The price of gold has been all over the place in the past twelve months. No matter, say James Steel and Howard Wen at HSBC; they remain bullish on the yellow metal and expect prices to hit $1,900 before the end of the year. They also raise their average price forecasts for 2013 and 2014 to $1,850 and $1,775 respectively, but lower the 2012 average to $1,700 from $1,760.
As the graph below suggests, expectations of monetary policy in the US have been the key drivers, offsetting somewhat sluggish global demand. Read more
That’s the title of a note from ING’s chief international economist Rob Carnell on Monday. It had us worried. That is, until we remembered Betteridge’s Law of Headlines and skipped straight to the conclusion:
To wrap up, gold standards may have a long tradition in Europe and the US. But then we also used to send children up chimneys and burn witches. There is little to argue for a return to such practices today. Read more
While there was a time that the gold price represented a useful expression of investor concerns over currency debasement, that may no longer be the case. So says Simon Derrick from the Bank of New York Mellon, who argued last week that it’s probably time to re-evaluate the signals coming from the bullion market.
As he wrote last Wednesday: Read more
The official rate in Poland is 4.75 per cent.
Yet, across the Polish high street a slew of so-called ‘para-banks’, regularly offer interest rates in excess of 8 per cent. Read more
The calls for QE3 continue to rage.
But as FT Alphaville has discussed at length, QE3 in its conventional guise — freshly minted base money in exchange for US government bonds — might not really be an option due to the squeeze it causes in the US Treasury market. Read more
In our previous post, we made the point that if the old goldbug accusation that central banks and bullion banks were suppressing the gold price by selling or lending gold into the market is true, then in the current cash-for-gold universe — which features negative gold lease rates — the opposite must apply.
That is, the very same entities may now, if anything, be supporting prices in the market. Read more
A while ago we observed that negative gold leasing rates were potentially signalling something awry with the Libor rate.
That judging by gold forwards, the Libor component of the gold lease rate calculation (Libor-GOFO = Lending rate) was coming in much lower than what might otherwise be expected. Read more
In 2010, when the BIS first revealed that it held gold swap agreements worth SDR8.16bn (representing 346 tonnes of gold) the revelation knocked the gold market.
That’s because rather than making money (or yield) from lending out its gold — as the BIS usually did — it had become cost effective for the BIS to lend out currency against gold collateral instead. Read more
In our previous post, we attempted to explain to goldbugs why a fiat-based monetary system provides many more benefits to society than a gold-backed monetary system. More importantly, that to dismiss a fiat system is to potentially misunderstand the role of money and gold in society.
As anthropologist and author David Graeber writes in his book Debt: the First 5,000 years: Read more
Goldbugs don’t just believe in the fundamentals of gold. They worship at the altar of gold.
The goldbug view represents a market philosophy, a doctrine and a belief-system. Read more
The Australian dollar has veered away from its usual path. *Bad Aussie.*
But there is a widespread belief it will have to eventually find its way back. How quickly it does so, however, is open to debate. Read more
Professor Lew Spellman, from the McCombs School of Business at the University of Texas at Austin, has posted on on what he calls gold’s changing role in the global economic landscape.
Amongst other things, he says the epic hunt for “safe collateral” — which has driven down yields on traditional fixed-income investments in the process — is the direct result of there being too many debt liabilities/obligations relative to safe collateral in the system. Read more
Save the date, etc
London, UK, March 19th 2012 – Hizb ut-Tahrir Britain, will hold a report launch [11am Thursday, 22nd March] of Gold Standard – The Future For a Stable Global Currency – a significantly relevant report in the current economic crisis. Read more
FT Alphaville drew attention on Thursday to an alleged whistleblower letter that arrived in the CFTC’s mailbox this week.
The author of said note claimed to be a JP Morgan employee with inside information about the bank’s (supposedly less than honest) activities in the precious metals market. He wrote that he was whistleblowing because he no longer had faith or belief that what the bank was doing for society was “bringing value to people”. Read more
Hopes that the next few days will bring a “successful” conclusion to the Greece debt restructuring saga, and official confirmation that job generation in the US economy is gathering steam, encouraged investors to pick up growth-focused assets, the FT reports. The FTSE All-World equity index was up 0.6 per cent as the FTSE Eurofirst 300 added 0.6 per cent at the open following a 1.2 per cent advance for its Asia-Pacific peer, which ended a three-session losing streak. S&P 500 futures pointed to Wall Street rising 0.3 per cent. The dollar index was down 0.1 per cent as the euro gained 0.2 per cent to $1.3171. Commodities were mostly in demand, with copper firmer by 0.7 per cent to $3.79 a pound, while perceived fixed income havens were less popular, as shown by the yield on US 10-year Treasuries rising 2 basis points to 1.99 per cent. Gold was up 0.5 per cent to $1,693 an ounce. Read more
Last week, Dennis Gartman, author of the eponymous Gartman Letter, caused a bit of a stir in the goldbug community when he suggested that gold’s sell-off on February 29 may have been connected to central bank intervention.
The Federal Reserve’s Beige Book has reported an unexciting but continuing pace of growth in the US since the beginning of the year, Bloomberg reports. “Manufacturing continued to expand at a steady pace across the nation,” the Fed survey added. Ben Bernanke’s tempered view of the jobs recovery in Congressional testimony earlier on Wednesday gave no clues on further QE, however, Reuters says. Gold tumbled on the remarks by the Fed chair, dropping more than 3 per cent, the FT reports. Treasury futures also plummeted, with traders unsure whether a fat finger or a large algo-driven trade provided the cause, Dow Jones adds. Read more
If you had invested exactly five years ago, and done a bit of the ol’ buy-and-hold, here are the returns you would have reaped (according to Deutsche’s Jim Reid and Colin Tan — click to enlarge):
It’s not new that Berkshire Hathaway’s Warren Buffett prefers productive assets to unproductive ones, but his latest letter to shareholders sets out his compelling argument…
…The major asset in this category is gold, currently a huge favorite of investors who fear almost all otherassets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however,has two significant shortcomings, being neither of much use nor procreative. True, gold has someindustrial and decorative utility, but the demand for these purposes is both limited and incapable ofsoaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will stillown one ounce at its end. Read more
Many risk asset benchmarks were trying to consolidate near recent highs as the optimism released by improving manufacturing data continues to reverberate across global markets, the FT reports. S&P 500 futures suggested Wall Street would open little changed, and the FTSE Eurofirst 300 was up just 0.1 per cent, a fractional gain that nevertheless took the index to fresh six-month highs. Risk appetite was not entirely dominant, however. Copper was seeing profit-taking after its good run, losing 0.7 per cent to $3.82 a pound, while the euro was down 0.1 per cent to $1.3142 and the dollar index was up 0.1 per cent. The single currency was off its lows after a €4.6bn auction of Spanish bonds and a €8bn sale of French paper both saw good demand. Still, gold is up 0.3 per cent to $1,748 an ounce and haven Treasuries were softer, pushing 10-year yields up 1 basis point to 1.84 per cent. The FTSE All-World equity index was advancing 0.2 per cent to its best level since the start of August. The barometer has gained 21 per cent since its October intraday low and was up 7.4 per cent so far this year. Read more
Disappointment that the weekend failed to deliver a Greek debt deal was helping to keep recent risk asset optimism in check on Monday, the FT reports. The FTSE All-World equity index was flat, industrial commodities were mixed and some funds were moving into US Treasuries, nudging the 10-year yield down from two-week highs, off 1 basis point to 2.01 per cent. With many Asian markets closed for the lunar new year holiday, Europe inherited a generally lacklustre session. One standout feature was a burst of buying in Japan-based gold futures, which has helped the cash market to breach resistance at $1,666 an ounce. The bullion was now up 0.9 per cent to $1,673 an ounce. The FTSE Eurofirst 300 index was down just 0.01 per cent, supported by New York’s close at session highs on Friday. Read more
Central banks increased the amount of gold they lent for the first time in a decade in 2011, as they used their bullion reserves to help commercial banks raise US dollars, says the FT. Thomson Reuters GFMS, the precious metal consultancy that publishes benchmark statistics on the gold market, on Tuesday said that the quantity of gold lent by central banks had risen last year for the first time since 2000. “There is growing evidence that short-term loans from some central banks to commercial banks could well have increased considerably [in 2011], with the latter then using gold to swap for US dollars,” GFMS said. Read more
Traders’ focus turned from the eurozone to China, where GDP data and government efforts to bolster the stock market triggered a 4 per cent surge in Shanghai and a broad rally across Asia, the FT reports. The FTSE All-World equity index was up 0.9 per cent and gold gained 1.3 per cent to $1,665 an ounce. European bourses joined in the fun, with the FTSE Eurofirst 300 adding 0.8 per cent. US equity futures suggested Wall Street’s S&P 500 would greet the opening bell with a 1.1 per cent pop, taking the benchmark above the 1,300 level for the first time since August. There was a broad “risk-on” mindset sweeping dealing desks. Assets that tend to display a high beta to global growth hopes were seeing demand, with the Australian dollar was up 0.9 per cent and copper surged 3 per cent to $3.74 a pound. Read more
The Swiss National Bank, battered by the resignation of its chairman this week, provided politicians and shareholders with some comfort on Friday by announcing a preliminary profit of SFr13bn (€10.74bn) for last year, the FT reports. The SNB, whose earnings have swung wildly since 2010 because of the soaring Swiss franc, said it expected gains on foreign currency positions of about SFr8bn. A further SFr5bn would stem from profits based on revaluing upwards its large holding of gold bullion. The SNB gave no breakdown of the gains on its foreign exchange holdings, which have ballooned on the back of its market interventions to limit the rise of the Swiss franc. The bank had late last year hinted at gains on its large stock of foreign currencies after the decision in September to set a ceiling for the franc against the euro sharply lowered the Swiss currency’s value. Read more
The solidity of the new year risk asset rally seemed to be fracturing as hopes for US corporate earnings were tempered and investors became cautious ahead of some potentially sentiment-shaping European bond auctions, the FT reports. The FTSE All-World equity index was down fractionally as elements of risk aversion came to the fore. Copper, the industrial development bellwether, was off 0.3 per cent to $3.50 a pound, while the dollar index was up 0.2 per cent and close to 16-month highs. The FTSE Eurofirst 300 was down 0.1 per cent following a mixed session in Asia, where Shanghai dipped 0.4 per cent but Tokyo added 0.3 per cent. Gold managed to detach from its often close correlation with broader market optimism, rising 0.7 per cent to $1,644 an ounce. Meanwhile, US 10-year bond yields remained below 2 per cent. The Treasury’s $32bn auction of 3-year notes saw good demand on Tuesday, signalling some investors’ lingering caution about economic prospects. A total of $21bn of 10-years will be sold later on Wednesday. Read more
The first full global trading day of 2012 saw markets in more circumspect mood after a strong start to January, the FT reports. The FTSE All-World was up just 0.1 per cent, the dollar index, which tends to display an inverse correlation to broad market optimism, was gaining 0.1 per cent, while gold was becalmed at $1,603 an ounce. Core bonds were receiving funds, nudging US 10-year Treasury yields down 1 basis point to 1.95 per cent. Brent crude oil was down 0.3 per cent to $111.84 a barrel as fears about supply disruption should the US and Iranian war of words escalate appeared to ease a touch. A staggered return from the holiday season had delivered a new year boost as traders applied investment resolutions and welcomed signs that the world’s factories were generally a bit busier than expected. US manufacturing expanded at its fastest pace in six months in December while German unemployment fell sharply to the lowest in two decades, helping to boost hopes about global growth. Read more
Warning: this is a very scary place to be. Rampant inflation, conspiracy, socialism, totalitarianism and Ayn Rand can be found at every turn.
Presenting the latest Thunder Road report from former resource analyst Paul Mylchreest: Read more
Eldorado Gold, the Canadian-listed gold miner, has agreed to buy European Goldfields for C$2.5bn (US$2.4bn) in stock, upending a plan by Qatar’s sovereign wealth fund to take a stake in the London-listed miner, reports the FT. European Goldfields, which is also quoted in Toronto, in October said that Qatar Holding, the Qatari sovereign wealth fund, would lend it $750m to fund the development of its flagship mines in Greece. The loan agreement was a coup for the Qataris, who are planning to build an investment vehicle focused on gold. The fund, which owns nearly 10 per cent of the company, could have ended up with about 30 per cent under the deal. But on Sunday, European Goldfields said its board had recommended a C$13.08-a-share offer from Eldorado, based on the buyer’s closing price on Friday, with European Goldfields shareholders receiving 0.85 Eldorado shares and a token amount of cash C$0.0001 per share. Read more
Evidence of waning global growth joined chronic eurozone fiscal worries to cast a pall over investors, the FT reports. Asian stocks slipped back into a “bear” market as traders continued to raise funds by selling the likes of gold while favouring perceived havens such as the dollar, which was softer on the session but sat near 11-month highs. However, the euro’s move back above $1.30 just prior to the European open delivered a knee-jerk bounce off session lows for many risk assets. The FTSE All-World equity index was down 0.1 per cent, having lost 4 per cent in the past three days. But the single currency’s mini pop saw the Stoxx Europe 600 up 0.4 per cent and S&P 500 futures gain 0.2 per cent even as the list of negative factors weighing on sentiment grew ever longer. The euro was up 0.2 per cent, but at $1.3010 remained only just above the $1.30 level, signifying investors’ residual wariness about the lack of a firewall to break the bloc’s sovereign debt contagion. The next test for the credit markets is the sale by Spain of about €3bn worth of four-, nine- and 10-year bonds later on Thursday. Read more
Gold tumbled below $1,600 an ounce for the first time in more than 10 weeks and silver fell almost 7 per cent as the precious metals bore the brunt of a dash for dollars among investors and traders, the FT reports. The sell-off in the bullion markets intensified on Wednesday afternoon, recalling the darkest days of the 2008 financial crisis when prices fell as traders were forced to liquidate their positions. “This is very reminiscent of the second half of 2008,” said Tom Kendall, precious metals analyst at Credit Suisse. “There were similar funding stresses, a squeeze on liquidity, and heightened counterparty risk – and gold behaved in a similar manner.” Read more