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Time to sell? Wall Street Journal finds cause for higher gold

Section: Daily Dispatches

Gold Rally Unlikely to Be Scrapped

By Rhiannon Hoyle
The Wall Street Journal
Wednesday, July 20, 2011

Fiscal troubles in both Europe and the U.S. may have spurred gold to record highs this week, but the warm embrace of the precious metal appears to be the result of more than one set of incentives.

Swiss bank UBS said that gold, which cracked the $1,600 a troy ounce mark on Monday, will be the only precious metal with a supply deficit this year, as demand outstrips inventory for the first time since 2008.

The bank's analysts say that a decline in scrap gold -- gold that is returned to the market in the form of jewelry, electronics, gold teeth, and the like -- is heavily contributing the deficit.

... Dispatch continues below ...


Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

Global gold scrap supply unexpectedly fell last year, down 3% to 1,645 metric tons, metals consultancy GFMS Ltd. said in a recent report. Scrap material accounts for more than a third of annual supply in the gold market, and while higher prices usually encourage a selling of gold back into the market, this has been reduced amid expectations of further rises in the price.

Also, growth in mine production has been constrained by rising production costs and a shortage of new "world class" discoveries.

Demand for gold, meanwhile, is getting stronger, and not just from investors keen to hedge present economic uncertainties. China's growing middle class and central banks around the globe are clamoring for more. In fact, central-bank purchases are expected to be key in driving the deficit this year, according to analysts. By June, central banks had made net purchases of 151 tons of gold, and they are expected to maintain a similar momentum for the remainder of the year. Mexico's central bank attracted attention earlier this year as it added almost 100 tons of gold to its reserves.

"While the Mexico purchase was only accounting for around 4% of global annual mine production, what it does is proves that more and more people are looking at gold," said Barclays Capital director of commodities Jon Spall. "It's not some peripheral interest—this 100 tons were bought to be held, and the important thing about that is what it says to the market."

To be sure, there always remain risks that could force a substantial pullback. Analysts say that should the haven bid fall away amid an improvement in the macro environment, gold could fall. Similarly, any significant rise in risk aversion could also hurt prices should investors start to favor cash.

The spot price of gold hit a record $1,610.14 an ounce on Tuesday, although the front-month contract on the Comex division of the New York Mercantile Exchange slipped $1.20, or 0.07% to $1,600.90, snapping a 10-day winning streak. The rally began as storm clouds on the macroeconomic horizon heightened the appeal of the precious metal.

It is not only in dollars—the currency in which the metal is ultimately priced—that the price of gold has been rising. Spot gold has rallied in euro and sterling terms amid the debt crisis in the euro zone.

Analysts and traders closely watch the euro-gold trade as an indicator of trends in the metal itself, rather than movements in the dollar, with which the market tends to have a negative correlation.

Michael Jansen, head of metals research at J.P. Morgan Chase & Co., calls the recent rally "a seminal moment" for the market. "I think it was the foundation for people to start thinking that maybe gold's not headed to $1,650 an ounce or $1,700 an ounce—maybe it is headed toward $1,800 an ounce or even $2,000 an ounce."

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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.
Lehrman says: Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

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