Gold not glittering as Y2K investment havengreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
Gold not glittering as Y2K investment haven
Special to CNET News.com
December 2, 1999, 7:30 a.m. PT
NEW YORK--Blink and you might have missed the brief Y2K gold rush, which fizzled out weeks before any mayhem might arise from programming glitches in the world's computers, analysts said.
Almost none of gold's advance from near 20-year lows in September and October is attributed to safe-haven hoarding of coins and bars before Jan. 1, analysts said.
And there has been no speculation that gold would benefit if out-of-date computers wreaked midnight havoc by misreading the last two digits in the year 2000 as 1900, they added.
"Some of the buying was Y2K-related but I don't think it was a significant amount to substantially impact prices," said David Rinehimer, director of commodities research at Salomon Smith Barney. "If anything, it faded as we got close to the end of the year." The ambivalent attitude toward gold in private and central bank portfolios is a millennial reminder that the metal has lost its age-old status as an investment that protects personal wealth and insures national currencies in uncertain times.
Far from serving as shelter against an analog apocalypse, investors who feared disposal plans by the Bank of England, the International Monetary Fund and the Swiss National Bank shunned gold for much of 1999; the metal was no longer seen as an important part of monetary reserves.
Sentiment strengthened in September after Britain's second bimonthly auction of reserve bullion met surprisingly robust demand, kicking off the rally that hit a two-year high at $338 an ounce two weeks later, after European central banks pledged to curtail their market activities for five years.
But on Monday the third sale of gold under Britain's program to reduce its stockpile by 415 tons to 300 tons was a disappointment. Investors did not jump at the opportunity to buy metal before year-end at a big discount from the highs.
"One thing [the auction] shows is gold is clearly not attracting any sort of Y2K interest," said William O'Neill, director of futures research at Merrill Lynch.
Metals research firm CPM Group said in its 1999 Gold Survey that Y2K buying occurred in the first four months of the year, before tapering off in the second and third quarters. According to CPM, sales of the U.S. Eagle gold coin are on track to set record sales volumes in 1999, though no more than one-fifth of these were attributable to investor Y2K buying.
Golden Eagle sales reached 1.71 million ounces in the first three quarters, compared to 1.84 million in the whole of 1998.
FideliTrade, a Delaware bullion investment firm, said Eagles were priced at a big premium over Canadian and Australian gold coins because even some sophisticated investors thought U.S. dollar-denominated coins would be handier in any disruption of the economy or financial system on Jan. 1.
"If conditions get so bad that cash isn't available for a long term, people think they are going to go to the drug store or grocery store and buy their goods using bullion coins," FideliTrade managing director Michael Clark said.
"The one-ounce coin has a $50 face value and goes for over $300. So you are going to buy a $300 item today with the expectation that, first of all, it's going to be negotiable, and secondly, that you are going to negotiate it for $50," he said. "How logical is that?"
Some investors and dealers took positions in futures and options to hedge potential Y2K risk, but are unwinding those structures, fairly confident that systems at U.S. financial firms, utilities and government agencies are ready for the date change in four weeks. "What we saw early in the year was more a move to risk aversion than anything else," said Dinsa Mehta, head of global commodities and foreign exchange options for Chase Manhattan Bank.
"As we come up to a very calm year-end, people are finding that they are over-inventoried in many risk dimensions that would have kept them reversed from Y2K risk," he said.
Story Copyright ) 1999 Reuters Limited. All rights reserved.
-- Another Perspective (email@example.com there), December 02, 1999
I have no gold - but, I envy those who do. I feel strongly if TSHTF, gold prices will skyrocket. I used-up all my "brownie-points" with the Mrs. prepping with basics like food & water.
-- Anonymous999 (Anonymous999@Anonymous999.xxx), December 02, 1999.
I didn't even tell the Mrs.
Last night she went shopping and bought extra diapers which were "on sale" plus extra baby food. Didn't have the heart to tell her that I have that covered too.
-- nothere nothere (firstname.lastname@example.org), December 02, 1999.
4000 shares pepsi PEP Symbol.Up 3.9% = $5100.00 profit. Cashing out now.See you at the Mall.
-- gone shopping (email@example.com), December 02, 1999.
Hot dog! Gold prices down again? That means I can afford to buy SOME MORE!! Yay!
-- Liz Pavek (firstname.lastname@example.org), December 02, 1999.
Gold prices tend to rise when markets are nervous.
The markets have been temporarily calmed.
Wednesday November 17, 7:10 pm Eastern Time
Fed's Y2K liquidity measures keep markets calm
By Ross Finley
NEW YORK, Nov 17 (Reuters) - While the Federal Reserve has financial markets guessing whether Tuesday's interest-rate increase may be the last for several months, the central bank has taken great pains to quell fears about year-end liquidity.
The Fed has put in place a series of measures to make sure markets work smoothly when the clocks on the world's computers change over to 2000 and investors decide whether to hold their positions or convert to cash because of fears of technology-related disruptions on the financial markets.
New York Federal Reserve Bank President William McDonough affirmed on Wednesday that the Fed had ``gone a long way'' toward addressing year-end liquidity fears that peaked in August and September of this year.
Analysts, economists, market players and primary dealers -- the firms that conduct securities transactions with the New York Fed -- agreed.
``It's certainly been useful -- it's a valuable backstop to have there. The mere fact that the Fed has been so aggressive has been helpful,'' said Lou Crandall, chief economist at R.H. Wrightson & Associates.
Economists also say market interest in the Fed's new liquidity insurance scheme means investors are approaching the issue calmly rather than with panic.
Until the Fed came to the rescue, many investors said they were content to park money in safe, liquid short-term U.S. Treasuries and keep their money away from riskier assets such as stocks or debt from corporations and government-sponsored agencies. If that occurred, it might have led to a liquidity squeeze similar to what was seen last year at this time.
Instead, stocks have rallied and so-called spread products have also performed rather well.
But many analysts added that the bond market's resilience running into the last quarter before the date changes to 2000 is only partly a result of the Fed's preemptive measures.
Crandall cited the concern several months ago in the corporate bond and mortgage-backed markets about widening of spreads -- which indicated a preference by investors for Treasuries, securities which are much easier to turn over in the event of a crisis.
``We've seen liquidity in lots of other markets hold up,'' Crandall said. ``The corporate bond market had this expectation spreads would widen dramatically and they haven't.''
One of the Fed's main tools in fighting Y2K fears is STRIPs options -- securities that allow dealers to cash in the value of the option on one of three maturity dates offered.
This ability to exchange STRIPs for cash readily if needed is the kind of safety net prudent dealers crave as insurance against a year- end liquidity crunch. The December 30 maturity date, two days before computer clocks change over, has met the highest demand. The other two maturities are December 23 and January 6.
The Fed has auctioned five separate offerings of STRIPs since October 20, all of which have generated widespread interest, according to the New York Fed.
``There has been a tremendous amount of interest in the options auctions that have taken place,'' the New York Fed's McDonough said on Wednesday.
Analysts say that with five of seven STRIPs options auctions already behind them -- totaling just over $370 billion -- many market players who were concerned about cash on hand at year-end have already taken out their respective millennium insurance policies and are now sitting comfortably.
Citing strong demand, the Fed on November 4 added two additional STRIPs auctions to the original total of five and said it could add more if there were a further strengthening in demand.
The Fed has twice increased the amount of securities offered in individual auctions, also citing increased demand. But the amounts offered in the November 17 auctions decreased slightly, indicating the market may be more confident about year-end cash flows.
``In terms of why they were recently cut back, I would say it could reflect a number of things -- perhaps some greater confidence in the market about Y2K itself and how it will go,'' said Spence Hilton, associate vice president at the Federal Reserve Bank of New York.
In addition to the STRIPs auctions, the New York Fed also announced in September that it would begin entering into repurchase transactions with maturities up to 90 days, up from the previous maximum period of 60 days.
The Fed has already tied up approximately $30 billion in long-term repurchase agreements, a further reinforcement against liquidity concerns in the repo market.
``The only risk at this point is customers -- and by that I mean mutual funds having large withdrawals at the end of the term,'' said Marc Wanshel, economist at J.P. Morgan & Co. ``But the dealers, I think, are very comfortable.''
Vincent Verterano, head government bond trader at Nomura Securities International, said the STRIPs options provide good insurance for dealers who need extra liquidity toward year-end. But he underlined that insurance doesn't come for free.
``The Fed's going to make a ton of money on this,'' Verterano said. ``Chances are they (the options) are not going to be exercised.''
The interest rate on options is 150 basis points (1-1/2 percentage points) above the Federal funds rate, now at 5.50 percent, but traders see the insurance as cheap.
Before Wednesday's auction, the total amount the Fed had received in premiums was ``just shy of $5 million -- a little bit more with today's sale,'' Hilton said.
Many traders say that the premium is a small price to pay for what amounts to peace of mind running up to the new year.
In addition to the options auctions, The Fed now accepts a broader range of collateral for its open market repurchase operations. And it introduced in September a special facility to ease pressure on smaller regional banks toward year-end.
Despite the fact few banks have stepped forward and used the facility, Crandall and other analysts acknowledged that the very fact the Fed made the liquidity facility available to small banks if they needed it was a positive step forward.
-- (M@rket.trends), December 02, 1999.
I have already made paper profits on my gold. I'm not worried. I'll just be glad to have something solid and real next year.
-- Mara (MaraWayne@aol.com), December 02, 1999.
They say "no more than one-fifth of these were attributable to investor Y2K buying." Hmmm... Here are the US Mint's Gold Eagle Ounce statistics:
1992 - 385,800 1993 - 514,000 1994 - 310,000 1995 - 297,750 1996 - 275,000 1997 - 771,250 1998 - 1,839,500 1999 - 1,875,500
A 6X increase, but not related to Y2K. By the way if Y2K is a bust, gold will have it's own Y2K problem.
-- nobody (email@example.com), December 02, 1999.
On a thread a couple of months ago, nobody, it was noted that the sales of 1/10th ounce gold American Eagles had skyrocketed since late 1998. Yet another sure-fire indicator that indeed Y2K concerns were driving the demand.
This illustrates one of the sillier parts of the subject acticle: No reasonable person preparing for Y2K thinks that they are going to simply use one ounce bullion coins in place of money to buy groceries. What they believe is in the possibility that conditions could become severe enough that paper money is considered useless, and we must resort to pure barter. At which point, gold and silver can be introduced as part of a barter negotiation, for such things as food and medicine. Having small weight coins (e.g., 1/10th oz AEs) allows the maximum number of transactions per ounce.
-- Jack (jsprat@eld.~net), December 02, 1999.