By Adrian Ash
BullionVault
Behold the sad case of the poor British worker and saver…
PEOPLE BUY GOLD when they fear inflation ahead. But they also buy gold when inflation arrives and starts eating into their savings – which is just what it’s done during the last decade.
- Take the poor UK cash saver, for instance. Oh sure – the London press pretty much agreed that “inflation eased off” when the latest data were released on Tuesday.
- But as BullionVault never tires of reminding people, it’s worth putting such a “dip” into context, starting with its impact on real rates of interest…
- #1. On the old Retail Price Index, UK household deposit accounts have lost value – after inflation – in 57 of the 120 months since July 2000. Gold priced in Sterling has risen by 332%;
- #2. Since Mervyn King moved from deputy to governor of the Bank of England in June 2003, the Pound has lost 15% of its domestic purchasing power on the Consumer Price Index, and lost very nearly one-fifth on the RPI. Gold’s UK purchasing power has risen by 265% on the CPI, and by 258% on the RPI;
- #3. Over the last half-decade, CPI inflation has now been above the Bank of England’s “symmetrical target” of 2.0% p.a. in 46 out of 60 months. Gold priced in Sterling has risen by 220% since July 2005;
- #4. Since the Bank began slashing interest rates in response to the Northern Rock crisis of autumn 2007, CPI has matched or exceeded 3.0% – the upper tolerance of the Bank’s price stability mandate – in 17 out of 31 months. Gold priced in Sterling has risen by 70%;
- #5. Not since May 1980 has the Bank’s base rate lagged RPI inflation by such a wide margin. Inflation was then peaking at almost 22% per year. On the quarterly average, base rate was lower – in real terms – between April and June 2010 than at any time since the fourth quarter of 1977.
- Real returns to cash aside, however, this apparently “gentle” inflation isn’t just hurting savers – those rentiers whom John Maynard Keynes longed to euthanize, and whom his self-declared reincarnation Paul Krugman thinks should be forced to spend! Spend! SPEND!
- New data today showed UK unemployment dipping slightly to 7.8% in May, but the drop was driven by a jump in self-employed and part-time workers. Naturally, they earn less than their permanent and full-time colleagues, but fact is, real wages have long been stagnant, and have begun falling, across the UK economy.
- “Millions of workers will suffer effective pay cuts and a fall in their standard of living for the next four years,” says The Telegraph, quoting one of the new government’s new Office for Budget Responsibility (OBR) members, speaking this week to MPs in a parliamentary committee.
- Let’s not worry Westminster with it (let alone Fleet or Threadneedle Streets), but millions of workers have already suffered effective pay cuts and a fall in their standard of living.
- #6. The average UK wage is now £117 lower per week in real terms than if the cost-of-living on the Retail Price Index hadn’t risen since Jan. 2000;
- #7. Adjusted for the less aggressive (and ever-more mandated) benchmark of consumer price inflation, average earnings fell in May for the 15th in 25 months.
- #8. From the CPI-adjusted peak of March 2008, average UK wages have now shrunk by 6% to stand unchanged from five years ago.
- Glancing back at the last decade today, the average UK worker might guess what the average gold buyer feared way back when. That the credit boom – with its lifetime mortgages, spiralling credit-card limits and plunging savings rate – was just a classic case of money illusion.
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.
From Adrian Ash
BullionVault
Back But “Long-Term Appeal Unthreatened” as Expanding Eurozone Faces “Either State or Banking” Insolvency
- THE PRICE OF GOLD and silver bullion edged 0.7% below yesterday’s two-week highs in London on Wednesday morning, trading at $1207 and $18.17 per ounce respectively as European stock markets fell for the first session in seven.
- The US Dollar rallied from its lowest Euro level in nine weeks, but slipped from a near two-week high vs. the Japanese Yen at ¥89.10.
- Crude oil fell back through $77 per barrel after new data showed US stock-pile inventories rising sharply.
- US Treasury bonds rose, but German Bunds and UK gilts slipped, nudging 10-year British bond yields up to 3.40% – fully 160 basis points below the latest reading of retail-price inflation.
- “Yet again not much change for gold on Tuesday,” says technical analyst Phil Smith for Reuters in Beijing,” with the sideways move continuing and the signals mixed.
- “Quite a nice pullback continues for gold after the new highs set in May and June.”
- “Every single time gold pulls back, a new floor is established and that is always higher than the previous one,” said a European trader to Reuters earlier.
- “I would say $1200 an ounce is the key level [for] dip buying.”
- “Gold’s underlying appeal as a currency alternative and a hedge against risks is deep-rooted,” the newswire also quotes Koichiro Kamei at Tokyo’s Market Strategy Institute.
- “[That appeal] will stay over the longer term, and there is nothing to threaten it imminently.”
- Following Greece’s successful return to the debt markets with a €1.65 billion bond auction on Tuesday, the European Union also gave Estonia the go-ahead to join the 350-million citizen Euro currency zone from Jan. 1st next year.
- The Baltic state’s government debt is the lowest in the 27-nation European Union, equal to 7.2% of economic output. Last year’s government budget deficit was just 1.7% of GDP.
- The EU averages in 2009 were 73.6% and 6.8%.
- “There is a growing risk [however] that Estonia might not fulfill the Maastricht criterion on inflation,” caution analysts at Denmark’s Danske Bank.
- Paolo Pizzoli at ING Bank meantime warns that the Greek debt auction “should not be over-emphasized.
- “The real test for Greece will come when it starts offering bonds with maturities going beyond the likely exhaustion of the €110bn [EU-IMF rescue] package, expected in the first part of 2012.”
- Physical gold priced in Euros today slipped back once again in the wholesale market, edging down towards Tuesday’s overnight low at €950 an ounce (€30,540 per kilo).
- British investors wanting to buy gold saw the price slip below £795 an ounce for the first time this week, dropping 1.5% from last Friday’s finish and trading almost 9% below May’s record high at £871.
- A new study from Britain’s official data agency said Wednesday that public-sector debt could in fact be nearer £4 trillion ($6trn) than the current £903bn headline, thanks to banking-sector support and unfunded pension liabilities.
- Madrid’s El Economista newspaper meantime reports that 400 of Spain’s 8,000 local councils have stopped paying electricity, water and telephone bills after tax receipts dropped 30% on falling real-estate transactions.
- “Much of southern Europe is facing a debt crisis,” says Michael Pettis, finance professor at Peking University’s Guanghua School of Management, writing at The Economist.
- “The historical precedents are pretty clear. Growth will not return until the debt is restructured to include partial debt forgiveness. [But] any meaningful debt forgiveness is likely to push the European banking system into insolvency, so the fiction will be maintained for many years…that these countries are merely facing temporary liquidity problems.”
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.
From Adrian Ash
BullionVault
“Smart Money” Slashes Short Position to 19-Month Low
- THE SPOT PRICE of wholesale gold bullion slipped in Asian and early London trade on Monday, holding above $1200 an ounce – and holding 1.4% above last Wednesday’s 7-week low – as world stock markets extended their four-session rise.
- The Dollar slipped on the currency market, but US Treasury bonds ticked higher, nudging 10-year yields down to 3.04%.
- Silver prices also fell, dropping below $18 an ounce, as base metals traded in London lost more than 1% and US crude oil futures edged below $76 per barrel.
- “Gold registered another down week, but only by a slim margin,” says the latest technical analysis from bullion bank Scotia Mocatta of Friday’s finish at $1212.
- “With a doji on the weekly candlestick, the market may have now finished testing the downside in gold,” says Scotia, pointing to last week’s price-pattern of falling sharply (down 2.2%), only to recover and end unchanged.
- New data released late Friday from US regulator the CFTC meantime showed commercial “industry-side” players in the gold futures and options market cutting their bearish position at the fastest pace since April 2009 last week.
- Falling to a 13-week low, the “net short” position of bullish bets minus bearish bets held by miners, refineries and bullion banks – often referred to as the “smart money” – shrank by 16.1% in the week-ending last Tuesday.
- Overall, the commercial traders’ “bull ratio” – meaning the number of bullish contracts they hold as a proportion of all their directional bets on gold futures and options – jumped above 1-in-3, the strongest bull ratio since December 2008.
- Non-commercial “speculative” traders meanwhile slashed their net long position (of bullish minus bearish bets) to the equivalent of 852 tonnes, also down by 16.1% from a week earlier as hedge funds and institutional players – as well as private investors – closed almost one contract in every twelve they held the Tuesday before.
- “The latest CFTC figures suggest that weak-handed speculators are largely out of the market,” says Standard Bank’s latest Precious Metals Monthly.
- “Much of the shift in the net [speculative] position had come from short-covering, and so it is unlikely that there is scope for much more speculative liquidation in the current environment.”
- Over in the physical gold bullion market, “The sharp drop to $1200 has seen strong physical buying reappear and scrap sales dwindle,” Standard Bank continues, while gold’s typical summer lull now looks set to see gold “treading water” in July and August – “all other things being equal”.
- Nevertheless, “Underlying financial tensions point to a buy-on-dips policy ahead of further inflationary concerns.”
- Friday saw a further “trickle” of redemptions, notes another London dealer, from the giant SPDR gold ETF – the $51 billion gold-backed trust fund that trades as a stock in New York, Tokyo, Hong Kong and Singapore.
- Slipping back to 1,314.5 tonnes, the SPDR’s hoard of gold bullion – held at HSBC bank-vaults in London – peaked as June ended at 1,320 tonnes, more 16% greater from the start of the year.
- “Debt on government balance sheets and worries that the world could be heading towards a double-dip recession are behind the gold surge,” says Charles Cooper at London brokerage Oriel Securities, speaking to The Guardian newspaper.
- The fresh threat of economic downturn, he says, means governments “could be tempted to print more money to dig us out of a hole.
- “That could precipitate inflation, making gold even more popular as a safe haven.”
- New figures published Monday showed the UK’s 2008-2009 recession cutting GDP more sharply than previously reported, down by 6.4% peak-to-trough.
- This week brings a raft of consumer- and business-price inflation data from the European Union, United States, Japan and New Zealand.
- EU regulators are now conducting “stress tests” on 91 major banks accounting for almost two-thirds of the 27-nation union. Results will be published on July 23rd.
- Minutes from the US Federal Reserve’s latest policy meeting will be released on Wednesday, with analysts and traders watching closely for dissent over the promise of exceptionally low policy rates for “an extended period”, as well as any talk of fresh quantitative easing of the money supply.
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.
By Adrian Ash
BullionVault
Buying gold in July or August only failed to pay once by year’s-end since this bull market began…
SO WE GOT an abrupt switch in the short-Euro, long-gold trade last week.
Widely recommended as it continued to win, the position delivered 22% gains between end-March and end-June, and it looked closely held as Q2 finished, no doubt so funds could highlight it in their quarterly client reports. Since July 1st, in contrast, a lot of recent inflows to gold are going to be asking whether the summer’s drop-to-date is just a dip, a seasonal lull, or the beginning of the end for gold’s 10-year bull market. We’d split the difference, and see what’s behind that curtain in the middle.
Yes, the summer lull has arrived later than usual. Since 1968, only 2005 saw June set a new high for the year (daily basis; the chart above tracks month-end prices). And yes, there’s reason to doubt one key driver of gold’s seasonal cycle – Indian consumer demand. Its own seasonal shape – led by weddings, festivals and the intervening pre-harvest lull – must have less impact on global prices as Kerala’s farmers weigh ever-higher Rupee prices per 10 grams. But for Dollar investors, since this bull market began a decade ago, buying gold in July or August has only failed once to deliver a gain by year’s-end. The 2008 low came at end-Oct. The rest of the time, Sept. worked like a starting gun for strong gains in gold.
Does the second-half of 2010 have to play out to script? Of course not. But even if the bull market is over (which looks unlikely what with global interest rates at zero, let alone with fresh monetary mayhem ahead), even a bear-market fillip would give July’s buyers the chance to get out for a profit by the end of September.
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.
From Adrian Ash
BullionVault
Hey, let’s ignore the facts. Just feel the frenzy…!
DID YOU HEAR about the giant gold coin auctioned in Austria late last month?
- Of course you did – courtesy of Bloomberg if not CBS, the Daily Mail, BBC, BusinessWeek, USAToday, France24, Vancouver Sun, Wall Street Journal, Financial Times, Daily Telegraph, San Fran’ Chronicle, Khaleej Times or The Australian…
- You could hardly kick the cat for tripping over this story. Which is more than can be said for bidders missing the auction. Not even the final buyer turned up. Madrid’s Oro Direct sent a written bid instead.
- “There were no counter offers,” as Reuters confessed, “in an auction room packed with more journalists than potential buyers.”
- Still, it made good copy. Or it would have, had the story gone to plan. Because the 100-kilo gold coin – one of only five $1m Canadian Maple Leafs ever produced by the Royal Canadian Mint – sold for just melt value (€3.27m), rather than the 28% premium touted to the financial pages by the auctioneer’s advisors.
- But hey, let’s ignore the facts. Just feel the frenzy! There’s a crazy gold rush going on. Everyone agrees! Or at least, everyone in the financial media. Finance.Yahoo now quotes gold futures prices in its Market Summary box on the homepage, right alongside New York’s big stock indices, crude oil contracts, and 10-year Treasury-bond yields. Reuters’ homepage also features gold investment news whenever it can, putting news of a $2 rally in wholesale prices second only on Tuesday morning to the Nikkei hitting 7-month lows, and ahead of crude oil’s drop to 4-week lows “on economic pessimism.”
- So never mind that Reuters’ gold piece didn’t feature in the top 10 either shared or viewed stories. No matter that – up there at the top – “Jessica Simpson” continued trending on Yahoo searches, as did Lindsay Lohan, with Bruce Willis and his new cologne now hot on her heels, and Orlando Bloom’s Hugo Boss contract not far behind.
- See, humanity isn’t fixated on celebrity, oh no. It’s been filling its boots with gold bars and coins instead…a sure sign of global financial panic and a clanging bell that the top must be in.
- Gold is over-owned, not over-reported. Saturation is here! Those guys shouting “Bubble!” at the Wall Street Journal and the Sydney Morning Herald…they’re smart contrarians, not jobbing hacks simply pitching for this year’s “Phil Space” award. Oh sure, they didn’t call gold when it hit 20-year lows a decade ago. But they can spot a bubble when they see one. Right?
- “Gold investment is very visible, but expression is low,” said John Levin, HSBC’s head precious metals trader in London, at the FT‘s Silver Conference in the City last month.
- On a show of hands from the audience – some 100-odd delegates – less than half owned or were invested in precious metals. And that was amongst the most qualified sample of the world’s population you could wish for…an institutional precious metals conference in the City of London, heart of the world’s professional bullion market.
- “We’re only now seeing big money accounts,” he said, “true investment…portfolio allocations seeking gold and silver in a secure location, where they can just put it to bed.”
- “We’re almost at the beginning of the real run,” Levin added, inviting delegates to ask their friends, family and acquaintances just how much gold and silver they’d rushed into lately when next they met.
- Put down your iPad, newspaper or TV remote, and go do the same perhaps.
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.
From Adrian Ash
BullionVault
China Swears Off “Nuclear” T-Bond Sales
- THE PRICE OF GOLD bounced from a new 6-week low in London trade Wednesday morning, recovering to $1192 per ounce after two news stories were seen extending yesterday’s drop.
- First, news broke that central banks – widely assumed to be from troubled Eurozone states – have used a record volume of their gold reserves to raise “gold swap” currency loans from the Bank for International Settlements (BIS).
- Then on Wednesday morning, China’s SAFE currency-reserve managers repeated their view that gold couldn’t possibly replace US Treasury bonds as the “main channel” for holding Beijing’s massive FX reserves.
- “Precious metals were already on the back foot,” says one Hong Kong dealer. “The news triggered stop-loss selling.”
- “We saw good buying” however, says a Singapore dealer to Reuters. “Clients are hungry for more physical gold.”
- “We’ve been selling gold since last week,” said another, “but it’s difficult to get hold of materials within a short period.”
- Tuesday’s late fall in gold prices came after analyst Matt Turner at London’s VM consultancy noted 346 tonnes of “gold swaps” in a report published last week by the Bank for International Settlements (BIS).
- The first such BIS gold swaps since the 1970s, and raising some $14 billion in currency loans for central banks pledging gold as collateral, “It’s the biggest gold swap in history,” says Bache Commodities’ senior metals strategist Andy Smith.
- Short of specific central-bank names – but widely assumed to be the Eurozone’s troubled PIIGS – “It suggests a bit of a last-resort measure,” says Philiip Klapwijk of the GFMS consultancy.
- Such gold swaps in 2009 were “nil”, the BIS report says. “According to monthly data from the International Monetary Fund, the swaps have surged since January, when the Greek debt crisis erupted,” notes the Financial Times.
- “[This is] a further sign of strains in the money markets on which many rely for funding…Euribor, the rate at which Eurozone banks lend to each other, has risen for 27 successive days.”
- For now, the BIS reports, the gold it holds via the swaps remains “at central banks”. But the BIS “has more ability to liquidate those holdings” than their central-bank owners, reckons Nicholas Johnson, a manager of Pimco’s $16 billion Commodity Real-Return Strategy Fund.
- “Sovereign financial troubles [may not be] unambiguously bullish for gold,” he tells the Wall Street Journal.
- Under the terms of the BIS gold swaps, however, “The Bank has an obligation to return the gold at the end of the contract.” (Go to page 58 here.) So the metal would only be sold outright if the cash borrower – the central-bank pledging gold bullion as collateral – went bankrupt, and the BIS sought to cover its loss.
- “Surely gold prices would soar, even in the face of such a sale,” notes a comment at the FT‘s Alpha blog.
- Wednesday morning meantime saw gold prices slip further after the State Administration of Foreign Exchange (SAFE) in Beijing repeated its preference for US Treasury bonds over gold bullion in its $2.4 trillion reserves.
- Asian and European stock markets retreated, while government bonds rose and the US Dollar ticked higher on the currency market.
- Silver prices fell to a 1-month low at $17.55 an ounce. Broad commodity prices held flat.
- “Gold has high international approval, and its store of value function is good,” SAFE said in a published Q&A on its website.
- “[But] gold cannot become China’s main channel for foreign exchange reserve investment.”
- Confirming its national gold reserves at 1054 tonnes of gold bullion – unchanged from the 75% increase reported in April 2009 – the agency said that, even if gold doubled “again” in price, China could still only put $300-400 million of its foreign exchange reserves into the metal.
- “The gold market’s capacity for massive investment is limited,” says SAFE, noting annual gold mining output of 2400 tonnes and “basically balanced” demand-supply dynamics.
- “If we buy up massive quantities of gold,” the Q&A goes on, “it would definitely push the international gold price higher [which would] harm the domestic consumer.”
- That repeats a view given in March by SAFE chief and People’s Bank deputy-governor Yi Gang.
- Private households buying gold in China have bought 1659 tonnes of metal since the start of 2004, data collated by the GFMS consultancy shows.
- “Foreign exchange reserve management must be a mutually beneficial win-win process,” SAFE goes on, reaffirming its policy of holding the vast bulk of its $2.4 trillion reserves in US Treasury bonds, and denying that it would choose the “the Assassin’s mace” or “nuclear choice” of selling Washington’s debt.
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.
From Adrian Ash
BullionVault
- THE PRICE OF gold bullion in wholesale dealing drifted lower as US dealers returned from the Independence Day holiday on Tuesday, trading below $1206 an ounce as European rose sharply, recovering one-third of last week’s 5% drop.
- Government bonds eased back and silver bullion was little changed above $17.80 an ounce, but crude oil crept back above $73 per barrel while the broad CRB commodities index added 0.5%.
- The CRB index now shows a strong, positive correlation of +0.73 with New York’s S&P500 equity index, according to today’s chart-of-the-day from Bloomberg News.
- It would read +1.0 if thy moved perfectly in lock-step together, and is “rather spectacular” says a note from one London gold dealer, “given that commodities were long considered a hedge against volatility in equity markets.”
- “Gold is performing right now very much against what is happening in the wider commodity space,” noted UBS precious-metals strategist Edel Tully in a recent client conference call. “In many ways you need to exclude gold when you’re looking at the correlation between equities and commodities in general.”
- Reporting “increased interest” amongst UBS’s institutional clients for diversifying their portfolios via a 5-10% allocation to gold, “Typically gold has performed negatively to equity markets,” Dr.Tully continued. “Certainly in the current situation, gold is the ‘anti-equity’ market…
- “If [the current] de-risking appetite remains, gold will continue to gain ground.”
- Comparing gold against the major currencies, “The relationship between gold and the Dollar has been very frenetic of late,” says RBC Capital analyst Daniel Major, speaking to Reuters today.
- “Particularly in the last week, you saw a $20 fall in gold on a day when the currencies were supportive. [But] in the short term, the intraday chart of the Euro-Dollar versus gold is tracking perfectly.”
- Gold ended June showing its strongest daily correlation with the Euro-Dollar exchange rate of the whole second quarter, according to BullionVault analysis.
- Rising from a record negative reading of minus 0.92, hit on May 18th, gold’s correlation with the single currency recovered its strongly positive 10-year average of 0.53 last week.
- Looking ahead, “ECB President Trichet argued over the weekend that fiscal consolidation won’t choke growth,” writes Steve Barrow, chief currency strategist at South Africa’s $21-billion Standard Bank.
- “In our view that’s only possible if interest rates fall significantly. But as this cannot happen [because the ECB has already slashed rates to 1.0%] the Euro has to shoulder the burden of monetary easing, by falling.
- “It’s clearly hard to say how far the Euro has to fall to compensate in the same way as sharp interest rate declines did in the 1990s. But our best guess is that it’s not $1.25 or £0.83…We suspect it is at least 20% lower than these levels.”
- Back in the bullion market, “We think gold is a little too high,” said Manpreet Gill, Asia strategist at Barclays Wealth, in a Bloomberg interview on Monday.
- “[The Gold Price] is not justified by the fundamentals, but driven more by a knee-jerk risk aversion trade than anything else.
- “As a company we believe we will see a recovery, so industrial metals are really the thing to look at.”
- Data due out on Wednesday is expected to show a tepid recovery in the Eurozone economy, with household consumption continuing to fall according to consensus estimates.
- Thursday brings interest-rate decisions from both the European Central Bank in Frankfurt, and the Bank of England in London.
- Looking at the technical picture for gold bullion, “Gold has corrected to the 50-day moving average,” says David Rosenberg, chief strategist at Canadian wealth managers Gluskin Sheff, “which in the past has been a terrific entry point.”
- Rosenberg believes that gold’s upward channel “is to be respected and to be bought.”
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.
From Adrian Ash
BullionVault
Greece Quietly Starts to Restructure Public Debts
- THE PRICE OF GOLD in wholesale markets held fast to $1210 an ounce in London on Monday, moving in a tighter range than even Asian and European stocks in what one dealer called “totally lackluster” trade.
- European government bonds ticked higher as both Sterling and the single Euro currency edged back, nudging 10-year German bund yields down to 2.55%.
- Crude oil crept back above $72 per barrel, but overall commodities held flat, with silver prices slipping 10¢ per ounce to $17.80.
- US markets stayed closed for the Independence Day holiday, leaving the S&P with last week’s 5% loss.
- “I don’t foresee gold dropping below $1200,” says Phillip Futures analyst Ong Yi Ling in Singapore, speaking to Bloomberg.
- “Of course, people are buying on dips.”
- Commerzbank’s Axel Rudolph, however, says last week’s sharp drop in gold prices “makes us question our previously bullish forecast” as the metal fell below its average price of the last 55 days.
- “The last line in the sand held at $1197,” notes bullion bank Scotia Mocatta of Thursday night’s six-week low.
- But “the sell-off in gold is a very bearish development, as we will now find sellers at $1215 with fresh liquidation selling being triggered on a break [below] $1197.”
- Over in the stock market, New York’s S&P index last week formed what several analysts spy as “a bearish death cross” – a technical pattern which London’s FTSE100 index of blue-chip shares formed in late June.
- Both the S&P and FTSE100 last formed a “death cross” – whereby the index’s moving average of the previous 50 days’ price drops below the 200-day moving average – in late 2007. They each went on to lose almost half their value over the next 15 months.
- “[Last week's] $40 drop in gold was the biggest fall in five months,” notes MKS Finance, a division of the Swiss-based refinery group.
- As a result, it says, “We saw a peak of physical demand in regions that had been quiet for some time, such as the India.”
- The world’s largest single consumer market for gold, India typically sees gold demand slacken over the summer months, returning again after harvest as the autumn festival of Diwali approaches.
- “Gold should rebound from this drop because of economic concerns and European indebtedness,” reckons MKS’s note, “which will boost demand for the metal as a store of value.”
- Ahead of this week’s interest-rate decision by the European Central Bank, new data today showed Eurozone retail sales rising unexpectedly in value terms in May.
- The 16-member currency zone’s services sector expanded faster than forecast, and investor sentiment didn’t fall as sharply as feared on the Sentix survey.
- Faced with further doubts over Eurozone government debt, however, the ECB is likely to revive the “long-term refinancing operations” which expired on July 1st say analysts at Citibank in their weekly Euro report.
- ECB president Jean-Claude Trichet said on Sunday that the region’s new “austerity” fiscal budgets will not damage growth – a signal, according to some analysts, that monetary policy will leave interest rates at their current record low of 1.0%.
- “Greece has already started to restructure its state debts,” says John Dizard in today’s FTfm supplement, citing a little-noticed decision by the Greek Ministry of Health and Social Welfare to repay debts of €5.36 billion ($6.7bn) – owed to medical suppliers – with either zero-coupon bonds or a “haircut” of 19%.
- Back in the precious metals market, “In the short term we remain neutral,” says today’s commodity note from South Africa’s Standard Bank, “and foresee further liquidation.
- “However…with the metal at $1200, scrap selling has dried up, and the market is geared towards buying gold.
- “While another near-term correction is possible, we still target $1300 towards the fourth quarter of 2010.”
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.
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.
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.
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