Gold
By Kishori Krishnan Exclusive To Gold Investing News

An insurance company getting into gold? That’s right. America’s third largest life insurer, Northwestern Mutual Life Insurance which has been in existence for 152 years, has never in all those years bought gold. Until now.

The company has disclosed it recently invested around US$400 million to buy the yellow metal in the expectation that it was not only a prudent way to preserve its funds but also that the metal’s price would rise significantly. The company has bought the precious metal to hedge against further asset declines.

This is significant because here is a presumably conservatively-run company putting a good deal of faith in gold. “Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview, following his comments at a conference hosted by Standard & Poor’s in Brooklyn.

Zore said the price could double or even rise fivefold if the economy continues to weaken. “The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 per cent.” Gold “is not going down to $90.”

Zore said the price could even rise fivefold if the economy continues to weaken. Gold gained 10 per cent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years.

Clearly, the rest of the world is now starting to buy the gold story. There is more institutional money getting into gold. On May 15th, a 13F Filing showed that hedge funds managed by John Paulson held almost 9 per cent of all outstanding GLD (the gold bullion ETF) at the end of March, a position with a market value of around $3 billion.

Paulson’s funds also owned about 15 per cent of GDX (the gold mining stock ETF), 11 per cent of Anglogold (AU), 4 per cent of Kinross (KGC), and 3 per cent of Goldfields (GFI).

Around the same time, we learnt that David Einhorn of Greenlight Capital, another well-known hedge fund manager, has accumulated a substantial exposure to gold-related investments.

There’s something going on here. Mainstream papers like the Financial Times are singing gold’s praise. Then, smart institutional money, of the likes of Paulson and Einhorn, are moving into gold. And finally, conservative minded life insurance companies like Northwestern Mutual are doing the same. It must be time to sell gold, right? Or, is this indicative of a changing mindset among the establishment to gold?

Not to forget, there is still plenty of scepticism. An overnight report from BNP Paribas in London argues that gold is rising because of US dollar weakness, but this may not last. The US has to borrow another $US1.8 trillion this year.

The report concludes that present comparative momentum analysis suggests that the current rise has the potential to persist for another four weeks, reaching perhaps as high as US$1095/oz. But then it would be seen as overbought - and prices would go into reverse.

Meanwhile, the latest gold quarterly from Sydney-based Resource Capital Reserarch shows that many gold companies have used the rebounding equity markets and gold price as a chance to replenish their funds.

The report’s projections of cash balances at the end of this month are that Catalpa Resources (ASX: CAH) will have something in excess of $30 million in the bank. This company has just received all the mining approvals for its Edna May project in Western Australia.

The cash balance at Kingsgate Consolidated (ASX: KCN) won’t be far behind that, with producer Avoca Resources also with a healthy bank balance. Some investors though have made a bit of money. RCR shows that, of the companies it covers, shares in Kingsrose Mining (KRM) put on around 400 per cent by May 29 compared to their 52-week low.

Even an obscure explorer like Morning Star Gold (MCO) - which has a difficult task in reviving a deep, old Western Mining operation in Victoria - saw its shares almost double from the 52-week low.

Spot gold

Gold prices dipped on Monday as a firmer dollar curbed the metal’s appeal, while easing crude prices also dampened interest in bullion as a hedge against potential oil-induced inflationary concerns. Spot gold fell to $933.55 compared with $937.90 quoted late in New York on Friday.

The dollar gained traction against a basket of major currencies, with investors taking a lead from the cautious tone adopted by policymakers at the Group of Eight ministers meeting over the weekend. A firmer dollar makes dollar-priced commodities less attractive to non-U.S. investors.

The ministers were heartened by signs that the global downturn might be easing but warned that there must be firmer signs of recovery before any of the massive fiscal stimulus for the economy is withdrawn.

Gold analysis

A senior figure at Sprott Asset Management claimed that gold prices could reach $1,500 by the end of 2010. John Embry, chief investment strategist at the firm, has long been one of the world’s biggest gold bugs and is as bullish as ever about the yellow metal, reports the Financial Post.

He told the news provider: “It’s not gold that has changed, it’s the value of paper money. Relative to the overall financial sphere, gold is a small asset class. So it doesn’t take a lot of money moving in its direction out of paper to have an outsized impact. I think $1,500 [an ounce] is certainly achievable in the next 12 to 18 months.”

Those comments were strongly corroborated last week by Carlos Sanchez, a New York-based analyst with CPM Group.
He explained that ongoing concerns about the state of the economy - and the sheer volume of money printing in response to the financial crisis - are pushing investors towards gold.  “With continued economic weakness across the board, there’s a lot of uncertainty about what’s going to happen,” he told CNNMoney. “There are major problems going on right now. In times like this, you have investors rushing towards safe-haven assets like gold.”