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 February 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