Daily Market Update

“Global Bubble” … “Ends Very Badly” and Hyperinflation Risk – Rickards

Today’s AM fix was USD 1,303.75, EUR 953.73and GBP 777.85 per ounce.
Yesterday’s AM fix was USD 1,300.25, EUR 948.33 and GBP 775.20 per ounce.

Gold rose $12.80 or 0.99% yesterday to $1,306.10/oz. Silver climbed $0.24 or 1.23% to $19.77/oz.

Francine Lacqua on Bloomberg Television’s, “The Pulse”

Gold consolidated above the key $1,300/oz level as technical buying supported gold and tensions in Ukraine and geopolitical risk remained to the forefront of traders minds.

Spot gold in Singapore traded 0.3% lower to $1,301.60/oz prior to gold popping higher and eking out gains in London trading. Silver for immediate delivery fell marginally to $19.739 an ounce in London.

Platinum lost 0.2% to $1,478 an ounce, after reaching $1,486 yesterday, the highest since March 7. Palladium slipped 0.4% to $824.75 an ounce. It climbed to $829.25 yesterday, the highest in 2 and a half years, since August 2011, due to supply risk.

Palladium has surged 15% this year on concern supply may be disrupted from South Africa and Russia, the largest producers. As palladium has gone, we expect platinum, gold and silver to follow given their strong fundamentals.

Gold in U.S. Dollars – Daily, 2014 Year To Date (Thomson Reuters)

Russia, which has been threatened with more sanctions by western nations, is the largest supplier of palladium, with South Africa the next biggest. The African country is the top producer of platinum.

Workers at the biggest platinum mines in South Africa have been on strike since January 23. Lonmin Plc will keep its platinum mines open for a second day in an effort to break the strike. Many workers were prevented from reporting for duty yesterday.

Russian Foreign Minister Sergei Lavrov said Ukraine is sliding into a civil war increaing the risk of conflict between Russia and the West. Ukrainian leaders and their international allies blamed Russia for the violence and say Russia is behind the unrest in Ukraine’s easternmost regions. Russia says that the U.S. is supporting Ukrainian nationalist militants.

This morning, futures trading volume was 10% below the average for the past 100 days for this time of day, data compiled by Bloomberg showed. Smart money continues to accumulate on dips.

Hyperinflation Risk and “Global Bubble” … “Ends Very Badly” – Rickards
James Rickards, author of best selling book, ‘Currency Wars’ and now ‘The Death of Money: The Coming Collapse of the International Monetary System’ has done another interesting interview. He joined Guy Johnson and Francine Lacqua on Bloomberg Television’s, “The Pulse.”

Topics covered included the risk of the global bubble bursting, his admiration of the ECB’s Draghi, how Europe is moving in the right direction, the coming of a true Eurobond, how the “day of reckoning” is coming for China and the U.S. and the risk of financial warfare, deflation, hyperinflation and market collapse.

Interviewer (Francine Lacqua): Jim, you also have this new book out, right, saying "The Death of Money" and this basically argues that if a number of things come together, we could have financial warfare, deflation, hyperinflation, market collapse. And yet the markets are merrily going along.

Are we in a fictitious world?

Jim Rickards: I actually had breakfast with some of the leading private equity investors and CEOs this morning and, you know, privately they’ll say, look, the bank  covenants are gone, cost of funds is very close to zero, they’ve got more leverage than they’ve ever had, the U.S. inner stock exchange has greater leverage than they’ve ever had, so it looks good but this is a bubble being supported by zero interest rates, high leverage.

We all know what happens, they will collapse sooner than later.

You know, stocks could actually be higher by the end of the year, based on, I expect, the Federal pause, the taper around the middle of the year. But in the long…this is a bubble. The problem is bubbles, they last longer than we think, but when they pop, it ends very badly. This is all being floated by zero interest rates and leverage.

Find out why Singapore is now one of the safest places in the world to store gold in our latest gold guide – The Essential Guide To Storing Gold In Singapore

Interviewer (Guy Johnson): You buy bubbles. That’s what Soros and everybody else says; initially, when you see a bubble, you buy it. So, give us your sense of the duration of this bubble. Yellen sounds very dovish still at the moment.

Jim Rickards: I agree completely, she is dovish; I think she’ll be more dovish. As I say, I expect a pause in the taper later this year. But, look, this could run on well into 2015 but the problem is the scale of it.

In 2008, all we heard about was "too big to fail"; well, guess what, the five biggest banks in the U.S. today are bigger than they were in 2008. They have a larger percentage of the banking industry assets, their derivatives books are significantly bigger, you know, so the problem is that the whole thing is bigger, which means that…risk is an exponential function of scale; when you triple the system, you don’t triple the risk, you increase it by a factor of ten or more and this is what we’re up against, this is what we’re facing.

Could start anywhere, could start in China.

Interviewer (Francine Lacqua):  And we haven’t even touched on China, the house of cards?

Jim Rickards: Yes, and I have a whole chapter in the book, "The Death of Money", just on China. You know, the wealth management products are a Ponzi and that’s not from me, the Chairman of the Bank of China said they’re a Ponzi, so you’ve seen the Chinese banking officials saying the same thing.

The problem is the money’s going into real estate so if you’re a state-owned enterprise, and you produce steel or glass or any of the cement or any of the components for construction and you just wanna roll steel and build buildings…

I’ve been out there, I expect you have too, I’ve seen the ghost cities, I’ve seen them as far as the eye can see — completely empty.

And people say, "Well, they’ll fill up in the years ahead." No, they won’t. I mean, that migration from the countryside to the cities is largely over, number one. Number two, it doesn’t take into account obsolescence. You can’t mothball a building; you have to occupy it and maintain it.

So, this is wasted investment. If you adjust the Chinese GDP for the amount that’s wasted, it would already be lower …

The full interview can be watched here.

Mark O'Byrne
Executive Director


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