GOLD SUPPLY DEMAND TRENDS & ETF ANALYSIS

Sustained Central Bank demand for gold supports the colclusion in The Goldwatcher that the gold mining industry needs central banks and central banks need gold.

In his 1997 Lecture   “The International Monetary System in the 21st Century Could Gold Make a Comeback the Nobel Laureate Economist Robert Mundell predicted :

“More likely, gold will be used at some point, maybe in 10 or 15 years when it has been banalized among central bankers, and they are not so timid to speak about its use as an asset that can circulate between central banks. Not necessarily at a fixed price, but a market price.”

Infographic 1

Source World Gold Council  Supply and Demand Trends Analysis 

GOLD DEMAND ANALYSIS

2013 2014 2015 Q1’15 vs Q1’14
Tonnes 2013 2014 Q2 Q3 Q4 Q1 Q2 Q2 Q4 Q1 % chg
Jewellery 2,670.7 2,457.2 822.9 628.4 614.7 620.2 590.2 591.6 655.1 600.8 -3
Technology 354.1 346.5 93.9 87.0 83.6 81.9 86.4 87.9 90.4 80.4 -2
Electronics 248.4 277.6 65.3 61.4 59.1 65.0 68.9 70.7 73.0 63.7 -2
Other Industrial 82.7 49.0 22.5 20.0 19.3 11.5 12.6 12.3 12.6 12.0 4
Dentistry 23.0 19.9 6.1 5.6 5.2 5.3 4.9 4.9 4.8 4.7 -11
Investment 785.9 820.6 162.3 202.2 161.3 268.0 199.2 182.9 170.6 278.8 4
Total bar and coin demand 1,702.0 1,004.4 593.8 320.9 346.5 281.5 237.1 223.4 262.5 253.1 -10
Physical Bar demand 1,335.8 726.0 472.0 262.4 261.4 201.3 170.0 166.9 187.9 193.5 -4
Official Coin 266.3 204.6 85.8 42.2 67.0 64.4 49.2 36.1 54.9 45.0 -30
Medals/Imitation Coin 99.9 73.8 36.1 16.4 18.0 15.8 17.9 20.4 19.7 14.6 -8
ETFs & similar products* -916.0 -183.8 -431.5 -118.7 -185.2 -13.5 -37.9 -40.5 -91.9 25.7 -
Central bank & other inst. 625.5 588.0 166.5 138.9 150.0 119.8 157.2 176.7 134.2 119.4 0
Gold demand 4,436.3 4,212.4 1,245.6 1,056.4 1,009.6 1,089.9 1,033.0 1,039.2 1,050.4 1,079.3 -1
LBMA Gold Price, US$/oz 1,411.2 1,266.4 1,414.8 1,326.3 1,276.2 1,293.1 1,288.4 1,281.9 1,201.4 1,218.5 -6

GOLD ETFs GLOBAL HOLDINGS

 1041 TONNES  VALUE US $40,305m

Product name Total Tonnes Total Ounces Total Value
New York Stock Exchange Arca (NYSE Arca) AND Singapore Exchange (SGX) AND Tokyo Stock Exchange (TSE) AND Hong Kong Stock Exchange (HKEx) AND Mexico Stock Exchange (BMV) SPDR® Gold Shares 715.260 22,996,326 US$27,681m
London Stock Exchange (LSE) AND NYSE Euronext Paris AND Borsa Italiana AND Frankfurter Wertpapierbörse (Deutsche Börse – Xetra) Gold Bullion Securities 138.13 4,441,056 US$5,274m
London Stock Exchange (LSE) AND NYSE Euronext Paris AND Borsa Italiana AND Frankfurter Wertpapierbörse (Deutsche Börse – Xetra) AND NYSE Euronext Amsterdam ETFS Physical Gold 152.66 4,908,200 US$5,825m
Australian Stock Exchange (ASX) Gold Bullion Securities 11.16 358,789 US$426m
Johannesburg Securities Exchange (JSE) New Gold Debentures 28.38 912,310 US$1,099m

 

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GOLD FOR SLEEPWALKERS – GREECE & HER CREDITORS

#Chart added 24th May

IMF PRESIDENT LA GARDE REFUSES DEBT RELIEF EXTENSION

#NOTE ADDED 21st MAY 2015

DEPOSITORS FLEEING GREEK BANKS:

Depositors are responding to the risk of waking up one morning to discover their  Euro deposits have been convered to drachmas.

lst May :Rating agencies say no default if Greece misses ECB/IMF payments

# 23rd April: The ECB has agreed to expand ELA (emergency lending program) to Greek banks by €1.5bn to €75.5bn. as long as they stay solvent. The Greek bank share index roseover 13% on Wednesday. Link to Reuters comment

BACK TO APRIL 21st POSTING

German,  Greek, European and other interested  finance ministers are in  Washington for the annual joint meetings of the IMF and the World Bank together with the great and the good among the world’s major policy makers and economists. They have  an opportunity to help bridge the differences between Greece, the IMF and Europe. The Brookings Institution were quick off the mark.

SCHAUBLE AND VAROUFAKIS AT BROOKINGS:

Brookings introduced their support with this comment:

‘As finance ministers from around the world gather in Washington, DC this weekend for the annual meetings of the IMF and World Bank, Brookings hosted two of them, separately, in back-to-back events yesterday: Germany’s Wolfgang Schäuble, and Greece’s Yanis Varoufakis. The convergence of the two ministers is of particular interest because the government in Athens is out of money, is unable to borrow on global bond markets, and is dependent on loans from the rest of Europe and the IMF. But Greece’s creditors, including Germany, are reluctant to lend Greece more money unless Athens institutes firm commitments to make Greece economically more competitive.’

‘Against this backdrop, the two foreign ministers gave remarks and answered questions in the two events at Brookings. Senior Fellow David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy, participated in both events, and spoke on NPR this morning about what he heard.

“Both sides say they are looking for common ground,” Wessel told NPR’s David Greene,”but right now it’s hard to see what policies will fly politically in Greece and satisfy the conditions set by the IMF and Europe. It’s a game of chicken: each one expects the other side to blink first. And Greece is taking a hard line, expecting the creditors will flinch because they are afraid that if there is an implosion in Greece that will produce a lot of problems in other vulnerable countries.” You can listen to the interview below this video, which highlights various remarks of the two finance ministers.’

The Greek economy and its global partners: A conversation with Greek Finance Minister Yanis Varoufakis

Eurozone at a crossroads (again) : A conversation with Wolfgang Schauble.

I found listening to both talks brought insight on the contentions between them  and personal respect for both Schauble and Varoufakis.  Without in any way distracting from their knowledge or sincerity both could  come from central casting.

MUNCHAU ON THE PROSPECTS FOR A GREXIT

Wolfgang Munchau writes  In a Financial Times article ‘Greek default is necessary but Grexit is not.’  For Greece, defaulting on debt to the IMF and ECB  ‘ is the only route to short term relief …..but no one has ever done it.’ After reviewing  options open to Greece Munchau  finds ‘the economic case for a debt default  overwhelming.’

However he brands  Eurozone’s crisis management as  ‘catastrophic’ and doubts the Greek government has the experience or resources to manage the complexities of  a default without a Grexit  causing  incalculable economic risk to Greece and harm to  the EU’s geopolitical ambitions and global reputation.’

SOME INDICATIONS ON GREXIT COSTS:

Varoufakis warns unambiguously on the social and financial disaster for Greece  that would follow a Grexit.  Financial markets agree. Investors have dumped Greek Bonds, The 2 year yield has jumped above 28%. and credit default swops are soaring. Capital is flowing out of Greece and expectations for Greek economic growth are heading into freefall.

Europe and Germany in particular are also exposed to serious direct  financial losses likely to flow from a Grexit. Tzipras is already raiding  funds to keep afloat . He may be forced to call a referendum to seek a new political mandate and,  following a Grexit,  Germany  will be exposed to substantial losses through the Eurozone’s Tier 2 payments arrangements.

SLEEPWALKING & OTHER POSSIBLE OUTCOMES:

A safe bet bet with Europe is contentious  issues will be despatched to the long grass. My guess is that’s less likely with this issue. A key theme  of Varoufakis’s Brookings talk was enough of the extend and pretend – it hasn’t worked in the past and won’t in future. But, faced with the alternatives of a financial disaster that could be resolved with debt maturity extensions at near zero cost ,the Syzira government will be wise to reach a survival accommodation even if an element of pretend and extend remains.

But accidents  happen and Munchau writes at the end of his analysis quoted above:

‘I think I know the answer to that, and wonder whether one or more people on both sides of these discussions may simply be miscalculating. We may be on the verge of one of those sleepwalking moments in European history.’

GOLD FOR SLEEPWALKERS?

Pundits are again screaming from the rooftops its time to buy gold. The Goldwatcher Golden Rule is moderation. Gold, bought in moderation at a reasonable price can be useful insurance against the unexpected and the unthinkable. Gold as a speculation calls for different motivation.

For information on The Goldwatcher 2015 update and price forecast review please email

Thegoldwatcher@icloud.com

 

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READERS ARE REMINDED THIS WEBSITE IS NOT ADVISORY.

COMMENT AND ANALYSIS IS NOT PROVIDED AS INVESTMENT ADVICE AND MUST NOT BE USED AS INVESTMENT ADVICE

WARNING ON $57 TRILLION SURGE IN GLOBAL DEBT

A new McKinsey Global Institute study finds:

Seven years after the bursting of a global credit bubble resulted in the worst financial crisis since the Great Depression, debt continues to grow. In fact, rather than reducing indebtedness, or deleveraging, all major economies today have higher levels of borrowing relative to GDP than they did in 2007.

“Global debt in these years has grown by $57 trillion, or 17 percent of global GDP (Exhibit 1). That poses new risks to financial stability and may undermine global economic growth.”

A key finding in the report is “debt-to-GDP ratios have risen in all 22 advanced economies in the sample, by more than 50 percentage points in many cases”

The report “pinpoints  three areas of emerging risk:

“The rise of government debt, which in some countries has reached such high levels that new ways will be needed to reduce it;

“The continued rise in household debt—and housing prices—to new peaks in Northern Europe and some Asian countries; and

“The Quadrupling of China’s debt, fueled by real estate and shadow banking, in just seven years.”

The McKinsey Global analysis follows their July 2011 report Debt and deleveraging: The global credit bubble and its economic consequences and their  January 2012 report Debt and deleveraging: Uneven progress on the path to growth, and “focuses on the debt of the “real economy”: governments, nonfinancial corporations, and households.” 

 

 

 

GOLD REMAINS A STORE OF VALUE IN SEVERAL MAJOR CURRENCIES

 

Figure 3: Gold: USD, Brazilian real (BRL), Indian rupee (INR) & Russian ruble (RUB) perspectives

Source: Bloomberg Professional, GOLDS, BRL, INR and RUBLE

Chart above & Quote below from CME Group comment on oil and gold

“.. gold has fallen in recent years from a USD perspective, but has held steady or risen from the perspective of investors in many developing economies of the world, maintaining its role as a store of value (Figure 3). Indeed, declines in many emerging market currencies versus the US dollar may have also led to demand for gold from this sector.” 

 

THE FROTH IS OUT OF GOLD PRICES FOR NOW

N.B. PLEASE READ THE GOLDWATCHER DISCLAIMER ON INVESTING ADVICE 

#: Note added 4th February:

Reuters GFMS report 19% fall in demand for gold: 

“Slower economic growth and a crackdown on corruption helped knock Chinese jewellery demand to 608 tonnes, 33 percent below the previous year’s “extraordinary” levels, it said. Physical bar demand fell 53 percent to 171 tonnes, a five-year low… The drop in buying in China helped drive a 19 percent fall in global physical gold demand, with all areas declining except central bank buying, the (GFMS) report said. World jewellery demand fell 11 percent.”

#: This posting was first posted on 29th January  and was re-titled and revised  on 2nd February 2015

THE VALUE OF GOLD AS STATELESS MONEY

With the froth out of gold prices we can review potential  wealth protection advantages that come with owning gold.

I am preparing a review and discussion on the LBMA 2015 forecasts and the factors likely to affect demand for gold and gold prices in 2015. If you would like to read the review when it is published please send an e-mail to   thegoldwatcher@icloud.com   and we will keep you posted.

The 2015 LBMA Precious Metals Price Forecasting Competition:

The LBMA 2015 forecasts  published  on the 29th January are accessible on this link 

The headline comment in the LBMA report reads:

“Forecast contributors are predicting that the gold price will remain broadly flat in 2015, but are more bullish on the prospects for the other metals.”

The average forecast for gold  for the year 2015 was $1211.

The following comment is from a January  8th 2015 posting on this website

“…on current indications forecast prices for gold will probably be in a range between a low of $1000 and a high of $1300. Analysts with a very bearish outlook may forecast a low price below $1000. Those with a very bullish outlook may forecast a high in the range of $1400 and, with dramatic and  seismic changes in global economic and geo-political conditions, current expectations could change”

Price  forecasts for the LBMA competition include the analyst’s reasons  for taking a bullish, bearish or neutral position. This information is useful.  But no forecaster can predict with certainty the consequences of  major events and disruptions playing out on the world stage. 

 As stateless money gold,  if bought at a sensible price , can provide security against  risks and disruptions associated with all national currencies.

 

N.B. PLEASE READ THE GOLDWATCHER DISCLAIMER ON INVESTING ADVICE 

OIL : SUPPLY SHOCK, SLIPPERY SLOPE OR FALLING KNIFE

 N.B. PLEASE READ THE GOLDWATCHER DISCLAIMER ON INVESTING ADVICE 

Supply Shock and Awe

“If the mid-80s’ supply-driven oil crisis is a guide, we should expect further declines and a prolonged period where oil prices remain depressed.”Scott Minerd. CIO Guggenheim Partners”    Read more

Chart of the Week: Supply Shock Suggests More Downside Risk for Oil

Will the Oil Plunge Mirror the Mid-80s’ Supply Shock?

Source: Haver, Bloomberg, Guggenheim Investments. Data as of 1/8/2015.

OIL, GOLD & THE US DOLLAR HISTORIC

Dollar, Gold and Oil - Historical Chart: Compares the movement in the real dollar index with gold and oil prices since 1974.  The oil and gold series are adjusted for CPI inflation and the real dollar index is adjusted for the relevant trading partners own currency inflation rates.

LINK TO INTERACTIVE  MACROTRENDS  CHART 

http://www.macrotrends.net/1334/dollar-gold-and-oil-historical-chart

Safe Haven and Gold Standard Hype :

Pundits are again making the spurious case for gold as a  safe haven even though gold has not been a safe haven since the Bretton Woods Gold Standard was consigned to history in the 1970s –  and  subsequent  gold price volatility has completely negated the safe haven myth.

Inflation Driven Gold Price Expectations:

The interactive chart above reveals cause and effect relationships affecting gold prices including the greatest peacetime inflation in history that followed after OPEC boosted the oil price from $3 in 1973 to $12 in 1974.

The Goldwatcher (pages 78 and 79) adresses the gold price spike that followed and quotes Nobel Laureate economist Robert Mundell:

‘The world thus moved onto a pure dollar standard without  a reciprocal obligation for gold convertability  ……….what followed was in reality a global fiat money establishment with economic growth funded by credit expansion. The great inflation of the 1970’s was a consequence of the rapid expansion of credit….inflation was worldwide and became a major problem in the US. Over twenty years from 1952 to 1971 US wholesale prices rose by less that 30%. In the eleven years from 1971 they rose by 157%. In Italy and the UK prices more than tripled.’

 Gold in a deflationary environment:

By contrast we are now in a deflationary environment. The oil price has already fallen by some 50% over the last few weeks.

Might  weakness in the oil price lead to more weakness in the gold price? A case can be made why it might  and, were it not for current global macroeconomic threats, it would.

The LBMA Annual Price Forecast Competition for 2015:

The  annual compendium of 2015 LBMA precious metals price forecasts in 2015  will be published within a few weeks.   From forecasts already published and on current indications forecast prices for gold will probably be in a range between a low of $1000 and a high of $1300. Analysts with a very bearish outlook may forecast a low price below $1000. Those with a very bullish outlook may forecast a high in the range of $1400 and, with dramatic and  seismic changes in global economic and geo-political conditions current expectations could change

All serious analysts will  base their forecasts on expected cause and effect relationships and, as has been the case over many years, the LBMA forecasts should be useful in defining reasonable expectations for gold prices.

N.B. PLEASE READ THE GOLDWATCHER DISCLAIMER ON INVESTING ADVICE