FT Alphaville participated in a “Gold Bulls vs Bears” event hosted by the Association of Mining Analysts (AMA) on Wednesday.
The motion being discussed was:
Is gold’s role as a safe haven asset in the global financial system outdated and redundant and if the ubiquitous QE programs have been successful and the global economic upturn is confirmed, the price of gold will continue to struggle?
The gold market has always been partial to “carry trades”. But in the post 2008 world the nature of the carry-trade has changed.
In collateral terms, whereas gold mostly traded on “special” terms before 2008 — because you had to pay to borrow it — meaning it was privy to more of a “stock lending” profile, post 2008 it went fully into “collateral” mode. Read more
The conspiracy channels continue to make a big deal about the backwardation of gold — which is a situation in which gold prices for today are higher than for tomorrow. The thinking is that this must indicate rampant demand for physical gold.
In reality, since gold is a highly financialised commodity, the backwardation signal doesn’t actually indicate the bullishness they imply it does. Rather, it suggests something entirely different: that interest rates in conventional money markets are turning increasingly negative. Read more
There’s been a lot of speculation about what really drove the volatile gold price move this month. Some are still defiantly searching for conspiracies or under-handed activities by authorities.
But it’s probably Nouriel Roubini who has provided one of the best and most logical explanations. In his opinion every bit of the gold move can be explained by shifting inflation expectations. Read more
Following their absolutely stellar advice to short gold on April 10, Goldman Sachs announces on Tuesday it is now time to take profit on that position:
We have closed our recommendation to short COMEX Gold, as prices moved above the stop at $1,400/toz. We have exited the trade significantly below our original target of $1,450/toz, for a potential gain of 10.4%. The move since initiation was surprisingly rapid, likely exacerbated by the break of well-flagged technical support levels. Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a reacceleration in US growth later this year. Read more
Thursday’s 5-year US Treasury TIPS auction was something of a noteworthy one, according to Kit Juckes at Societe Generale. Click to enlarge…
Here’s an interesting thought. Could the gold sell-off be related to a squeeze on collateral brought on by a series of very different bank crises in Europe, starting with the SNS Reaal nationalisation and Anglo Irish emergency assistance operation and culminating with the Cyprus crisis?
It’s a theory being considered by Jeffrey Snider, chief investment strategist, at Alhambra Investment Partners.
The basic point being, when you haven’t got anything to repo and funding becomes tight, gold is likely to sell-off in anticipation of further banking and asset problems. Read more
Some deep thoughts from Goldman Sachs, by way of Jeffrey Currie and team, on the drivers of the current commodity sell-off (and no, their short gold advice from last week isn’t listed as one of them):
The sharp sell-off in gold was triggered by growing fears that the central bank of Cyprus would sell its gold reserves, potentially reflecting a larger monetization of gold reserves across other European central banks. The decline in prices was exacerbated by the breach of key technical price support level at $1,530/toz and then at the $1,434/toz 200-week moving average, creating the largest one day decline. Spillover from gold and renewed European and EM macroeconomic concerns also created sharp sell-offs in crude oil and base metals, that were mostly front-end driven, crushing spreads (the carry), as longer-dated prices remained remarkably stable.
No respite for gold producers in the southern hemisphere on Tuesday morning…
And no dead cat
bounce splat for the gold price.
And to spell out why this is such an issue for the gold miners, we present the following thoughts from Citigroup. Read more
If the meteoric rise and fall of the cyber crypto currency Bitcoin this month teaches us anything, it’s the degree to which a market can be influenced by internet hysteria, viral marketing and propaganda.
There is no intrinsic value to a Bitcoin. Read more
According to John Kemp at Reuters that puts us way past the six sigma mark at this point:
Gold is now officially in meltdown:
Silver is off 6.4 per cent and gold is down 3.8 per cent, although the latter follows a steeper fall on Friday:
The biggest ASX fallers on Monday…
… all gold.
(yes, even PanAust)
From Capital Economics on Friday:
At the time of writing (Friday afternoon in the UK), equity and commodity prices and government bond yields are all falling sharply. This appears to be in response to weaker-than-anticipated US data on retail sales and consumer confidence (discussed further below). If so, this is probably an overreaction, as the figures were hardly disastrous. The falls in the prices of riskier assets may also have been exaggerated by week-end position squaring after the Bank of Japan-inspired rally in the previous days.
Nonetheless, most of these moves are consistent with our long-held view that a disappointing global recovery will cause the equity market rally to run out of steam, the prices of industrial commodities to fall further (with Brent crude in particular heading back below $100) and 10-year US Treasury yields to dip to 1.5% or so by year-end. The pick-up in market volatility more generally is something that we had been anticipating too.
Last week it was SocGen that declared the gold era was over. Now the precious metals team at Goldman is taking a similar view.
This is from their latest commodity research note: Read more
Societe Generale’s big (bearish) scorecard on “the end of the gold era” – click to enlarge:
Here follows a thoughtful commentary on the changes going on in gold market from BNY Mellon’s Neil Mellor, including the point that central bank purchases are in many ways helping to stabilise what might otherwise be a much more substantial slump.
Our emphasis throughout… Read more
What now for Xstrata CEO Mick ‘The Miner’ Davis?
Bloomberg thinks it has the answer: Read more
Almost a year ago the Telegraph’s Thomas Pascoe put out an interesting piece on gold. We’ve decided to reprise it this Friday because we think it offers an interesting and useful perspective on current developments in the gold market:
One of the most popular trading plays of the late 1990s was the carry trade, particularly the gold carry trade. In this a bank would borrow gold from another financial institution for a set period, and pay a token sum relative to the overall value of that gold for the privilege.
Anyone who bought gold in 2008 is probably more than tempted to cash in their profits right about now.
Reflecting the scale of the change in sentiment — and confirming that there was indeed something of a choke level for gold at around the $1,908 mark — is the following chart from Macro Risk Advisors which neatly sums up the degree to which investors have been liquidating gold ETF positions. Read more
Ay ay ay! Gold is approaching a death cross and all sorts of other commodities are looking nasty too.
Last week, Kit Juckes at SocGen was one of many analysts who, after looking at the latest FOMC minutes, found fit to arrive at one overriding conclusion: the era of Risk-on, Risk-off (RoRo) investing is arguably coming to an end.
As he explained… Read more
We made the case a few weeks ago that the gold price may have reached its choke level and that it was arguably capped from that point on. One good indicator of this, we noted, was the divergence between the gold price — which had been flat-lining for some time — and real interest rates.
It’s also hard to ignore gold’s reaction to the latest Fed announcement, which has been intriguingly bearish to say the least Read more
The following chart, we propose, has the potential to inspire a whole new way of looking at the gold and Treasury market:
Gold experienced a sizable wobble on Wednesday, so no surprise people are still trying to make sense of it.
The best comment we’ve seen come from Commerzbank and UBS on Thursday who suggest a fat finger or rogue computer algorithm could be to blame for the disturbance… Read more
Now there’s this:
“We have been in discussions with the Federal Reserve Bank of New York about the Bundesbank’s holdings of gold,” the Bundesbank said yesterday in a letter to the German parliament’s budget committee. “The discussions have been fruitful and the Federal Reserve has expressed a commitment to work with the Bundesbank to explore ways to address the audit observations, consistent with its own security and control processes and logistical constraints.”
There will be a few people hoping this practice doesn’t spread: Read more
Germany wants to audit its gold held abroad. Paranoia or sensible book keeping? To be fair, there’s quite a bit of it (feel free to read that any way you choose). From the Spiegel:
Germany has the second largest gold reserves in the world, nearly 3400 tons. Supposedly, anyway. Because stocks have never been checked for authenticity and weight. Now, the Federal Court has asked the Bundesbank to examine the gold reserves abroad regularly.
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