by
GoldCore
Today’s AM fix was USD 1,321.50, EUR 978.45
and GBP 822.03 per ounce.
Yesterday’s AM fix was USD 1,332.50, EUR
987.92 and GBP 830.22 per ounce
Gold slid $9.40 or 0.7% yesterday, closing at
$1,323.70/oz. Silver fell $0.06 or 0.28%, closing at $21.70. Platinum
dropped $21.70 or 1.5% to $1,404.50/oz, while palladium slipped $1.75
or 0.2% to $718.75/oz.
After initial gains, gold sold off soon after
U.S. markets opened, falling from $1,336.40/oz to $1,322.53/oz in
concentrated selling over a few minutes. Gold traded sideways in Asia
prior to eking out marginal gains in early European trading prior to
giving up those initial gains.
While data has been mixed lately, some
important data points have been negative including purchases of
second hand homes which fell for the third straight month in August.
The misguided speculation regarding Fed
tapering has begun again. A Bloomberg survey of 41 economists
last week showed 24 expect the Fed will pare ‘stimulus’ in
December. None of these same economists predicted that the Fed would
not taper last week and their views on tapering should be taken with
a pinch of salt.
As we have long contended, QE is set to
continue for the foreseeable future as a discontinuation of QE would
lead to market declines or worse and a serious recession or
depression.
It remains prudent to ignore the noise from the
Fed and the constant speculation from many analysts and economists –
most of whom have a dismal track record in predicting events before
or since the global financial and economic crisis.
Gold
analysts are bullish for a second week due to the view that ultra
loose monetary policies and budget talks risk a U.S. government
shutdown which will spur demand for gold
bullion as a haven.
According
to Bloomberg as
featured in The Washington
Post:Seventeen
analysts surveyed by Bloomberg expect prices to rise next week, seven
are bearish and three neutral. Gold, which fell into a bear market in
April, rose 7.3% since the start of July, poised for the first
quarterly advance in a year.
Bullion
is still heading for its first annual drop in 13 years after some
investors lost faith in the metal as a store of value. The Federal
Reserve unexpectedly left its bond-purchase program unchanged last
week, saying that restrictive fiscal policies pose risks for the
economy. President Barack Obama and congressional Republicans are
debating the federal budget in a confrontation that risks a
government shutdown within days.
“The
outlook is positive due to the twin risks of continued ultra-loose
monetary policies as seen in the lack of tapering and also due to
forthcoming risks regarding the U.S. debt ceiling. They may resolve
the debt ceiling, but how they resolve it is most likely to kick the
can down the road. People may buy gold as a safe haven.”
Gold prices languished from 1980 to 2000 and
had declining correlations with debt levels because GDP growth was
sufficient to mute concerns about budget and deficit issues. Debt
levels in GDP terms actually fell in the 1990’s. Also the 1990’s
was an era of great economic and geopolitical optimism with the end
of the Cold War, a more stable world and the emergence of China,
India and other emerging markets into the global economy.
This was during the Clinton presidency and
prior to the Bush and Obama presidencies which have seen the U.S.
spend money like a drunken sailor. That profligacy began soon after
September 11th and the U.S. military response to the terrible events
of that day.
It continues today despite a very precarious
fiscal position. Since September 11th the world is a far more
uncertain place and geopolitically the world is now reverting to the
instability of the Cold War years.
The
punch and judy show that is the U.S. Congress is making creditor
nations around the world very nervous and astute investors and savers
are diversifying into gold to protect from the real risk of a dollar
crisis and global currency crisis.
The Federal Reserve decision to refrain from a
QE taper is very bullish for gold.
‘Tapering’ may be put off indefinitely due
to the very fragile state of the massively indebted U.S. economy.
This means that interest rates must be kept low for as long as
possible, leading to money printing and electronic money creation on
a scale never before seen in history.
This will inevitably lead to higher gold prices
– the question is when rather than if.
QE1 and QE2, in addition to the start of the
current QE3, sent gold to record nominal highs. Misleading guidance
from the Fed and misguided speculation regarding tapering and the
possible end of QE decreased interest in gold from more speculative
buyers, contributing to its weakness in recent months. That will
change in the coming weeks and months when there is a realisation
that ultra loose monetary policies are set to continue.
Concerns
about systemic risk and currency debasement is leading to continuing
robust central
bank demand for gold.
The IMF data released Wednesday showed that
eight central banks increased their gold reserves in August, some
very significantly.
Russia, which has the world’s seventh largest
reserves of gold, increased its holdings last month by the biggest
amount since December. Russia increased reserves by 12.722 tonnes to
1,015.521 tonnes, according to the IMF’s website. Russia’s gold
holdings crossed the 1,000 tonne mark in July.
Turkey raised its gold reserves by the most in
five months in August. Turkey added 23.344 tonnes to lift its gold
holdings to 487.351 tonnes. Turkey’s increases have been bigger
this year as its central bank allowed commercial lenders to hold a
portion of their lira reserves in gold.
Turkey has bought gold in 13 of the past 14
months and Russia has added to its reserves for 11 consecutive
months.
Ukraine, Azerbaijan and Kazakhstan were the
other countries that added to their gold reserves by more than 2
tonnes each last month. Canada, Mexico and Czech Republic were among
those that reduced their holdings very marginally.
Other
very large buyers of gold,
include sovereign wealth funds, some of which are also
continuing to diversify into gold. Azernews reports
that:The
State Oil Fund of the Republic of Azerbaijan (SOFAZ) has said that
SOFAZ’s gold reserves will reach 40 tons in 2014. The total amount
of gold purchased by SOFAZ will reach 30 tons until the end of 2013,
and 20 tons of the volume will be delivered to the country.
“So
far, 26 tons of gold have been purchased, most of which has already
been delivered to the country,” Movsumov said.
He
said the process of a phased purchase of gold over three years is
effective, which allows to provide the average cost of purchased gold
considering the volatility of prices for this precious metal.
According
to the plans, SOFAZ buys gold in batches. The fund began buying gold
in the first quarter of 2012. The first batch of gold in the amount
of 32,150 troy ounces was delivered to the country on January 11,
while the second batch was brought on February 1 and the third one on
March 1.
The
continuation of ultra loose monetary policies by the U.S. Federal
Reserve and the other major central banks will lead to continuing
diversification into gold by prudent money internationally.
This
will lead to gold reaching a real (inflation adjusted) high above
$2,400/oz in the coming years.
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