At a Glance – Market Update Contents
Market Week - Precious metals have been mixed this week with gold marginally higher up 0.65%, silver 2.4% lower and the PGM metals higher with platinum 1% higher and palladium 3.3% higher.
Bernanke on Gold - In testimony before the Senate Banking Committee, Federal Reserve Chairman Bernanke remarked: “People hold gold as disaster insurance.”
Reuters Precious Metals Poll - We expect gold prices to end this year above $1,550/oz, 20% above current levels at just under $1,300/oz.
Precious Metals Prices/Fixes/Rates/Vols – (Bloomberg)
Today’s AM fix was USD 1,286.00, EUR 981.53 and GBP 843.45 per ounce.
Yesterday’s AM fix was USD 1,279.75, EUR 975.79 and GBP 842.00 per ounce.
Gold rose $8.00 or 0.63% yesterday and closed at $1,283.70/oz. Silver climbed $0.06 or 0.31% and closed at $19.38.
Gold Prices/Fixes/Rates/Vols – (Bloomberg)
Gold edged up in Asian and European trading and is on track for a marginal gain – its second consecutive weekly gain.
The rally has made some shorts scramble to cover their positions but there remains a very high risk of a significant short squeeze that will propel gold prices higher in the coming weeks. This is due to still robust demand for physical gold in much of the world including India and China.
Detroit’s bankruptcy is a harbinger of things to come as large states, such as California and Illinois, are also very vulnerable to bankruptcy.
Many American cities and states have been living well beyond their means for decades and this is finally coming home to roost. This will exacerbate the already very poor fiscal position of the U.S. with its nearly $17 trillion in national debt and over $80 trillion in unfunded liabilities.
Fed Chairman Bernanke clarified his somewhat confusing recent position to the U.S. Senate banking committee by emphasizing that there is no set timeline for winding down its QE program.
Bernanke continued to be contradictory yesterday and as ever, it is best to watch what central bankers actually do rather than what they say.
Interest rates remain near zero and are set to remain there for the foreseeable future and this will lead to continued diversification into gold.
However, we are now in the summer doldrums and there is an increasing lack of liquidity and this could result in a further bout of gold weakness and gold testing support at $1,200/oz again.
Market Week
Precious metals have been mixed this week with gold marginally higher up 0.65%, silver 2.4% lower and the PGM metals higher with platinum 1% higher andpalladium 3.3% higher.
The Japanese yen has come under pressure again in currency markets and is 1.5% lower against gold this week.
Equities have eked out marginal gains this week except for the Nasdaq which is down a marginal 0.04% and the Shanghai SE which is down another 2.3% this week. Even the Russian MICEX is 1.4% higher this week despite the Navalny verdict.
Government bonds also had a good week and most markets have risen in price and saw yields fall. The US 10 year fell from 2.601% at the open Monday to 2.52% today. The exception was Hungary where 10 year yields ticked higher to 5.7%.
There is a real sense of a ‘calm before the storm’ in government debt markets (see below).
Commodities and the energy commodities of oil, gas and gasoline in particular, are seeing strong gains with NYMEX oil up over 2% for the week and natural gasup over 5% in the week.
Energy Commodity Prices- (Bloomberg)
Food commodities were mixed. Corn collapsed nearly 25% at the start of the week and wheat and soybeans have also seen losses while coffee and sugar were higher and cotton flat.
Agriculture Commodity Prices- (Bloomberg)
Bernanke on Gold
In testimony yesterday on Capitol Hill before the Senate Banking Committee, Federal Reserve Chairman Bernanke remarked:
“Gold is an unusual asset. It’s an asset that people hold as disaster insurance. A lot of people hold gold as an inflation hedge. But movements of gold prices don’t predict inflation very well, actually. But anyway, the perception is that by holding gold you have a hard asset that will protect you in case of some kind of major problem.
I suppose that one reason gold prices are lower is that people are less concerned about extreme outcomes, particularly negative outcomes and therefore they feel less need for whatever protection gold affords…
Gold price going down is not necessarily a bad thing from that perspective. It suggests people have somewhat more confidence, and are less concerned about really bad outcomes.”
Cross Currency Table – (Bloomberg)
Bernanke failed to admit that gold is “disaster insurance” that will protect people from the monetary disaster that the Federal Reserve’s and other central banks currency debasement may bring about.
Bernanke concluded his analysis of gold by saying:
“Nobody really understands gold prices and I don’t pretend to understand them either.”
People, all over the world who have been buying physical gold in recent months understand gold and know that it is a hedge against currency devaluation.
Bernanke is feigning ignorance and being negative on gold in order to maintain faith in the dollar which is his primary role.
Bernanke’s comments are ironic as his ultra loose monetary policies and that of his predecessor Alan Greenspan which led to the rise in gold prices in recent years.
Reuters Precious Metals Poll – Q3, 2013
1. Where do you expect gold prices to end this year? Please specify a range from the following: > Above $1,650 > $1,550-1,650 > $1,450-1,550 > $1,350-1,450 > $1,250-1,350 > $1,150-1,250 > $1,000-1,150 > Below $1,000
We expect gold prices to end this year above $1,550/oz, 20% above current levels at just under $1,300/oz. However, in the short term anything is possible and 2013 could be the first year of lower prices since the 6% fall seen in 2000.
We remain very comfortable with our long term price target of $2,400/oz – the real, inflation adjusted high, from 1980 which should be seen before 2015.
2. What will bring gold prices out of the overall downtrend we’ve seen so far this year?
Continuing robust physical demand from central banks and especially from store of wealth buyers in the EU, U.S., the Middle East and Asia – especially China.
3. Do you see further systemic risk to the euro-zone having an impact?
Yes, the Eurozone financial system is a car crash waiting to happen. Politicians and bankers have managed to “kick” the debt crisis can “down the road” but they will soon run out of road.
The root cause of the problem is too much debt and this problem has not been addressed at all.
Any one of Greece, Spain, Portugal and or Italy could trigger a new crisis in the summer and autumn and this will lead to renewed safe haven demand for gold – both in the Eurozone and internationally.
There is also the not inconsequential risk of debt crises in Japan, the UK and the U.S.
4. How will demand for silver, platinum and palladium be affected by the wider macroeconomic picture?
All precious metals now have favourable supply demand characteristics and we believe that diversification into and even small allocations to silver, platinum and palladium should propel their prices higher.
In the event of a severe deflationary event or a global Depression, the PGM metals would be vulnerable but gold and silver would benefit due to safe haven demand for very rare, hard assets that cannot default, be “bailed-in” or go bankrupt.
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