Timing & trends
WEDNESDAY morning in London saw gold recover half of yesterday’s $50 plunge per ounce, rising back above $1300 as world stock markets slipped and the US government shutdown spread to new departments.
Commodities also recovered, and government bonds extended their gains, pushing US interest rates down to 2.62% on 10-year debt.
Euro investors saw gold recover less sharply, as the single currency jumped – and Italian bonds gained – after Rome’s coalition government won a vote of confidence against former prime minister and convicted criminal Silvio Berlusconi.
The European Central Bank today kept its main interest rate at 0.5%.
Rising from near two-month lows today, gold will move to $1405 per ounce by November next year, according to the average forecast from delegates at this week’s London Bullion Market Association conference in Rome, which ended Tuesday.
The best-attended LBMA annual conference to date, its final session saw 4 leading figures from the bullion market agree that $1050 per ounce is a “key level” for gold.
“Technically it’s a good floor,” said Marwan Shakarchi, chairman of refining group MKS Switzerland.
Prices at $1050 are also, he noted, where the Reserve Bank of India bought 200 tonnes of gold from the IMF in late 2009 – a move announced during the LBMA’s conference, then in Edinburgh.
“Believe me,” Shakarchi said, “the RBI technocrats will have analyzed every angle” before deciding to buy gold at that level “as insurance”.
“The RBI didn’t take that decision lightly,” agreed independent analyst Andy Smith. “And they really do know a thing or two about gold.”
“It’s a good call,” agreed Jeremy East of Standard Chartered Bank and Philip Klapwijk, formerly GFMS and now running boutique consultancy Precious Metals Insights. But prices need to reach that level, the panel also agreed, to “clear out weak longs” from gold investments before a new bull phase can begin.
“One reason for pessimism short-term,” said Klapwijk, “is that the surplus [of total supply over jewelry demand] remains high historically. Gold needs to fall further to narrow the gap.”
On his forecast, 2013 will see net gold investment worldwide fall dramatically from 2012 to $40 billion – “close to pre-financial crisis levels.”
Elsewhere today, the shutdown spread across US government departments spread as the $17 trillion debt-ceiling drew nearer.
“There are no other legal and prudent options to extend the nation’s borrowing authority,” said Treasury secretary Jack Lew on Tuesday, again urging lawmakers to end the shutdown and avoid a possible US default on its debt repayments and spending by raising the debt ceiling limit.
Speaking at the LBMA conference’s debate on gold Tuesday, “Detroit is not an outlier,” said Andy Smith.
Defaulting today on $600 million of debt due for repayment, “The city has only half the debt per head of the US national average,” Smith noted, comparing the devalued Dollar to the debasement of ancient Rome’s currency, the Denarius.
“Can you imagine what would happen if the Fed sold what it’s bought?” said Smith, noting the US Federal Reserve’s vote last week not to “taper” its current $85bn of government purchases each month.
As the Fed’s Treasury bond holdings come due, said Smith, “It will be called one arm of government forgiving another. But it will in fact be one giant step close to Weimar [hyperinflation].”
Adrian Ash
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Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich for just 0.5% commission.
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Mark Jasayko, CFA,MBA, Portfolio Manager with McIver Wealth Management of Richardson GMP in Vancouver.
The U.S. housing recovery that wasn’t?
There has been some noticeable chatter on the newswires this morning about how the U.S. federal government shutdown might affect the so called U.S. housing “recovery.” Much of it points to the fact that mortgage approvals may take longer to process. Apparently staff at the Federal Housing Administration has been reduced by 90% during the shutdown.
Just what kind of housing recovery is this? Is it so flimsy that delays in mortgage approvals might derail it? Granted, U.S. home prices are higher than at any other time since the real estate crash that occurred from 2006-2008. I suppose higher prices are a component of a recovery. But where is the robustness? Remember, the Fed has engaged in $3 trillion of money-printing with one of the major goals being to elevate housing prices. Despite all that, it is surprising to think that economists think that delays in mortgage approvals are a threat.
I remember the last U.S. federal government shutdown. Thinking back, I cannot remember anyone talking about how it might threaten the real estate market directly. U.S. housing was pretty healthy then, recovering from the early 1990’s dip, and it was still a few years before the Barney Frank / Fannie Mae / Freddie Mac Circus that proclaimed “homes for everyone.” As a result, there was a solid foundation in terms of housing prices and not much froth yet. Housing back then was in a real recovery.
The recent rhetoric of the current “recovery” has suggested that it has been solid, that it is a beacon that will lead the U.S. economy out of its anemic growth trap, and that in some areas prices are “booming.” But what is all of that worth if it only takes a delay in mortgage approvals to get people worried?
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Michael found some statements made by a most powerful US Politician that help explain why US public is growing more cynical.