This page has been archived and commenting is disabled.
The Macro Story as Told by Gold, Copper and Oil
By EconMatters
Gold’s been on a wild ride. After reaching a peak of $1,920 an ounce in September 2011, gold has tumbled 28% to the current ~$1,380 level forcing John Paulson to take a 47% loss in his gold fund during the first four months of this year, according to Bloomberg.
Unlike Paulson who maintained his positions in gold, other big players like George Soros and BlackRock cut their gold ETF holdings, while Goldman Sachs issued a sell recommendation on gold right before the yellow metal plunged 13% through April 15, the biggest drop in three decades. And by looking at the futures curve (chart below), market does not seem to expect gold to come back roaring any time soon.
|
|
|
Chart Source: S&P Capital IQ |
QEs Not Hitting the Real Economy
Historically, gold is regarded as a good inflation hedge and store of value, typically thriving in an environment of high inflation, and/or weak U.S. dollar (currency debasement). With U.S. Federal Reserve’s three rounds of QE, the never-ending debt crisis in the Eurozone, hyperinflation and dollar debasement seem inevitable and supportive of gold for the long run, right?
Theoretically, Fed’s QE and near zero fed funds rate is supposed to encourage borrowing and spending from the private sector thus injecting money into the real economy. However, theory and reality don’t always see eye to eye.
Since the 2008 financial crisis, banks have significantly tightened the credit standard and are reluctant to lend. On the other hand, corporations are making money mostly from “streamlined” headcount and structure, but instead of the intended wealth distribution effect expected by the Fed such as investing back to the economy, or increase employee pay which would in turn increase consumer spending, most corporations are hoarding cash or use profits for dividend, share buybacks, or mergers & acquisitions with limited impact on the real economy.
Copper & Oil Indicating Weak Demand
The weak demand is also reflected in part of the commodity market fundamental. WTI crude oil inventory climbed to 82-year high and copper inventory at LME hit a 10-year high in April, while Goldman Sachs cut its “near-term” outlook for commodities.
Although some have argued oil and copper have lost their significance primarily due to increasing domestic oil production, and “temporary” excess copper supply. While the abundance of domestic shale oil production may have distorted the historical supply and demand relationship, but with the U.S. becoming the world’s largest fuel exporter, the fast and furious oil inventory build is nevertheless still an indication of a weak world economy. And I can’t imagine how the “temporary” buildup of copper inventory is not a sign of weak global economic condition?
Massive QEs, Limited Inflation?
On top of the overall weak spending and demand in the private sector, most of the developed countries are undergoing some shape or form of austerity with reduced government spending. China, the growth engine of the world, is having some problems of its own. The old-fashioned massive infrastructure building QE program got China through the 2008 financial crisis, and was the main driver behind commodity prices. But Beijing can’t afford another QE due to inflation concern (plus China has probably run out of things to build). Low wage levels means China consumers can’t really pick up the spending slack, coupled with bad credit problem (i.e., NPL: Non-Performing Loans), and recent capital flight, had many analysts worried enough to downgrade China’s growth prospect.
The simultaneous pullback from both the private and government sectors in U.S. Europe, and China is a major factor why Fed's massive QEs have resulted in only limited inflationary pressure and increasing signs of deflation.
Dollar and Carry Trade Kills Gold
Nonetheless, when compared with Europe, China or any other regions in the world, the U.S. seems relatively more stable, and has been able to retain the “safe haven” status despite its own debt problem. With investors pouring money into U.S. equity and bond propping up the dollar, and weak demand suppressing inflation, two of the main conditions for a strong gold price -- high inflation and a weak US dollar -- are basically non-existent in the current macro environment. Furthermore, there was already a bit of disconnect between gold and the other commodity prices such as copper, and oil. So eventually, gold had to come to grip with the macro reality.
|
|
|
Chart Source: Stockcharts.com |
Another major factor against gold right now is that gold has no yield and is out of favor with the huge yield-seeking yen carry trade crowd (borrowing yen to invest in higher yield options) since bond and equity now are offering much better returns. Unless there's a shock to the system such as a war breaking out in the Middle East, or an eventual debt crisis in Japan when people start seeking safety, there's not much upside momentum for gold.
Gold's Volatility Game
For now, the prevalent view is that the Fed will slow or exit QE3, and gold is out of favor under the the current macro trend. For example, Lim Chow Kiat, the chief investment officer of the Government of Singapore Investment Corp (GIC), thinks gold still looks overpriced as the usage of gold for industrial or consumer products doesn't quite justify the prices. GIC is one of the world's largest sovereign wealth funds.
As long as dollar maintain its strength and inflation remains tame, gold prices most likely will see considerable volatility swinging between rumors and speculation (e.g., some central banks may need to unload some of their holdings due to debt crisis), and Asia retail buying on the dip (South China Morning Post reported that many shops in Hong Kong were running out of the precious metal for the first time in decades.)
Technically speaking, gold's next support level should be $1,330 range with $1,320 as the major support when most physical retail buyers would rush in. If gold breaks below $1,300 hard, expect a major liquidation when even Paulson could be forced to sell and everybody piles in.
©EconMatters All Rights Reserved |Facebook | Twitter| Post Alert| Kindle
»
- advertisements -
GET READY FOR 900 DOLLAR GOLD...ALL THE LEVERAGED PLAYERS WILL BE BROKE BY THEN AND THEN WHO KNOWS...MAYBE 5000 DOLLAR GOLD AND THE CENTRAL BANKS AND BILLIONARES OWN IT ALL.....MAYBE 700 INSTEAD OF 900
We are getting inflation (in things that matter to us, the hoi polloi) now, even with "weak demand"!
Unfortunately, we don't count...the game-playing funds, insurers, banks and governments decide what our gold is "worth"...
the price of gold, if it is to be believed as a real event, is indicating a rush to the dollar as a safe haven because the rest of the world collapses. it is a temporary event because the bet is the dollar will be the last to collapse but collapse it will.
The macro story is told by copper and oil.
Gold says nothing about the real economy. It's not relevant.
gold has said everything about an economy fro thousands of years. every economy that went off the gold standard has soon failed.
copper just forecasts the immediate direction of the economy. if oil says anything it is and has been overpriced since 2008 except for a short period in 2009 when it went to 30 bucks. the only reason oil is at the price it is is because of the petrodollar scam. the higher the price of oil, the more demand for dollars, the more dollars available to be invested in the usa(debt and stock market).
another great prophet. just btfd, which just happens to be now....................
No mention of what Soros did with the money he got selling GLD.
Will track down link.
He sold his "short" GLD positions.
Then took delivery of physical.
He played it perfectly, Which is as one would expect.
He likely bought some actual gold and not a paper substitute, you know like the US Dollar, a paper substitute for actual money or GOLD and SILVER if you will. Paper backed by the biggest liars on the face of the planet, go ahead buy stocks or load up on greenbacks, go ahead i dare you...
Let me guess...
"Nobody saw it coming."
We all know that Bernanke and the Fed are completely trapped, so sit back, relax, and stack (if you can find it)...
They (BSB and the Printers) are not trapped. They are doing exactly what they want to do which is to destroy the economy of the USA. That is part of the NWO plan. A strong USA economy just doesn't fit into their long term game plan.
"two of the main conditions for a strong gold price -- high inflation and a weak US dollar -- are basically non-existent in the current macro environment"
You heard it here first, folks--your store receipts are all wrong!
I'm going down to Kroger and demand a refund!
ECON MATTERS ------> FUCK YOU and your HORSESHIT "analysis."
Another socialist mouthpiece for the ruling elite.
Gold is money.. the ultimate and final real store of capital. It trades as a currency, unlike oil and copper which trade as commodities.
Fiat currency is a paper promise to pay a share of central banks assets...supposedly backed by real "assets" on central bank balance sheets.
These assets have no velocity because they are themselves paper promises to pay... they were purchased at an inflated price to cover the real losses of the banks and keep the banks solvent. These asset purchases are called QE, but because they are not liquid and probably worthless they don't stimulate business activity, only the fake performance bonuses of the banksters.
In order to be effective in stimulating economic activity...any new money created has to injected at the bottom of the economic pyramid through public works or outright gifts to the great unwashed....but this is considered socialism by the corporate socialists who only support QE for themselves. This is why the economy is contracting, unemployment is record highs and the stock market is poised for a whipping.
The price of paper gold (trades in dollars)s down because international demand for the USD is up, adjusting to the weakness in JPY. This is a temporary phenomena as the demand for physical gold as private savings continues to outstrip the supply and trades at premiums to the paper price.
The fundamentals of the USD continue to deteriorate as the central bank dillutes its asset base with more zombie "assets".
Look out below
Shit a brick. What a frigging ignoramus. Another idiot who thinks that selling GLD certificates is the same as selling the metal, not the opposite. Obliged to comments above for refutations.
What college degree do you need to write this sort of stuff - photography?
I think the no yield argument is weak considering everything else is yielding nothing right now. My view is simply that gold is getting crushed because other assets are (equity, treasury, real estate, energy) devouring all the capital out there. Since by definition cash is always scarce these big bull markets are simply leaving gold "out of the loop" as it were. These bear markets can last decades btw which makes it surprising that this site is all hung lo vis a vis Bernanke as he's putting the pedal to the metal for economic growth. Nay, veerily..."all that worthless recovery shit he's doing is total bullshit too."
And by looking at the futures curve (chart below), market does not seem to expect gold to come back roaring any time soon.
Jesus, since when does the the futures curve of a PM reflect expetations about anything? Any such expectations can be arbitraged away affecting the whole curve. I think the author is at best an amateur.
the US is still seen as a safe haven
good grief
like hiding from an earthquake in a burning building
a building owned by slumlords
"a building owned by slumlords"
Who turned the sprinklers off to save money
The sprinklers in the pentagon will not be turned off.
WELL SAID....lol....
The prevalent view is that QE will end? Prevalent among people that don't understand, yes. But they don't buy gold,
Indeed.
So let's say they end QE. Stock markets? Look out below. Same with bonds. Governments are suddenly staring higher yields in the face when they roll-over their debt. Meanwhile, M0 has exploded, but much of the tier-one capital propping up banks' balance sheets is losing value, in institutions that are levered 20/40/100:1 ...
The only thing I can see is the CBs continuing to buy up government debt with QE and then 'forgiving' it on maturity, and writing off the assets to shrink their balance sheets. THEN they can taper off QE. But I still don't see M0 getting any smaller, and once inflation expectations start picking up...
If the economy (ie, lending) picks up, M1+ are going to explode. And if it doesn't they'll have to keep up QE'ing to stop assets imploding. Both are good for gold in the mid/long-term.
If they can stop people taking possession of physical, then they can keep up their paper games. Hence all the jawboning about gold 'weakness'. We'll see how weak gold is when the COMEX vaults run dry.
If YOU suspected that the money spigot was about to be turned off and there was nothing but air below your stock and bond positions, wouldn't you want to be the first out the door and to preserve what purchasing power you have acquired with gold? The item in broadest demand with the lowest supply growth is best for that...
Technically speaking, gold's next support level should be $1,330 range with $1,320 as the major support when most physical retail buyers would rush in. If gold breaks below $1,300 hard, expect a major liquidation when even Paulson could be forced to sell and everybody piles in.
There are no technical charts when you deal with money printing and fraud. Go ahead and sell all you want and let the East buy your Gold, they understand a dimishing economy, not here in the US, we see green sprouts when in fact its dog shit!
"Support levels" and "lines" mean nothing in a world in which the only relevant thing is the next meddlesome government/central bank act...you market technicians and chartists are dinosaurs.
Boy, I don't even know where to start.
Geoger Soro sold a portion of his paper gold and bought gold miners.
Gold is a hedge against currency collapse/hyperinflation, not ordinary every day inflation. If you are looking at the CPI to judge the worthiness of gold, you are looking for the wrong signal.
5 years ago, three chickens at Costco were $17. Last week they were $31. Inflation is real if you need to eat!
As far as alternative investments, owning paper in a manipulted and collapsing world economy is suicide. Got gold?
>>>
Gold is a hedge against currency collapse/hyperinflation
<<<
Or complete societal breakdown, as in being at the receiving end of a successful foreign invasion.
The US may have problems, but _nothing_ on this scale.
The only thing stopping gold from halving from it's current level (FWIW I think the dollar is getting stronger, not weaker) is that the 'last buyer' into gold was world-wide CB's. CB's are pretty rubbish, but not so totally, always, 100% wrong as retail.
Ben Bernanke? Is that you? Is EconMatters a subcontractor for the Fed?
at least his ignorance is consistent across the subject matters
Time.....horizon....this too shall pass...
Bought some this AM (coins) for a client...
I could not have more clear in the email to her;
5 YEAR MINIMUM TIME HORIZON BEFORE WE EVEN THINK ABOUT DOING ANYTHING WITH THEM....
Some people don't have 5 years.
I can't wait!
This author is stating facts on gold without being aware of the gold market.
There are widespread reports of gold shortage and extreme physical gold premia in India, Hong Kong, Shanghai, Dubai etc. and sustained price backwardation of gold and silver on LBMA.
In addition, ABN Amro gold default and large gold depositors being refused delivery confirms that there is a different story in the physical gold market as compared to the digital gold market.
There _are_ widespread reports of gold premiums: but always for coins and other small-lot sizes bought by retail.
That, frankly, is the death knell for the gold price...the idea of retail paying heavily over the odds for something ties in nicely with retail's track record _over centuries_.
It could only be worse if they were borrowing to buy (like real estate/shares), but coins and small bars look too small for that.
Watson: quote "but always for coins and other small-lot sizes bought by retail."
The premiums being reported are for good delivery bars on the Shanghai Exchange, kilo gold bars in Dubai, etc.
HSBC: Asian Physical Demand for Gold remains strong.
Tuesday May 21, 2013 4:00 PM
Physical demand for gold in key Asian nations remains strong, says HSBC. Gold briefly touched $1,400 an ounce overnight on strong physical buying, most notably from China and India, the bank says. “Bullion’s price premium on the Shanghai Gold Exchange stood at USD22/oz, as it remained above USD20/oz for a fourth consecutive trading day,” HSBC says. The bank cites a report in the Economic Times of India saying buyers in Hong Kong and Singapore are currently paying a $5-per-ounce price premium, while buyers in India are paying a $40 premium. “Physical gold buyers have significantly stepped into the market since bullion’s first price break below the USD1,600/oz level earlier in the year. We expect this to continue with prices below USD1,400/oz,” HSBC says.
http://www.kitco.com/reports/kitcoNewsMarketNuggets20130521.html