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All Eyes On The Gold Rout, Most Oversold In 14 Years
While China's trifecta miss of GDP, Retail Sales and Industrial Production all coming lower than expected was likely a factor in the overnight rout of gold, the initial burst of selling started well before the Chinese data hit the tape, or as soon as Japan opened for trading with forced financial institution selling to prefund cash for any and all future JGB VaR-driven margin calls. It was all downhill from there, literally, with overnight selling of gold punctured by brief burst of targeted stop hunting, sending the metal down $116 per ounce, as spot touches $1385 after trading nearly at $1500 yesterday and down $200 in 4 days. End result, whether due to a re-collapsing global economy, margin calls, fears forced Cyprus gold selling will be imposed on all other insolvent European countries, coordinated central bank slams, hedge fund positioning, long unwinds, liquidations, fears about future demand, or whatever the usual selling suspects are, is that gold tumbles an unprecedented 7.8% on 230,000 contracts in one day, and well over 10% in two days, pushing the yellow metal 14 day RSI band to 18, meaning it is now most oversold since 1999. In brief, it is an all out panic, with Goldman still telling clients to sell, i.e., buying every shiny ounce all the way down (not to mention India, where accordingto UBS Friday demand was double the average).
Below are some banks' takes on the overnight action via BBG:
Deutsche Bank:
- Unclear at this stage if there’s a clear link between the decline in gold prices and the currency markets; China’s weak 1Q GDP data probably had a more direct impact on currencies this morning than gold, Bilal Hafeez, strategist at Deutsche Bank, says in interview
- Commodity prices underwent some position adjustments on Friday, unclear on cause
- Overall commodity cycle will be important going forward for currencies such as AUD and NZD
Citigroup:
- Impact of decline in gold price was seen in commodity-related currencies like AUD and NZD; some unwinding in the JPY was also noted; EUR and GBP have been largely steady on the gold move, Rohan Ramchandani, head of European spot trading at Citigroup, says in interview
- Gold decline may have been related to some break in technical levels and the general improvement in global risk appetite
- Gold drop may have some more room to run in short-term but in the longer-term, gold should be supported, and likewise the commodity currencies; market has been comfortably long on the gold trade since the financial crisis
Morgan Stanley
- Impact of gold decline on AUD should be buffeted by the easy global liquidity conditions, Ian Stannard, strategist at Morgan Stanley, says in interview
- Expect AUD to hold up in recent trading range even with the decline in gold prices as long as equity markets continue to provide a positive signal and there’s prospect of Japanese asset reallocation overseas
ING:
- While gold should decline in the longer term on USD strength, short-term risk is financial dislocation, Chris Turner, strategist at ING, writes in note
- Pickup in gold volatility may see increase in the 15% haircuts on gold’s use as collateral at major financial exchanges; gold has become a strong source of collateral since the global financial crisis
- Gold collapse has sparked some unwind in USD/JPY
Barclays:
- Plunge in prices of precious metals has caught market attention, suggesting note of caution for risk sentiment in general, Jordan Kotick, global head of technical strategy at Barclays, writes in note
- Break in gold and silver’s multi-year range lows are forcing liquidation across board, not just in USD terms but also when priced in almost any currency
- Markets may unsettle, risk of near-term correction in many recent trends such as JPY crosses, AUD/USD and USD/CAD
SEB:
- Gold collapse on break of 1,522/25 key support has forced copper, oil to take a beating; CAD is weaker while JPY correct seems to be getting legs
In other words, nobody has any idea what is going on, but is piling on to spread the confusion. Which, of course, for those who only care about the ongoing dilution of global fiat, which shows no signs of halting especially with the global economic deterioration accelerating, courtesy of central bank printing, a very welcome opportunity to paper dollar cost-average much lower.
Speaking of deteriorating economics, here is a brief recap of the Chinese data via SocGen:
The week opened with a truckload of unpleasant surprises from Chinese activity data. GDP growth decelerated unexpectedly to 7.7%yoy in Q1 from 7.9%yoy previously. March industrial production and fixed asset investment also came in decisively below street expectations, despite accommodative liquidity conditions. The data disappointment shocked down prices of all kinds of risky assets, from the AUD, commodity prices, to stock markets across the region. We do not think Q1 marked the end of recovery, as the lagged impact of rapid credit growth in the past few months should kick in later. However, at the same time, the latest data firmly support our call for a weak and short-lived cyclical recovery of the Chinese economy in 2013.
China’s economic growth unexpectedly decelerated to 7.7%yoy in the first quarter The Chinese economy grew 7.7% yoy in Q1, below market expectations (Cons. & SG 8%) and down from 7.9% yoy in Q4 2012. The biggest surprise to us was the sharp slide in the investment contribution (2.3ppt from 3.9ppt in 2012), despite the clear acceleration in credit growth since Q4 2012. Consumption – private and public combined – contributed 4.3ppt, only marginally higher than the 4.1ppt in 2012 but substantially short of the 6.4ppt in Q1 2012. As we expected, net exports were a big plus, adding 1.1ppt to Q1 growth (vs. -0.2ppt in 2012).
Retail sales registered a 12.6%yoy growth in March, in line with expectations (Cons. 12.6%, SG 12.5%, Jan-Feb 12.3%). But such a pace still suggested a fairly soft momentum of consumption, by China’s standard. The impact of anti-corruption measures was easily spotted, with the catering sector mired in contraction (-1.1%yoy in March). Other major drags were car and petroleum sales. Comparing to December, these three categories subtracted 1.2ppt, 1ppt
and 2.1ppt from the headline growth, respectively.
Industrial production growth slid substantially from 9.9%yoy during the first two months to 8.9%yoy in March (Cons. 10.1%; SG 9.7%) – the slowest pace since May 2009. Utility production was particularly weak, with power generation growth falling to 2.1%yoy in March from 3.4%yoy in January and February. In addition, textile and IT equipment manufacturing also slowed down notably. Throughout the first quarter, IP persistently undershot expectations, while export growth stayed firmly on the other side of the consensus. This latest IP reading only casted more doubt on the reliability of the strong export data in the past few months.
Consistent with GDP breakdowns, fixed asset investment (FAI) grew slower at 20.9%yoy in Q1 (Cons. 21.3%, SG 21.5%), implying a deceleration to 20.7%yoy in March from 21.2%yoy in January and February. Real estate investment growth fell back to 17.6%yoy from the surprisingly solid level of 22.8%yoy previously, indicating that developers may have started to adjust their investment plan shortly after the announcement of renewed tightening. Other property sector data were also not as upbeat as we initially thought. Property starts contracted again by 20.2% yoy in March, after only two months of positive growth; property sales growth almost halved to 26.6%yoy in March from the feverish pace in the previous two months. Given this, the well-reported surge in second-hand home transaction seemed to be largely regional.
Manufacturing FAI posted some improvement, rising 19.9%yoy in March (vs. 17%yoy in the first two months). However, those sectors that are suffering from excess capacity continued to show little sign of revival. Infrastructure investment grew apace at 26.5%yoy in March, up from 24.2%yoy in January and February. State-driven FAI remained the major support to China’s growth.
* * *
So yeah, central banks will stop printing any minute now, and gold will go to zero, so Cyprus - please sell your gold to the Troika, Russia, Goldman or China now before it plunges to triple, double, single, or zero digit range.
* * *
The rest of the overnight action recap comes from Deutsche's Jim Reid:
Ahead of us this week is a busy seven days of politics, earnings and economic data. On the earnings side, about a quarter of the S&P500 by market cap will be reporting quarterly results. Setting the tone on the macro side will be the Q1 results from many of the big banks including Citigroup who report today before the US market open. This will be followed by Goldman Sachs tomorrow, Bank of America and American Express on Wednesday and Morgan Stanley on Thursday. Outside of the financials, we also have a number of tech giants including Google, Microsoft and IBM reporting earnings on Thursday. Corporate bellwethers Coca Cola (Tuesday), General Electric and McDonalds (Friday) are also scheduled to report this week.
In Europe, the Italian parliament will be holding its presidential election on Thursday April 18th to elect a successor to Giogio Napolitano. Numerous names have been floated as his successor including former Prime Ministers Romano Prodi and Giuliano Amato, and former EU Commissioner Emma Bonino, but no clear favourite has emerged. A two-thirds vote is required on any of the first three rounds of balloting, after which a majority suffices. The process is expected to last several days.
Elsewhere we can expect more rhetoric about currency wars this week as political and business leaders gather in Washington for the World Bank/IMF spring meetings beginning this Friday. Over the weekend, the US treasury fired the first shot, urging Japan to “refrain from competitive devaluation” in its semiannual foreign currency report to congress. The Treasury report also urged Japan to adhere to international commitments “to remain oriented towards
meeting respective domestic objectives using domestic instruments”. The Treasury found that no country met the legal standard to be designated a “currency manipulator” but said that China’s renminbi “remains significantly undervalued”.
We’ll preview more of the week ahead a little later, but first returning to Friday where earnings beats from JPMorgan and Wells Fargo failed to spark the S&P500 (-0.28%) to its fifth straight positive session. Perhaps weighing on investor sentiment was the commentary from both banks around sluggish loan demand and net interest margins. Away from earnings, there was no mistaking that Friday was a weak day for US data. Both retail sales (-0.4% vs 0% expected) and consumer sentiment (72.3 vs 78.6) disappointed to the downside, renewing fears of another mid-year seasonal slowdown in US data.
In terms of retail sales, downward revisions to both January and February numbers perhaps hinted at the effect of higher tax rates on consumer spending. Meanwhile, the UofM consumer sentiment index fell to a nine-month low. The index of six-month expectations decreased to 64.2 this month from 70.8 in the prior period. We’ll get further indication on the direction of US data with the Empire manufacturing survey today.
In terms of price action, commodities continued to underperform other risk assets on Friday. Indeed, if we look at a longer time horizon, the S&P GSCI index has underperformed the S&P500 by about 15% in the year to date as the commodities complex continues to decouple from equities. The most notable move was gold which closed 5% lower in its largest one day drop since 2008. The precious metal has lost about 20% since the October 2012 peak. Brent (- 1.1%) and copper (-2.4%) also had soft trading sessions on Friday, a move which has been exacerbated by lower than expected Q1 growth numbers from China overnight.
China’s GDP growth was 7.7% year-on-year for the first quarter which was lower than the median Bloomberg estimate of 8.0% and lower than the 7.9% growth seen in Q4 2012. The monthly activity indicators also disappointed with industrial production (9.5% vs 10%), fixed asset investment (20.9% vs 21.3%) and retail sales (12.4% vs 12.5%) all coming below expectations.
The market reaction to the Chinese data has been negative with most major Asian bourses trading about 1-2% weaker overnight. Across the region, commodity stocks are leading declines on Monday including 4%+ falls in mining giants BHP and Rio Tinto – partly in reaction to the Chinese data but also taking the lead from last Friday’s price action in commodities. The ASX200 (-1.2%) is underperforming other indices on the back of weakness in miners, and is under further pressure with the weak Chinese data. The AUD is 0.7% weaker against the greenback. Declines in oil (-2.1%), copper (-1.9%) and gold (-2.5%) are continuing this morning.
In the EM space, acting President Nicolas Maduro was elected as Venezuela's president with 50.7% of vote, the national electoral office said after more than 99% of the ballots were counted. The opposition's Henrique Capriles Radonski had 49.1% of the vote. The head of the country's electoral council said that the "results are irreversible" (Bloomberg).
Turning to the day ahead, as discussed earlier the US dataflow continues today with the Empire manufacturing survey and NAHB homebuilders index. Citigroup reports earnings before the opening bell. Over the rest of the week, the IMF will publish its World Economic outlook on Tuesday and its semiannual Global Financial Stability Report on Wednesday.
Beyond today, the US data calendar highlights are tomorrow's CPI, building permits, housing starts and industrial production reports; followed by Thursday’s jobless claims. Also due on Thursday is the Philly Fed survey. The Fed’s latest Biege Book will be published on Wednesday. The European data calendar is relatively light with the German ZEW survey tomorrow the major data release of note. The BoE publishes minutes from its last meeting on Wednesday. Spain will auction bonds on Thursday. The Chinese government provides an update on property prices on Thursday. In Japan, the key prints include industrial production, machine tool orders (Monday) and trade (Thursday).
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Bird FLU in China. It is getting a bit scary, wires are claiming it could turn into a pandemic...
Could be very deflationary short term (all commodities lower), but it might force a very large money printing response.
Not sure why this is a surprise to anyone.
GATA got their asses handed to them in court. Now, we have financial institutions (TBTF/SIFI) that can singularly move markets by themselves. They are not under the thumb of law enforcement (U.S. AG is a sad joke, State AG's are just as bad), and after their recent win the courts on would-be "manipulation", they can do as they wish. Fundamentals don't matter, not sure what is so hard to understand here.
A couple of thoughts.
1. Coin shops are "out" of PMs, because they bought at much higher prices and have no intention of selling now and taking a loss.
2. The inflation scare in China is over. No further need for golden protection.
Time to revamp the investment model.
Silver, wow.
Conspiracies, anyone, anyone, Buhler?
Central bank manipulation to stop the rout in JPY, and hold off the parabolic blow off top in equities.
Because after the parabolic blowoff top in equities, the chasm yawns with sinister intent ...
A dangerous theatrical production ... all the world's a stage.
2 years ago every shithead pumper on the planet was here.
Now look.....
Unfortunately none of you will have any precious left in 2 weeks as you sell into 1200....
But that is fine... It is as it should be....
Nobody (that isn't intellectually limited) sells low bro.
I can't remember when I was so giddy! To be able to buy sil below 24 I would have said you're crazy, but here we are at 23.75. Any further drop and its just confirmation that shtf soon, very soon.
Reality check: Apmex Maples $28.96 .... $29.83 credit card ! Since I'm fully hoarded .... I'm rooting for them to hang tuff !
Hoarding is like being in your turnip cellar when the tornado comes .... you may lose your trashy mobile home .... but, your family, your gold and guns .... and your turnips .... will survive ! Courtesy Texarkana Associates Pre-Fab Turnip Shelters
Gold out passed inflation, just be patient let it correct and then buy some at a discount... "dollar dollar bills yo" - kenny powers...
Actually it never even remotely caught up, thanks to 4 major interventions in 2 years. But they will run out of gold eventually.
PM market is really this fragile that a couple news stories create a rush to the door? Can't believe Cyprus selling gold and china drop created this.
If you believe that then you believe there is a recovery and the eurozone is fixed and China is going to be the world economic savior and still sell cheap crap...
Krugman is a leprechaun is the simplest explanation and someone caught him by his beard and now he's got to give up the gold...
because it is dominated by leveraged speculators. Let them fall where they belong
How the Gold Market was Crashed
By: Bill Downey | Sat, Apr 13, 2013
.
http://www.safehaven.com/article/29484/how-the-gold-market-was-crashed
Gold monthly does not show oversold. Gold monthly has been way overbought for several years.
http://bullandbearmash.com/chart/spot-gold-monthly-climbs-marginally-march/
The key is the US Dollar.
The Fed balance sheet is now backed only 11.3% by gold. That is a match for the lowest ever, which happened at the top of the tech bubble.
Many gold mines function on production cost much more than $600 oz
Supply will dry up or not be met so much by the new low prices.
Well that means it is safe to print more..
I smell QE5.
Gold be dippin'!!!
The thing I would love to see come out of this is a major player trying to take physical delivery of size on the COMEX, followed by a lawsuit, of course,when the seller can't deliver anything but an IOU (i.e. fiat).
So M1 M2 has nothing to do with the gold price huh
So printing continues, bring more dollars into existence for each ounce of gold...but gold should go down??
The printed money stays with the bankers. The public doesn't see any of it.
Oh yeah? Then why am I seeing BIG construction projects breaking ground here in SW Florida where there is so much residual RE on the market or sitting vacant?
that comment lends credence to the thought that you,
my friend, might actually be the-e mr. Hudson.
hmm?
That article was from...
Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following.
http://www.paulcraigroberts.org/2013/04/13/assault-on-gold-update-paul-c...
I write articles for SeekingAlpha.com now and then. They always fight me on how they want me to write articles that promote stocks and ETFs, and all I want to do is write about owning physical gold and silver. I submitted the following article to them, which they declined, explaining how I have been right about the gold and silver markets the last year and a half, calling for a stronger dollar and explaining how I don't think this downturn will end until we get the Market Makers to get gold and sivler investors to scream UNCLE! We are close at hand if not there. Here is the article: Gold and Silver Doom and Gloom or Crack Up Boom? or http://buygoldandsilversafely.com/Gold+and+Silver+Doom+and+Gloom+or+Crack+Up+Boom%3F
!!!
"I have been right about the gold and silver markets the last year and a half"
that's not exactly a robust set of data. there were also plenty of traders who were 'right' trading stocks during the dot.com era, buying on every pullback... until they were wrong.
anyone who is biased by being either a perma-bull or perma-bear is a complete waste of time to read or follow, since they aren't capable of being able to switch their positions like every successful trader/investor should
And that's where you have it wrong Alphahunter. You see, I sell gold and silver for a living. I wrote a book about it in 2010 called Buy Gold and Silver Safely. I was a financial advisor for 20 years before I started my own broker/dealer. I expose most of the gold indsutry for the fraud that it is and sell gold and silver at 1% over my cost. Tell me one gold deaaler who has been dollar bullish since September of 2011?
I call it like I see it and I let my articles speak for themselves. And technially, I was right about the gold and silver markets for longer than a year and a half. My clietns are happy because I have been telling them to dollar cost average into a position.They didn't go all in.
I am close to writing my "all-in" article, and am capable of switching my position, but am still advocating DCA.
But gold should be viewed as insurance no matter what. You allocate what you want and forgetaboutit. That, my friend, is what sets apart the trader from the investor who protects their wealth.
BTW, even with my cautionary advice, I have had record month after month in sales since Obama got elected, and last Friday was a record day. I expect today should be just as good.
Excellent Doug, your article was like reading from an echo chamber from my social networking page. Myself and a small group of friends have invested nearly 50% of our retirement and pensions in physical, since 2009. Its been a fun ride so far and having skin in the game has made this most interesting. I never really gave a shit what the spot price of the day was and rarely even check it. The turtle wins like you say...probably this year, maybe this week.!
Thanks Himins...
Great attitude!
I just try to call it like I see it. My next book is called "Illusions of Wealth." Lots of illusions out there.
Excellent Doug, your article was like reading from an echo chamber from my social networking page. Myself and a small group of friends have invested nearly 50% of our retirement and pensions in physical, since 2009. Its been a fun ride so far and having skin in the game has made this most interesting. I never really gave a shit what the spot price of the day was and rarely even check it. The turtle wins like you say...probably this year, maybe this week.!
Tulips. Pez dispensers. Oil. Cabbage Patch Kids. NASDAQ dot-com. David Cassidy memorabilia. Real Estate. LA Lakers. Gold ?
Why is this a surprise to anyone? Like all bubbles, the gold/silver is bursting and as it has occured in every single instance, a market will end where it began.
Next stop is $1000, with support around $750 or so... silver will eventually hit $5
Wait until next year when the Fed starts to end monetary stimulus, gold will drop like a yellow rock
That's it???? I was hoping to buy both at $0...............LOL.
The only thing I hate about PM take-down days is that it brings out the fiat trolls from under the rocks.
really? and how does the treasury think it will foot the federal bill? and do you really think they will let the fattest cats in NYC go bankrupt wiping all customer accounts with digital zeroes?
If silver were to go to $20, I'd barrow from my 401K to buy all the physical I could lay my hands on. At $10, I'd quit my job and take a tax penalty to cash out my retirement savings to buy all the physical I could find.
If you'd been a reader here, you would know why the Fed cannot afford to stop the QE/monetary stimulus.
Gold isn't safe. Buy stocks! LOL.
Yeah, they tend to collapse together when the economy crashes. The gold inflation safety buy has popped.
The Fed stop stimulous??...so what are the fuck they gonna pay their bills with, Bannanas?
They cannot print less than a Trillion each year and increasing.
Gold price and M2 closely matched.... the more dollars there are per ounce of gold the more dollars you get for an ounce of gold...lest the Fed drop 500 tons of fake gold on the market in a day and as the whim takes them during the year engage in naked short selling paper gold.
I guess the clever folk here knew the Fed was about to drop 500 tons in a coordinated take down and that they have been right about it for a year and a half. So that would mean they are insiders of the Fed, or just here masturbating because their clock was right twice in the day. And if an insider of JPM then definitely a wanker.
In a market heavily controlled / interfered with by TPTB those claiming to know and be right about market movements of unbacked paper gold are simply playing with themselves, and in public.
And if they think physical gold a trade then they are not talking about physical gold but playing the paper market which is a different animal altogether.
Japan will now be buying our bonds. She's gone global, baby. You see, when local (as in one nation's) banks are bouying each other's bad debt, it's very hard to hide the fact that they are all insolvent. SO, the central banks from all around the globe have been called in to prop up each other. Especially our FED, b/c they are beyond auditing.
Yup, it's tough to have world wide central bank induced inflation when the entire global economy is collapsing. Time for the underfunded banks to sell their gold while it's still up a few hundred an ounce, so they can fund their insolvent banking cartels.
Just another day in sociopathic printing press paradise.
An updated Rothschild axiom: "Give me control of a countries money supply and I control the law makers, the markets and the gold holders."
"Under a golden bridge we kissed, although I ended up with sore lips."
- William (it was really nothing) Devane covering The Smiths.
Inflation is dead. The realization has finally topped the hope. That's why gold is going down. Next question is what will the Fed do about it when stocks plummet?
Stocks will NEVER be allowed to fall. The day they do, it is because it is game over. Grab your gold, food, guns, ammo, and hunker down...
Look at corn, wheat, oil, silver, gold, name the commodity, over the last six months, it's down.
Too many people were on the same side of the boat. The side of the boat the FED does not want you on.
FED to little guy: "How long can you tread water?"
From APMEX...
The Gold market was heavily bearish on Friday, April 12, indicated by the 400 tons of Gold that sold on the New York COMEX alone. Today, the Gold price dropped more than $100 an ounce at one point during European trading. The bear market conditions seem to be fully in place due to recent cuts to price forecasts and outflows from exchange traded products. Stan Shamu, market strategist at IG Markets in Melbourne, said that Gold’s tumble has largely been blamed on potential central-bank sales to shore up fiscal shortfalls. He goes on to say this had triggered a “breakdown of the Gold/quantative easing relationship” we have been used to.
Jonathan Barratt, founder of Barratt's Bulletin, said, “As you get closer to the cash cost production for Gold, which is around $1,200 an ounce, people get nervous.” He continues on to say that there is a lot of overreaction and believes that this offers a good entry point for investors. “For the amount of money that's going into the system, you have to take a longer-term view that stimulus will support Gold prices,” he said.
The recent action in gold and silver prices was predictable even with a coarse-grained cyclical model. The business cycle has shifted into its credit-crunch phase, and perhaps the covering of margin bets on prices is symptomatic of the price action. http://econocasts.blogspot.com
What is that sound?
ah people rushing to change gold for USD to buy Bitcoins !!!
I bought some now that is under 100$.
www.getbitcoins.tk
Greeted this morning on the Yahoo Finance sight by the bold headline "Is the Era of Gold Over".
When you see that you know that it is not.
Business Week 1979 had a headline "The End of Equities". Just a little before the biggest 20 year equity bull market in history.
Just the same as last week when gold was 1500, the banks are still insolvent. Oil and gas are still running out and wars are still brewing.
I imagine that among all the other reasons, this take-down has something to do with Germany's gold repatriation.
This from my local dealer:
Due to the recent drop in metals prices, there have been some adjustments in our silver pricing. Please note that products are currently on backorder. We are able to pre-sell 1oz. Silver Eagles and 1oz. Silver Rounds. Expect at least 3-4 weeks before your order is available for pickup. We will NOT be pre-selling any 90% Silver until further notice.