The World Gold Council has released the Q1 2012 Gold Demands Trend report. Gold demand grew 16% over the past 12 months to 1,098 tonnes. This had a US dollar value of just $59.7 billion spent on gold, globally, in Q1 2012. While global demand was down 5% from the record high of Q4 2011, it was significantly higher than demand in Q1 2011 suggesting that global demand may be consolidating at these higher levels. Probably the most important aspect of demand and one of the most important fundamentals in the gold market is that of still very robust and increasing Chinese demand. In this the Chinese Year of the Dragon – China is becoming a fundamental driver of the gold market. Global demand was boosted by China posting a quarterly record of 98.6 tonnes of investment demand up 13% from Q1 2011. This increase was a result of investors’ continued move to preserve wealth amid ongoing concerns over inflation, volatility in equity markets and price falls in some property markets. Jewellery demand in China, much of which is also store of wealth demand, increased to 156.6 tonnes – 30% of the global appetite. This increase places China as the largest jewellery market for the third consecutive quarter.
If indications become reality then we are faced with a leftist government in Greece that will either renegotiate a new bailout agreement with Europe or it will head back to the Drachma or be forced there by the refusal of European Union to provide any additional funds. In Spain we are faced with bare bones arithmetic where the country cannot bailout its Regional debt and its back debt because they do not have the capital to do either; much less both. Both countries can flop about for a brief period of time but the conclusions are unavoidable we are afraid and so a very unpleasant landscape awaits us in the coming days. We have warned about all of this for quite some time and we have hammered upon it in recent days as equities, credit/risk assets, the Euro have all declined in value as I had predicted. There may well be a bounce or two along the way but we continue to maintain that dark days lie ahead based not only upon fundamentals but based upon a union in Europe that has been deceptive in presentation and deceitful in practice.
While gold is now negative year to date in dollar terms, it remains 0.7% higher in euro terms. Gold prices dropped 3.7% last week and silver fell 5.1% to $28.89/oz. The smart money, especially in Asia, is again accumulating on the dip. Demand for jewellery and bullion in India has dipped in recent weeks but should resume on this dip – especially with inflation in India still very high at 7.23%. Also of interest in India is the fact that investment demand has remained robust and gold ETF holdings in India are soon to reach the $2 billion mark. This shows that recent gold weakness is primarily due to the recent bout of dollar strength. Morgan Stanley has said in a report that gold’s bull market isn’t over despite the recent price falls. Morgan Stanley remains bullish on gold as it says that the ECB will take steps to shore up bank balance sheets, U.S. real interest rates are still negative, investors have held on to most of their exchange traded gold and central banks are still buying gold.
All you need to read and some more.
- China Industrial Output Growth Slows Sharply In April (WSJ)
- Indian industrial output shrinks unexpectedly (AFP)
- China’s Inflation Moderates, Adding Room for Easing (Bloomberg)... a nickel for every "imminent RRR-cut" prediction
- Drew Built 30-Year JPMorgan Career Embracing Risk (Bloomberg)
- Spain Offered Time to Curb Deficit (FT)
- France Entrepreneurs Flee From Hollande Wealth Rejection (BBG)
- Venizelos Eyes Unity Deal After Agreement With Democratic Left (Ekathimerini)
- Berlin Reaches Out to the Periphery (FT)
- Bernanke Speaks About Risks From End of Pro-Growth Plans (Bloomberg)
CFTC data from Friday showed that money managers cut long positions on Comex gold futures and options in the week ended April 24 to the lowest level in more than three years. Managed funds slashed 2,225 long positions, or bets prices will rise, and added 2,450 short positions, or bets prices will fall. The managed-fund net long position was cut by 4% and now represents around 10.7 million troy ounces of gold. This took their net position down 4% to 107,600 long contracts, from 112,275 long contracts. That's the lowest in CFTC data since the week ended Jan. 20, 2009. The low in January 2009 corresponded with the low in the gold price for 2009 - monthly low of $807/oz - prior to seeing gains which saw the gold price rise more than 50% to above $1,200/oz in late November 2009 (see chart below). A similar price gain would see gold rise from $1,663/oz today to $2,494.50/oz in the coming months. Also of note is the fact that large commercial traders have greatly cut back their short positions in gold and especially in silver. This has often been a sign of a bottom and suggests that they do not expect gold and silver to fall much further. In Comex silver futures and options, these traders added 248 long contracts and 2,883 short contracts. This reduced their net long position by 20% to 10,756 contracts, from 13,390 contracts the previous week. The net silver position represents around 53.7 million troy ounces of silver.
Given the dominance of the machines, do flesh-and-blood traders have a chance?
There is the slow realisation that the complacency of recent months was again misplaced. It remains obvious that the euro zone debt crisis is far from over and this will support gold in the coming months – especially in euro terms.
Gold in euro terms has been consolidating above €1,200/oz for six months now. With the eurozone crisis set to deepen and the continuing risk of contagion, we could see gold break out in euro terms prior to doing so in dollars, pounds and other currencies.
All you need to read and some more.
From Morgan Stanley: "In our mind, many of the approaches to algorithmic execution were developed in an environment that is substantially, structurally different from today’s environment. In particular, the early part of the last decade saw households as significant natural liquidity providers as they sold their single stock positions over time to exchange them for institutionally managed products... While the time horizon over which liquidity is provided can range from microseconds to months, it is particularly shorter-term liquidity provisioning that has become more common." Translation: as retail investors retrench more and more, which they will due to previously discussed secular themes as well as demographics, and HFT becomes and ever more dominant force, which it has no choice but to, liquidity and investment horizons will get ever shorter and shorter and shorter, until eventually by simple limit expansion, they hit zero, or some investing singularity, for those who are thought experiment inclined. That is when the currently unsustainable course of market de-evolution will, to use a symbolic 100 year anniversary allegory, finally hit the iceberg head one one final time.
When The Most Contrarian Trade Of The Year Is No Longer Contrarian, It's About That Time - Enter The Rotten AppleSubmitted by Reggie Middleton on 04/12/2012 10:40 -0400
The Apple trade, it works very well... util it doesn't. What happens when ALL of those funds change course???
- Subprime bubble is back: Lenders Again Dealing Credit to Risky Clients (NYT)
- Housing bubble is also back: AIG Is Planning a Return to U.S. Property Investing (WSJ)
- Spain and EU Reject Talk of Bailout (FT)
- Coeure Suggests ECB Could Restart Bond Purchases for Spain (Bloomberg)
- IMF Set to Recognise Shrinking Chinese Surplus (FT)
- Government to Propose New Mortgage Servicing Rules (AP)
- Japan Currency Chief Warns Against Delay Over Finances (Bloomberg)
- The 'Michael Corleone' of Libya (Reuters)
- North Korea Says Fuel Being Injected Into Rocket (Reuters)
- SNB Reaffirms Vow to Cap Swiss Franc (FT)