Daily Market Update

Markets Price in Slower Global Growth – The Herd Sells! Sells! Sells! and Buys…Dollars

Gold is trading at USD 1,718.09, EUR 1,275.40, GBP 1,113.33, JPY 130,935.64, AUD 1759.15 and CHF 1,556.07 per ounce. 

Gold’s London AM fix this morning was USD 1730.00, EUR 1,279.68, and GBP 1,119.81 per ounce. 

Yesterday’s AM fix was USD 1,765.50, EUR 1,310.40, and GBP 1,144.35 per ounce. 

Gold is being liquidated on the back of a global liquidation event sparked by the FED’s view that economic growth in the U.S. will be severely curtailed for the foreseeable future. There had been a general lack of consensus on global growth amongst market participants on the shape it will take and where the opportunities will be for investment into the future. The FED’s statement has now nudged that lack of consensus into bearish territory by signalling that growth will be lower. Thus, any and all market exposure is being lowered to a level commensurate with this new view. 

Gold has been increasingly seen as excellent hedge to such risks, but alas market participants lowered their exposure in a less the orderly manner (aka panic) and gold was liquidated in tandem. Gold’s price correction though is probably more of a dollar strength then a gold negative perception.

Official rhetoric is stepping up a gear and it is notable that some leaders, namely UK, Australia, South Korea, Canada, and others, are making what can only be described as a plea to the G20 and the incoming president Sarkozy to act decisively to manage the crisis and return the global economy to stable growth. Such public pleas are designed to capture the public’s attention and apply domestic pressure to key leaders to enact changes that are needed to force a solution through the crisis.


Sarkozy and Cameron on their recent trip to Tripoli

Gold may continue south in the short term as the rush to the exit continues, but as markets begin to price in a consensus on medium economic growth (or decline) prospects, gold should reaffirm its longer term credentials as a hedge for macro risk par excellence.

The Cameron letter makes interesting reading and is reproduced below.

"President Sarkozy,

Three years after our first Leaders’ meeting, reverberations of the global financial crisis are still being felt by citizens and governments around the world. For many advanced economies the path out of the deep and prolonged recession will be difficult. This will impact on growth in emerging markets, and there is more limited room for manoeuvre than in 2009.

We fully support your call yesterday that the priority of the G20 must be to “help the world find the path to growth”. We will give our full backing to your Presidency in achieving this at the Cannes Summit in November. We need decisive action to support growth, confidence and credibility.

We have not yet mastered the challenges of the crisis. Global imbalances are rising again. External risks to the stability of our banks and our economies are reaching pre-crisis levels. And volatile and high energy prices are hurting our citizens and acting as a drain on world growth.

At the same time, the confidence of citizens, businesses and markets has been damaged due to the lack of visible political will: this in itself is holding back the recovery. Over the summer, the difficulties encountered in finding a durable solution to sovereign debt problems have further affected confidence.

The G20, representing 85pc of the world economy, is our platform to address these challenges. Under your leadership in Cannes, we have the opportunity to commit to each other to take the actions we know are necessary. We must agree the hard policy decisions we should each take, validating our actions against strong objective analysis and recommendations from the relevant international institutions. And, within the Framework for strong, sustainable and balanced growth agreed in Pittsburgh, we must each act on those decisions. Only when we work together can we restore strong growth and the confidence on which it depends.

The priorities are clear.

We must increase global demand without once again creating unsustainable global imbalances. Surplus countries need to increase their expansion of domestic demand, enshrining their policies in clear political commitments within the G20 including on structural reform, to keep markets open, increase exchange rate flexibility and refrain from competitive devaluation. Deficit countries need to find new sources of growth, including making clear commitments now to put in place specific structural reforms necessary. They need to restore competitiveness and improve the underlying performance of their economies.

Eurozone governments and institutions must act swiftly to resolve the Euro crisis and all European economies must confront the debt overhang to prevent contagion to the wider global economy. The July agreement to strengthen the Eurozone Financing Facility was an important first step. Euro countries now need to ratify this agreement as soon as possible, alongside implementing reforms to deal with excessive deficits, improving economic competitiveness, and acting now to strengthen banking systems. The Eurozone must look at all possible options to ensure long-term stability in the world’s second largest international currency.

Countries with long-term debt problems must put in place and implement credible growth-friendly medium-term fiscal consolidation plans, differentiated according to each country’s own national circumstances. The United States, as the world’s largest economy, also has an important role to play in restoring confidence. The August bipartisan deal lays the foundations for a deficit reduction plan and President Obama’s jobs plan will help provide a welcome impetus to growth in the short term. The US, along with other high deficit advanced economies, needs to overcome the remaining hurdles towards restoring medium-term fiscal sustainability.

The failure to date to conclude a global trade deal is robbing the world of a much-needed economic stimulus. It is also affecting public confidence in our ability to deliver what leaders have promised to do repeatedly. We should agree in Cannes a credible plan to take to the WTO ministerial in December as a basis for concluding the Doha Development Round. If we cannot agree this we should direct our Ministers to consider innovative approaches to deliver progress in a multilateral trade deal and strengthen the multilateral trading system. International trade can be the engine of global growth and development and we must keep it moving forwards.

In taking forwards all these actions, the G20 must also take a path toward all-embracing growth, supporting economic development that will help reduce global disparities.

The barriers to action are now political as much as economic. We must send a clear signal that we are ready to take the actions necessary to maintain growth and stability for all for the future. The G20 showed at the height of the global financial crisis that we could work together to deal with global instability – the Cannes Summit is an opportunity for leaders to prove this, arrest the slide in confidence, and strengthen the foundations for strong, sustainable, and balanced global growth for the future.

Prime Minister Gillard of Australia; 
Prime Minister Harper of Canada;
President Yudhoyono of Indonesia;
President Calderon of Mexico;
President Lee of South Korea; and
Prime Minister Cameron of the United Kingdom"

For the latest news and commentary please follow us on Twitter.

SILVER 
Silver is trading at $32.28/oz, €24.06/oz and £20.98/oz 

PLATINUM GROUP METALS 
Platinum is trading at $1,629.70/oz, palladium at $638/oz and rhodium at $1,675/oz. 

NEWS
(New York Times)
A Gold Rush Wanes as Hedge Funds Sell

(The Telegraph)
David Cameron: world on brink of new economic crisis

(Reuters)
G20 pledges bank support, eyes bolder euro fund

COMMENTARY
(MarketWatch)
Is market replaying decade of the 1930s?

Mark O'Byrne
Executive Director

Read more...
Category
Archives
Popular

Gold’s Time Is Nigh

Gold and Silver Bullion - News and Commentary Gold little changed amid firm dollar (Reuters.com) Bitcoin Futures Trading Brings Crypto Into Mainstream (Reuters.com) Bitcoin exchange warns customers of system collapse if prices crash (CityAM.com) Investors Told to Brace for Steepest Rate[...]

READ MORE

98,750,067,000,000 Reasons to Be Worried About 2018

Gold and Silver Bullion - News and Commentary Gold inches up from near five-month low ahead of Fed meeting (Reuters.com) Gold slightly higher ahead of Fed meeting (Reuters.com) Asia shares take breather, Brent oil breaks above $65 (Reuters.com) Asia Stocks Mixed[...]

READ MORE

Gold and Silver Bullion – News and Prices

Gold and Silver Bullion - News and Commentary Asian Stocks Fall as Miners Decline; Yen Gains (Bloomberg.com) Gold prices ease despite slightly weaker dollar (Reuters.com) Bitcoin Hits New All-Time High Above $12,250 (GoldSeek.com) Don’t Expect Gold to Go Wild Next Year[...]

READ MORE