“Incredibly Bad Sentiment” Makes Gold & Bonds a Buy Says Marc Faber, as All Assets Sink Again

London Gold Market Report


“Incredibly Bad Sentiment” Makes Gold & Bonds a Buy Says Marc Faber, as All Assets Sink Again

PRECIOUS METALS fell for the 5th session in six Monday morning in London, with gold retreating to $1280 per ounce as the US Dollar rose and most other tradable assets fell once again.

London and Paris’ stock markets dropped 2.0% by lunchtime. Commodities also fell, extending their worst 1-week drop since October.

Silver prices retouched last Thursday’s 34-month low of $19.65 per ounce.

Gold last week lost 6.9% against the US Dollar, its worst drop since the crash of mid-April and the 8th worst Friday-to-Friday of the last 5 years.

“The relatively mild nature of the attendant ETF [trust fund] liquidations at only 18.8 tonnes is surprising,” writes Marc Ground at Standard Bank, noting that the 19 weeks of consecutive exchange-traded gold fund selling have averaged more than 28 tonnes.

“Perhaps the ETF sell-off is losing momentum.”

For the gold price, however, “We’re down 40% from the [2011] top,” said Tom Kendall, head of precious metals research at Credit Suisse, to CNBC this morning, “and that’s some very strong momentum for gold bulls to fight against.

“What we’ve seen is a lot of fear removed from the markets over the last two to three years. One of the big fears now playing against gold prices is the fear that we’re going back into a world of positive real interest rates.”

Government bond yields rose further Monday morning as debt values fell, taking 10-year US Treasury yields up to 2.64%.

Nearly one percentage higher from 12 months ago, 10-year US yields are now well above the last reading of US consumer price inflation at 1.7%.

“Right now equities, bonds and gold are very over-sold,” said Dr.Marc Faber – author of the Gloom, Boom & Doom Report – to Bloomberg on Friday, “and they could easily rally.”

Compared to the stock market however, “sentiment in bonds and gold is incredibly negative. In other words, as a contrarian I would rather buy bonds and gold than equities.”

Also giving a reading contrary to the headlines about ending QE which followed Ben Bernanke’s press conference last Wednesday, “Unless the economy has essentially fully recovered by mid-2014, more QE will be forthcoming,” said Faber.

“Gold miners are as hated as anything I’ve seen,” CNBC today quotes Arnold Espe, co-manager and vice-president of mutual fund portfolios at USAA.

World-leading gold miner Barrick will this week lay off one third of the 400 staff at its corporate HQ, the Toronto Sun reports.

In US gold futures and options, speculative traders last week slashed their bullish betting below the “net long” low of late 2008, new data showed Friday.

Globally, fund managers now hold a record-low allocation to commodities, according to Bank of America Merrill Lynch.

US investors have meantime pulled a record volume of money out of bond funds this month, according to TrimTabs Investment Research, beating the previous low of October 2008.

“Lost decade for bonds looms with growing stocks returns,” says a newswire headline today.

Meantime in China – the world’s second-heaviest market for gold after India – the Shanghai and Shenzen stock markets today sank 5.3% and 6.1% respectively, the worst 1-day drops in 4 years.

With overnight interest rates still high, but well below this month’s spike above 10%, “Overall bank liquidity conditions are at a reasonable level,” said the People’s Bank in a statement on its website this morning.

Instead of pumping loans into China’s money markets, the PBoC tells commercial banks to “prudently manage risks that have resulted from rapid credit expansion.”

Over in India today, shares in major gems and jewelry companies sank by up to 20% on rumors of fresh government action to try and curb gold demand and thus imports.

“Falling gold prices, [Reserve Bank] policy, and impositions of high taxes are primary reasons,” the Economic Times quotes A.K.Prabhakar at Anand Rathi Financial Services, who also warns that “demand for gold will slump further” if buyers are forced to show their tax-number PAN card.

Purchases worth over 500,000 Rupees ($8,300) already require the buyer to present their PAN card, which is issued by the Income Tax Department.

A central bank committee proposed in February making PAN cards mandatory for all gold purchases. India has a 1% wealth tax, applied on assets and portfolios worth over INR 1,500,000 ($25,000).

The government of neighboring Sri Lanka at the weekend imposed a new 10% import tax on gold, aimed at restricting gold smuggling to India spurred by New Delhi’s recent curbs.

Adrian Ash