UK And US Data Shows Stagflation Threat Deepening - Asian Gold Demand Remains Very High

Tyler Durden's picture

From GoldCore

UK and US Data Shows Stagflation Threat Deepening - Asian Gold Demand Remains Very High

Gold and silver have snapped their three day losing streak so far
this morning and both are higher in all currencies. Sterling has fallen
on this morning’s very poor UK employment data. This in conjunction
with yesterday’s high inflation figure in the UK and negative data in
the U.S. confirm the increasing threat of stagflation to western
economies. 

GoldCore
Cross Currency Rates

U.K. unemployment claims rose in April at the fastest pace since
January 2010, showing the very fragile nature of the recent tentative
economic recovery. Government spending cuts, austerity measures and
accelerating inflation are clearly beginning to impact embattled
consumers.

GoldCore
G10 and Precious Metal Returns – Year to Date

In the U.S., stagflation is also an increasing, if unacknowledged,
threat as the classic symptoms of inflation - slow growth, high
unemployment and inflation are present. Weak U.S. factory output and
home building data yesterday suggests that the world's largest economy
is slowing down again.

Official inflation figures in the U.S. remain benign but hedonic
adjustments and many adjustments to the methodology of calculating
inflation in the last 20 years mean that that the Consumer Price Index
is no longer an accurate measure of real inflation in the economy.

GoldCore
Total Known ETF Holdings of Gold

This macroeconomic risk coupled with continuing geopolitical risk is
supportive of gold continuing to receive safe haven demand.

Geopolitical risk remains ever present as seen in Pakistan yesterday
where two Pakistani troops were injured after exchanging fire with
NATO helicopters that had entered Pakistan’s airspace in the tribal
region of North Waziristan. The conflict in Libya looks like it may
soon escalate and tensions between Israel and the regimes in Syria and
Iran remain high.

Asian Demand for Gold Remains High as Seen in Gold Bar Premiums

A clear sign of healthy appetite in China are the premiums being
paid for gold bars in Shanghai and Hong Kong. Shanghai gold closed at a
premium of $3.57 to world gold of $1,495.95. The premium increased from
that seen Monday when it was $3.09 at $$1,497.45.

The premium on gold bars in Hong Kong increased 10 cents this week
to between $1.30 and $1.80 per ounce over London spot prices.

Reuters reports that gold bars in Vietnam, where demand has been
voracious in recent months due to a sharp depreciation in the
Vietnamese dong, were trading at a $3.92 premium to world gold spot
Monday.

India’s banking system was closed yesterday and there are therefore
no reported premiums but recent days have seen healthy premiums for
gold around the $1,500/oz level in India.

The launch of the new Hong Kong Commodity Exchange will result in
Asia having an even bigger say in prices of commodities and precious
metals. The exchange is backed by China’s biggest bank and a Russian
tycoon and will challenge established markets and exchanges in Europe
and the U.S.

Asians increasing power in financial markets and the fundamentals of
robust and sustainable demand for gold and silver bullion throughout
Asia will mean that speculative interests on Wall Street will find it
harder to artificially suppress prices and the massive concentrated
short positions on the COMEX may be forced to close their positions
propelling bullion prices higher.

George Soros – Bullish or Bearish on Gold?

Despite his exit from ownership of the gold ETFs, Soros continues to
have large allocations to gold investments through owning more high
risk gold mining shares and a gold mining ETF.

Soros’ fund added Eldorado Gold, Freeport-McMoran Cooper & Gold and Goldcorp to their investments during Q1 2011.

This would suggest that contrary to simplistic reporting Soros continues to remain positive on the gold sector.

It also suggests that as we have long pointed out, a hedge fund
selling their gold ETF position does not necessarily mean they are
bearish on gold. It can mean that they are concerned about the nature
of the structure and intermediation involved in an exchange traded fund
and prefer the security of actual physical bullion.

UBS pointed this yesterday. “Some of the ETF liquidation in the
quarter was not actually outright gold selling,” UBS’s Tully said. “In
some cases, investors switched their gold exposure from ETP-based to
allocated, and so this somewhat distorts the ETP ownership picture.”

In the first quarter, gold ETP holdings declined 3.3 percent (see
chart above), the first decline in a year. Silver holdings rose 1.9
percent, palladium assets fell 1 percent, and platinum holdings gained
12 percent.

News

World Bank sees end to dollar’s hegemony

The World Bank expects the US dollar to lose its solitary dominance in the global economy by 2025, as the euro and the renminbi establish themselves on an equal footing in a new “multi-currency” monetary system.

The shift will be driven by the increasing power and strength of emerging market economies, with six countries – Brazil, China, India, Indonesia, Russia and South Korea – accounting for more than half of global growth in 14 years.

http://www.ft.com/intl/cms/s/0/00da6b1a-80a6-11e0-85a4-00144feabdc0.html

Deutsche Bank Sees Gold Rising as High as $2,000 as George Soros Pares Bet

Gold, which reached a record on May 2, may surge a further 30 percent by January as investors seek to protect themselves from “economic uncertainty,” according to Deutsche Bank AG.

“I’m bullish on gold despite its current levels,” Hal Lehr, Deutsche Bank’s managing director for cross-commodity trading, said in an interview in Buenos Aires. “It could reach $2,000 an ounce in the next eight months.”

http://www.bloomberg.com/news/2011-05-10/deutsche-bank-sees-gold-rising-as-high-as-2-000-as-george-soros-pares-bet.html

Hong Kong Mercantile Exchange Launches Trading

The Hong Kong Mercantile Exchange began trading U.S. dollar-denominated gold futures on its electronic platform Wednesday, as the exchange attempts to lure commodities traders in the rapidly growing Asia-Pacific economies away ...

http://online.wsj.com/article/SB10001424052748703509104576330422043283418.html

Gold steady, euro zone debt fears support

Gold held steady on Wednesday as worries about the euro zone's debt crisis lent support to bullion, after weak U.S. industrial and housing data triggered declines in oil and metals in the previous session.

http://www.reuters.com/article/2011/05/18/markets-precious-idUSL4E7GI01Y20110518