Posts Tagged ‘adrian ash’
Gold & Silver Slump from New All-Time Highs as US Jobs Data “Raises Spectre” of Rising Rates
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF physical gold bullion slumped 1.4% lunchtime Friday in London, falling back from its highest-ever monthly close as the Dollar jumped on news of stronger-than-expected US jobs hiring in March.
Silver prices also fell – losing nearly 2% – after also ending March at an all-time record high monthly close of $37.87 per ounce, more than $2 above the previous month-end high of Feb. 1980.
“From a big picture perspective, there is no sign that the current trend [in silver] is about to reverse,” says Russell Browne, strategist at bullion-bank Scotia Mocatta.
But “[although] some way off…the great risk to the metals remains the spectre of positive real interest rates,” says one London dealer in a note.
The US economy has added 837,000 jobs in the last 6 months on the official data. Total employment remains 2.4 million down from when the Federal Reserve moved to zero rates and quantitative easing at the start of 2009.
“What we have to see now is how gold fares in an environment of rising interest rates, where holding a non-yielding asset goes against you,” reckons RBS commodity strategist Nick Moore, speaking to Reuters.
Gold closed March higher “for the second month in a row,” notes Browne at Scotia, with “January’s correction to $1308 [now] viewed as a necessary retracement before making the next leg higher through December’s $1430.”
The price of spot gold for immediate delivery ended March at a new monthly-close record of $1439 per ounce at the London Fix.
Thursday saw the Spot Gold Price in Dollars complete its 9th quarterly gain in succession – the longest run since 1979 according to Bloomberg data.
Priced in the Euro, says BullionVault analysis, gold last night completed its 24th consecutive quarter of year-on-year gains, an unbroken run starting in June 2005.
Gold investment prices to private citizens in Japan rose today to a new 28-year high, reports Reuters, hitting ¥4065 per gram when the sales tax of 5% is included according to Tanaka Kikinzoku Kogyo, Japan’s largest gold retailer.
Gold bullion stored to back the world’s largest single gold trust fund, in contrast, actually shrank between Jan. and April, posting its largest quarterly decline since launching in Nov. 2004.
Worries over the Libyan conflict, plus fresh Eurozone debt concerns, “encouraged gold safe-haven buying” on the last day of the month, says Mark Pervan at ANZ Bank.
The BBC said today that 7 civilians were killed in a Nato-coalition airstrike on pro-Gaddafi forces.
After the government resigned last week, Portuguese president Anibal Cavaco Silva today called an election for June 5th, saying that “the next government faces an unprecedented economic and financial crisis.”
Ireland’s call for its banks to raise another €24 billion – to be funded out of state aid and EU bail-outs – “is the scale of the legacy that we have now inherited,” said Dublin’s new prime minister Enda Kenny.
“I can only hope this is the final scale of it.”
Shares in Bank of Ireland jumped when they resumed trading after a temporary suspension amid the stress test results. Rising to a 1-week high, however, BoI remained 98% below its peak of Feb. 2007.
The European Central Bank meantime “decided to suspend” credit-rating requirements on Irish government bonds when used by commercial banks to raise credit from the Frankfurt lender.
It’s now 12 months since the ECB made a U-turn on such “special treatment”, allowing Greek government bonds to be used as collateral despite sliding below the benchmark credit rating requirement.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Euro Escapes Gold’s New Highs as ECB Fights for “Credibility”, Inflation Rises, Fresh Debt Crisis Looms
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD price jumped to $1437 per ounce Thursday lunchtime in London – less than 0.8% below last week’s new Dollar high – as European stock markets fell together with Eurozone government bonds.
Precious-metal trade in Asia had been “a one-way street” said one Hong Kong dealer, with silver “most responsive” to strong demand and rising to $37.80 per ounce in London – just over 1% below last week’s new 31-year highs.
But gold bullion dealers in India – the world’s No.1 physical consumer – reported “a few bookings,” says Reuters, quoting a state-owned bank, as “traders still want clarity on prices.
“They are waiting for Friday’s [US] jobs report.”
Brent crude oil meantime jumped backed above $116 per barrel as base metals held steady.
The gold price in Sterling jumped towards new 2011 highs at £896 per ounce, but ahead of Thursday’s “stress test” results on Irish banks – and ahead of next week’s pre-announced rate hike – the gold price in Euros rose only to €32,600 per kilo, nearing the end of March more than 4% down for the quarter.
“The price of gold [in Euros] rallied strongly last year on the back of the Greek and Irish bailouts, but the current situation appears to be materially different,” says the latest Commodities Weekly from Nic Brown and the team at French bullion bank Natixis.
Noting “the strengthening” of the European Financial Stability Fund by politicians, “Minor peripheral countries are no longer seen as a contagion risk for core countries,” says Natixis, pointing to the lack of action in Spanish bond-insurance rates, as well as the Euro currency staying strong despite Portugal’s sharp bond-market drop.
“Given that European investors were substantial buyers of gold in 2009…there is substantial scope for further disinvestment in coming months,” says Natixis, “accelerated by any increase in interest rates by the ECB were the opportunity cost of holding gold bullion to rise significantly.”
First estimates for March today showed consumer-price inflation across the 17-nation Eurozone jumping to 2.6% per year – well above the European Central Bank’s 2.0% target.
“The ECB wants to bolster its anti-inflation credibility, and you don’t do that by pulling out of a rate hike at the last moment,” says Standard Bank currency strategist Steve Barrow in a note.
“Credibility has clearly been pulled through the wringer during the credit crunch,” says Barrow, and while the Bank of England and US Fed “seem content to let this happen, the ECB is not.”
Next week’s rate-rise looks just a “one-off shot across the bows” of potential wage demands however, Standard’s man concludes, because “Many Eurozone economies [now suffer] almost permanent recessions…the debt crisis drags on…and there’s global shocks to bear in mind, such as the Japanese earthquake.
Due for release just after Thursday’s London PM Gold Fix, Ireland’s banking “stress tests” were expected to call for a further €25 billion in capital.
“The Euro could take a hit and put some pressure on the metals,” warned Mitsui’s London note to clients this morning, “if there is any truth to the talk that the remaining independent Irish banks may need to be nationalized.”
Portugal’s debt prices meantime fell again, pushing the yield offered by 10-year bonds up to a new post-Euro high of 8.33%.
Standing well over 4.50 percentage above comparable German Bund yields, Portuguese rates “have now breached [the] famous ‘margin call’ spread” at finance clearing house LCH Clearnet, notes the FT‘s Alphaville blog.
Breaching that level in November, Ireland’s debt was hit with much higher downpayment requirements by LCH – a move since blamed for preciptating the Irish debt crisis and bail-out
“For once, it was not the rating agencies causing the trouble,” writes Barbara Ridpath of the International Centre for Financial Regulation in the latest Alchemist magazine from the London Bullion Market Association.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
The Swiss Franc or Euro: Good as Gold?
By: Adrian Ash, BullionVault
Everyone wants out of the Euro except Swiss exporters. What choice does the SNB have?
ULTRA-CHEAP MONEY has caused a whole heap of mischief to date. But really, this is getting silly…
“Switzerland may be better off adopting the Euro as the Franc’s appreciation hurts exports,” reports Bloomberg from Basel.
“It’s a nightmare for everybody,” says Thierry Stern, chairman of luxury watchmaker (and glossy-magazine benefactors) Patek Phillipe.
“We have to adapt. Something will come. I don’t know when, but one day it will happen.”
Industrialists are always in favor of devaluation, of course. Who do you think approved and drove Germany’s Weimar inflation in the early 1920s? And with export sales accounting for one half of Swiss GDP – pretty much the same proportion as Germany enjoys – the thought of abandoning the Franc shouldn’t really shock your local bar-room economist. The get-ahead Euro sure helped Germany extend its competitive edge inside the currency union. No wonder the idea’s fast gaining ground, as Bloomberg reports.
The Franc is so “strong” right now, Swiss exports recovered barely 7.1% year-on-year at last reading. “In Germany, sales abroad jumped 15% in the same period,” the newswire explains, pointing its finger squarely at the “safe haven” Franc. Rising by one-tenth vs. the Euro since March 2010, it’s not even slipped against gold so far in 2011…! And what good’s a currency that doesn’t lose value?
Time was, as our chart shows, that the Euro itself was “as good as gold”. Butting up against €10,500 per kilo for the first 5 years of the single currency’s new century, gold didn’t break out until mid-2005.
And see how gold’s correlation with the Euro – the extent to which it moved in the same direction as the single currency, versus the Dollar, on a rolling 1-month basis – was pretty high throughout? It regularly peaked just shy of a perfect 1.0. Meaning that gold and the Euro very nearly moved exactly together. Only once did that correlation drop below minus 0.4, as gold and the Euro briefly moved in opposite directions.
Now compare and contrast with that middle period, when gold and the Euro moved together more often still against the Dollar…but gold consistently out-stripped the single currency’s gains, delivering sizeable returns to French, German and Italian owners. Since the start of 2009, in contrast, and especially since the start of 2010, the Euro and gold have spent a good deal of time going their own separate ways – mostly gold up, Euro down as it happens – taking the metal to new all-time highs for European holders.
History buffs may well recall that gold’s current Dollar bull market – long-lived but far from steep enough to be called a “bubble” just yet – began just after the Euro was launched, right around the time the Swiss public voted to remove the Franc’s famous gold-backing. Just as the gold sales which followed failed to knock the gold price lower (indeed, gold then turned higher after a 20-year bear market), so the loss of gold backing has so far failed to debt the Franc’s safe haven appeal. So too has the Swiss National Bank embracing inflation, slashing its base rate to zero, and actively creating new Francs solely to dump them into the forex market in a bid to depress their value.
Seems you can’t keep a “safe haven” down, in short. Not when retained wealth worldwide needs to escape active devaluation from money-printing and zero rates at home. What options are still open to the SNB besides killing the Franc entirely?
“I don’t see any chance that the flow of money into Switzerland will change,” says a New York money manager quoted by BusinessWeek. “People just want to get the heck out of the Euro.” People except Swiss exporters that is.
Anyone caught in the middle might want to consider buying gold instead.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold Breaks Out of “Limbo” as US Fed’s Tightening-Talk Is Outweighed by Euro Downgrades and Global Liquidity
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF wholesale gold bullion jumped out of what one dealer called “limbo” lunchtime Wednesday in London, hitting $1429 per ounce as world stock markets rose but major-economy government bonds slipped in price, alongside oil and base metals.
Silver bullion rose 1.7% to $37.67 – just shy of last week’s new 31-year highs.
The British Pound rose following news of a sharp “bounceback” from the mid-winter slump in UK retail sales, leading analysts to forecast a rise in Bank of England interest rates.
With real UK interest rates – adjusted for inflation – currently more negative than at any time since the late 1970s, the gold price in Sterling today pushed up to £891 per ounce, some 2.8% higher from the start of March.
Looking ahead to Friday’s official US employment report, “Our real interest lies with what the labour market signals for Fed policy in terms of liquidity,” says Walter de Wet at Standard Bank in London.
“When the Fed drains liquidity, it will be bearish for commodities in general, for gold specifically,” explains de Wet, noting that gold “has by far the greatest causality with [money-supply] liquidity, followed by crude, and then the base metals.”
Tuesday saw non-voting Federal Reserve president James Bullard say in a speech that “If the economy is strong…in 2011, I think it will be time for us to start to reverse our ultra-aggressive and ultra-easy monetary policy.”
A new auction of 5-year US Treasury bonds drew the highest interest rates paid by Washington in 11 months.
ADP Payroll’s private-sector data today showed weaker-than-expected growth in US hiring for Feb.
On Standard Bank’s metrics, the Federal Reserve’s balance-sheet only accounts for one third of global liquidity. The remainder – calculcated by Standard Bank from other central-bank currency reserves – has already swelled by 3.5% since the start of Jan.
As for the widely-touted rise in Euro interest rates due on April 7, “the greatest initial impact for commodities…may come via the exchange rate,” says de Wet, because it may support the Euro vis-à-vis the Dollar and provide support for commodities on the downside.”
The Euro was little changed below $1.41 to the Dollar on Wednesday, helping the price of gold bullion for French, German and Italian buyers unwind the week’s 1.3% loss so far to trade back at almost €32,600 per kilo.
“Financial markets throughout the Euro area have been under pressure [from] credit-rating actions,” says a new report from the International Monetary Fund, even though those credit-rating downgrades “were concentrated in few countries such as Greece, Iceland, Ireland, Portugal and Spain.”
Following yesterday’s fresh downgrade of Lisbon’s credit rating by the S&P agency, Portuguese 10-year bond yields today rose further above 8.0%.
“There seems to be no relief,” says one analyst quoted by Bloomberg, “and it’s only a matter of time before Portugal asks for help.”
“Investment demand will remain the key determinant of where the gold price goes over the next year or two and sovereign debt fears will be the engine room behind that,” said Paul Burton – managing director of London’s GFMS World Gold Limited – at the first day of this week’s Paydirt 2011 Gold Conference in Perth, Australia on Tuesday.
Looking at global gold mining supply, “It has been a lean time in terms of major finds,” Burton said, quoted by MineWeb.
“We can expect, because of current prices, that there will be a short-term rise in gold production but it will decline thereafter, and this will only add to merger and acquisition activity.”
The gold mining industry is making less profit than many people assume, he went on, because “total cash costs” – including the infrastructure which local governments now demand in exchange for granting licenses – have risen sharply.
“Basically, the sector needs the gold price to stay above US$800 an ounce for a producer to stay in business.”
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold & Silver “Struggling to Digest” Global Events, Copper Exposed to Chinese Real Estate
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF SILVER and physical gold bars held in a 0.5% range in London dealing on Tuesday, sitting tight above yesterday’s 1-week lows against the Dollar as global equities stalled and the US currency rose on the forex market.
Government-bond prices also slipped, and commodity markets lost up to 1%.
London’s FTSE100 stock index fell back to 5,900 – a two-year high when reached in late Dec. 2010.
“There’s a lot of worries weighing on all market as we near quarter’s end,” says a London gold dealer in a note.
“It is…a wonder that the generally risk-aware investors in Germany have not strongly come back to the physical gold market,” says Heraeus head of sales Wolfgang Wrzesniok-Rossbach in Hanau.
Calling sales of gold bars in Heraeus’ domestic market “within the normal scale”, even last week’s Euro-gold drop to 1-month lows beneath €1000 per ounce “did not rekindle physical demand beyond the normal,” he writes in the refining group’s latest Precious Metals Weekly.
Despite “dip buying” reported by Asian traders on Tuesday, gold prices moved in a 0.5% range above $1412 per ounce, slipping back as the US Dollar knocked the Euro lower and pushed the British Pound to new two-month lows beneath $1.5950.
That kept the gold price in Sterling above £882 per ounce and helped the Euro price recover to €43,300 per kilo (€1008 per ounce).
Short-term in wholesale gold bar trading, “The clear trend over the past three days has been for lower highs and lower lows,” says Japanese conglomerate Mitsui’s London team, “but the market feels a bit non-committal at the moment as we attempt to compute everything that is happening in the world.”
Syria’s prime minister and cabinet today handed their joint resignation to 11-year president Bashar al-Assad following two weeks of anti-government protests that have seen 60 people killed.
Pro-Gaddafi forces meantime pushed rebel Libyan troops back some 30km, while an international conference on continued UN-NATO airstrikes began in London.
Japanese prime minister Naoto Kan told the Tokyo parliament that his government is “in a state of maximum alert” over the ongoing nuclear crisis in earthquake-hit Fukushima prefecture, some 150km away.
The outlook for gold prices “remains overall bullish,” writes Axel Rudolph in his latest technical analysis research for Commerzbank clients, pointing next to the “November-to-March resistance line at $1458.50…
“If exceeded, the $1500 region will be in sight longer term.”
But “Silver continues to push higher and outperforms other precious metals,” says Rudolph, citing “the psychological 40 area” where he would expect the silver price “to lose upside momentum, at least temporarily.”
Tuesday’s benchmark pricing for wholesale silver was set at $36.62 per ounce at the London Fix – more than 3% off last week’s new 31-year high.
Sunday marked the 31st anniversary of “Silver Thursday”, when a one-day loss of $1 billion forced Texan oil barons the Hunt brothers to abandon their attempted corner of the entire global market.
Jan. 1980 saw the Hunt brothers holding some 180 million ounces of silver bullion, more than a third of the world’s non-government and non-industrial stocks. But sharply rising interest rates, plus a clampdown on their “speculation” by US regulators, found them unable to settle outstanding contracts. They filed for bankruptcy in Sept. 1988.
Last week, according to data from London’s VM Group consultancy, silver investment holdings worldwide rose 2.1%, hitting 796 million ounces across exchange-traded funds and derivative products traded in New York.
“Imagine having the entire world speculate on what’s going on at one [good-sized] company,” says Tom Winmill, president of the Midas group and manager of the $131 million Midas Fund.
“That’s what’s going on lately in the silver market,” Winmill is quoted by Fortune magazine, likening the $27 billion annual output of the global silver mining industry to a publicly-listed firm “such as, say [computer manufacturer] Dell.”
Over in base metals, “Falling Chinese property prices, perhaps combined with a government clampdown on alternative sources of funding, would be a devastating outcome for the copper market,” says a new report from Standard Bank’s commodities team – quoted at length by the FT‘s Alphaville blog – confirming that property developers in particular have been using deferred-payment purchases of copper to raise fresh loans for re-investment elsewhere in China’s fast-growing economy.
“Anecdotally, something in the region of 600,000 million tonnes of refined copper is currently sat in bonded warehouses in Shanghai,” says Standard – around two-fifths of China’s net annual demand – with up to 80% of that metal bought on letters of credit and used to create a borrowing vehicle enjoying “very attractive” costs amid China’s tightening bank lending landscape.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold & Silver Slip, Face “Bigger Correction” If Arab Turmoil “Quickly Resolved”
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD slipped 1.3% in Asian and early London trade on Monday, pulling back to a 6-session low of $1411 per ounce as global stock markets slipped and the US Dollar rose on the FX market.
Silver prices dropped 2.1% to trade beneath $36.50 per ounce, a 3-session low.
Crude oil and the broader commodities markets were little changed, meantime, as anti-Gaddafi forces in Libya – benefiting again from US-led airstrikes – pushed westwards towards Tripoli.
Secretary of state Hillary Clinton said there would be no US-led action against the regime in Syria, where 12 people were killed at the weekend in anti-government protests.
“We could be in for a pullback in the short term,” says one precious-metals dealer in London, noting the “inability” of the gold price to push upwards from last week’s new record high above $1447.
“It feels as if we are standing on an increasingly slippery slope,” says a Hong Kong dealer in a note.
“The market has had a huge move up and the higher we go up, the more chance of a bigger correction,” Bloomberg quotes Afshin Nabavi, vice-president at Swiss refiner MKS’s Finance division.
Writing today in the Financial Times, “We would consider [in the 1990s] a healthy average capacity utilisation to be maybe 70%,” says John Dizard, quoting an un-named Swiss gold refinery director.
“Now, technically, we have been running at over 100% of capacity…going three shifts, 24 hours a day every day of the year.”
This surge in demand means the major gold bullion refineries can overcome their “high fixed costs” and are all expanding operations, says Dizard. For existing plant, however, “it means there is little time to do necessary maintenance.”
As a group last week, gold refiners and the other industry-side players classed as “Commercial” raised their always bearish bets on the gold futures market, according to Commitment of Traders data from US regulator the CFTC.
Net of bullish gold futures contracts, the Commercials’ short position grew by 3.5% in the week-ending last Tuesday to the equivalent of 817 tonnes. Right in line with the last two years’ average, it was exactly matched on the other side of the trade by a rise in the “Speculative” net long position held by investment funds and private individuals.
“This is an encouraging sign that investors are less bearish on gold,” says the latest CFTC analysis from Standard Bank’s commodity team.
“Should safe-haven demand remain intact, we could see gold recover from the liquidations seen in the aftermath of the earthquake in Japan.”
Japanese officials today said that highly radioactive water has been found outside the reactor buildings at the damaged Fukushima plant.
New government advisor Takayoshi Igarashi of Hosei University is pressing for ¥20 trillion ($245bn) to be spent on de-centralizing power, Bloomberg reports. Because “We have no idea when the big one’s going to hit Tokyo, but when it does [that earthquake] is going to annihilate the entire country because everything is here.”
German chancellor Angela Merkel ‘s Christian Democrat party suffered a “sensational” loss in the weekend’s local elections, with a left-wing coalition of Social Domecrats and the anti-nuclear Green Party now likely in Baden-Württemberg.
The central bank in Dublin has meantime asked the European Central Bank to fund the €60 billion ($42bn) in emergency loans it’s made to support Ireland’s banks.
Priced in the Euro, gold bullion slipped 0.8% early Monday to €32,360 per kilo as the single currency retreated to a 10-day low near $1.40.
The gold price in Sterling dropped back to £885 per ounce – halving last week’s 2.0% rise – as the Pound fell to an 8-week low vs. the Dollar beneath $1.60.
“Silver continues to garner the most interest,” says Standard Bank in its latest analysis, saying that last week’s addition of 181.5 tonnes to trust-fund ETF positions “confirms the market’s current preference for silver.
In the US futures market, says London’s VM Group consultancy, latest silver data show “the largest exit” of bearish players since the start of Feb., enabling the speculative players’ net long position (of bullish minus bearish bets) to record “its first gain after three weeks of declines.”
Noting the sharp outperformance of silver relative to gold bullion over the last 12 months, plus the “sound” fundamentals, Daily Telegraph Questor analyst Garry White today cautions that the silver price “could be ahead of itself – especially if there is a quick resolution to the current turmoil in the Arab world.”
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
“Avoid Gold” Says Institutional Survey as Markets “Grow Tired” of Worries Over Euro Debt, Libyan War, Japan Crisis
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD ticked higher in London trade on Friday, recovering half of yesterday’s 1.5% drop from new record highs above $1447 per ounce.
Silver prices also rallied, regaining a third of Thursday’s 3.2% drop from new 31-year highs above $38.20 – some 112% higher from this time last year vs. the Dollar.
European stock markets meantime gave back early gains, but neared the weekend 2.9% higher from last Friday.
The Euro currency meantime slipped back to $1.4130 – one US cent up on the week – as EU politicians signed their “comprehensive package” of stability fund promises, but Portuguese bonds fell sharply again, driving 10-year yields to new post-union highs of 7.80%.
Japanese authorities widened the exclusion zone around the stricken Fukushima nuclear plant, while British warplanes attacked Gaddafi targets in Ajdabiya, “where Libyan rebels are trying to retake the town,” according to the BBC.
A new “day of rage” brought hundreds of thousands of both pro- and anti-government protesters onto the streets of Yemen’s capital Sanaa.
“Continued conflict in Libya, growing focus on the European debt crisis and uncertainty surrounding the longer-term impact of the Japanese earthquake should keep investors interested in gold and silver,” reckons the commodity team at South Africa’s Standard Bank today.
But gold and silver bullion markets “temporarily seem tired of both [the Libyan and Japanese] stories,” says another London dealer in a note.
Data from TrimTabs this week showed US investors pouring record volume of cash into Japanese equity funds, doubling the previous 1-day record on March 16th – just 5 days after the earthquake and tsunami which killed at least 10,000 people.
With Spanish banks said to be “crawling with hedge fund and private equity people” in a bid to avoid a Madrid bail-out today, “At some point the currency market will wake up the Eurozone debt crisis,” says Standard Bank forex strategist Steven Barrow. “But for now, the market seems blinkered.”
“[Investors] don’t believe in the gold story anymore,” declared Kevin Norrish of Barclays Capital on Wednesday, announcing the bank’s latest commodity investment survey of institutional players.
“Not one single respondent” chose gold bullion as the likely best performer in 2011, Norrish said.
Crude oil – the survey’s top pick for 2011 gains – today ticked back through $105 per barrel of US West Texas Intermediate.
“Avoid gold appears to be one of the most striking messages of the poll,” according to Norrish. Some 60% of respondents also said they now favor active strategies in commodities, rather than merely buy-and-hold – up from 20% a year ago.
“As the financial market concerns that supported it in over the past two years fade, gold may now be in need of a new catalyst if its nine-year upward price trend is to be maintained.”
The People’s Bank of China’s new global outlook, releaesed with is 2010 review on Friday, warned that “the risks from European sovereign debt still remain and geopolitical risk may spread, which will give the US Dollar temporary strength [amid] general weakness.”
The 125-page report said commodity prices should be firm as “the recovery momentum of the world economy will continue,” but gold prices could retreat from their new all-time highs.
“With both Indian and Chinese central banks tightening monetary conditions, we would be surprised if gold demand from China and India remained strong this year,” says the latest weekly commodities analysis from French bullion bank Natixis.
“While few Indians would contemplate selling gold, rising interest rates are encouraging cash-strapped holders of gold to use the metal as collateral for new loans. We would view this as part of the process whereby tighter money leads to a less conducive environment for net new investment.”
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold Bubble: Written in the Stars
By: Adrian Ash, BullionVault
London Gold Market Report
Oh lordy! Gold investing is being tipped in tabloid horoscopes…Sell!
“ARE YOU available for an interview this afternoon? I’d like to discuss the possibility that we’re in a gold bubble!”
So asked a journalist’s email we got here at BullionVault…back on 30th January 2009. Such bubble talk has only grown louder since then.
Yet gold has risen a further 56%. Which over two and more years is hardly the stuff of bubbles, however you define them.
Gold investing used to be seen as a contrarian move, of course – a rejection of the happy-clappy bullishness pervading the late-20th century’s credit-fueled stupidities. So what about mass participation – that frenzy of Joe Public buying as the mass media urges him on?
Well, “My esteemed colleague, the astrologer Christine Skinner, says in her latest financial newsletter that over the next few months, ‘precious metals should hold their value and, indeed, increase’…” wrote the UK’s Jonathan Cainer this week in mass-market tabloid The Daily Mail.
Oh lordy! Gold investing is being tipped in tabloid horoscopes…Sell!
But what’s this? “Generally,” Mr.Cainer goes on, “precious metals rise when international insecurities rise. I too foresee a bumpy few months on the world markets…but the further into the future I gaze, the more I like the look of the global economy. For Japan in particular, the financial outlook is surprisingly rosy.”
So here again, gold’s bubble finds its pin all too soon. Christeen Skinner – source of the gold tip – “has studied space and time for over 40 years,” according to her website, but doesn’t currently have a million-strong following. Unlike Jonathan Cainer, who takes instead what you’d have to call the contrarian line, if only gold investing really were all the rage today. Which it’s not.
1. It’s the wrong shape
Compared with undeniable bubbles, gold’s recent climb just isn’t steep enough. Gold prices rose 85% for UK investors in the last 3 years, but US stocks rose 160% in that length of time in the 1920s, and Germany’s Neuer Markt rose over 1600% starting in 1997. The South Sea Bubble in 1720 rose 9-fold in 5 months! What makes gold remarkable today is the longevity, not speed, of its bull market – now delivering positive, inflation-beating returns to savers pretty much everywhere worldwide each year since 2000.
2. Investment “mania” still missing
The financial pages might be packed with gold comment, but actual participation by both professional and private investors remains low. In the early 1980s, private-bank clients were expected to hold 3% of their wealth in gold, many times the 0.5% allocation seen in the finance industry today. Even in the bullion market itself, three-quarters of the 500-plus analysts and traders attending last autumn’s LBMA conference in Berlin said they held as little as nothing (“Between 0% and 10%”) of their savings in precious metals. Saturation is a long way off.
3. …as is true “bubble” psychology
A speculative bubble, by definition, needs the mass of investors and analysts to ignore its faults until it’s much too late. As late as summer 2007, for instance, and with US home prices already falling fast, housing was called a “serious national bubble” by only 29% of professional business economists, up from just 14% two years earlier.In Jan. 2011, in contrast, over half the 1,000 Bloomberg terminal users answering the newswire’s quarterly survey called gold a bubble. Just this week, Barclays Capital’s latest institutional survey found no one – not one! – who thought gold would be the best performing commodity in 2011. With prices hitting new all-time highs vs. the Dollar right alongside, does that sound like bubble behavior to you?
4. Gold’s far from over-valued
All the gold outside central-bank vaults today (jewelry plus bars and gold coins) is now priced around £3.7 trillion – barely 3% of the world’s total private wealth and far below the 15-30% estimated for the 1930s and early 1980s, the last two global financial crises. It’s only just climbed back to one-fifth of the value of G7 government debt, a level last seen in 1990 and well below the near-parity of 1980. And on a risk-adjusted basis, calculated as an actuary would price insurance, fair value for gold could now be nearer $3800 per ounce than the $1440 being asked in the market. That’s because the market continues to discount to zero the risk of a severe, even hyperinflation, such as the rich West hasn’t seen since WWII. Which could no doubt prove the correct view, if only it weren’t so complacent.
5. Money-crisis insurance still needed
It’s always hard to accuse gold buyers of “over-optimism ” (Charles Kindleberger‘s definition of bubble mentality), but this market will only switch to “irrational exuberance” (Robert Shiller‘s phrase) when its key driver – loose monetary policy – ceases to be true. That’s what happened as interest rates began rising sharply at the start at the end of the 1970s. In the early ’80s, cash in the bank started to pay double-digit returns over and above inflation, so inflation defence just wasn’t needed. Whereas today, in contrast, real interest rates in the UK are worse than at any time since 1978, with our record peace-time deficits – plus the loose money consensus which continues to dominate both monetary and fiscal policy – capping any hope savers might have of earning a decent yield on their cash.
To recap: Nothing has changed fundamentally. Ultra-loose monetary policy is chipping away at the value of official cash, only it’s now locked in by record peace-time deficits which have hamstrung central bankers’ ability to respond to rising prices. As an aside, emerging-market demand continues to grow, but mass participation in the rich West is a very long way off.
Or as GoogleLab’s Ngram widget puts it – searching books published in English since 1800 – the word “gold” is only just making a comeback. Gold investing is by no means sure to defend or grow your savings, it certainly remains far from a bubble.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold & Silver Hit New Records, But ETF Buying “Absent” as Eurozone Debt Crisis Hits Lisbon
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF GOLD hit the second new all-time high in succession at Thursday morning’s London Gold Fix, set at $1441.25 per ounce as the Dollar held flat on the forex market and US crude oil prices rose.
New York’s stock markets opened the day 0.5% higher. Silver bullion jumped to fresh 31-year highs above $37.85 per ounce.
Trading on Egypt’s re-launched stock exchange was meantime halted today for the second day running after another sharp drop at the opening bell.
Between 15 and 25 people were reported killed in Syria, where the ruling dynasty’s security forces fired on protesters in Deraa on Wednesday.
Forces loyal to Colonel Gaddafi continued to attack rebel-held towns in Libya, despite the fifth night of joint-United Nation airstrikes against him.
“[Gold ETF] investors have been noticeable by their absence, which suggests there has been some rotation out of gold,” says the latest Metal Matters from bullion bank Scotia Mocatta.
Combined holdings across the trust-fund Gold ETFs which Scotia tracks have shrunk by 5% since peaking at 2,130 tonnes in late Dec. In the giant SPDR Gold Trust, this week has seen holdings shrink by 1% to 1214 tonnes.
“What we may have seen is a period where profit-taking has outpaced new buying,” says the bank’s latest analysis. “Silver prices [in contrast] are exceptionally strong, so strong that we feel there must be some aggressive short covering as well as fresh buying.”
Looking at the relevant strength of the two precious metals, the ratio of gold to silver prices “is now convincingly through the 1998 weekly low” notes the London dealing team at Japanese conglomerate Mitsui.
“Technically there is plenty of room for the ratio to continue lower” they reckon, as silver prices rise faster than gold and cut the ratio to barely 38 times at Thursday morning’s London fixes.
That’s down from a recent peak near 85 immediately after the 2008 collapse of Lehman Bros.
Over on the currency markets Thursday mornning, the Euro rallied back to unchanged after Belgium’s prime minister said the European Union was “obviously ready to step in and help” if asked by Portugal – now trying to form a new government following the rejection of premier Socrates austerity budget.
That capped the gold price in Euros below €32,750 per kilo, some 1.8% higher for the week so far.
Ten-year Portuguese bond yields rose Thursday towards new post-Euro highs of 7.7%. Bail-out aid from the Euro Stability Fund being finalized today in Brussels would likely cost 6.0%. Greece last week renegotiated its bail-out costs down to 5.0% per year.
RBS analysts reckon a Portugal rescue is now “pretty inevitable” and will require €80 billion in funds. Two un-named EU sources quoted by Bloomberg put the figure at €70bn ($99bn).
“There’s more confidence around Spain,” says analyst Silvia Verde at brokers Inverseguros in Madrid, speaking after the Moody’s rating agency today downgraded 30 smaller Spanish banks once again on bad debt concerns.
“The market mood is better than it was a few months ago.”
European stock markets on average rose sharply on Thursday, while German and UK government bonds held flat and Brent crude ticked down through $115 per barrel.
The gold price in Sterling extended Wednesday’s gains, trading above £890 per ounce for the first time since New Year.
“High and sustained oil prices are negative for base metals prices but supportive of gold,” says the latest Precious Metals Monthly produced by London’s VM Group consultancy for ABN Amro.
Warning that “there is little correlation to draw upon to offer an accurate estimate by how much [precious or base] metals could move per $1/barrel increase in oil,” VM’s analysts says “the key difference between the run in the oil price now compared to past price spikes is that the global economy is presently fragile, having emerged from the worst recession since the 1930s.”
Speaking about US monetary policy on Wednesday, “We have done our job [and] are certainly at risk of doing too much now,” said Dallas Federal Reserve Bank president Richard Fisher.
“The word we gave was that the [quantitative easing] program would end in June… There is abundant liquidity in the machine we know as the United States…”
Fisher said he can now see “extraordinary speculative activity” in the US economy.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold Seen Nearing “Cyclical Peak”, Rises as Dollar Gains Amid New Euro Debt Fears
By: Adrian Ash, BullionVault
London Gold Market Report
THE PRICE OF PHYSICAL gold bullion rose sharply against all major currencies on Wednesday morning in London, touching near-two-week highs against the Dollar even as the US currency rose amid fresh European debt and budget concerns.
Crude oil and world equity prices were little changed, but major-economy government bonds rose as UN air-strikes continued in Libya, targeting loyalist Gaddafi troops attacking the rebel-held town of Misrata.
West Jerusalem saw 20 people killed in a bomb attack on an Israeli bus. The Japanese authorities warned of raised radiation levels in Tokyo tap water.
“Although it still remains relatively weak,” says Standard Bank’s daily note, “[the] moderate strengthening in the Dollar has reduced the safe-haven appeal of precious metals.
“Considering that the tensions in the MENA region continue and that the Japanese crisis remains a concern, this lack of interest could point to a future bout of profit-taking.”
“Flows were lacking” overnight in Asia’s physical gold bullion market, local traders agreed, with one Hong Kong dealer calling precious-metal volumes “pathetic”.
US gold futures, in contrast, now represent “a very tight, congested market,” reckons Jeffrey Christian of New York’s CPM Group consultancy, “and over the rest of March and into the first week of April, those people who were short 23 million ounces of gold in the Comex April contracts have to either buy those contracts back, roll them forward [into the June contract] or find physical metal to deliver into them.
“All three of those actions have the effect of driving the gold price up on a temporary basis,” Christian tells South Africa’s MineWeb in an interview.
Added to the Middle East and Japanese turmoil, “That’s another reason why we think that we may be approaching a cyclical peak in the next few weeks.”
Over on the currency markets Wednesday morning, the Euro slid 0.8% vs. the Dollar from Tuesday’s new 2011 high, as borrowing costs for both the Irish and Portuguese governments rose back towards record levels in the bond market.
Greek prime minister Papendreou told Stern magazine that restructuring Athens’ debt “would probably lead to the collapse of Greek banks,” and claimed that German taxpayers would profit from the financial aid they’re making via the stabilization fund being discussed this week.
The gold price in Euros rose to unwind almost the last few cents of last week’s 2.0% drop, however. The stabilization fund meetings may simply delay an expansion of the union’s Stability Fund until June, banking analysts warned.
Portuguese prime minister Socrates meantime faced a vote against his government’s debt-reduction plans, while UK chancellor Osbourne’s heavily-trailed second budget speech for the coalition government failed to stem a sharp fall in Sterling.
Now faced with CPI inflation of 4.4% per year, the Bank of England – charged with targeting inflation of 2.0% – today said this month’s decision to hold base rates at 0.5% was an exact repeat of Feb., with the voting committee split the same four ways.
The gold price in Sterling rose sharply, up by 1.3% to near 1-week highs at £882 per ounce.
“Maybe some tail risk protection is advisable still even after all the recent events in MENA and Japan,” says analyst Charlie Diebel at Lloyds TSB in London, noting that US Treasury bond yields have recently fallen below German equivalents.
“The last sustained period where T-Notes traded through Bunds was in 2008/09 and prior to that in 2002/03 and the big bond sell off in 1994.”
Following claims that Colonel Gaddafi is using Libya’s gold reserves to pay his mercenary army, the US Treasury said last night that if Libyan oil facilities “come under different ownership and control” from the regime, it “may consider authorizing dealings with such entities” – giving the rebels a source of funds from Africa’s third-largest crude oil production.
Adrian Ash
Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK’s leading financial advisory for private investors, Adrian Ash is the editor of Gold News and head of research at BullionVault – winner of the Queen’s Award for Enterprise Innovation, 2009 and now backed by the World Gold Council market-development and research body – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
