Gold Market Sentiment Very Poor Despite Strong Fundamentals
Gold’s London AM fix this morning was USD 1,656.00, EUR 1,248.21, and GBP 1,042.95 per ounce.
Yesterday’s AM fix was USD 1,648.50, EUR 1,248.86 and GBP 1,039.01 per ounce.
Gold fell 0.89% in New York yesterday and closed at $1,650.80/oz. Gold edged higher in Asia and ticked slightly higher before falling in Europe this morning where gold is now trading at $1,649.30/oz.
The weak dollar helped the buying strength in Asia but a drop in physical demand and hopes for the US economic recovery limited gains.
The US housing data figures reaffirmed hopes that the US economy is improving. Some investors have closed out positions in order to buy more risky high yielding assets.
Still stubbornly high oil prices are bullish for gold but have not led to higher gold prices so far.
Gold Market Sentiment Very Poor Despite Strong Fundamentals
Risk appetite remains high as seen in equity indices near record highs and gold more than 15% below its recent record high (nominal).
The fragile US economic recovery remains close to lapsing into a recession which would see a reversion to QE and currency debasement.
Similarly, the Eurozone debt crisis is nowhere near being solved and the risk of contagion remains – whether that be from Greece or from Portugal, Spain or Italy or a combination thereof.
The risk of the global debt crisis leading to an international monetary crisis or currency crisis remains and is underestimated – in the same way that the debt bubble was underestimated.
Geopolitical risk remains high with instability throughout much of North Africa and the Middle East and the risk of a military confrontation between Israel and Iran.
Competitive currency devaluations continue and the Japanese remain ahead of the curve in the currency wars as the stealth devaluation of the yen continues.
The yen has fallen by more than 7% against the euro, 9% against the dollar and 13% against gold year to date – in less than 11 weeks.
Despite the favourable macroeconomic, monetary, systemic and geopolitical fundamentals – sentiment in the gold market remains lukewarm – especially among the retail public and media in western markets.
There remains scant media coverage of the gold market in the non specialist financial press and media and what coverage there is tends to be quite negative.
Gold’s long term diversification value and benefits continue to be almost completely ignored in favour of simplistic assertions from gurus and a superficial focus on gold’s recent nominal price action.
Short term speculators and weak hands have again been washed out of the paper market on the recent sell off and some are even short now due to the poor technicals.
However, some banks are viewing this correction as an opportunity to buy the dip (see Other News yesterday and today).
Coin and bar demand has been lacklustre in recent days and weeks and indeed there has been a degree of nervous selling by some bullion owners. This is something we have hitherto not seen in this gold bull market.
Asian demand has also been quite slow and despite the sell off with Indian and Chinese demand slower recently, while demand from Thailand and Indonesia continues.
Asian consumer and "social security" gold demand does not appear to be the primary driver of the market place today.
Rather, central bank demand is likely providing the fundamental support to the market as emerging market central banks continue to quietly accumulate gold tonnage on price weakness either directly or through the Bank of International Settlements (BIS) as reported by the FT last week.
Those seeking to protect and grow their wealth in the coming months and years would be wise to emulate central banks and reduce counter party risk and diversify their wealth with an allocation to gold.
Bernanke’s Lack of Nuance on Gold Standard
Federal Reserve Chairman Ben Bernanke spoke at George Washington University yesterday in his first of four public lectures about the financial crisis.
The former Princeton economics professor speaks again on Thursday and twice next week in an effort to create some positive spin on his handling of the US financial crisis.
In his first lecture he dismissed proponents of the gold standard, saying that such a system limits the government’s ability to address economic conditions.
"Since the gold standard determines the money supply, there is not much scope for the central bank to use monetary policy to stabilize the economy," Bernanke said.
"Under a gold standard, typically the money supply goes up and interest rates go down in a period of strong economic activity – so that’s the reverse of what a central bank would normally do today."
Ironically, it is monetary policies of recent years that have contributed to this financial crisis and a quasi gold standard may have led to more prudent monetary and fiscal policies.
Proponents for a gold standard such as Republican presidential candidate Ron Paul, advocate the closure of the central bank and a return to a gold standard where every dollar issued must be backed with equivalent reserves of precious metal.
Fed critics rightly point out how Greenspan and then Bernanke let the housing bubble and debt bubble (including subprime) balloon out of proportion. The other criticism and warning is that continually ultra loose monetary policies and QE (overnight interest rates near zero since 2008 & $2.3 trillion in bond purchases) will lead to dollar debasement and the pain of inflation for consumers in the coming months.
Bernanke did not touch on the economy or monetary policy but did note that he will not rush to undo the Fed’s QE.
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(Bloomberg) — Gold Trading Fell 12% in February as Silver Increased, LBMA Says
Gold trading declined 12 percent to an average of 19.5 million ounces a day in February compared with a month earlier, the London Bullion Market Association said today in an e-mailed report.
Silver trading rose 7.2 percent to a daily average of 160 million ounces, the LBMA said.
(Bloomberg) — Gold Seen Recapturing Precious Metal Crown
Gold may regain its crown from platinum as the more-expensive metal within six months as Europe’s debt crisis and slower Chinese growth crimp demand for catalysts and boost gold as an alternative, Mitsui & Co. said.
The chart of the day shows spot platinum became costlier than gold on March 12 for the first time in six months. The metal had been cheaper than gold for the longest continuous period since at least 1987, Bloomberg data show. The lower panel tracks assets in exchange-traded products, with gold holdings little changed this month while platinum holdings declined.
“The risks to the global economy for slower growth still exist,” said Mitsui’s precious-metals analyst David Jollie, formerly the author of the platinum-group metals publication by Johnson Matthey Plc, which produces a third of global auto catalysts. “There is potential for gold to outperform.”
Gold may rally as U.S. economic growth in the first half disappoints, prompting further stimulus, Societe Generale SA said March 19. International Monetary Fund Managing Director Christine Lagarde warned the day before that global economic stability was still at risk from debt levels and slower growth in emerging markets. China is targeting a 7.5 percent expansion this year, down from the 8 percent goal in place since 2005.
Platinum has rallied 19 percent this year to $1,673 an ounce at 4:35 p.m. in Singapore yesterday as expectations for growth lifted the outlook for pollution-control devices and supplies from mines in South Africa were disrupted. Gold gained 5.6 percent to $1,651.89 an ounce. The yellow metal may average $1,859 in the third quarter, versus a platinum average of $1,745, according to analysts’ forecasts tracked by Bloomberg.
Gold-backed ETPs, which reached a record on March 13, are little changed this month to March 19, compared with a 0.3 percent drop in platinum holdings. This year, platinum assets have increased 8.1 percent compared with gold’s 2 percent rise.
(Bloomberg) — U.S. Jewelry Retailers Report ’11 Silver-Sales Gain, Group Says
The Silver Institute said that 77 percent of U.S. jewelry retailers boosted sales of silver jewelry in 2011, according to a Nielsen/National Jeweler survey.
Twenty-seven percent had a sales increase of more than 25 percent, the Washington-based Silver Institute said today in a statement on its website.
(Bloomberg) — Indian Jewelers to Reopen Stores After Five-Day Shutdown
Gold jewelers in India, the world’s biggest bullion buyer, will reopen shops tomorrow after a five- day nationwide shutdown to protest increases in taxes, according to a trade group.
About 10,000 artisans, goldsmiths and jewelers will hold a rally in Kolkata before ending the strike, the first in seven years, said Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation.
Jewelers are protesting against higher taxes announced by Finance Minister Pranab Mukherjee last week, which may raise retail gold prices by 6.3 percent and potentially halve Indian imports. The government boosted levies as it seeks to rein in a widening current-account deficit, partly fuelled by record bullion imports last year.
“Demand will definitely fall,” Bamalwa said. India will be “out of the market,” he said.
India raised the import duty on gold bars and coins and platinum to 4 percent from 2 percent, after doubling the tax in January. A levy on gold ore, concentrate and so-called dore bars for refining will be doubled to 2 percent and an excise tax on refined gold will climb to 3 percent from 1.5 percent, Mukherjee said in his budget speech for the year beginning April 1.
Imports may fall as much as 35 percent this year from a record 969 metric tons in 2011, according to Prithviraj Kothari, president of the Bombay Bullion Association.
The plunge in purchases may be greater, Bamalwa said, predicting a decline of between 40 percent and 50 percent as higher prices crimp demand.
“In India, jewelry is not a rich person’s commodity,” he said. “Poor people also buy jewelry for social security.”
Futures in India gained 32 percent last year, exceeding the 10 percent advance in global prices, as the currency slumped to a record low. Gold for immediate delivery was little changed at $1,652.05 an ounce at 11:06 a.m. in Mumbai. Futures for April delivery on the Multi Commodity Exchange of India Ltd. were also little changed at 27,840 rupees per 10 grams ($551).
The jewelers’ group will continue to lobby the government to withdraw the levy on non-branded gold jewelry, Bamalwa said. The tax won’t apply to small goldsmiths and artisans, the Central Board of Excise and Customs said yesterday.
India’s gold imports may reach $100 billion by 2015-2016 and the government should “strictly monitor the inflows with higher customs duty,” the Associated Chambers of Commerce and Industry of India said yesterday.
(Bloomberg) — Gold Exports From Australia Set to Increase 9% in 2012-2013
Gold exports from Australia, both of domestically produced and overseas-sourced metal, will increase 9 percent to 361 metric tons in 2012-2013 from 331 tons a year earlier, said the Bureau of Resources and Energy Economics.
Gold production will expand 7 percent to 287 tons in 2012-2013 with the ramp-up of production at Newcrest Mining Ltd.’s Cadia East operation expected to provide most of the increase, the bureau said.
(Bloomberg) — Standard Chartered Starts Long Comex Gold October Futures
Standard Chartered Plc started a bet on higher Comex gold October futures, saying the metal has declined more than is justified because of investor demand.
Gold will average $1,925 an ounce in the third quarter, buoyed by central bank buying and investor demand as a hedge against inflation, Koun-Ken Lee, an analyst at the bank, said in a report dated today. The bank has a recommended portfolio of commodities and is selling the soybeans, keeping corn and letting a bear trade spread on London Metal Exchange nickel March futures expire “in the money,” according to the report. The trade involved a short on nickel at $20,100 a ton and a long on nickel at $21,150 a ton and March 2012 futures ended at $18,717 a ton, it said.
Silver is trading at $32.09/oz, €24.26/oz and £20.26/oz.
PLATINUM GROUP METALS
Platinum is trading at $1,635.75/oz, palladium at $685/oz and rhodium at $1,425/oz.
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Bernanke’s Speech Decrypted
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