The Midas Touch

By Adrian Ash

BullionVault

Four short notes on the link between private wages and public debt…

• BETWEEN V.E. Day in 1945 and June 1947, the United States shrank its armed forces from twelve million people to around 1.5 million.

• The impact on the economy – and on the US Treasury’s then record debts – is hard to overstate…

• Indeed, at either end of our chart, national debt – as a proportion of gross domestic product – shows a mechanical relationship with private-sector income. Because it falls as wages rise, and vice versa. That’s unsurprising, given that privately-generated income is always the prime source of net tax receipts.

• But the chart shows three further things, however, which Washington’s planners (if not private and foreign Treasury-bond holders) might also consider:

• #1. The share of GDP going to private-sector US wages has steadily declined since the post-war demobilization. Yes, there’s been a boom in corporate profits. Yes, GDP clearly counts many more activities today than it did. But there has also been a steady nationalization of the US economy, and it is accelerating.

• #2. Outside total war, private incomes have never been smaller compared against public debt. Falling from a ratio of 2:1 as the Great Depression began to hold steady around to 1:1 across the 1960s, ’70s, ’80s and ’90s, private incomes have now sunk to four-tenths the size of the national debt. The record low, hit in 1945, was 0.32.

• #3. Demobilization was vital in the mid-to-late 1940s to a) stemming debt growth, and b) also paying debt down. Lacking any such shock today, however, the current administration may as well target 4% annual GDP growth in its forecasts. But even that growth would merely curb the debt (or so it’s hoped) to $20 trillion by the end of this decade.

• Still, what chance of demobilization today? Returning 10 million people to the private jobs market, amid the current economic debate, ain’t going to happen. So neither will a turnaround in America’s fast-rising trend of debt-to-GDP.

Adrian Ash

BullionVault

Gold price chart, no delay |   Buy gold online at live prices

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 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

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.

A little gift from the Elton John AIDS foundation for our contribution to the Super brand Awards.

From Adrian Ash

BullionVault

Physical Buying “Strong” Near $1200

• WHOLESALE GOLD rallied in early London dealing on Friday, rising 1.2% from yesterday’s sharp drop to 6-week lows and holding steady as new US data showed 125,000 jobs being lost in May, with unemployment standing just shy of 1-in-10.

• The Euro extended its gains on the currency market, while European stock markets bounced from this week’s 5% drop towards 9-month lows and major-economy government bonds eased back.

• US crude oil contracts slipped further, but both base and precious metals dealers reported “bargain hunting”, with one calling physical gold demand “strong” around $1200 an ounce.

• Silver prices briefly crept above $18.00 after losing more than a dollar-per-ounce to a 3-week low of $17.73 late Thursday.

• “All metals rebounded in Asia because of Chinese buying,” says a note from Mitsui in Hong Kong. “Customers are mainly looking for physical gold and palladium, with little interest in platinum.”

• Thursday – the first day of the third quarter – saw gold prices slump and the Euro jump after ending the first-half of 2010 some 13% higher and 14% lower respectively against the Dollar.

• “Gold’s sell-off was violent,” says Walter de Wet at Standard Bank. “We were surprised by the speed and the depth.

• “The strength of the Euro saw large-scale liquidation of long Euro-Gold positions” – a trade widely advised by bank analysts as the Greek debt crisis intensified in early spring.

• Speculative betting against the Euro peaked in mid-May with a “net short” position worth 40% of all EUR/USD contracts on the CME’s International Money Market, slipping back to 21% by the last week of June.

• Speculative betting in US gold futures and options meantime jumped to a near-record “net long” position, rising by 3.2% and reaching the equivalent of 1016 tonnes by June 22nd in what VM Group analysts calls “a healthy dose of speculative activity”.

• Thursday saw the Euro regain three of the 25¢ it’s lost vs. the Dollar since New Year’s Day.

• Gold priced in Euros dropped 5.8% – its sharpest one-day loss since Oct. 2008 – sinking to a five-week low of €30,740 per kilo.

• “There hasn’t really been a trade off for people to call positions in gold yet. We [were] aimlessly waiting in vain for dips,” said David Hall, head of Credit Agricole’s private bank FX and precious metals team, to CNBC this morning.

• “If you look at the [10-year] chart and you re-base gold at a 100 versus the Dow Jones, it’s been a place to hide.”

• Thursday’s sharp drop in the gold price saw New York’s SDPR Gold Trust – the world’s largest gold ETF trust – shed 0.1% of the gold backing its shares, the first decline in 11 weeks.

• From the start of the year, the fund’s hoard, which is held at HSBC bank in London, has swollen by 16% to a record 1319 tonnes.

• “People like gold when it’s all a bit chaotic out there,” says Sean Butler, investment director of New Zealand’s Liontamer group, launching a new structured product with a six-year lock-up – “the first local index offering exposure to international price movements in gold,” according to the National Business Review.

• “Gold is widely used as a safe haven for investors, especially during volatile economic conditions and times where there is uncertainty about major currencies like we are currently experiencing with the Euro.”

• Over the next 30 months, says Barclays Capital, maturing debt will cost Eurozone banks €1.5 trillion.

• This month’s “stress tests” on Eurozone institutions will force up to 20 banks to raise some €30 billion between them to meet capital requirements, the Financial Times reports.

Adrian Ash

BullionVault

Gold price chart, no delay |   Buy gold online at live prices

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 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

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.

Laban Roomes with Angela Whyte, Senior Marketing Manager, FileMaker InternationalLaban Roomes with Chantal Therien who made the shortlist is the founder of Pipetto which designs luxury leather cases for Apple iPods, Macbooks and iPads.

Laban with the winners of the Bento Entrepreneur of the Year at the Macworld Awards, Ian Meiers and James Sleater founder of “Cad and The Dandy”. They were awarded an iPad with their logo laser engraved onto the rear case by Laban Roomes from Goldgenie, who helped judge the awards.  You can read the full article at www.macworld.co.uk.

From Adrian Ash

BullionVault

Forex “Echoes 2008″ Meltdown

• THE PRICE OF BOTH gold and silver bullion ticked higher from yesterday’s sell-off early in London on Wednesday, rising as Asian stocks caught up with Wall Street’s sharp losses but European shares rallied.

• Recording an AM London Gold Fix of $1240.50 per ounce, gold stood almost 12% higher in Dollar terms for the second quarter of 2010.

• Fixing at $18.74 per ounce today, silver stood 7.0% above the end of March.

• New York’s S&P 500 stock index ended Tuesday 11% down for the second quarter.

• “The yellow metal firmly established itself as a reservable currency in the second quarter,” says a note from Japanese metal conglomerate Mitsui’s London team, “benefiting greatly as the sovereign debt crisis in Europe came to a head.”

• Gold has now recorded seven quarterly gains on the run, Mitsui notes, outrunning both silver (now with six consecutive gains) as well as platinum group metals (breaking their run of 5 quarterly gains with a drop of 6.5%).

• Crude oil and base metals today rallied from Tuesday’s hard sell-off, but broad commodity indices remained 7% lower for the April-June quarter.

• Commodity currencies the Canadian and Aussie Dollars both bounced on the forex market, but held more than 10% lower from the end of the first quarter against the “risk averse” Japanese Yen.

• “This is exactly what happened in the last quarter of 2008 following the spread of the banking crisis from the US to Iceland, the UK and Europe,” says Simon Derrick at Bank of New York Mellon.

• “The recent and marked underperformance of commodities and commodity-based currencies relative to both the Swiss Franc and Japanese Yen could be an early warning signal that sentiment is taking a significant turn for the worse…an echo of the way it did in late 2008.”

• Bloomberg adds that the Baltic Dry Index of shipping rates – a key indicator of global economic activity – completed its 23rd losing session on Tuesday, matching the streak to mid-August 2008 “and representing a 42% retreat during the current run.”

• “Gold continues to push towards the $1300 mark which is likely to be hit in the weeks to come,” reckons Axel Rudolph, writing his latest technical analysis for Commerzbank clients.

• “Only a daily close below the 55-day moving average at 1203.20 would lead us to question our bullish outlook. [Below that] failure at 1196 could indicate the formation of a significant top.”

• “[Gold] is either building a top, or getting ready for another leg higher,” says Scotia Mocatta’s daily note, “and we remain bullish with a stop loss at 1223.”

• “The weekly chart for gold is still nicely bullish,” says Phil Smith in Beijing for Reuters Technical, but “volume has been tailing off [in the gold Futures market], which is consistent with forming another top.”

• New economic data meantime showed UK consumer confidence falling less than analysts forecast in June, but house prices disappointed the City by showing an average 8.7% year-on-year rise on the Nationwide’s index.

• Sterling today retreated from yesterday’s new 20-month high vs. the Euro, enabling the gold price in British Pounds to rally from a 5-week low of £815 an ounce.

• In the United States, estate agency RealtyTrac said overnight that 31% of all US home sales were due to foreclosure in the first quarter.

• Foreclosed prices undercut non-distressed prices by 27% on average.

• “Markets have swung towards fears of a double-dip slowdown, and risk-aversion is palpable,” says Morgan Stanley’s chief US economist Richard Berners.

• “We still see a moderate, sustainable recovery as the most likely outcome. But we also think that new uncertainty around economic policies at home and abroad is creating downside risks to US and global growth.”

• Over in Frankfurt tomorrow, the European Central Bank will see €442 billion of 12-month “long-term refinancing operations” expire, but analysts remain divided over the likely impact on bank-to-bank liquidity.

• Less than €132bn was taken today from the ECB’s latest 3-month LTRO, much less than some analysts forecast.

• Interbank lending rates, however – known as Libor – leapt once again ahead of Thursday’s 12-month expiry, driving the 3-month cost of funds up to a 10-month high of 0.706%.

• The gold price in Euros ticked above the middle of the €1000-1020 per ounce range it’s traded within since June 10th.

Adrian Ash

BullionVault

Gold price chart, no delay |   Buy gold online at live prices

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 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

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.

Laban Roomes (Goldgenie) & Kanya King (MOBO Awards)

Ricky Whittle (Actor & Model) & Laban Roomes (Goldgenie)

Ricky Whittle won Best Dressed Man of the Year for 2010 but don’t worry, we always have next year.

From Adrian Ash

BullionVault

“Economic Blinders” Come Off

• THE PRICE OF GOLD in wholesale dealing fell further in London on Tuesday morning, extending its drop to almost 2.5% from yesterday’s near-record high, as world stocks sank and commodity prices also dropped.

• Government bonds rose, pushing 10-year US Treasury yields down towards 3.0%.

• Both Sterling and the Euro fell vs. the Dollar and Yen, but gold priced in British Pounds failed to benefit, dropping to a 5-week low of £818 an ounce.

• “Gold is testing trend-line support at $1233,” says a note from Mitsui’s London dealers, “as the yellow metal has yet to see any benefit from the return to risk aversion.”

• “It seems that gold is not in a position to maintain these record-high prices,” says Angela Prunecchi at Italian bullion dealers Italpreziosi.

• Recording “another top” above $1260 an ounce on Monday “will have important resistance implications.”

• Over on the stock market today, London’s FTSE100 index of “blue-chip” shares fell through 5,000 – a level first reached 13 years ago on the way up – for the fifth time since September.

• Crude oil meantime fell hard through $77 per barrel as an early storm warning in the Gulf of Mexico was downgraded.

• Base metals also fell, and silver extended Monday’s 3.1% loss to bounce off a 3-session low of $18.46 per ounce.

• “We are neutral on silver due to the seemingly random price action over the past couple of weeks,” says a technical analysis from bullion bank Scotia Mocatta.

• Even so, “Silver is attracting investors betting on both faster and slower economic growth,” notes Bloomberg News, “as prices extend the longest run of quarterly gains in three decades.

• “Doubling as a store of value for buyers concerned about the economy and as an industrial material for those bullish on growth, silver is outperforming metals from copper to zinc this year and keeping pace with gold.”

• Looking ahead for the US economy, “The economics consensus has the blinders on as it did in the final few months of 2007,” writes David Rosenberg of Gluskin Sheff, noting that the ECRI’s leading indicators index has plunged from +21.2% in January to minus 6.9%.

• “That’s a stunning, not to mention unprecedented reversal.”

• New data today showed New Zealand’s broad M3 money supply contracting (aka deflation) by more than 3% in May.

• UK household borrowing and money holdings grew last month at their slowest annual pace on record. Bank lending to financial companies shrank by £12 billion – also a series record.

• Japanese car production meantime rose 30% year-on-year, but badly lagged Tokyo analyst forecasts of a 50% rebound.

• European consumer confidence remained negative on Brussels’ official survey.

• “We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy,” wrote RBS bank’s chief credit analyst Andrew Roberts in a note to clients last week.

• “Think the unthinkable,” he says, warning of “monster” quantitative easing from the US Federal Reserve.

• “We think gold prices are most likely going to consolidate the recent gains and then extend on those gains as the year unfolds,” reckons BarCap’s Suki Copper, speaking to BNAmericas.

• “The strength of gold investment demand is going to continue to support prices…The buyers tend to be longer-term investors who are not necessarily investing because of short-term concerns.”

• Over in Japan, however, “I don’t expect Japanese investors to turn to gold because of a loss of confidence in their own currency, at least not as long as I live,” said Osamu Ikeda, general manager at nationwide gold-dealers Tanaka Kikinzoku Kogyo, speaking at the Reuters Japan Investment Summit.

• “Despite the country’s huge budget deficit, Japanese people retain confidence in the country and the currency it issues.”

• CapGemini’s latest survey of “high net worth individuals” for Merrill Lynch says that millionaires in Asian now control $9.7 trillion in investable wealth – more than their counterparts in Europe ($9.5trn) for the first time, but still lagging US millionaires ($10.7trn).

• Allocations to “alternative assets” (which would include gold bullion) slipped in 2009 to 6% of high-net-worth portfolios, the report says, but are expected to reach 8% during 2010.

• Fixed Income investments such as government and corporate bonds last year rose to 31% of millionaire portfolios, up from barely one-fifth in 2006.

Adrian Ash

BullionVault

Gold price chart, no delay |   Buy gold online at live prices

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 – where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

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.