GOLD INVESTMENT prices slipped back below $1200 per ounce Friday as the Dollar rallied despite a cut to 2014's US economic official growth estimate.
That cut gold's weekly gain to 1.3% for US investors, while Euro prices held 0.9% above last Friday's finish.
Silver also slipped, matching gold's week-on-week rise just shy of $17 per ounce, as US crude oil slipped back below $50 per barrel.
Eurozone and US stock markets meantime recovered a little of the week's sharp losses as the Bureau of Economic Analysis confirmed its estimate of GDP growth for 2014 at 2.2%, down from the initial estimate of 2.6%.
The Dollar steadied on the FX market but headed for a second weekly drop on its broad trade-weighted index.
Rising 13% since this time last year against a basket of the world's other currencies, the Dollar hasn't fallen for 3 weeks running since July.
"If the Dollar does keep its uptrend," says Erik Norland, senior economist at derivates exchange the CME Group, "it will likely put pressure on gold prices in USD terms but not necessarily from the perspective of buyers using other currencies."
Against the 1% rise in Dollar terms since New Year, investment gold today held 12% higher against the Euro.
Silver priced in Euros has risen 21% so far in 2015, matching the gain in Germany's Dax index of Frankfurt-listed companies.
Viewed in the Dollar however, "Both metals are not only trading far below their  peaks," says the CME's Norland, "but also far below their inflation-adjusted highs set in 1980.
"This gives a sense of the scale of their downside and upside potential."
Back in Friday's action, "Euro gold very firm above €1100," says the trading desk at Standard Bank in London, pointing to "the Greek payment deadlines drawing closer with no real resolution in site."
Athens today sent a revised list of reform proposals to its Eurozone and IMF bail-out lenders – the third such list in a month.
The Greek government also denied a report in German tabloid Bild that finance minister Yanis Varoufakis is about to resign.
"The yellow metal, like the [Japanese] Yen, clearly retains 'haven' cachet," says an op-ed in the Financial Times, linking gold's rally through $1200 on Thursday to investment capital seeking shelter on news of the Saudi air-strikes in Yemen.
"Geopolitical tensions decay after the first jolt," the FT says. "Inflation really is of little concern for now. Rates are going up, surely."
Gold and silver ETF investors in fact cut their holdings this week, with the quantity of gold bullion needed to back shares in the giant SPDR Gold Trust (NYSEArca:GLD) falling another 6 tonnes Thursday as prices broke above $1200, and retreating to what was a fresh 6-year low in early January at 737 tonnes.
Coming through share cancellations as investor demand for the GLD product declined, yesterday's drop took the fall in the exchange-traded trust's gold backing to almost 5% from early-February's 5-month high.
Stock cancellations in the iShares Silver Trust (NYSEArca:SLV) meant the quantity of bullion needed to back its shares fell a further 44 tonnes, extending the drop from early March's 2-month high to almost 1% at 10,074 tonnes.
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World Gold Council agrees that a strong US dollar may put pressure on gold, WGC analysis suggests that their relationship is asymmetric: gold prices rise more on a weak dollar than they fall on a strong dollar. Further, history shows that the portfolio benefits of gold outweigh the headwinds created by a strong dollar.
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At present only 15 banks are allowed to import Gold. Chinese consumers had to pay high premiums to ensure fast delivery of the yellow metal. The new move is likely to bring down premium on Gold. More competition can be expected which may lead to the dip in premiums.
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GOLD PRICE gains of 2% as it burst above $1200 per ounce this morning faded in London trade Thursday lunchtime, with the metal edging back to 3-week highs as world stock markets extended yesterday's sharp drop in US equities.
Crude oil spiked overnight to 2-week highs above $50 per barrel after Saudi Arabia led a Middle Eastern alliance in bombing rebel Houthi targets in Yemen – a move condemned by Iran's government as "US-led aggression".
China gold premiums then dropped to two-month lows as the Dollar gold price surged at the start of London trade, gaining 1.4% between 7 and 8am GMT as the Euro currency also rose to trade above the record spike to $1.10 following last week's more timid-than-expected US Federal Reserve outlook on Dollar interest rates.
Thursday's FX move quickly pulled the gold price in Euros down from a brief 7-week high above €1106 per ounce.
US Treasury yields meantime rose further from Tuesday's 7-week low, touching 1.95% as bond prices fell.
"Even with some normalization," said US Fed 'hawk' James Bullard in a speech in Frankfurt, "monetary policy will remain exceptionally accommodative."
"Dip-buying looks likely to continue [and] the short-term outlook remains positive; however gold has a lot of work to do," says one Asian trading desk.
Gold's "recent price slump below $1150 per ounce may be encouraging greater demand from price sensitive emerging market buyers," reckons bullion bank HSBC's analyst James Steel, "notably in India and China."
Chinese inflows of gold have "been suffering from weak investment demand and a clamp-down on corporate gift giving," counters French investment and bullion bank Natixis in a note.
New data today said China's net gold imports through Hong Kong fell again in February, marking the eleventh year-on-year drop of the last 12 months.
"[Early] 2014 was exceptional, and February 2015's level is still high historically," says Australian bank Macquarie in a note on China's domestic gold imports data.
Capturing flows directly to Shanghai which replace at least some of the flows previously going through Hong Kong, the Chinese customs data show a drop of 30% in gold imports so far this year from January-February 2014, Macquarie says.
Today's new Hong Kong data showed a 27% drop in net gold inflows to China year-to-date.
"There will be more competition and that will drive down premiums," the Wall Street Journal quotes Albert Cheng, managing director for the Far East at mining-backed market development organization the World Gold Council, commenting on last week's news that Beijing will ease gold import rules for more companies from 1 April,
Gold premiums on Shanghai's busiest domestic gold contract slid Thursday to equal $1.60 per ounce by the close, down below half the last 6 months' average as world prices rose.
China now faces "the last one kilometre" to making its Yuan curency fully convertible, State Administration of Foreign Exchange (SAFE) policy head Wang Yungui told a news conference today.
"It's viable for China to steadily achieve capital account convertibility, but controlling risks remains the top priority."
Exports of wholesale gold bullion bars are currently banned by Beijing. Exports of jewelry were estimated by Macquarie at perhaps 750 tonnes – more than one-sixth of accepted global demand figures – for both 2013 and 2014.
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Pakistan imported 354 kilogram of yellow metal worth of $14.476 million during the first eight months of current fiscal year as against 4,177 kilograms valuing $172.950 million during July-February 2013-14.
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According to Macquarie's calculations of Chinese customs data, the country imported 122 tonnes of gold in February, up 10% compared to January but 33% lower compared to February 2014.
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Trying to beat zero rates at home? Go nuts with the FX version of money illusion...
YOU'VE no doubt heard of money illusion, says Adrian Ash at BullionVault.
People tend to see changes in prices only in cash, not in real terms. So any rise or fall in fact masks inflation in the cost of living.
You think your investments are doing better than they are. You think your wages must grow if you're to enjoy a pay rise. All thanks to money illusion.
The noflation of early 2015 makes money illusion less of a risk for investors. The zero per cent headline rate reported for both UK and US consumer prices this week means that, whatever a UK or US investor's nominal returns, they made the same in real terms too.
But with inflation AWOL, and the money illusion now absent, UK and US investors wanting to boost their returns face another risk – FX delusion.
The Times of London last week quoted stock-brokers and other salesmen advising UK savers to "pick Europe or Japan" if they're thinking about overseas investments.
Yes, really. Apparently there is "greater upside potential in Europe" but Japan also has "an accommodative central bank."
No kidding. The Bank of Japan is so "accommodative" that it is now printing more QE money in 2015 than even the government in Tokyo can borrow. 120% of gross debt issuance this fiscal year, to be precise.
Whether or not this means hyperinflation sometime in the future, it certainly means a much stronger stock market right now. The flood of QE cash pouring out of the central bank keeps spilling out of the bond market into other Japanese asset prices, even Tokyo land and housing.
The trouble with Japanese assets, however, is that they are priced in Japanese Yen. That might make them look "cheap" with the Yen trading down at 6- and 7-year lows on the FX market. But for overseas investors, it also means that stock-market gains to date – plainly driven by the Bank of Japan's kamikaze QE – have been pretty much negated by currency devaluation. Because as the Nikkei share index has risen, so has the number of Yen it takes to buy back your own currency should you want to take profits.
Here is the delusion laid bare.
Over in Euroland, stock markets have meantime been hitting fresh 7.5-year highs. And so they should. Because the European Central Bank is finally following Japan...pouring €60 billion per month into financial assets.
Trouble is, Eurozone corporate earnings – the money which listed companies are actually making from the business they do – haven't risen anything like as fast as share prices.
Returning 140% to investors since the financial crash bottomed in March 2009, Eurozone equities as a group have seen their price/earnings multiple rise some 230%. That is a triumph of hope over reality according to Albert Edwards, strategist at French investment bank Societe Generale.
Because it means investors have rated the shares ever more highly, getting ever fewer cents of earnings for each Euro of price.
So how about sticking with US stocks, or switching there if you're a UK saver? Domestic investors can side-step FX delusion entirely, and non-US buyers might get extra gains thanks to the rising Dollar as well. But with the US currency already surging 15% over the last 12 months – faster than anything outside the Lehman's meltdown of late 2008 or the Volcker Fed's attack on inflation of the early 1980s – today's interest-free version of the "Super Dollar" might itself need to pause. And as for equities, Wall Street has now enjoyed the longest run of gains since WWII, with the S&P 500 rising 200% since QE began and the market bottomed in March 2009. That's the third biggest 6-year change ever, just behind 1929 and 1999, says Edwards.
Famously, those bull markets "did not end well."
Panicked in 1930, however, investors fleeing the stock market crash at least found 4% annual yields offered by long-term US Treasury bonds. Y2K's tech bubble refugees found somewhere even nicer to hide in 2000, with 10-year Treasury yields offering 6.5% per annum (that's nominal. Real yields held around 3%. Money illusion eh? ) Whereas today, yields on US bonds pay barely 2% per annum gross (scarcely 0.4% real) while German yields are "at negative levels even beyond a 5-year maturity," as US fund manager John Hussman notes.
Crazy is as crazy does. So with Eurozone bond yields now below zero, even Japanese government bonds are now looking attractive to some European fund managers.
Yes, really. Bond yields fall when bond prices rise. Here's a chart of Japanese government bond yields.
So, you might ask, what's our own brand of snake oil here at BullionVault...?
None of the above, of course – not the over-extended US stock market, over-priced Eurozone, FX delusion of Japanese stocks, or the 'safe haven' delusion of government bonds now trading at such high prices that investors are buying a guaranteed loss thanks to negative yields (nominal. Adjusted for what little inflation there is, the real yield is lower again).
Nor do any of those things, however, mean that managed money must pour into gold or silver any time soon. And even when the stock market tumbles, gold and silver still pay you no interest, remember. Which is why your financial advisor hates them. And if the stock-market does fade from these new global peaks, lots of salespeople from lots of stock-brokers and asset management firms will find lots of other things to recommend instead.
But to reverse what John Dizard at the Financial Times wisely noted way back in 2007:
"Years of high return on risk capital go with years of low returns on gold."
Those years of high stock and bond-market gains are getting pretty long in the tooth. It is also now three long years since gold and silver began their 35% and 70% drops.
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GOLD PRICES hit new 3-week highs within 25 cents of $1200 per ounce Wednesday lunchtime in London, but edged back as the Dollar continued its retreat on the currency market and world stock markets slipped.
Silver again rose faster than gold prices, touching new 5-week highs above $17 per ounce before dropping back.
"Momentum indicators are now decidedly bullish," says a gold price analysis from Canadian bullion bank Scotia Mocatta.
"However, the recent rally has yet to test the March 6th open at 1198 [after which gold sank $35] or expected resistance at 1200."
"General expectation," says a London trading desk, "was that a break through $1190 should trigger stops, but these failed to materialize" ahead of Thursday's Comex gold options expiry.
"Look for stops in the $1180-82 area on the downside and $1206 on the upside. In the meantime trade the $1185-1205 range."
Longer term in 2015, "Gold prices may weaken," says the new 2014 Gold Yearbook from New York-based consultancy CPM Group, pointing to "investors' likely negative views toward gold and commodities in the face of imminent US interest rate increases."
There is "no compelling reason" to raise US interest rates any time soon, former advocate of strong Dollar rates, US Fed member Charles Evan today told an audience in London. Indeed, the currency's recent strength risks embedding "clear disinflationary pressure" into economic expectations, depressing activity.
But with gold prices already 35% down from the 2011 peak, "People are less fearful now," Bloomberg quotes CPM director Jeffrey Christian, "and barring any catastrophe, there are no reasons for people to rush to gold."
Having been dominated by bearish bets ahead of last week's US Fed statement on maintaining its zero interest rate policy, the top five strikes in Comex April gold options – set to expire tomorrow – are now 60% bullish, according to Reuters data.
Gold bullion holdings for the New York-listed SPDR Gold Trust (NYSEArca:GLD) were unchanged near 3-month lows Tuesday, but other gold ETFs saw outflows according to Standard Bank's London team.
The giant iShares Silver Trust (NYSEArca:SLV) shed 45 tonnes Tuesday as the number of shares in issue – backed by the trust's metal – fell to a 1-month low.
"ETFs back to the recent trend – liquidation," says Standard Bank's trading-desk update. "Still above the lows seen in January, but reflecting the general sentiment for precious metals, especially as equities keep trading near recent highs."
China's main stock market hit fresh 7-year highs Wednesday morning after the People's Bank cut a key lending rate for the 3rd time this month.
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BUY GOLD bids eased back in London trade Tuesday lunchtime, pulling spot prices down from a new 2-week high after US consumer price data beat forecasts of negative inflation.
Last month's headline CPI showed 0.0% growth from February 2014.
So-called 'core' CPI – with food and fuel excluded – rose 1.7% annually, just ahead of the Wall Street consensus.
Separate PMI data from HSBC/Markit earlier said China's manufacturing sector shrank again this month after stabilizing in February.
The US Dollar rallied from new 2-week lows on the FX market, knocking the Euro back from $1.10 and edging prices to buy gold down $7 per ounce from $1195.
"Short-covering was a key motivator behind [last week's] rally," says a note from the Hong Kong team at Japanese trading house Mitsui Precious Metals.
"With resurgent commodity markets," agrees David Govett in London for brokers Marex Spectron, "the reason is straightforward – short covering," with bearish traders forced to buy gold contracts to close their short positions at a loss.
But following last week's jump in gold prices from near 5-year lows, "So far we have seen no pick up in futures volume above $1180 per ounce," cautions a note from Danish bank and spread-betting bookmakers Saxo Group.
"[This] could indicate that most tactical stops have already been taken out."
Besides last week's short covering, however, prices to buy gold rose on "a reversal in the US Dollar," says Jonathan Butler at Japanese conglomerate Mitsubishi.
"With a little further to run [in that pullback], gold's uptrend could be sustained."
Euro gold prices rose Tuesday to €1090 per ounce, just shy of last week's finishing level.
British savers wanting to buy gold earlier saw the price in Sterling briefly pop above £800 per ounce for the first time in 5 weeks after UK inflation slowed to 0% from a year ago on official data.
"Gold has stabilised above the support zone of $1150," says the latest technical chart analysis from French investment bank and London bullion market maker Societe Generale.
"An extended recovery looks more plausible," it goes on, pointing to $1198 "and even $1223" over the next 1-3 months.
"It's time to buy a dip," agrees Bank of America Merrill Lynch's short-term trading team, advising an order to buy gold on a drop below $1175 – last seen at the start of US trade Friday.
"Pullbacks should not exceed the March 17 low at $1143," BAML adds, setting targets at $1307 and then $1345 per ounce.
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