Inflation has long been the bane of the average consumer budget but a boon to private gold investment. The 2-3 years of troubling economic conditions have created a unique mix situation that some analysts fear will feed price hikes. In fact, there are some observers who believe certain policies are doomed to create an era of hyperinflation. With so many concerns about inflation at home and abroad, it is time to take another look at this topic and the potential effect on gold prices. Most investors should already be familiar with inflation basics. The ideal condition - according to most economists - is a low and steady rate of price increases. In a nutshell, they say that inflation is natural and healthy. This is fine and good, but right now there is an unprecedented build towards potential hyperinflation and that has been a very strong catalyst for higher prices in precious metals. This comes down to what I have discussed before: the systematic devaluing of the US dollar in an effort to promote/support/salvage the economy and try to stave off utter collapse. The beginning of the economic crisis is officially recognized as 2008. However, there were a few spurts where news outlets made mention of economic recovery. Unfortunately, it seems like all of that was mere smoke and mirrors as some of the largest Western nations start to succumb to the enormity of their expenditures i.e. their giant hanging albatross of national debt. When we were in a boom time, the spending at a federal, state, and local level was bolstered by happy consumers with jobs, buying houses, paying taxes, and living the life. When all that went up in smoke during the crash of the housing market, all of that government revenue went "boom" too. Now, it looks like no one making the budgets got the memo, and they are now trying to bridge that gap. That looks to undermine domestic currencies even further, exacerbating inflation issues in some places. When I say some places, that's because it isn't just the US economy that is fighting against the tides of rising prices. Sure, the average consumer here has fought to make ends meet while gas at the pump soared and that register at the grocery store kept ringing higher and higher, I don't dispute that. But we are not alone in this inflation fight. Some of the biggest issues are going on in those twin pillars of commodity consumption, India and China. China's reported inflation rate in August was 6.2 percent. Compare this to 3.8 percent in the US. This is well outside their ideal level, and of concern to officials since that rate would limit their ability to react policy-wise if their economy falters amid poor global conditions. Basically, the US and Europe were not seeing as bad a level of inflation at the onset of the economic downturn, so they were able to crank up the printing presses, lower interest rates, and generally adjust policies (in some cases, almost overnight at emergency meetings) in an effort to keep things moving along or provide stimulus. India isn't in any easier of a spot. The central bank in that Asian nation has had eleven interest rate increases in the past year and a half in an effort to try to tame their price increases. This has kept the wholesale inflation rate just under double-digits - and more than doubles what is considered healthy. Despite strong economic growth, India risks falling into the same policy trouble-spot as China does if the global situation continues to deteriorate. The Western Hemisphere has a trouble spot outside the US, too. Brazil is fighting prices increases that topped 7 percent year-over-year. Their growth in the last decade has been phenomenal, fueled by strong export markets. Unfortunately, their price increases were spurred by an interest rate cut. Some observers feel the policy was loosened due to political pressures, but regardless of where it came from, most analysts feel it was a potential detriment to the domestic economic situation. Summary So what does all of this have to do with gold? Everything. This is an inescapable tie-in to the gold markets right now. Investors are juggling their risk aversion and no national stone will go unturned as they try to find good places to invest. The trouble is that battle is more about finding the best of the worst as currencies are deliberately undermined and growth grinds to a halt in many places. Gold and other precious metals will continue to be the standout options. They still offer a potential place for people to park assets to try to preserve them in an inflationary environment. Don't forget, these places battling higher prices are the same spots that saw a bump in the people with disposable incomes, a rise in the income of farmers when commodity prices boomed, and general growth that might even lead to a whole fresh group of willing investors with assets to preserve. If they can't do it in their own currencies, if the growth potential in the current global marketplace is dim, then gold and silver might be the ideal alternatives. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results. The following was buillon's first post dated 28 Sept 11 - I had trouble moving it to his consolidated thread, so just copied here and will delete original. Unless he has some thing less repetitive to say, I may come back and serious reduce his posts. No one seems to be interested / replying.Precious metals sold off and sold off hard last week. Gold saw one of the worst price declines in recent memory. Silver shed a large percentage of recent gains, echoing losses seen in the 1980s and sales from earlier this year. Is this the end of the road for these markets? Will this finish the gold and silver bulls? I think the answer is no. I see many reasons for a potential rebound in gold and silver, but first let's dispense with the key points that likely led to last week's plunge. Things are still a mess across the globe. There have been ongoing attempts to put the brakes on economies that are headed right over the cliff, Greece being the first name that comes to mind. All the chaos in the Euro zone and US spells trouble for investors as confidence plummets. Unfortunately, the tug-of-war between the currencies left many commodities as the real losers last week. The financial uncertainty caused by debt issues is far from over. The long term picture remains really cloudy in most investors' eyes. How will exports be affected? Will the weakness in developed nations destroy demand for basic commodities? Will this latest round of bailouts and bargaining become a sticky mess that will stall recovery? These proverbial straws are piling up on the backs of equities and other markets and that weight finally pushed things lower last week. Confidence plummeted in markets both at home and overseas. The selloff in the Dow and S&P were just the tip of the iceberg. Doom and gloom over Greek default led to the drop in the unified currency of the European Union - the euro. The US dollar benefits from that perceived weakness as investors shift into "less risky" foreign currencies. For that time, the US dollar was considered the best of the worst. Its strength was a red "x" on commodities, leading to a sector-wide liquidation of longs. That was only the start of trouble for precious metals. The overall plunge in markets last week had a secondary effect. Investors and funds that lost money when things nosedived needed to get liquid fast to cover margin calls. Since some precious metals holdings are likely still up year-on-year, they become the go-to asset for selling when someone needs to raise cash. This was the probable cause behind one of the sharpest declines in gold prices since the 1980s. The same thing has happened on a micro level with consumers. Things have been so bad for so long, in terms of a delayed recovery from the initial collapse in 2008, that really only one place has stood as a temple in which to try to preserve assets. In my eyes, people are tapping into their final bastion of investment to hold on and cover other losses as financial chaos continues. The other monkey wrench in the works was another round of margin rate hikes, one from the CME Group and at least one other on the Shanghai Gold Exchange. These performance bond increases can do two things: they can shake out smaller investors or weak longs, and they can serve as a potential motivator for profit taking, since the return-on-margin calculations might paint a less desirable picture. This is especially true when there are other clouds on the horizon - some funds and bigger investors might just want to sit on the sidelines as everyone works on their balance sheets. Summary Whatever the motivating factors, there seem to be more than a few people looking to dip their toes back in this week. Bargain hunting will be the name of the game and that is where markets like gold and silver can hope to find support. The weakness in both markets was not due to fundamental factors like a large gold sale from a central bank or a weakening demand scenario for physical bullion - they were just caught in the same downward spiral as other commodities. Has the gold haven been breached? I don't see it that way. In fact, the continuing volatility and bailouts and uncertain future make me think this is just another bump in the road - a healthy correction, if you will. The idea that most investors were pulling out to get cash to cover other losing assets just reinforces this notion. Gold and silver are probably going to recover from this, and that is more than I can confidently say about certain economic issues at the moment. A telephone number and probable commercial spam was here but removed by Billy T, (B&E's monitor) but I let rest of post alone as he makes a valuable first post. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results. Last edited by Billy T; 09-30-11 at 04:55 PM..
The Bullion Report For Oct 12, 2011: More on Metals and the Euro Zone B&E's mod has merged first three posts by new member bullionfk. I do not want very similar posts as a series of separate threads. The title of this thread has been changed to remove dates as they appear with each posts. European Union is having a tough go of things this year. Debt issues in several areas have weighed heavily on any potential recovery. The world looks on, and questions bailouts and potential bankruptcy. Amid all of this uncertainty, there seems to be plenty of room for alternatives like gold and silver to find their way into investors’ portfolios. A few months ago when the initial Greek struggle was in full swing, I analyzed the potential effect on euro zone demand for precious metals. Despite several attempts to prop up the economy of the Mediterranean nation, it doesn’t appear that there has been a significant change in the area’s fundamentals. In fact, things look like they are continuing to deteriorate. Around the time of my first dismal outlook on the area, Fitch Ratings had lowered the credit rating for Greece. Since then, the credit ratings and outlook for other members of the euro zone have dimmed as well. The trouble seems centered on Greece, but Italy, Portugal, Spain, and Ireland have all had black marks on their records as well. Banks and policy makers have been able to shift and shuffle so far to preserve the perception of action, but how long can they go on? One of the biggest problems that has yet to be fully addressed at home as well as abroad is the bigger picture of economic support and eventual recovery. There were misty promises of things being back on the positive side, but so far the proof has not been in the pudding. The ripple effect from the troubling levels of unemployment, poor growth, and inflation have set in and eroded any of the initial gains from each round of stimulus. Unfortunately, the lower interest rates held by some central banks have limited the potential action that policy makers can take to prop up spending and business activity. It also gives them a rock and hard place to deal with whenever things are under threat from price inflation. Raise rates too soon and any feeble threads of recovery or growth collapse. Leave them too long and consumers and businesses struggle under the burden of the additional costs. The latest inflation data out of the Euro zone showed that consumer price inflation spiked. Prices came in with a surprise 3.0 percent jump last month which marks the highest level since 2008. This was higher than forecasts, and led many analysts to sour on the prospects for a European Central Bank rate cut any time soon. In fact, last week’s central bank meeting saw the ECB leave its benchmark rate unchanged at 1.5 percent. No matter how much the Euro zone economy has faltered in recent months, they are almost in a position of having their hands tied. The ECB is also doing battle with another tangled situation. That is their direct hand in bailing out Greece. At this point, so much of their balance sheet is tied up in Greece not collapsing completely that more energy is directed towards salvaging the area rather than stimulating it. What does all of this hold for metals? The truth is that nothing has really changed from my former assessment on the area. There are twin pillars of support that I still see lending good motivation for gold and silver buyers. One is the weakness that the euro currency shows with each bad news headline. The other is the drive for gold (and to some extent, silver) as inflation hedges while prices threaten to rise. The most recent gold demand trends digest from the World Gold Council notes that, “During the second quarter of this year, [ETF] demand was concentrated in Europe, again related to fears over European stability.” Many of the new price records in gold were set following the initial wave of fear over potential debt contagion. It is not unreasonable to imagine that demand for precious metals would go well beyond ETFs and similar products. Summary The final quarter of this year will likely continue to offer fresh news and chances to digest the changes in Europe. Other countries are probably following the example set by France, where investors switched to net buying of gold and other precious metals as debt fears spread. There is little to suggest that the fragile western economies are going to be healed any time soon. That kind of uncertainty and continuing unrest underpins every move higher in metals prices. The elevated demand noted in the Euro zone is unlikely to abate until complete recovery is assured. No false starts, no smoke-and-mirrors. Real growth and recovery of the weaker economic areas will determine the direction of demand and until then investors will seek out havens in which to park their assets. As I have said before, this normally comes down to gold and silver. And after a recovery? Who knows – there is ample reason to suspect that the fallout has changed investor attitudes, added fresh shine to precious metals, and redefined how portfolios are diversified. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For Oct 19, 2011: The Mechanics of Margin Few people would argue that this year has been an important one for the precious metals trade. Gold approached and then marched through significant price milestones, making fresh highs before retreating on profit taking. Silver gained significant momentum and tried its hand at old price highs as well. Throughout all of this shifting price and volume, there were several changes made to the margin requirements for trading gold and silver futures. In many markets an investor will be required to have margin in a trading account. This is a feature of contracts traded on exchanges, including those for futures on gold. The purpose of the margin is to act as a performance bond. The funds deposited are used for initial margin to open a trading position. Maintenance margin is a dollar value, or level, specified by the exchange as the price point at which the account must be maintained as long as the trading position is open. The amounts are normally set by an exchange, by some brokers or clearing firms might ask for more. Why is this important to precious metals? The value of this information is two-fold. The first thing that makes margin relevant is that it allows investors to leverage themselves into precious metals markets. This can be extremely risky. The risk exists because the overall contract value is normally many times what the initial margin requirements are. What this means is that the investor can lose much more than what they deposit into an account in order to invest in a particular gold or silver position. The flip side is that the margin allows someone to control, basically buying or selling, something that is worth more than the deposit. What multiplies the risk also multiplies the potential rewards. That is what makes the leveraged positions in precious metals appealing to someone with the appropriate level of risk tolerance. That is what can amplify the speculator activity when fundamental or technical forces collude to increase awareness or interest in precious metals markets. If a contract for 100 ounces of gold is accessible via a portion of risk capital deposited in a trading account, then it might be argued that it makes the trade more liquid and viable for some investors than trying to buy 100 ounces of physical gold and store it in a safe or a bank somewhere. Of course that leads me to the second point about margin and what makes it relevant to metals pricing. Since the markets are reasonably liquid, and participation and demand have likely increased with the global recession, there can be substantial reactions when fundamentals - including margin values - are changed. Back in the spring when margin values on silver were lifted rather high, there was a near-exodus of longs from the market. Why might that spark a closing of positions? The potential risk/reward scenario changes if you change the margin, as does the risk capital being tied up in the open position. That can change the profile of a trade and make it more appealing to cover it and close out the open position. Raising margin requirements may sound counterintuitive to price discovery, but for most exchanges it is an important part of the risk management in volatile times. In reference to increases in gold and silver futures market margins, the CME Group recently called those moves a part of a, "normal review of market volatility to ensure adequate collateral coverage." This can hardly be considered a fault in light of the extreme volatility seen in both markets in 2011 alone. Summary Margin has its place in trading, and it evolves to meet the needs and respond to the changes in the marketplace. The last several months have brought out what I would consider a very needy marketplace, one where precious metals are helping to fill the demands of investors looking for a place to put assets in a very unstable macro picture. Since the start of the year, silver margins went from around $6,750 to $24,975 and gold has ratcheted up from $5,739 to $11,475. Those are significant numbers, no matter how you slice it. However, there is still demand for gold and silver to diversify portfolios, add to reserves, and purchase in physical forms like coins, bars, or jewelry. These increases protect the interests of the markets to provide some kind of performance guarantee when an investor opens a long or short position. They haven't scared people off this form of investment, but they may still give pause to prices whenever a change is announced. There can be a shakeout of short term positions as margin calls are made and position closed. Overall, the main feature will be the demand for gold in the big picture, and that is where people will look for cues. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For Oct 26, 2011: Big Fish Current headlines seem focused squarely on the economic situation in the United States and the Euro zone. There is no doubt that the lingering turmoil and the current plans to try to deal with and stimulate things are important. However, it would probably be a bad idea to forget that the demand picture for Asia might be at the helm of the Good Ship Recovery. Consider the sheer size of China, and it is hard to imagine excluding them from any supply and demand talk. This goes for precious metals as well as any other basic commodities. From the CIA World Factbook, "in 2010 China became the world's largest exporter. Reforms began with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening to foreign trade and investment." Currently, China sits on reserve holdings of foreign exchange and gold totaling about $2.8 trillion. This is just an estimate, of course, but puts them squarely at the top of the country rankings. China has more than double the #2 on that list, Japan. Curious about other things that make this Asian nation a powerhouse of potential consumption? Their gross domestic product (GDP) is ranked third in a list of countries ordered by purchasing power. The only two areas ahead of them are the European Union and the United States. GDP growth was previously estimated at more than 10 percent for 2010. More recent data shows that through September, this rate has actually held closer to 9.5 percent. Sound bad? Side-by-side it looks disappointing, but when you consider that the US is closer to 2 percent and forecasts for 2012 are less than 3 percent it helps put things in perspective. China still has a lot to offer. The global slowdown has tempered a lot of growth across the globe, but so far it appears as though China is going to remain fairly resilient. Recent data suggests that the economic outlook for China remains positive, but there are plenty of debates in the headlines as to the sustainability of their present growth. Some critics suggest that negative outlooks for other developed nations will drag on the Chinese economy. This is due to China's status as a heavily export-dependent nation. They make the goods and ship them overseas. If Europe and the United States continue to slow down - or at least remain stagnant - it will likely result in fewer people buying less from China. On the sharper side of the argument, there have been several charges that the Yuan has been kept artificially low to boost exports. That would speak to the potential for changes in monetary policies from the People's Bank of China. Even more sinister is the suggestion that the bank in China pumped in trillions of Yuan worth of financing during the onset of the global economic crisis, something that kept their economy from dipping into recession but might have far reaching consequences long-term. Does that mean that the current rate of growth is doomed? Perhaps, but that might not eat into the overall demand picture. Summary I would suggest that people look towards the growing middle class in China - the rural-turned-urban populous that has so often featured in recent commodity demand analysis. Recession or no, growing manufacturing and diet changes could continue to propel the situation in China long after GDP has sunk closer to the levels seen elsewhere in developed countries. The outlook on a global scale may seem grim, but for gold bugs and precious metal enthusiasts there are still reasons to look towards bullion investments. On one side you have the shift towards alternative investments in an uncertain landscape. On the other you have the big fish like China and India that are still capable of massive amounts of consumption and demand, just by sheer population size and buying power alone. Neglecting this side of the world to focus on woes in the other is not recommended. If recovery is going to happen any time soon, it is likely going to be led by one of these areas. Any pick up in manufacturing activity, consumer spending or growth will likely be driven by their citizens. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
Maybe I should Move to Whitehorse Canada and see if I can weasel Me a claim . The gold rush is on big . Dig the dirt and Make Me a big pit full of arsenic and mercury . One like the Berkley Pit in Montana that Me realities did . Oh shit they got fucking filthy ass rich from it too. Lloyd Tevis be the Man . It is said he was the riches man in San Fransisco at one time ( Before the earth quake ) Yeah the Berkley Pit is super fun . I mean a Superfund . The Clark fork River was a big mess for long time I was worried about inflation today my self . I don't know if there is a big spike coming real fast or not . Feels like it might happen . I think you do have some good info. I don't know about gold ? Last 2 days it is running back up the pole . Every thing is volatile right now . Big swings in market pressures is what I been seeing . No to low growth . I know there was a little spike . It was not anything to get excited about . Inflation might be . We will see if this little rally holds . The next week should be interesting . Might just all fall back . All dressed and no place to go Are you a head hunter ? You working on a run ?
The Bullion Report For Nov 2, 2011: Gold Prices and Currencies The Bullion Report For Nov 2, 2011: Gold Prices and Currencies Currencies are coming into focus again this week. Japanese officials have made another move to devalue the yen to keep their exports humming. Like other commodities, precious metals are affected by currency changes. Whether it is shifts in monetary policy or developments in the European Economic Community (EEC), when currency relationships change look for gold and silver prices to be impacted. Gold prices have been traditionally used as a store of value and considered by many as the ultimate currency. Investors have developed a trust in gold when they become fearful towards other investment vehicles like stocks and bonds. Gold prices are typically valued in US dollars so as a result there tends to be an inverse relationship between the two. In other words, buyers and sellers of gold are influenced by changes in the exchange rate for US dollars. As the value of the dollar rises, then the purchase price of gold is often lower because you can now use those same stronger dollars to buy the same gold. Conversely, when the value of the US dollar declines, gold prices often rise. Last week traders saw the US dollar trade substantially lower when heightened concerns over a Greek default were apparently averted. When the European Union announced an agreement was reached in principle to restructure Greek debt, traders holding short positions in the Euro scrambled to cover. That action forced the US dollar lower as the announcement strengthened the Euro in relation to the dollar while causing the price of gold and silver - along with other commodities denominated in US dollars - to move higher. It is worth noting that the impact of that move was likely enhanced as fund managers moved out of shorts in the Euro and into long positions. Fund managers have had a rough year and since the end of the month was swiftly approaching their desire to have long positions on the books - or at the very least not be caught holding shorts - was obvious. Were those moves based upon sound fundamental reasons, or were they simply an over reaction? From this week’s perspective it appears as though that move was an over reaction since the news out of Europe has been negative regarding the deal. This has generated renewed fears among investors and as a result markets see investors now shifting back to the long side of the dollar. With the dollar gaining strength commodity prices have been under pressure - including the prices of gold and silver. Stock markets too have been experiencing the impact as have the value of US bonds, which have increased. Economic events like these (and more importantly investor perceptions), fuel the ever-shifting relationship between currencies. In the current environment there is a noticeable increase in the frequency of knee-jerk reactions to whatever is the focus du jour in the 24 hour news cycle. The impact of the increased rate of the dissemination of information is obvious. Talking heads tend to value “breaking news” announcements, but in reality they have served to generate a tendency for swifter shifting between investment vehicles. This can decrease stability and invites increases in volatility and result in more stress on prices and investors. The game seems to have grown to be more a function of a race to positions, rather than a serious long term investment. While this shifting back and forth is taking its toll, it only seems a matter of time before nervous investors seek alternative stores of value. Commodity prices, particularly among precious metals, have experienced investor demand. While silver has traditionally held an additional industrial use, much of the demand seen today is driven solely by investors. In other words, it is not a matter of industrial demand but rather demand driven by investors. Jeffrey Currie of Goldman Sachs has said, “Gold is ultimately dependent upon real rates, which are a function of both inflation expectations and monetary policy. A top in gold prices will only become apparent when the risks of sovereign default are behind us with a clear and successful exit of the stimulus we've seen over the last few years.” The world is undergoing massive changes and numerous economic challenges. Sovereign debt is growing and seldom has the global economy seen such swift changes in the currency exchange rates. Driven by the whims and actions of nations and their leaders the outcome seems potentially disastrous. Central banks have been actively flooding the world with cheap money in an effort to cope with pending problems in their national economies. These banks printed money to escape liquidity problems and that by any definition is inflationary. The value of any currency is determined by changes in monetary policy. Inflation and deflation are phenomenons of central bank policy - and right now monetary policy is printing money. As a result, more and more participants see cash moving into precious metals as gold and silver are chosen to fill their historic role: first as an inflation hedge, and more significantly as an alternate currency in a world where currency stability has become increasingly troublesome. Summary With few exceptions investors continue to believe that metals are not anywhere close to being finished moving higher in value. Yes, corrections must occur and most are healthy, but consensus has not yet suggested a top in precious metals. Maybe that is because gold cannot be created by central banking fiat. It remains scarce, difficult, and expensive to find and to mine. By many historic levels, gold and silver are still looking undervalued. Discounting for inflation, gold will have to exceed $2,000 per ounce to equal its previous peak value reached in 1980 - and that’s without taking today’s uncertain currency environment into account. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For November 9, 2011: Confidence & Precious Metals The collapse of MF Global this past week warrants attention. That such a large firm goes under (one that had been a significant component in the commodity industry) is hard to overlook. As the story unfolds, there are many questions and concerns that will come into the limelight. The fallout from this has the potential to lead to increased scrutiny as well as regulatory encroachment. Any confidence crisis in the brokerage industry, or in the realm of investment, will inevitably play into the markets and play out in volumes and prices. Gold and silver will not be immune to these fears. As the previous week came to a close, few eyes were focused on problems at MF Global. Instead most investors’ attention was again being directed at developments in Greece, preparing for another round of negotiation roulette. The markets were waiting to see what fresh consequences might result from the latest round of dialogues in Europe and preparing for what news might come from the FOMC meeting as well as Bernanke’s testimony scheduled for mid-week. That changed when news about client funds and bulk transfers captured the headlines. To begin the week, prices of the metals initially moved lower. That move down may have originally been rooted in a stronger dollar, with the macro economy staggering at the weight of the debt from many European nations. When MF Global filed for bankruptcy on Monday things got uglier. Prices plummeted and customers of MF Global became trapped. It appears that MF Global made subsequent transfers of customer segregated funds in a manner that may have been designed to avoid detection insofar as MF Global did not disclose or report such transfers to the CFTC or CME until early morning on Monday, October 31, 2011. This was met with the harshest response, and all trading for MF Global was shut down, affecting all of its customers. MF Global filed for bankruptcy. This led to the markets losing liquidity as floor traders, IBs, CTAs and fund accounts that regularly cleared business through MF Global could not transact. A scramble to move accounts, money and positions ensued. These efforts were thwarted when the exchanges announced that they would not allow anything other than liquidating trades. How could that be known? As a result a lot of firms chosen to execute trades were given instructions by management to cease. There were estimates that up to 50,000 former customers of MF Global were being moved. On Saturday it was announced action was being taken to mute the impact of the transfer of accounts to other clearing members. That kind action may serve to ease the pain and allow for a more orderly shifting of accounts to other firms, and is a proper use of exchange authority. What will be the effect on the industry? Wherever confusion and rumor are allowed to take root, confidence in the financial system gets questioned, and with it the potential for investor fear to grow. So what does all this have to do with precious metals? It shakes investor confidence when the firm with whom you entrust your portfolio to administer your investments is possibly focused on their own interests above those of customers. It sets a tone and raises questions about the stability of the financial system. When you combine that with Europe’s never ending ominous debt problems, which extend well beyond Greece’s debt, you have a situation that makes an average investor wonder about safety of assets. The entire European banking and corporate system is over-burdened with debt. They are backed by the financial institutions that stand behind them and are only as good as those firms can reliably verify. If questions arise as to the financial wherewithal of those institutions’ ability to stand behind proper reconciliation of transactions by those whose job it is to insure those transactions, then confidence becomes an issue. Precious metals are often the stop gap when confidence in traditional avenues falters. With the mystery of the missing funds rolled into concerns over the handling of transfers, it only serves to fuel volatility and investor unease. It will be interesting to see how all of this unfolds as the real paper trail that leads to proving the facts of this tragedy. Confidence in the system is coming into question, and that in turn frightens investors. Summary Adding to a growing lack of confidence in the system there is also news that Freddie Mac just reported another huge loss and that means they will be seeking another bailout. Markets already are trying to digest the trouble in Greece, and now Italy is causing concern. There seems to be no end to this on going bailout in Europe. There are even reports that Germany may have been asked to pony up gold to back the loan guarantees. Printing money to loan someone is one thing, backing that loan with your own gold reserves is quite another. After all, isn’t it the financial integrity of the system that prompts ownership of gold? At this stage it seems unlikely that the stronger European economies will back off their precious metals holdings, and even if they do, that will likely only fuel price movements higher in gold and silver as it would send a message that things are really going to pot. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For Nov 16, 2011: Eye of the Beholder Is gold below $1,800.00 cheap? Or are prices for precious metals approaching critical mass? To answer either question, much depends on your point of view. When you examine available data it appears as though many participants, including those who have prior experience at investing in gold and who play a significant role in the financial markets, aren't looking to sell. In fact, they are acquiring even larger positions. The question is: Are they acquiring metals in spite of or because of current prices? The Wall Street Journal reported that managed money funds added to their holdings in gold and silver the week ending Nov. 8. According to the CFTC's weekly trading data (which came out on Monday, November 14, because of the U.S. Veterans Day holiday), “Managed money funds bought 16,697 long positions, or bets prices will rise, and slashed 2,052 short positions, or bets prices will fall.” That these are professional money managers is significant to me. That Commitment of Traders (COT) report specifically showed that funds increased their net long position to 167,028 contracts, from 148,729 positions the previous week. That is a change of 12%. This means that as a group, managed fund net long positions (longs minus all shorts) represents around 16.7 million troy ounces of gold. Take that for what its worth, but it looks to me that professional money managers are increasing their long exposure in gold. It is also worth pointing out is that tactical traders similarly raised their net silver holdings by 5% to 69.59 million troy ounces. These additional long positions came in even while precious metals prices rose. The reasoning behind this is likely tied into the continually-grim global picture. The European debt crisis continues to unfold like a soap opera, and perchance equally entertaining to some. Recent events, specifically regarding the MF Global failure, have raised margin issues. Additionally, audits and enforcement of rules takes on the forefront as the CFTC announced plans to step up their efforts at scrutiny of firms. The collapse of MFG brought light to those topics and raised concerns (even among long time industry participants) as to the sanctity of money held by clearing member firms. The CME has taken action, but are there actions enough? It certainly seems as though we are fumbling into another round of uncertainty and the accompanying chance of fear. Sure - regulators and panels of economists seem poised to propose solutions, but their actions may be "too little, too late" for 2011. Investors are growing reluctant to buy European paper. Whether in the form of Italian, Greek, or now French and EFSF bonds, these instruments are all receiving negative press. This gives rise to another big question in terms of where the liquidity will come from to backstop European banks, keep Italian interest rates from skyrocketing and fund the EFSF. Any actions of the European Central Bank seem limited. There are some proposals that China and the IMF can provide liquidity, but as of yet those haven’t made much headway. After all, since the problems are European-made, many think they require a European solution. One suggestion that even came up at the recent G20 summit in Cannes was that Europe’s gold could be put into play. Can you imagine? Could gold be pledged as collateral for loans from China and others? Germany has rejected this possibility, but that doesn’t mean the ECB and other central banks can’t introduce a proposal that might leverage European gold reserves. That would be certain to get China’s attention. Understand, the possibility of gold being sold directly into the market isn’t what’s at issue. Rather the issue would be using gold as leverage behind loans which is being explored; and rather than sell gold, such a scenario might rather act as an invitation to acquire gold so it may be used as collateral. Turning the microscope back to the other side of the pond, the United States doesn't seem to be any further ahead in wrestling with its debt problems. The decreased revenue on local, state, and federal levels as a result of the housing and credit crises has spawned a host of issues that seem never-ending. Is there really a recovery on the horizon? Perhaps. It is also just as likely that this is the new version of normal and instead of growth, people must now look to preservation or sustainability. Summary Presently the price of gold is below $1,800.00. Silver is around $34.50 an ounce. This past year gold prices increased dramatically when the price ran up to a record peak of $1,920.30 per ounce on Sept. 6 and then tumbled to a low of $1,534.49 on Sept. 26. Prices are closer to $1,800.00 now, but still below. The corrective phase, which many professional traders view as healthy, seems completed. Where are prices headed next? Heading towards the holiday season and the end of the year, it seems likely that little will happen to fully resolve the debt issues plaguing certain countries. That seems supportive of precious metals despite their high prices. Asset preservation continues to look like the best gift that investors want to give themselves, and that means gold and silver for the time being. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For Nov 23, 2011: Holiday Volatility There is no candy-coating the economic woes facing the U.S. and Europe. Stalled growth, high unemployment, and an unprecedented economic climate have investment markets nervous. Add to that mix the continuing saga of the back and forth regarding European debt. Not a day goes by without another announcement that drives markets up or down, keeping volatility abnormally high. Stir in the MF Global bankruptcy and missing money and what does it suggest about the state of the financial industry, the health of the economy and the impotence of government regulatory agencies? And more to the point, what does it mean for precious metals prices? As more and more defaults and bankruptcies occur, increasingly more investors become timid and fearful, along with becoming less aggressive. Typically, during such times investors seek to find a safe haven investment. Throughout recorded history gold has been often considered and used as such an investment. Then why are we not seeing precious metal prices respond in such fashion? What forces are at work? Don't forget - this is also a holiday-shortened week, which should also be taken into consideration. Recent inflation statistics have been lower than expected in October and a steady dollar has appeared to slow demand for the precious metal as a group. U.S. Labor Department data this past Wednesday showed the cost of living in the U.S. declined in October. This slow down of economic activity and relative stability of the dollar may have dampened gold as a currency alternative. Gold is priced in dollars and appears more expensive to buyers who use other currencies when the dollar rises. With a daily trading range of around $40-50, or 2%, now common in the gold market in recent weeks (even larger for silver) cautious investors are staying away. The markets are thin and therefore every price reaction gets exaggerated. It is the thin conditions that may give rise to understanding why precious metal prices haven’t reacted by moving to new highs. When you think about it, though, they really aren’t so distant from those highs either. As Bill O'Neill, a principal with Logic Advisors puts it, “the increased volatility makes gold more dangerous to trade from a safety standpoint.” Investors sense this and as a result many stay away. There has also been a recent need to cover margin commitments and cover losses in other sectors and that along with fund liquidations have contributed to keeping gold under some pressure in the short-term. The gold market broke below the 100 day and the 50 day moving averages ($1710.60 and 1711.50) yesterday with gold back below $1,700.00. More than likely this has the chance to see some consolidation and minor price adjustments heading into the remainder of the holiday shortened week. The bright spot of news it that there is reason on a technical level to expect to see the $1,680.00 area be supportive. Listening to the talking heads perform you’d think gold was falling off a cliff. They always need a “breaking news” story and any substantial movement in the gold price is always worthy. Yes, to some it may seem odd that prices have dropped given the shuddery economic environment. It may seem out of character, but remember markets are extremely thin right now. Markets are confronting the holiday week, essentially a four day holiday for many, combined with reluctance on the part of many traders to be aggressive. Another confidence-buster that is not going away is the brewing MF Global situation. Many MFG customers are missing money and cannot trade. This takes away further liquidity. Prices of key “outside markets” have been bearish for gold, as the U.S. dollar index firms and crude oil prices move lower. Near-term technical damage has been inflicted in precious metals charts and bears now have the slight near-term technical advantage. Yet, markets act funny near tops and bottoms. Governments keep printing more money. They do this as it may just get them through the current issues, but in the long-term higher debt could push the world into a global depression. The yield on the 3 month T-bill in Spain has doubled to over 5% from last month. The current levels are close to both Greece and Portugal. Summary Precious metals may be experiencing large price swings and volatility remains high, causing investors to back away. That leaves the markets vulnerable, but that vulnerability is in both directions. While investors may have seen metals receive pressure on prices, they can just as easily surge upward again. Or as Kyle Bass, recently put it, “Buying gold is just like buying a put against the idiocy of the political cycle, it’s that simple.” Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For Nov 30, 2011: Is Gold Bubbling or Booming? Precious metal prices appear to have entered a new stage. With increasing frequency, and regularity, the price of gold and silver has been swinging in volatile fashion. These volatile price swings have likely caused many individual investors to become reluctant, even fearful, of taking on fresh positions. After substantial runs to fresh highs, prices over the last week have whipped back and forth in a violent manner, making trouble for trend followers. How long might it be before these troubling times are over and a clear trend is re-established? Or better still, how far and in which direction must gold prices move before the market settles down and volatility softens? Precious metals have always been considered to be welcome stores of value during uncertain times. That investors are facing uncertain times is demonstrable; just look at the price moves of almost any investment. Few are steady in the current environment. The customary pre and post Thanksgiving rally in stocks did not materialize, but the day after it sure did! America continues to react to happenings in Europe, and while the US dollar has recently strengthened in a flight to quality versus other currencies, it looks to be correcting amid an uptrend. What's next? The national debt is now over 15 trillion dollars while the annual Gross Domestic Product is only $14 trillion. In other words the value of all the goods and services that generate income in America is now exceeded by the nation’s debts. While the US dollar strengthens, it is because for now it is deemed the lesser of two evils. A stronger dollar weighs on commodity prices, especially gold. Market participants might be surprised by gold’s continuing weakness and some are likely questioning gold’s safe haven status. However, the fundamentals of broad-based global physical demand remain very sound as evidenced by recent central bank gold buying data. Russia bought 19.5 metric tons of gold in October bringing their total gold reserves to 871.1 tons according to IMF data. Belarus increased its holdings by 1 ton; Colombia by 1.2 tons; Kazakhstan by 3.2 tons; and Mexico by 0.9 ton. Data also shows that Germany reduced reserves by 4.7 tons and Tajikistan cut reserves by 0.4 ton. If central banks are buying, what message does that convey? Additionally SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, reported a rise of 3.631 tons to 1,293.088 tons in its holdings. Commerzbank said recently that they expect to see gold trading at $1,800/oz by the end of the year. Barclays says it is sticking with a fairly bullish call for gold and says it sees the price at $1,875/oz in Q4, and according to Reuters. Deutsche Bank says they expect periods of risk aversion to remain through 2012 and their strongest conviction trade remains long precious metals and specifically gold. Gold prices have corrected from record highs yet there is evidence of inflation clouds gathering. Food prices are up a full 13 percent this year. Inflation statistics however do not seem to verify this in CPI as a whole. It feels as though the foundations of future inflation have already been laid. There is still a piper to be paid for all of the money that was created as part of the stimulus efforts since 2008. As for what is happening in Europe, two main potential outcomes exist: Either the euro zone splits apart or it binds closer together. The euro may change its make up or face the emergence of a deeper political union in which a federal Europe takes control of national budgets — something that would lead to serious political, legal and financial consequences. With financial panic now threatening to move beyond Italy and Spain and into Belgium, France and Germany, the euro zone’s paymaster, the pressure to arrive at a solution is at a new level of intensity. The financial contagion in Europe is pushing already fragile global economies towards recessions, and increasing the risk of the world slipping into global recession is rising significantly. Indeed, as analysts have warned for many months, there is a real risk of a global Depression given the scale of the debt levels in most western countries and the massive imbalances globally. Although most of the focus has been on Europe in recent weeks, markets should cast an eye on the not-so-inconsequential matter of the appalling US fiscal position which could deliver further market volatility and see the US dollar come under pressure again. Washington's latest “Super committee” effort to come to grips with the mounting debt seems to have ended in failure when negotiators announced they could not reach a deal. This failure with cutting the US government's crushing $15 trillion debt looks set to support gold. Summary Gold and silver prices reflect market forces and what investors are experiencing right now are uncertain and unprecedented times. Precious metal prices have gone up substantially and the violent correction to prices is a result of that move. The longer term likely bodes well for another round of higher prices, but it will takes time for markets settle down and get accustomed to their new phase. It is easy for some talking heads to banter in the way they have always done - a really active market with fresh price highs is just a bubble waiting to burst or a story to take an alarmist view on. These sound bites might be good for the quick pace of daily news, but precious metals are unlikely to fade as fast as runway fashions or starlets. Remember to keep the macro view in mind - there is still a long road ahead for the global economy. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For Dec 7, 2011: Will November's Golden Harbor Continue? With all of the economic turmoil that took place last month, investors who owned gold as a safe haven appeared to benefit. During the month of November gold ended with a 1.9% gain in US dollar terms. This is now the seventh month this year which saw the dollar falling against gold. Will gold maintain this haven status heading into the close of the year or will the market see an exodus as investors clear their books in the final quarter? The international issues have so far supported fresh forays into precious metals. Gold's gains were evident against other currencies, not just the US dollar. The euro dropped 5% against gold in November. The British pound fell nearly 4% against gold. The Aussie dollar fell nearly 6.5% and the South African rand by 5%. Thus, gold again protected investors around the world during the past month where heightened concerns abound from the global financial crisis. Gold is now more than 20% higher in dollars and 18% higher in Euros and pounds during 2011. And gold is only 9% below the record nominal high of $1,920/oz reached in September. If investors maintain the current skepticism regarding currency stability it seems likely that gold will flirt with those September highs sometime in early 2012. Demand for gold has increased in recent months and years, however, there is plenty of room for additional investment to take place. HSBC estimated in December 2010 that gold remains less than 0.14% of global investable assets. That figure certainly seems to allow room for growth. Many analysts involved in the gold markets believe that precious metals are seeing a sustainable trend and investment, and monetary demand is set to remain very robust in the coming years. That the gold price has improved and proved resilient is perhaps due to a reawakening of inflationary concerns and continued skepticism regarding economic and currency policy. Last week China's central bank cut the reserve requirement ratio for its banks for the first time in nearly three years to ease credit strains and shore up borrowing concerns. While many felt that move was due to housing concerns in China, it no doubt will have an impact of fanning the flames of inflation internally in China. And since China is the most significant player in raw material purchases, any excess inflation could lead to an even faster spike in global inflation the next time markets get a fresh round of quantitative easing. Don't forget the surprise move by a group of central banks, where they reduced the dollar swap rates. That action had the immediate impact of rallying equity markets as it was orchestrated to do. Broader markets have responded with substantial price increases. Reducing the swap rates seems akin to printing money as dollar swap lines give foreign central banks the ability to borrow dollars against their currency, use them for whatever they want - like to shore up bets made by European banks that went wrong, and at a later date, return them. Markets previously experienced a similar “temporary dollar liquidity swap arrangement” with 14 foreign central banks back in December of 2007 (several months before the Bear Stearns collapse and nine months before the Lehman Brothers’ bankruptcy) which allowed easier access to Fed's subsidies. The joint action by some of the world's major central banks to boost dollar liquidity and provide cheap dollar funding to European banks seems very much like the world economy is facing another “Lehman moment”. Bottom line is this, the central banks worked in concert to provide liquidity for other currencies. That coordinated central bank action will result in a further increase in the global money supply and the consequent debasement of fiat and electronic currencies and inevitable devaluation of the dollar and of all major currencies. Additional liquidity cannot help but eventually lead to higher inflation rates. At some point, investors will have to be on the lookout for the impact to appear in commodity values, many of which are also experiencing lower than normal inventories. While there are legitimate concerns that Chinese economic growth is slowing, the fact that more money will be available to chase around goods is apt to heighten demand and pick up the pace for hoarding certain commodities. Chief among them could be gold as it lends itself to the favored choice for a store of value during inflationary times. This may very well set the tone for Chinese-based purchases of gold to help fuel another gold rally. Lastly, there appears to be a growing consensus in both Europe and in the United States, one that feels we must choose a different path. The Tea Party, Occupy Wall Street, the protests in Greece, and the increasing tensions abroad are all signs that people no longer believe in the system we’ve got and want a different one. There is evidence that economic troubles are reaching a crisis level, and although this theme is often played up in the media, it appears increasingly relevant as more and more people in the streets get involved. Now, no one is suggesting that things have reached a point of no return, but they sure seem to have gotten broader attention and frustrated the masses. Summary The world is by no means on the verge of complete ruin, but without a doubt the latest action is seen by an increasing number of economists that we are acting with urgency to avert economic slow downs. “Risk on” has become a new buzz phrase and it these fears of aversion to risk and that will likely continue providing a safe haven demand for gold. Despite November being an extremely volatile month, one which saw sharp losses in many bond markets and all major equity indices internationally, gold was higher in all major currencies in November. The very limited supply and rarity of gold means that the increase in allocations to gold from minuscule levels is sustainable and will likely continue for many years as investors seek safe harbor given the radically changed nature of the global financial and economic landscape. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For Dec 14, 2011: Yes Virginia, Gold Does Have A Seasonal Claus(e) Some people might look forward to singing "Silver Bells" at this time of year, but did you know that gold prices also have a song to sing? Believe it or not, there is a tendency for gold prices to gain strength approaching the holiday season. Therefore, it is a topic worth considering as gold’s previous seasonality is meaningful for speculators and investors. It just might offer some welcome insight, brighten the holiday spirit and help those interested in fine tuning the timing of precious metal trades. Let's get one important thing out in the open first. Seasonal and weather trends might already be priced into the market, and any past movements in price are not a promise of future results, so keep that in mind. Seasonality is not something that is often associated with the price of gold. Typically seasonality or weather related patterns are often thought of as something that applies to crops, or even certain stocks like Toys R Us. It is in cases where a commodity is planted, grown and later harvested during certain times of the year that triggers a thought towards seasonal patterns. Seasonality is even logical with some stocks. Who would think that there is a similar tendency for the yellow metal since gold is extracted or mined, in all types of weather and at all times of the year? The supply side is only one side of the story. Demand also plays an important role. Demand is the sometimes overlooked part of the equation, as there may be regular seasonal forces at work. Think of how demand for toys picks up as Christmas approaches or the seasonality of certain clothing like bathing suits. This can also be the case with gold, where purchases and interest are driven by a seasonality of demand. Holiday bonuses may be a simple factor, but it’s likely more than that. Investors and speculators increase their holdings when they see opportunities for demand, and prices, to increase. Those times may be when the political or economic climate is perceived as changing. While those events can occur at anytime during the calendar year, gold still shows a historical tendency to rise during the holiday season. It is simply because there tends to be more demand for gold at this time of year. One global factor that helps drive this demand and signal the start of gold’s seasonal price rise comes from post-harvest Asian buying. India is a particularly good example of this. India is famous for its harvest festival season and India has long been the world’s largest gold consumer, although China is likely to overtake that role sometime in the near future. The core of Indian festivities following the harvest is their famous wedding season. Wedding traditions in India are elaborate and fascinating. They help drive what is usually the world’s biggest gold-demand period of the entire year. Marriages in India are so very important that even today most are arranged by families. For many, the timing of these weddings is critical. There is an increase in weddings during festival season. It is thought to enhance a marriage’s success, longevity, happiness, and good luck. Families of Indian brides pay handsomely to outfit them with extensive gold dowries, much of which is in the form of gold jewelry. No expense is spared in buying these gold dowries, which is why Indian gold demand soars in autumn. It is not unusual for between a third and a half of India’s entire annual gold demand to occur during this time. Although it tapers off in late November to early December, gold’s strong seasonal period continues into the Western holiday season. This is when the overwhelming portion of discretionary spending takes place. There is a pronounced surge in gold jewelry demand as holiday dollars flow into gifts for wives, girlfriends, daughters, and mothers. In fact most jewelers do well over half of their entire year’s sales between Thanksgiving and Christmas. After the first of the year, the market experiences a similar impact from China. The Chinese New Year typically falls between late January and mid-February on the Western calendar. The Chinese have a deep cultural affinity for gold and gold investments. All of these events add up to very good motivators for seasonal rallies in gold. The bottom line is that there is a demand-driven seasonal in gold that comes from a variety of cultural factors around the globe. It is a cycle that precious metal traders should be aware of. Though seasonal are only a secondary driver, they are reliable and worthy of attention. Of course, it is also important to recognize that any seasonal tendency is merely a proclivity, and as such may be superseded, or over-ridden by other events. While it is a factor, it is always important to pay attention to other factors such news events just as one might with other assets. This year such a situation developed as gold prices approached the time of year when seasonal demand was overridden by an overbought market. While gold’s seasonal tendency is for prices to begin ascending in the fall, instead there were some violent downward moves. It is felt that an overbought situation caused a major correction to occur. This holds true for any market which is overbought or oversold, just as any seasonal tendency can be negated or ignored altogether by a news event. Think of it this way, prevailing winds will always influence a golf ball’s flight even if it is struck true and on course. Serious golfers know this and adjust. Serious traders should too. Even though it makes sense to be aware of gold’s seasonal tendency, remember the prevailing wind of other market influences. When gold’s primary drivers are positioned to support a major move, seasonal winds can assist, or serve to enhance the price move. This may help it make a larger and faster move. Summary Right now we are heading into gold’s strongest time of the year seasonally. In the last decade gold prices have on average moved about 10% higher between late October and late February. I am not suggesting that this is precisely what will be experienced again this year, especially as so much news is influencing markets in general, but it is a tendency that gold prices have shown previously. This kind of seasonal demand, coupled with serious economic issues on a global scale, could make it hard for anyone to call a top in gold. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For December 21, 2011: After the Fall If you didn't notice, the price of gold dropped recently. Is this responsible for renewed discussions regarding a return to a gold standard? Gold prices dropped more than 7% last week, which is the biggest weekly loss since September. The cause has been attributed to liquidity plagued speculators and banks that closed out long positions. Yet, while the price has fallen none of the reasons gold has gone up have changed. They’re still in place. The economic crisis of the past several years, with unchecked government growth and spiraling debt are all still apparent. The problems with the global economy still exist and are apt to grow. And one only need look at what is happening as it serves to illustrate the dangers we face from living beyond our means. Yet, we continue to build upon unsupportable economic foundations. Our current path is unsustainable. We have moved away from the path of sound money and economic stability. So what to expect of gold? Well, bearish sentiment in the gold market is very high, which for some may be indicative of a market bottom. One thing to look at is that bullion buying in much of Asia has risen. Reuters reported that there has been a jump in buying in most Asian countries and that demand for gold in India, still the world's top buyer, rose slightly for the first time in almost a week on Friday. While opinions are divided about the outlook for gold, most analysts of the gold market remain positive about the price outlook for gold in the medium and long term. Some are cautiously suggesting that the worst of the sell-off may be over as gold looks very oversold technically and the fundamentals remain sound. It is worth remembering that with gold selling off this past week physical demand remains robust globally. What did central banks do in the gold market this week? Central banks in nations like China, India, Russia and Thailand keep buying gold reserves. These banks seem to be trimming their dollar exposure and have been buying whatever the International Monetary Fund chooses to sell. What does this mean? Does it mean that there are those who are reforming their thinking that perhaps gold can do a better job as an instrument to help a bank? Possibly; the Bank of England explores that subject in a paper that is to be officially published December 20, 2011, entitled, The Bank of England’s Financial Stability Paper No. 13. In the paper they propose countries reduce the need for accumulating foreign exchange reserves by creating “exchange rate insurance” that individuals, businesses and governments can use to protect themselves against gyrations in their home currency’s value. It certainly is interesting to note that progressive thinking is growing in earnest to reform the current International Monetary and Financial System. In a way it serves to reaffirm how gold has been viewed as a hedge against all currencies. The results of the BOE paper indicate that the real task at hand is to create a reformed international gold standard that would promote trade and prosperity throughout the world. Such a system has historical evidence on its side. What is proposed would provide a stable and secure international monetary system by redefining each of the key currencies, specifically the dollar, euro, pound, yen and Yuan, respectively, as a unit weight of gold. Other major countries, including Brazil, Canada, India and Russia would be invited to join in defining their currencies in terms of gold. Then smaller countries would then be free to fix their exchange rate to any one of the gold backed currencies. The notion that a reformed approach to a gold standard could actually produce better results than powerful central bankers who manipulate interest rates and currency values may be counter-intuitive but the facts speak for themselves. Evidence suggests a gold standard provides better apparent financial stability. It might be just the medicine to create an environment which returns the spontaneous order of the market place. With easy money and inflation again in the headlines, but without a Paul Volcker at the Fed's helm, the BOE analysis and arguments are timely and will hopefully bring new discussions. Monetary policy observers around the world may point to this as the death of the world dollar standard and why not? Haven’t we seen enough of the ill effects of the present system? Certainly the inability of the U.S. to reduce its budget deficit is a case in point as is the Federal Reserve’s easy money policy - they are bullish for gold. Among some students of the economy an argument for returning to the gold standard is brewing. Even more importantly is the argument for choice and competition and the role of government. The presidential election in 2012 will be focused on the economy and the role that government plays. Summary Preserving the ability to choose which currencies to accept, with whom to trade and on what terms, is a hallmark of a free society. Sadly these freedoms are among the many that have been compromised, if not lost completely. Traders have watched as over time gold trades in an inverse relationship to the dollar. Right now, the gold market is likely sensing another round of Fed quantitative easing in the near future, and writing the script of its own recovery off recent lows. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For January 4, 2012: New Year, Fresh Star The New Year has begun, and with it comes a fresh start for world markets. Many news outlets greeted the first minutes of 2012 by remembering what a tough year 2011 was. As global economies turn to a fresh page, what can investors expect to see from precious metals? Gold prices finished 2011 trading at $1,566.80 which was a 9.3 percent increase for the year. Gold saw its lowest level back in February, but also established a new record high above $1,900 per ounce in September. During the final quarter, gold prices declined with liquidity concerns and an overbought technical view dominating the market. Some took that as a sign that major players were exiting gold positions so as to cover holes in their balance sheets. Contrary to gold, silver prices ended 2011 with a loss settling at $27.92 - a decline of 10.7 percent for the year. While silver prices peaked near $50 in late April, they never reached a new record high price. Some feel the industrial aspect of silver may have helped foster the decline as concerns mounted of a global economic slowdown. At present silver prices seem to have found support at around $26 per ounce. The sharp drop in silver prices has taken the wind out of some bullish sails, but fundamentals remain intact and friendly. Gold rallied in the final session of 2011 and moved higher on the first day of trading in 2012. Indicators are issuing a possible buy-signal, but it would really help to see a little more follow through to the upside in order to coax additional confidence especially the 200 day moving average at $1,626. For now it looks like investors are again friendly to bullish gold and believe that the yellow metal will regain its ability to rally, finding legs. Silver prices have gained well over the past few sessions, up sharply and back over $29.50. That is impressive and sets the tone for a move to $30.00. Silver prices also offer the additional attraction of having been beaten down more so than gold which may entice buyers seeking a rebound. On the fundamental front, it seems apparent that governments will continue to print more money and concerns for economic growth remain. Meanwhile Iran is heating up with perceived threats regarding missiles, concerns over their nuclear capability and general saber rattling as Iran flexes their muscles. All of this helps firm oil prices and in turn adds a bullish flavor. Equities have risen and while the U.S. dollar remains in an uptrend, it has stalled and is fueling strength among precious metals. Long term, however, the situation becomes less clear. The major influences will remain the direction of the dollar, oil prices and the perceptions regarding European and US debt. Should the global economy fail to improve, that may encourage the aspect of metals as a store of value. Fundamentals haven't changed, and remain friendly for higher prices. An area frequently overlooked as to its significance is the psychology of the marketplace. At present given the price drop the past couple of months in precious metal prices there are a growing number of skeptics for another bullish year ahead. There are also fears raised by the MF Global bankruptcy. That action shattered confidence as many traders faced margin calls, and others lost access to their positions. There is still a specter of missing money which further damages trust, yet beyond that interest is the relationship between gold and silver. Since silver prices have been more depressed, specs may be keen on their attraction to silver. Price levels are another element; Gold below $1,500 or above $1,700 could give a push just like silver over $30 or below $25. Right now, the environment for investors still seems positive for precious metals. The sorting through the European Debt Crisis hasn't gone away. Although they still lack a solution the markets seem intent upon calming in an effort to restore at least a semblance of normalcy. Stocks are firm and economic news seems pretty friendly. The real rate of return remains negative, with rates held low, and that should prompt more investment in metals. The present course of action looks for additional rounds of easing and currency devaluation, which should attract investors to precious metals as Gold and silver should tend to counteract any currency devaluation. Thus gold and silver are forecast as solid options against what is apt to come in 2012. Summary What many investors see now is an opportunity to buy. Markets have pullbacks. No market moves straight in any direction. These pullbacks, such as gold and silver experienced in late 2011, were likely started by large institutions needing to cover capital requirements. Those in turn shook out the weak handed and caused others to decide to cash in, yet overall things haven’t changed and the prospect is for another bullish set up for precious metals in 2012. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
The Bullion Report For January 11, 2012: China's Gold Bling Developing nations are frequently the focus when it comes to commodity demand. Amidst the chaos of the Euro zone crisis, and the uncertainty facing other Western powers, it's not unusual that the spotlight should fall on them again. As dealers ramp up their bullion sales ahead of the Lunar New Year, let's take a fresh look at China's gold demand. China’s importance to the world economy is demonstrable. The Chinese economy has fueled a lot of global business with annual growth near the 10% range. The current pace of growth has slowed, with many economists now predicting China's rate of real GDP growth will be closer to 5%. This slowdown is no surprise considering the current global economy. The extent of that impact will be felt in reduced demand for commodity related investments, and a slow down of exports, but not so for gold. Since the onset of the current economic slowdown, the Chinese have displayed an increased appetite for the yellow metal, both for jewelry and as an investment. To appreciate the potential impact of gold demand in China consider the World Gold Council (WGC) reporting that, "demand for gold bars and coins in China expanded by 24 percent from a year earlier." Chinese gold jewelry demand increased by 13 percent to where China has now overtaken India as the world’s largest for gold jewelry. The WGC anticipates, "strong demand in investment and jewelry will drive China's total gold demand to 750 tons this year." Additionally, the Chinese government is thought to be increasing their gold holdings as they grow cautious of the increasing risks in foreign exchange stemming from international liquidity problems as countries turn to more aggressive monetary easing. In response to increased jewelry demand, retail jewelry chains in China have expanded. Stores are opening new locations in smaller cities to take advantage of that increasing demand, which is fueled by rising income levels. According to Dow Jones, even superstar investor George Soros is getting into the act, buying $40 million worth of shares in the IPO of Chow Tai Fook Jewelry Group Ltd. That investment is especially worth noting as Mr. Soros not only is a high profile investor, he has also been attributed with saying gold was the “ultimate asset bubble” nearly two years ago. His investment in Chow Tai Fook shows that Mr. Soros is potentially willing to place a bet on the Chinese demand for gold expanding. Besides jewelry, the other area where gold purchases have shown an increased involvement by the citizens in China is noted by recent increased investment regulation. During the last week of December China made official the decision to regulate all gold trading through official exchanges in Shanghai. The increased regulation isn’t expected to dampen citizen demand for bullion. Instead it was made in an effort to force unauthorized trading platforms to close. The purpose is to obtain a better handle on safeguarding what has become a major market for investor demand as disposable income levels have risen. Chinese citizens, for the most part, purchase gold, but are not active traders. Seldom do typical Chinese investors play the short side of the gold market. In fact, in China the gold buy-back businesses see little traffic. Buyers hold the gold they buy as a long term investment. With China experiencing rising incomes and inflation concerns, investment in gold is becoming more widespread among citizens, and according to Hong Kong analysts gold investments will grow. This increased scrutiny in the gold market is welcomed. The action by the government came about due to requests by Chinese brokerages. They requested tightened oversight of gold exchanges as they grew concerned that gold investors were being exposed to a very volatile gold market and were apt to become caught in dysfunctional markets just as the popularity of precious metals is growing. The new rules are meant to prevent trading anywhere other than on the official exchanges in Shanghai and comes on the heels of a year where prices moved substantially. While the volatility in gold prices continues, unauthorized trading platforms will no longer be legal forums able to proliferate along with the boom in precious metals. Only a week into the Western New Year the price range in gold has been dramatic, with most of it on the upswing. While the US and other Western nations clean up from their New Year's celebrations, China and other Eastern countries prepare for theirs on January 23 - the Lunar New Year. It is expected that this season will bring increase demand for bullion and jewelry. This is attributed to an increase in disposable income levels, and the belief that gold is a good store of value during difficult times. Summary China has been grappling with inflation issues, which should continue to fuel the demand appetite for gold and other precious metals. This paired with increasing geo-political unrest due to potential military conflict with Iran can only benefit the drive for gold investments. Ongoing concerns over a Euro zone collapse add more fuel to the fire. Lured by global volatility, Chinese purchases of physical gold are on the rise, and will likely show resilience in the new year to come. Disclaimer: The prices of precious metals and physical commodities are unpredictable and volatile. There is a substantial degree of a risk of loss in all trading. Past performance is not indicative of future results.
