments.  A Wall Street Journal article discusses the impact of this with respect to firms which engage in other activities in addition to retail forex transactions.  The CFTC's proposed rules establish certain compliance parameters for retail forex transactions, requires registration of retail forex managers and requires such managers to pass a new regulatory exam called the Series 34 exam.  We do not yet know whether the other regulatory agencies will adopt rules similar to the CFTC or if they will write rules from scratch.

Next, from Henderson & Lyman:

The prohibition of Section 742(a) does not apply, however, if such a transaction results in actual delivery within 28 days, or creates an enforceable obligation to deliver between a seller and a buyer that have the ability to deliver, and accept delivery of, the commodity in connection with their lines of business. This may be problematic as in most spot metals trading virtually all contracts fail to meet these requirements. As a result, although the courts' interpretation of Section 742(a) is unknown, Section 742(a) is likely to have a significantly negative impact on the OTC cash precious metals industry. Here too, it is essential that those who offer to be a counterparty to OTC metals transactions seek professional help to discuss possible operational and regulatory contingency plans.

The actual rule language exempts a transaction if it "results in actual delivery within 28 days or such other period as the Commission may determine by rule or regulation based upon the longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved;" Alas, the commission has decided not to intervene and keep the exemption status window so small as to affect virtually all exchanges which transact in the gold and silver spot market.

More here:

Elimination of OTC Forex

Effective 90 days from its inception, the Dodd-Frank Act bans most retail OTC forex transactions. Section 742(c) of the Act states as follows:

…A person [which includes companies] shall not offer to, or enter into with, a person that is not an eligible contract participant, any agreement, contract, or transaction in foreign currency except pursuant to a rule or regulation of a Federal regulatory agency allowing the agreement, contract, or transaction under such terms and conditions as the Federal regulatory agency shall prescribe…

This provision will not come into effect, however, if the CFTC or another eligible federal body issues guidelines relating to the regulation of foreign currency within 90 days of its enactment. Registrants and the public are currently being encouraged by the CFTC to provide insight into how the Act should be enforced. See CFTC Rulemakings regarding OTC Derivatives located at the following website address, under Section XX – Foreign Currency (Retail Off Exchange). It is essential that OTC forex participants seek professional help to discuss possible operational and regulatory contingency plans.

Elimination of OTC Metals

As for OTC precious metals such as gold or silver, Section 742(a) of the Act prohibits any person [which again includes companies]from entering into, or offering to enter into, a transaction in any commodity with a person that is not an eligible contract participant or an eligible commercial entity, on a leveraged or margined basis. This provision intends to expand the narrow so called "Zelener fix" in the Farm Bill previously ratified by congress in 2008. The Farm Bill empowered the CFTC to pursue anti-fraud actions involving rolling spot transactions and/or other leveraged forex transactions without the need to prove that they are futures contracts. The Dodd-Frank Act now expands this authority to include virtually all retail cash commodity market products that involve leverage or margin – in other words OTC precious metals.

The prohibition of Section 742(a) does not apply, however, if such a transaction results in actual delivery within 28 days, or creates an enforceable obligation to deliver between a seller and a buyer that have the ability to deliver, and accept delivery of, the commodity in connection with their lines of business. This may be problematic as in most spot metals trading virtually all contracts fail to meet these requirements. As a result, although the courts' interpretation of Section 742(a) is unknown, Section 742(a) is likely to have a significantly negative impact on the OTC cash precious metals industry. Here too, it is essential that those who offer to be a counterparty to OTC metals transactions seek professional help to discuss possible operational and regulatory contingency plans.

Small Pool Exemption Eliminated

Pursuant to Section 403 of Act, the "privateadviser" exemption, namelySection 203(b)(3) of the Investment Advisers Act of 1940 ("Advisers Act"), will be eliminated within one year of the Act's effective date (July 21, 2011). Historically, many unregistered U.S. fund managers had relied on this exemption to avoid registration where they:

(1) had fewer than 15 clients in the past 12 months;

(2) do not hold themselves out generally to the public as investment advisers; and

(3) do not act as investment advisers to a registered investment company or business development company.

At present, advisers can treat the unregistered funds that they advise, rather than the investors in those funds, as their clients for purposes of this exemption. A common practice has thus evolved whereby certain advisers manage up to 14 unregistered funds without having to register under the Advisers Act. Accordingly, the removal of this exemption represents a significant shift in the regulatory landscape, as this practice will no longer be allowable in approximately one year.

Also an important consideration, the Dodd-Frank Act mandates new federal registration and regulation thresholds based on the amount of assets a manager has under management ("AUM"). Although not yet underway, it is possible that various states may enact legislation designed to create a similar registration framework for managers whose AUM fall beneath the new federal levels.

Accredited Investor Qualifications

Section 413(a) of the Act alters the financial qualifications of who can be considered an accredited investor, and thus a qualified as eligible participant ("QEP"). Specifically, the revised accredited investor standard includes only the following types of individuals:

1) A natural person whose individual net worth, or joint net worth with spouse, is at least $1,000,000, excluding the value of such investor's primary residence;

2) A natural person who had individual income in excess of $200,000 in each of the two most recent years or joint income with spouse in excess of $300,000 in each of those years and a reasonable expectation of reaching the same income level in the current year; or

3) A director, executive officer, or general partner of the issuer of the securities being offered or sold, or a director, executive officer, or general partner of a general partner of that issuer.

Based on this language, it is important to note that the revised accredited investor standard only applies to new investors and does not cover existing investors. However, additional subscriptions from existing investors are generally treated as requiring confirmation of continuing investor eligibility.

On July 27th, 2010, the SEC provided additional clarity regarding the valuation of an individual's primary residence when calculating net worth. In particular, the SEC has interpreted this provision as follows:

Section 413(a) of the Dodd-Frank Act does not define the term "value," nor does it address the treatment of mortgage and other indebtedness secured by the residence for purposes of the net worth calculation…Pending implementation of the changes to the Commission's rules required by the Act, the related amount of indebtedness secured by the primary residence up to its fair market value may also be excluded. Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the investor's net worth.

Article printed from Infowars: http://www.infowars.com

URL to article: http://www.infowars.com/trading-of-over-the-counter-gold-and-silver-to-be-illegal-beginning-july-15/

 

--
Thanks,
Commodity Daily

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.

Scotia Mocatta Loses 60% Of Its Physical Silver In One Month To "Reclassification".....

Scotia Mocatta Loses 60% Of Its Physical Silver In One Month To "Reclassification", Total Comex Registered Silver Now Under 30 Million Ounces

By Tyler Durden

Created 06/01/2011 - 17:57

About a month ago [1]we indicated that Comex depository Scotia Mocatta "lost" 25% of its Registered (aka Physical) silver after the vault encountered a "reporting reclassification" which saw 5,287,142 ounces of silver moved from Registered to Eligible status, dropping the vault's true holdings from 11.8 million ounces to 6.5 million. Naturally, the response from the peanut gallery was that this was a tempest in a teacup and it was "temporary" and a-ha, any minute it would reverse, and all shall be well, everyone would live happily ever after, and the Comex would actually have silver available for delivery purposes. We decided to not hold our breath. Which after pulling today's most recent Comex warehouse data appears to have been a prudent decision, because for the first time ever total registered silver has dropped below 30 million ounces, after experiencing a 5% overnight drop across the board, primarily driven by yet another 1,456,488 ounce "adjustment" of warehoused silver from Registered To Eligible at Scotia Mocatta. As of last night, total Scotia physical silver was now 4,740,447 ounces, a 24% drop overnight, and a massive 60% drop from the total which we captured on April 20. Still think it's temporary?

Oh, and Scotia was not alone: there were comparable reclassifications at both HSBC and Delaware. But the kicker: total silver at Scotia Mocatta has barely budged. The only thing that has changed is the shift from real silver to "Eligible", or that which has no warehouse receipt issued against it, or as was described previously "a private arrangement" which has nothing to with the Comex. This is non-deliverable silver! Thus, starting with a ratio of 11.8MM to 8.8MM ounces of Registered/Eligible (or 57%/43%) a little over a month ago (on April 19), the most recent Scotia Moccata physical silver now just 23.4% of the "total."  And just as troubling is that the total amount of silver available for dlivery has just fallen to a fresh all time low. Luckily, we have margin call driven liquidations such as today which will probably buy a few more days before registered Scotia silver hits 0 (but don't worry: it's only temporary).

--
Thanks,
Commodity Daily

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.

Silver – Time to buy

Silver – Time to buy

Puru Saxena
Posted May 14, 2011

Only two weeks ago, the price of silver was rapidly appreciating in a parabolic advance. Back then, sentiment towards the white metal was extremely bullish and its price was approximately 78% above its 200-day moving average. Furthermore, on the 25th of April, silver registered a key reversal whereby its price tested the all-time high recorded in 1980 but failed to hold on to its intra-day gains.

You will recall that after observing all of the above conditions, we sent out an alert advising investors and speculators to take some money off the table. As it turns out, our caution was warranted and what has recently transpired can only be described as a rout in the silver market.

It is notable that although we were looking for a big medium-term correction in silver, even we were taken aback by the force of the decline. It is astounding that within two weeks, the price of silver fell by approximately 35% and today, the white metal is trading at just US$34 per ounce. It goes without saying that the recent price action in silver is yet another reminder that commodities are extremely volatile and parabolic moves always end in tears.

Now, we are aware that many manipulation theories are currently doing the rounds whereby the affected parties are claiming that silver's plunge was due to an orchestrated takedown by the banks. Obviously, there is no way to prove this but it pays to remember that when any asset appreciates by 190% in 8 months, most of the buyers have already bought into the bullish thesis. Therefore, after the buying has exhausted itself, profit taking and short-selling bring about the reversal and the price retraces a large portion of the gains. This is how the world's financial markets have operated since the beginning of time and 'this time is different' are the four most expensive words in an investor's dictionary.

Turning to the present situation, the price of silver is currently trading around US$34 per ounce. Moreover, it is noteworthy that on two occasions, the price of the white metal briefly dipped below US$34 per ounce, however on both days, it closed above that level. This price action leads us to believe that silver is finding some support in the US$32-34 per ounce area and it is conceivable that most of the selling is now behind us.

In terms of the technicals, silver is currently trading only 17% above its 200-day moving average and its daily chart reveals a double bottom formation. Moreover, investor sentiment towards the white metal has changed dramatically and euphoria has been wrung out of the market. Thus, bearing in mind the possibility of a base formation and the negative investor sentiment, this is the time to start accumulating positions in silver.

Look. We do not possess a crystal ball and have no divine powers to accurately predict the future. However, we believe that the risk/reward for silver is now favourable and barring a deflationary meltdown, the downside is limited.

Our analysis suggests that under the worst case scenario, the price of silver could decline to US$30 per ounce but even that level is less than 15% below the current price. So, this is the time to re-allocate capital to the silver market but investors should bear in mind the possibility that silver will not climb to a record high anytime soon. Instead, the probability favours a lengthy base formation which will then act as a launch pad for silver's next rally.

Finally, it is our contention that during the next rally in precious metals, silver will not be the leader. After all, the recent plunge has devastated investor sentiment and it is unlikely that the party goers will show up at the same ball again.

If our assessment is correct, the precious metals sector will experience a rotation, whereby investors and speculators will now turn to gold. Accordingly, we believe that during the next big advance, the yellow metal will provide leadership and appreciate more than silver.

email: puru@purusaxena.com
website: www.purusaxena.com

--
Thanks,
Commodity Daily

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Note- Members express their own view  & may be or may not be having investment or speculative positions in the commodity, please do not take it as buy or sell advise, please use  your own judgments for buying or selling, after having discussion with your certified investment brokers or the person to whom u  have good level of confidence. once sentiment is changed from good to bad no good news work but bad news do work, investors must keep this in mind.NEW INVESTORS SHOULD BE VERY CAREFUL.

Gold Coins Show Bull Market Unbowed in Commodities Decline

By Nicholas Larkin and Pham-Duy Nguyen - May 16, 2011

Sales of gold coins are on track for the best month in a year amid the worst commodities rout since 2008, a sign that bullion's longest bull market in nine decades has further to run, if history is a guide.

The U.S. Mint sold 85,000 ounces of American Eagle coins since May 1 as the Standard & Poor's GSCI Index of 24 raw materials fell 9.9 percent. The last time sales reached that level, bullion rose 21 percent in the next year. Gold will advance 17 percent to a record $1,750 an ounce by Dec. 31 and keep gaining in 2012, the median estimate in a Bloomberg survey of 31 analysts, traders and investors shows.

Investors in exchange-traded products backed by the metal accumulated $98 billion of gold as prices rose 74 percent since U.S. borrowing costs fell to near zero in December 2008 and the Dollar Index dropped 6.2 percent. With the gauge, a measure against six currencies, forecast to weaken through 2012 and the Federal Reserve expected to keep rates on hold through the fourth quarter, the rally may not reverse any time soon.

"There is no sign that gold has peaked," said Martin Murenbeeld, the chief economist at Toronto-based DundeeWealth Inc., which manages about $85 billion in mutual funds and brokerage accounts. "We're going to find that the U.S. economy is not very strong," he said. "A low interest-rate environment will remain for possibly all of 2012. The dollar goes down."

Gold Rally

Bullion rose almost sixfold from a two-decade low in 1999 while the Dollar Index fell 35 percent since the end of 2001. The gauge will drop 2.9 percent more this year and another 3.7 percent in 2012, the median of analysts' estimates compiled by Bloomberg shows. The two have an inverse correlation of 0.78, with a figure of -1 meaning they move in opposite directions all the time, making gold a hedge against a weaker dollar.

Gold rallied every year since 2001, attracting billionaire investors George Soros and John Paulson, and reached a record $1,577.57 in Londonon May 2. The metal rose 0.1 percent to $1,496.57 today.

The S&P GSCI Total Return Index of commodities rose 25 percent since the start of 2001, the S&P 500 Index made about 25 percent with reinvested dividends and Treasuries returned 72 percent, a Bank of America Merrill Lynch index shows.

While the 2,041 metric tons accumulated through metal- backed ETPs helped drive prices higher, it also represents a threat. Holdings dropped 3.3 percent in the first quarter, according to data released by the ETP providers. The details of which investors changed their holdings in that period are being revealed in Securities and Exchange Commission filings.

Fund Holdings

Touradji Capital Management LP, founded by Paul Touradji, sold 173,000 shares in the SPDR Gold Trust during the quarter, valued at about $24 million as of March 31, an SEC filing May 13 showed. Astenbeck Capital Management LLC, run by Andrew Hall, bought a stake in the Market Vectors Gold Miners ETF valued at $32.5 million on March 31, a separate filing shows.

Soros Fund Management LLC held 4.72 million SPDR Gold Trust shares as of Dec. 31, equal to about 14 tons, an SEC filing Feb. 14 showed. Soros described gold in January last year as "the ultimate asset bubble." The fund sold some holdings because it no longer expects deflation, the Wall Street Journal said May 4. Michael Vachon, a spokesman for Soros, declined to comment.

John Paulson's Paulson & Co., based in New York, held 31.5 million shares in the SPDR Gold Trust on Dec. 31, making it the single biggest investor, an SEC filing in February showed.

The new filings from funds "may show that big names exited ETPs and this news may cause prices to slip in the very short term," said Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Some funds switched to holding gold directly so they wouldn't have to announce it publicly, he said.

Sales Climb

It's not just the U.S. Mint that saw accelerating sales. Rand Refinery Ltd., which makes the Krugerrand, said May 13 that sales are heading for their best month since August. Demand for physical gold on May 6 was the strongest since early February, Standard Bank said in a report May 11. The U.S. Mint sold 62,000 ounces of American Eagles in the first week of May, as the S&P GSCI slumped 11 percent, the most since December 2008.

Those sales are "certainly reflective of a strong wave of demand for physical metal," said Ross Norman, chief executive officer of Sharps Pixley Ltd., a London-based bullion brokerage. "What drives people towards physical metal, as opposed to ETF or futures, is fundamental insecurity. It's like safe haven in extremis."

UBS AG, Switzerland's biggest bank, had its second-best day this year for physical sales on May 9, according to a report the following day. The bank's sales to India, the world's top bullion consumer, are more than 10 percent higher than in 2010.

'Facing Challenges'

"There are more factors than at perhaps any other time in history that would suggest to investors they should own gold," said Michael Haynes, chief executive officer of American Precious Metals Exchange, an online bullion dealer that had its three best sales weeks ever in April and May. "We don't know if the euro is going to crack or stay and the dollar is facing challenges as the world's reserve currency."

Haynes, based in Oklahoma City, expects to ship as many as 15 million precious metals coins or bars this year, double last year's figure. The University of Texas Investment Management Co., the second-largest U.S. academic endowment, said April 14 it took delivery of about $1 billion of gold bars.

Another warning sign for the rally may be central banks adding to their reserves for the first time in a generation. Mexico, Russia and Thailandbought about a combined $6 billion in February and March, International Monetary Fund data show. Central banks hold 30,575 tons, equal to about 18 percent of all the metal ever mined, the data show.

Boosting Holdings

The banks were also boosting holdings in 1980 when gold rose to a then-record $850, only to fall for most of the next 20 years. That high is equal to $2,299 in inflation-adjusted terms, according to a calculator on the website of the Federal Reserve Bank of Minneapolis. Prices tripled from 1999 through the beginning of 2008 as the banks sold more than 4,000 tons.

"Central banks don't have the best track record trading gold," said Malcolm Freeman, managing director of Ambrian Commodities Ltd. in London. He pointed to the U.K., which sold about 400 tons over about a two-year period ending in 2002, getting no more than $296.50 an ounce.

Rising interest rates could also diminish the appeal of gold, which generally earns investors returns only through price gains. At least two dozen nations and the European Central Bank raised rates this year, data compiled by Bloomberg show. The Fed will probably hold its benchmark rate in a range of zero to 0.25 percent through the fourth quarter, according to the median forecast of 72 economists surveyed by Bloomberg.

Reduced Stimulus

Reduced stimulus may also strengthen the dollar. Fed Chairman Ben S. Bernanke signaled April 27 the bank will keep record monetary stimulus when its $600 billion bond purchase program ends in June, the second round of so-called quantitative easing. The Dollar Index rose 3 percent since then.

"If we get a rise in the dollar because the Fed is exiting QE2 in June, gold could hit $1,200," said Michael Pento, a senior economist at Euro Pacific Capital Inc. in New York who has correctly predicted the high in gold for the past two years. "It would be a buying opportunity."

The Dollar Index fell to a two-year low of 72.7 on May 4 and was at 75.71 on May 13. It will drop to 73.57 at the end of this year and 70.81 at the end of 2012, according to data compiled by Bloomberg from analysts' forecasts.

Investment Demand

Investment overtook jewelry as the biggest source of demand for the first time in three decades in 2009, according to GFMS Ltd., a London-based research company. Investor demand will climb 9.9 percent to 1,597 tons this year and another 11 percent in 2012, Morgan Stanley estimates. Of the 31 people surveyed by Bloomberg, 25 expect the bull market to continue next year.

The 3.5 percent decline in combined ETP holdings from a record 2,115 tons in December may be no bar to higher prices. When assets fell 3.7 percent in 2009, gold rose about 30 percent in the following 3 1/2 months.

"Near term, we like gold and we like agriculture," Jeffrey Currie, the London-based head of commodity research at Goldman Sachs Group Inc., told Maryam Nemazee on Bloomberg Television's "Last Word" May 13. The team correctly predicted this month's slump in commodities, telling investors April 11 to end a recommended trade in oil, copper, cotton, platinum and soybeans that returned 25 percent in about four months.

"Gold is simply pricing sovereign default risk, it still remains a big issue," Currie said. "There's a lot of concern over the end of QE and noise of QE3, so that kind of risk will continue to support gold prices. We see them trading up to the high $1,600s at the end of this year and going into the mid-$1,700s next year."

To contact the reporters on this story: Nicholas Larkin at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

To contact the editors responsible for this story: Steve Stroth at sstroth@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net.

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