People’s Bank of China Positive on Gold due to ‘Value Preservation’; Concerned About Euro, Dollar and Paper Currencies
Gold and silver remain supported by continuing macroeconomic and geopolitical uncertainty. Inflation, the European sovereign debt crisis, conflict in Libya and the wider Middle East and the nuclear disaster in Japan are all factors which will likely result in gold reaching new record nominal highs in all currencies sooner rather than later.
Gold and silver’s record highs yesterday were barely reported in the non financial press and media yesterday which is another sign of the lack of animal spirits and popular participation in the bullion markets. One of many strong indications that gold and silver remain far from the speculative bubbles suggested by some.
The US dollar and Swiss franc are down 1% and 2.5% respectively so far on the week. While sterling and the yen have fallen nearly 2% against gold in the week so far.
People’s Bank of China Favours Gold Over Euro, Dollar and Paper Currency due to ‘Value Preservation’
The People’s Bank of China are very positive on gold in their just released annual Financial Markets Report. They remain concerned about risks posed to fiat currencies such as the dollar and euro, about asset price bubbles internationally and the risk competitive currency devaluations poses to fiat currencies.
The report is much more positive than last year when they appeared to talk down gold’s prospects somewhat. Skeptics suggested that this was in order to allow them to continue accumulating gold without the price running away from them.
The Chinese central bank said that inflation risks in economies internationally will support demand for gold, with prices for the precious metal likely to continue to make record highs.
While the risks of falling gold prices shouldn’t be ignored, political conflict is likely to support higher gold prices.
Inflation risks mean demand for gold will remain strong and investment demand from a 'value preservation' angle will be very strong supporting gold at higher levels.
It said it is considering allowing more foreign financial institutions and companies to participate in China's interbank bond market, beyond international development agencies, and it is studying gradually opening the country's gold and futures markets to overseas yuan holders.
The Chinese are clearly attempting to position their central bank, the PBOC, as a powerful rival to the Federal Reserve and their yuan/ renminbi as an alternate reserve currency.
Senior and influential Chinese policy makers, bankers and government officials have clearly stated why they see gold as an important currency reserve and monetary asset. The PBOC and possibly SAFE are likely to be buying all dips aggressively and providing significant demand and massive support to the gold (and possibly even the silver) market.
The record demand for gold as a store of value from the Chinese people is being emulated by their increasingly powerful central bank and other financial institutions which is another bullish factor for gold.
(MNI) - China PBOC Sees Dollar Weakness, European Debt Risk In 2011
The U.S. dollar is generally expected to weaken this year, even if the European debt crises provide some temporary support, the People's Bank of China said in its 2010 international financial market report issued Friday.
The 125-page report provided a broad outlook for global markets in the year ahead, cautioning that the economic recovery will be dogged by the debt crises on Europe's periphery. "The recovery momentum of the world economy will continue, but all parties should enhance policy cooperation and avoid competitive currency depreciation and trade protectionism," the report said.
The central bank also warned on inflation risk rising from crude oil, grain and other commodity prices. Global commodity prices still have room to rise, the bank said, though gold's recent record prices prompted a warning of the risk that prices could fall in the period ahead.
The U.S. dollar will be "generally weak" this year as a result of the slow U.S. economic recovery, low interest rates as well as the trade and current account deficits.
"However, the risks from European sovereign debt still remain and geopolitical risk may spread, which will give the U.S. dollar temporary strength," it said. Short-term interest rates in the major economies will rise this year, though the increase will be capped by the weak recovery momentum. The medium-to-long-term treasury yields of the major economies will also rise.
Major economies will find it difficult to bring their debt levels under control this year as a result of economic weakness and fragile financial systems.
The PBOC also said it will boost capital account convertibility and broaden the channels by which capital flows on and offshore. It said that the domestic interbank and futures markets could be further opened up to foreign portfolio investment.
(Bloomberg) -- Gartman Won’t Short Stocks As Silver Outperforms Gold
Newsletter writer Dennis Gartman says silver outperforming gold “tends to pull” all risk assets higher; won’t short indexes as silver outperforms gold. For chart of silver/gold ratio vs S&P 500: Gartman to buy gold at $1395-1405,
<Editors Note: Gartman has been negative on silver for a while and recently said it was ridiculously overbought when silver was below $36/oz. With regard to precious metals, he does not have a good record of “timing the market” in recent years and given rising volatility in all markets investors would be prudent to maintain a buy and hold strategy.>
(Bloomberg) -- UBS Favors Oil, Platinum, Lead, Palladium, Neutral on Copper
UBS AG is favoring crude oil, platinum, lead and palladium over the next three to six months. The previous favorites copper, coal and iron ore are now “neutrally rated” while nickel, steel, uranium and aluminum are the least preferred, UBS analyst Peter Hickson said in a report dated today.
Editors Note: UBS Precious Metals division are currently bullish on gold and silver and bearish on palladium and platinum .
(Bloomberg) -- ‘Black Swan’ Creates Gold Buying Opportunity in Selloff: TD
“Black swan” events are likely to create buying opportunities for gold as the metal declines in the short term on uncertainty, TD Securities says in a note to clients.
“Based on the last three major episodes of elevated market uncertainty, a future “black swan event” that threatens the global economy and financial system stability is likely to trigger another short-lived gold selloff”: TD
“The metal should perform well longer-term, especially if U.S. and other monetary authorities monetize the shock”: TD
TD defines black swan as: “an event or occurrence that deviates beyond what is normally expected of a situation, and that would be extremely difficult to predict”
(Bloomberg) -- Gold May Advance on Libya, Europe Debt Concern, Survey Shows
Gold may extend gains from a record as fighting in Libya and Europe’s debt crisis spur demand for an alternative investment, a survey found.
Seventeen of 19 traders, investors and analysts surveyed byBloomberg, or 89 percent, said bullion will rise next week. Two predicted lower prices.
Gold for April delivery was up 2.2 percent for this week at $1,446.70 an ounce at 12:23 p.m. yesterday on the Comex in New York after reaching a record $1,448.60 earlier that day.
U.S. and allied warplanes carried out further strikes against Muammar Qaddafi’s ground forces as the leader’s loyalists increased their attacks on cities. Portugal moved closer to a bailout after Prime Minister Jose Socrates’s offer to resign left his government in limbo as European Union leaders try to address the region’s debt crisis.
“The market got a boost from ongoing violence in the Middle East and North Africa region,” said Andrey Kryuchenkov,an analyst at VTB Capital in London. European debt “troubles” linger, and “as far as gold is concerned, it is exactly such fears that drove bullion higher late last year,” he said.
The attached chart tracks the results of the Bloomberg survey, with the red bars derived by subtracting bearish forecasts from bullish estimates. Readings below zero signal that most respondents expect a decline. The green line shows the gold price. The data are as of March 18.
The weekly gold survey that started more than six years ago has forecast prices accurately in 202 of 355 weeks, or 57 percent of the time.
This week’s survey results: Bullish: 17 Bearish: 2 Neutral: 0
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