It is important that one owns physical gold and not paper or electronic gold which could be subject to bail-ins. Owning a form of paper gold and derivative gold such as an exchange traded fund (ETF) in which one is an unsecured creditor of a large number of custodians, who are banks which potential could be bailed in, defeats the purpose of owning gold.
Physical Gold, held in secure conferring outright legal ownership through bailment remains the safest way to own gold.
It has been a relatively quiet overnight session, if with a downward bias in the EURJPY which means futures are just modestly in the red. The action however is merely deferred, with a slew of macroeconomic reports on the horizon, chief of which is the ECB rate decision, which consensus has as unchanged at 0.25%, although Draghi's subsequent conference is expected to lead to EUR weakness, even if briefly, since the central bank is widely expected to downgrade both growth and inflation forecasts. DB adds that the recent rise in eonia — which may reflect concerns about the treatment of LTROs in the end-December AQR and be encouraging the accelerated 3Y LTRO repayments — may warrant a temporary liquidity easing: a special short-term tender; temporarily easing minimum reserve requirements; or — technically possible, if politically controversial — temporarily suspending the SMP sterilization process. Concurrent with the draghi conference, we also get the second revision of Q3 GDP, which consensus now expects to rise to 3.1%, as well as this week's initial jobless claims random number generator. Later in the day the Factory Orders update is expected to show a -1.0% decline, while Fed speakers Lockhart and Fisher round off the day.
The era of bondholder bailouts is ending and that of depositor bail-ins is coming.
In that context a move to increased allocation of savings including a prudent allocation of some 5% to 10% to precious metals, is a sensible policy.
While there was a plethora of macro data (starting with some ugly numbers out of Australia which clobbered AUD pairs overnight), China HSBC Services PMI dipping slighlty from 52.6 to 52.5, Final Eurozone PMI Services (printing at 51.2 up from 50.9 and beating expectations of the same on an increase in German PMI numbers from 54.5 to 55.7 and a decline in French PMI from 48.8 to 48.0), Eurozone retail sales declining by 0.2%, on expectations of an unchanged print, and much more (see below), perhaps the most important news of the day came from Japan which many expect will be the source of much more easing in the coming months and thus serve as marginal lever to push global fungible markets higher. However, not only did various BOJ officials for the first time in a while talk down expectations of a QE boost, but the head of the Japan GPIF said that it doesn't need to sell JGBs right now as it would "rock markets" and that instead can achieve its targeted 52% weighing as bonds mature, that it may buy foreign bonds instead to raise weighting to core target (as the Fed buys Japan bonds?), and that it will be very difficult for Japan to hit the BOJ's inflation target in 2 years. Is Japan already getting cold feet on rumors of more QE and did it realize there are only so many assets it can monetize. If so, watch out below on the EURJPY which has now priced in about 700 pips of expected BOJ QE boosting in early 2014.
Something snapped overnight, moments after the EURJPY breached 140.00 for the first time since October 2008 - starting then, the dramatic weakening that the JPY had been undergoing for days ended as if by magic, and the so critical for the E-Mini EURJPY tumbled nearly 100 pips and was trading just over 139.2 at last check, in turn dragging futures materially lower with it. Considering various TV commentators described yesterday's 0.27% decline as a "sharp selloff" we can only imagine the sirens that must be going off across the land as the now generic and unsurprising overnight carry currency meltup is missing. Still, while it is easy to proclaim that today will follow yesterday's trend, and stocks will "selloff sharply", we remind readers that today is yet another infamous double POMO today when the NY Fed will monetize up to a total of $5 billion once at 11am and once at 2 pm.
People internationally are opting to store gold in allocated accounts in Switzerland due to their tradition of respecting private property and the fact that their economy is very sound. Therefore it is a good place to diversify assets in order to protect wealth.
Asian equities have gotten off to a rocky start to the week despite some initial optimism around the twin-Chinese PMI beats at the start of the session. That optimism has been replaced by selling in Chinese equities, particularly small-cap Chinese stocks and A-shares after the Chinese security regulator issued a reform plan for domestic IPOs over the weekend. The market is expecting the reforms to lead to a higher number of IPOs in the coming quarters, and the fear is that this will bring a wave of new supply of stock to an already-underperforming market. Indeed, the Chinese securities regulator expects about 50 firms to complete IPOs by January 2014 – and another 763 firms have already submitted their IPO applications and are currently awaiting approval. A large number of small cap stocks listed on Hong Kong’s Growth Enterprise Market were down by more than 5% this morning, while the Shanghai Composite is down by 0.9%. The Hang Seng (+0.4%), Hang Seng China Enterprises Index (+0.8%) are performing better on a relative basis, and other China-growth assets including the AUDUSD is up 0.5%. The Nikkei (-0.1%) is also a touch weaker after Japan’s Q3 capital expenditure numbers came in well below estimates (1.5% YoY vs 3.6% forecast). Elsewhere Sterling continues to forge new multi-year highs against the USD (+0.3% overnight).
Overview of the near-term outlook for the major currencies.
Despite a significant tumble into the close ($3.25bn notional sold in last 4 seconds of S&P futures); for the first time since January 2004, the S&P 500 has risen for eight straight weeks. Trannies are still leading off the debt-ceiling-debacle lows up 13.3% but this week saw the NASDAQ accelerating to 11.3% gains off those lows. Despite being pounded by GBP buyers, the USD (rescued by JPY weakness) ended the week unchanged and Treasury yields are +/-2bps on the week (30Y -1.5bps, 5Y +2bps). Despite some early week weakness, today saw commodities rising (with WTI crude jumping higher - modestly narrowing the 8-month wides in the Brent-WTI spread at $17.60). Gold and silver recovered to gains on the week keeping pace with the S&P and Dow. VIX (once again) entirely disengaged from stocks' exuberance and so did credit markets.
There was more irregular price action in trading yesterday between 1800 and 1830 GMT. Gold had trended slightly higher in the afternoon and was trading at $1,244/oz prior to a sharp but very brief spike to $1,254/oz and then sharp concentrated selling saw gold fall by more than $20 to $1,231/oz before bouncing higher and recovering to the $1,245/oz level again.
The trading was unusual as foreign exhange markets saw no price movements of note, nor did the silver, platinum and palladium markets.
A hungover America slowly wakes up from a day of society-mandated consumption and purchasing excess to engage in even more Fed-mandated excess in the equity markets. The only difference is that while the "90%" was engaged in the former and depleting their equity, and savings, accounts in the process, far less than 10% will be doing the latter. Overnight attention was drawn to the rapidly escalating territorial dispute between China and Japan, now in the air, Bitcoin's brief surge above the price of an ounce of gold, and the ejection of the Holland from the AAA Eurozone club (where only Germany and Finland remain), following an S&P downgrade of the Netherlands from AAA to AA+, which however had been largely priced in long ago (and was coupled with an upgrade of Spain from negative to stable outlook, as well as an upgrade of Spain from CCC+ to B-). Europe surprised pleasantly on both the inflation (better than expected) and unemployment rate (dropped from an all time high of 12.2% to 12.1%), even if youth unemployment rose to fresh record highs.
An important question is what exactly is Goldman's motivation for the peculiar gold deal? Does it wish to have access to Venezuela's gold reserves? There area many other innovative ways that Goldman could help Venezuela with its current economic travails that do not involve gold. Were Venezuela to default on the bonds would Goldman become the beneficial owner of Venezuela's gold reserves?
It would likely also deal another blow to the U.S property market and the fragile U.S economy. JP Morgan, Bank of America and Wells Fargo appear to be most exposed - meaning that either taxpayers will again be asked to bail out banks or more likely the coming bail-in regime will confiscate cash from depositors.
In a carry-trade driven world in which news and fundamentals no longer matter, the only relevant "variable" is whether the JPY is down (check) and the EUR is up (check) which always results in green equities around the globe and green futures in the US, with yesterday's sudden and sharp selloff on no liquidity and no news long forgotten. The conventional wisdom "reason" for the overnight JPY underperformance against all major FX is once again due to central bank rhetoric, when overnight BOJ's Kiuchi sees high uncertainty whether 2% CPI will be reached in 2 years, Shirai says bank should ease further if growth, CPI diverge from main scenario. Also the BOJ once again hinted at more QE, and since this has proven sufficient to keep the JPY selling momentum, for now, why not continue doing it until like in May it stops working. As a result EURJPY rose above the 4 year high resistance of 138.00, while USDJPY is bordering on 102.00. On the other hand, the EUR gained after German parties strike coalition accord, pushing the EURUSD over 1.36 and further making the ECB's life, now that it has to talk the currency down not up, impossible. This is especially true following reports in the German press that the ECB is looking at introducing an LTRO in order to help promote bank lending. Since that rumor made zero dent on the EUR, expect the ongoing daily litany of ECB rumors that the bank is "technically ready" for negative rates and even QE, although as has been shown in recent months this now has a half-life measured in minutes as the market largely is ignoring whatever "tools" Draghi and company believe they have left.
IN CHINA, THE GOLD RUSH CONTINUES as Chinese people buy jewellery, coins and bars as a store of wealth protection from inflation. The worlds largest jewellery group, Chow Tai Fook Jewellery Group Ltd., established in 1929, saw sales jump 49% during the first half of 2013.