Precious Metals ‘Perfect Storm’ As MSGM Risks Align

Tyler Durden's picture

From GoldCore

Precious Metals ‘Perfect Storm’ As MSGM Risks Align

Today's AM fix was USD 1,666.50, EUR 1,329.16, and GBP 1,051.88 per ounce.
Yesterday’s AM fix was USD 1,662.50, EUR 1,324.07and GBP 1,047.57 per ounce.

Silver is trading at $30.37/oz, €24.36/oz and £19.25/oz. Platinum is trading at $1,541.00/oz, palladium at $642.50/oz and rhodium at $1,025/oz.

Gold climbed $14.60 or 0.88% in New York yesterday and closed at $1,669.40. Silver surged to a high at $30.81 and finished with a gain of 2.28%. The precious metals have broken out this week with sharp gains being seen in all four precious metals.

Silver as expected led the gains and surged 8.55% in the week, palladium is up 6%, platinum 5% and gold up 3%.


Currency Ranked Returns – (Bloomberg)

Gold gave back some gains on Friday but it’s still set for its biggest weekly rise in more than 2 months due to the very strong fundamentals.

Today, US durable goods orders are published at 1230 GMT and weakness would confirm weakness in the US economy and should lead to further safe haven demand for gold.

The European Central Banker is fighting to save the European fiscal union and quantitative easing seems certain in Europe.  Investors will wait to see if central bankers are coordinating their efforts and announce further QE at the same time.

Reuters reported increased demand for bullion in Hong Kong with one bullion dealer reporting “purchases by investors in the physical market.”

There are even signs of a pickup in physical demand in India with strong buying being done by stockists ahead of the busy marriage season.

The use of the term “perfect storm” by market participants is a bit clichéd and over used at this stage however it is appropriate with regard to looking at the fundamentals driving the precious metal markets and particularly gold and silver. 


GoldPrices in Dollars – (Bloomberg)

All of the recent focus has been on the Fed and the will it or won’t it engage in QE3 saga. Many of us said long ago that some form of QE on a significant scale is inevitable. However, it is important to realise that the Fed is just one factor driving precious metals higher. 

The Fed is not the be all and end all and while the Fed can jaw bone and manipulate prices higher and lower in the short and medium term - in the long term the free market and forces of supply and demand will dictate prices.


Silver Prices in Dollars – (Bloomberg)

There is a frequent tendency to over state the importance of the Fed and its policies and ignore the primary fundamentals driving the gold market which are what we have long termed the ‘MSGM’ fundamentals.

As long as the MSGM fundamentals remain sound than there is little risk of gold and silver’s bull markets ending.

What we term MSGM stands for macroeconomic, systemic, geopolitical and monetary risks.

The precious metals medium and long term fundamentals remain bullish due to still significant macroeconomic, systemic, monetary and geopolitical risks.

a) Macroeconomic risk is seen in the risk of recessions in major industrial nations with much negative data emanating from the debt laden Eurozone, UK, Japan, China and U.S. in recent days.

It remains difficult to pinpoint the nature of the coming recessions and possibly a Depression and whether it will be deflationary, inflationary, stagflationary or the less likely but possible none the less ‘Black Swan’ of hyperinflation.

Deflation remains the primary concern of most policy makers, politicians, bankers and investors.

However, the risk of deflation is a short term one and the monetary policy response or M means that various forms of inflation remain the medium and long term threat. 

b) Systemic risk remains high as little of the problems in the banking and financial system have been properly addressed and there is a real risk of another 'Lehman Brothers' moment and seizing up of the global financial system.

The massive risk from the unregulated “shadow banking system” continues to be underappreciated.

‘Financial weapons of mass destruction’ in the world wide shadow banking system are now estimated at over $60 trillion in late 2011. 

Globally, a study of the 11 largest national shadow banking systems found that they totalled to $50 trillion in 2007, fell to $47 trillion in 2008 but by late 2011 had climbed to $51 trillion, just over its estimated size before the crisis. 

c) Geopolitical risks are elevated - particularly in the Middle East. This is seen in the serious developments in Syria and between Iran and Israel. There is the real risk of conflict and consequent affect on oil prices and global economy. 

There are also simmering tensions between the U.S. and its western allies and Russia and China. 

Recent days have seen massive industrial unrest in the platinum sector in South Africa, the largest producer of platinum in the world (some 80% of supply) and fifth largest gold producer. There are genuine concerns that unrest in the platinum sector could spread to the gold sector with a consequent impact on gold supply.

Resource nationalism is being seen throughout the world and some developing nations look set to demand higher prices in terms of debased fiat currencies for their finite natural resources. 

d) Monetary risk is high as the policy response of major central banks to the first three risks continues to be to be ultra loose monetary policies, ZIRP, NIRP, the printing and electronic creation of a tsunami of money and the debasement of currencies. 

Should the MSG risk increase even further in the coming months than the central banks response will again be by monetary and further currency debasement which risks currency wars deepening.

This risks the devaluation of all fiat currencies and serious inflation in the coming months and years.


Cross Currency Table – (Bloomberg)

Conclusion
Therefore, we remain bullish in the long term and advise that investors and savers should have a healthy allocation of their wealth in gold in a portfolio to protect against the MSGM fundamental risks.

However, as ever markets are unpredictable and in the short term can do anything. This is particularly the case today with financial markets seeing significant volatility. Euro/dollar has been more volatile than gold in recent days.

We caution that gold could see another sharp selloff and again test the support at €1,200/oz and $1,550/oz. 

If we get a sharp selloff in stock markets in the traditionally weak ‘Fall’ period, gold could also fall in the short term as speculators, hedge funds etc . liquidate positions en masse.

To conclude, always keep an eye on the MSGM and fade the day to day noise in the markets.

We remain bullish in the medium and long term and those who maintain an allocation to gold will be rewarded. However, we caution that there is the possibility of further weakness in the short term.

This seems unlikely due to the bullish technicals having aligned with the fundamentals however “event risk” is high and it would be foolish to completely discount the risk of yet one more sell off.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS

FT: Republicans Consider Returning To Gold Standard - CNBC

Gold Bulls Strongest In Nine Months As Hoard Builds - Bloomberg

Gold hovers near 4-1/2 month high, Fed eyed - Reuters

Britain's richest 5% gained most from quantitative easing – Bank of England – The Guardian

COMMENTARY

Keiser Report: Liquidity Drought – Max Keiser

Gold moving to the next major target of $4,500 to $5,000 – Resource Clips

Spam Saves The Day – Zero Hedge

Which Country Goes Bankrupt Next? (Hint: It's Not Who You Think) – Daily Finance

Indian household savings used to buy gold: RBI – Mineweb

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LawsofPhysics's picture

Fucking bring it!  That is all.

GetZeeGold's picture

 

 

We have time. I don't think the heavy stuff is going to come down for a while.

http://www.youtube.com/watch?v=8A3M-d_eIqo

 

pan's picture

Never yell "ratfarts"!

GetZeeGold's picture

 

 

Funny thing about trying to hold a beachball underwater.....one slip and it goes rushing to the surface.

 

CPL's picture

LOL!

 

Mind if I borrow that.  I have to explain something to a government client today.

oddjob's picture

Are you gonna post that everyday til it happens?

diogeneslaertius's picture

excuse me sammy, correct me if im wrong here but if i kill all da golfers theyre gonna lock me up and trow away da key

Stock Tips Investment's picture

Probably, the authorities try to keep things quiet until after the election. In any case, it remains des be a dangerous game because there are too many variables involved. All of them in a big storm.

Irelevant's picture

My bet is on `quiet` until election day. After that Hell breaks lose. Or, TPTB want a new administration, in that case Hell breaks lose early.

Lets_Eat_Ben's picture

It's hard to say who wins the election. It's much easier to think that IT DOESN'T MATTER. Bankers back both bitchez!

DosZap's picture

My bet is on `quiet` until election day

My fear,is we have a Reichstag moment, and there is no election, at this point, there is ZERO chance the Econ improves QE or no, and O is losing ground BIG time.The new movie out now on his real politcal agenda, is going viral into MSM theaters across the US,which means more and more folks are paying to see it.

So, that is NOT going to help his cause.

midtowng's picture

American public still not participating.

http://www.bloomberg.com/news/2012-08-23/gold-bulls-strongest-in-nine-mo...

Physical demand is slowing elsewhere, with sales of American Eagle gold coins by the U.S. Mint dropping 49 percent to 30,500 ounces last month, the lowest since April. The mint sold 21,500 ounces so far in August, data on its website show.

cynicalskeptic's picture

The big players buy bars or foolishly, paper claiming to represent gold (GLD anyone?).  BTW - China is buying London good delivery bars and remelting them into 1 kilo bars (making sure it's Au and not Win the process maybe?) 

Could be that most of the 'smaller players' wanting to buy have already gone all in and don't have much left to spend - and like our government have shifted their spending to more pragmatic things like .40 cal hollowpoint ammo. (It also seems that tragic boating accidents have been taking their toll of late and people don't have the funds to replace their lost stashes).   

Meanwhile the sheep continue to get fleeced, flocking to 'We buy Gold' storefronts and sell off what little they have because they're flat broke. PM's are getting sucked out of the general population and concentrated in fewer and fewer (and generally, much wealthier) hands.   

Doña K's picture

<<<PM's are getting sucked out of the general population and concentrated in fewer and fewer (and generally, much wealthier) hands.>>>>

The same is true with dollars and all other valuable colectibles.

When you have 20+% real unemploynment and wages inching lower, people will hack everything they have.

SamuelMaverick's picture

The American public (sheep / muppets ) still not participating  = BULL market ahead !

Karlus's picture

Gold, bitchez?

buzzsaw99's picture

...the Fed can jaw bone and manipulate prices higher and lower in the short and medium term - in the long term the free market and forces of supply and demand will dictate prices.

 

the goldbugs better hope not. without central banks buying tons at a time gold falls off a cliff.

LawsofPhysics's picture

right, because during a currency crisis everyone runs to paper.  < sarc off >

buzzsaw99's picture

So in your world if central banks weren't buying the price would be higher? lulza lulza lulza

GetZeeGold's picture

 

 

Filed under......believe it or not.

 

Calculated_Risk's picture

ya, cause that whole ctrl+p doesn't make a difference.

Canadian Dirtlump's picture

they've kept a floor under gold without question. Going forward I thought the prevailing idea in some of our world's (mine anyways) is that (as the article indicates) you have a series of singular scenarios which are or can happen:

supply disruption

nationalization

increased large investor buying

the miracle of increased western mongoloid investor participation

etc.

which all on their own can be positive for gold... let alone if they all coalesce together. Double the fuck down on that for silver IMO becuase many people want gold... many industries need silver - and did I read china will begin to take a position in silver along with their gold?

 

Regarding central banks recent buying of gold.. I don't think these are the nations at this point who would flush it into the market to cause a price to plummet. These guys are "fuck you anglo american banking oligarchy of predatory parasite trade on."

silverserfer's picture

buzz, you're underestimating the desperate, frantic need the CB's must buy all the gold they can get their hands on. They are positioning themselves for financial D-day.  It is their lifeboat to be able to exist and create a new fiat after the colapse. No gold, no new bank. 

cynicalskeptic's picture

China, Russia and others will be more than happy to convert their paper currency reserves to Gold.  

Should be really interesting to see what happens when the Arfabs and otehers holding 'their' gold in London and NY go to move 'their' gold to more accessible locations.... once it turns out that muich of the Gold that DOES exist in London and NY vaults has multiple ownership claims you'll see even higher prices as banks scramble to satisfy ownership claims.  You don;t want to be the one telling a Saudi Prince that his gold is now in Hong Kong under new ownership, do you?

Munkey's picture

One more sell off = one more buying opportunity.

PaperBear's picture

"gold could also fall in the short term as speculators, hedge funds etc . liquidate positions en masse" ?

Does writer of this not know that gold has been upgraded to a tier 1 asset ?

T-Silver's picture

MSGM???? How about money printing and more money printing and only money printing. Buy PM's only Pm's and more PM's.

silverserfer's picture

somebody has had a few cappuchinos this morning 

tuttisaluti's picture

The writer is probably short gold and silver....huh

Non Passaran's picture

It'd be bad if he wasn't, so that's fair in my book.

I am now temporarily short in terms of paper gold because it looks overbought to me.

francis_sawyer's picture

The simplicity of this game amuses me... BRING ME THE FINEST MEATS & CHEESES IN THE LAND!

Lets_Eat_Ben's picture

I'll take one more substantial sell-off please.

JJSF's picture

Up days in gold are sad days.. Sale wil be over soon..

http://mlatrader.com/

Non Passaran's picture

I agree. I sold most of my paper PM stuff this week.

Today I will add to my short position. The PM sector needs a small to modest pullback before it can continue going up.

oddjob's picture

I agree. Weak handed longs turning to shorts will help the price go up.

tmosley's picture

If you are going to play the traders game, might I suggest that you play the gold:silver ratio instead?  Plenty of money to be made there, and you are never in a position where you stand to lose everything due to some sudden currency event.

I would hate to be short PMs in dollar terms should new QE be announced.

Rudolph Steiner's picture

If momentum of this AG/AU ratio tumble maintains could we see ratio of 53 in the $31-$32 window? Mosley? Or $32-$33? Or neither ...?

 

Haager's picture

I don't expect a gold sell off before options expiring. Which includes only a marginal stocks sell before that day. 

Henry Hub's picture

Just what I need to know. Gold may go up in price or it may go down in price.

JPMorgan's picture

Meh screw any kind of macro analysis.

I'm just following the upper and lower moving average over the last 10 years and the fact gold has not closed a year out down on the previous year.

So that would suggest we will see $1700-$1800 gold in December if the trend remains intact (anything more is a bonus).

diogeneslaertius's picture

when the enemy swaps the real economy for a hologram pulse trading is all we have left - great caveat

CPL's picture

If they really do print then we'll see 3k.

 

Right now, this is the outcome of NZIP policies.

 

Lowering interest rates under zero using inflation as the key adjuster is printing money from thin air without actually printing money from thin air.

new game's picture

IMFO talk in 4 mos.

g=2000

s=40

l=30/100 9mm

ClassicCommodity's picture

I've got no more fiat for another sell-off. I'm also impatient. But i guess that looking at it all objectively, more time would be beneficial. I'm just getting impatient for the day when hookers are cheap and I'm rich. Im gonna be banging me a sloot each weekend :)

You Didn&#039;t Build That's picture

Marc Faber's 49 minute lecture/summary with recommendations is one of the best I have read. ZH posted his lecture here the other day:

 

http://www.zerohedge.com/news/marc-faber-keynesian-folly-missing-inflati...

 

Well worth yrou time to hear him.

diogeneslaertius's picture

couldnt agree more faber is a straight shooter