CHINA : EXPECT THINGS TO GET WORSE BEFORE THEY GET BETTER

 UPDATE; 25th August 13.30 GMT:

BBC REPORT :

The People’s Bank of China cut its main interest rate by 0.25 percentage points to 4.6% after two days of stock market turmoil.

It is the fifth interest rate cut since November and will take effect on Wednesday.

The move has boosted European share prices further, with the FTSE 100 in London jumping 3.3% after the China move.

In Germany, the Dax was up by 4.4% and in Paris, the Cac was ahead by 4.6%.

 

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Blog Posting 10.30 a.m. 25th August 2014:

 In a comment Pressure Mounts on China to Act Scott Minerd, Glocal CIO Guggenheum Partners writes:

“…the PBoC will soon be forced to reduce bank reserve requirements while allowing for a more rapid devaluation of the RMB. Time is not on the side of Chinese policymakers. Given the severity of the current domestic slowdown, pressure is mounting for more radical policy action.

“Expect to see further downward pressure on commodity prices, global equities, and U.S. Treasury yields. The first sign that we are approaching a bottom for all three will be when China caves and allows the RMB to adjust to a more appropriate level, which could mean another 25–30 percent decline in the value of the RMB against the U.S. dollar.

“Things will get worse before they get better, and investors around the world are demonstrating appropriate concern. Unfortunately, relief is nowhere in sight.”

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Goldwatcher comment:

Gold is likely to be back on the agenda of investors “demonstrating appropriate concern” over adverse developments and uncertainties.

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GOLD DEMAND SINKS BY 12% IN JUNE QUARTER & CHINA BUYS 19 TONNES IN JULY

 

Gold Demand Trends Q2 2015

The World Gouncil published the following schedule  on Q2 2015 demand yesterday reflecting a 12% decline in total demand from the previous quarter with demand declines in every category.

 

2013 2014 2015 Q2’15 vs Q2’14
Tonnes 2013 2014 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 % chg
Jewellery 2,673.2 2,462.9 628.4 616.0 618.1 594.5 593.7 656.6 603.4 513.5 -14
Technology 354.3 346.5 87.4 84.4 82.2 86.3 87.7 90.4 81.6 85.5 -1
Electronics 248.6 277.6 61.7 59.7 65.3 68.8 70.5 73.0 64.9 68.2 -1
Other Industrial 82.7 49.0 20.1 19.5 11.5 12.6 12.3 12.6 11.9 12.6 0
Dentistry 23.0 19.9 5.6 5.2 5.3 4.9 4.9 4.8 4.7 4.7 -4
Investment 785.6 820.2 202.2 161.0 267.9 199.9 182.5 169.9 275.5 178.5 -11
Total bar and coin demand 1,702.0 1,004.4 320.9 346.5 281.5 237.8 223.0 262.0 252.1 201.4 -15
Physical Bar demand 1,335.8 725.7 262.4 261.4 201.3 170.6 166.5 187.4 191.5 152.3 -11
Official Coin 266.3 204.6 42.2 67.0 64.4 49.2 36.1 54.9 45.9 36.2 -26
Medals/Imitation Coin 99.9 74.0 16.4 18.0 15.8 18.1 20.4 19.7 14.6 12.9 -29
ETFs & similar products* -916.3 -184.2 -118.7 -185.5 -13.6 -37.9 -40.5 -92.1 23.4 -22.9 -
Central bank & other inst. 625.5 590.5 138.9 150.0 119.8 157.2 179.5 133.9 123.6 137.4 -13
Gold demand 4,438.6 4,220.1 1,056.8 1,011.5 1,087.9 1,038.0 1,043.5 1,050.8 1,084.0 914.9 -12
LBMA Gold price, US$/oz 1,411.2 1,266.4 1,326.3 1,276.2 1,293.1 1,288.4 1,281.9 1,201.4 1,218.5 1,192.4 -7

 

Following this extremely negative news the FT reported this morning :  “China released data on its gold holdings for the second time in a month on Friday, saying it had bought 19 tonnes of gold last month as prices traded at their lowest levels in five years. The People’s Bank of China said it increased gold holdings to 1,677 tonnes (53.93m fine troy ounces) at the end of July, an increase of 1 per cent.”

Goldwatcher analysis stresses the importance of central bank activity.  Sustained interest by China is of special importance as she is on track to being the world’s largest economy by 2016 with the Remninbi expected to be included as a component of the IMF’s SDR basket within the next few months. 

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GOLD PRICES : SHORT SELLERS BUT AS YET NO BLACK SWANS

 

Black Swan at Martin Mere.JPG

BEHIND RECENT ACTIVITY IN GOLD

A sustained rally in gold prices could follow a financial catastrophe  or  other so called  black swan event.  Some commentators  continue making the case a financial catasrophe is imminent  – a case they have been making for years. But  the recent Chinese currency devaluation isn’t a black swan event. It’s a legitimate decision made by a sovereign nation .

 

The following August 13th chart reflects speculation and short covering following China’s currency announcements.  While fundamentals for a sustained gold price rise  appear negative a squeeze on short sellers may supported the modest bounces.

 THE FEAR, LOVE & TRADE TRADES:

Pundits like to make the case  gold demand follows  fear trades and a love trades.  The fear trade moves markets  when global economic or political conditions are precarious and gold is being bought as catastrophe risk insurance. The love trade moves markets when buyers are active in China, India and other regions where gold remains  a traditional store of value.

However, while the fear and love trade are part of the demand story, markets also  respond to speculation . The trade trade.

Recent modest  gold price advances appear to have  been driven by  trade trades. Some buying in response to the China devaluations followed by a squeeze on short sellers and  a price bounce.

 

GOLD AT A REASONABLE PRICE:

Mining costs are a key factor in determining reasonable prices and, if gold is bought at a reasonable price,  owning it as insurance against black swan events  and major corrections in financial markets can make sense.  Should market prices for gold fall below levels it can be mined profitably supply will probably fall, demand will exceed supply and prices will adjust.

Metals Focus  report on mining costs for the industry . Their recent analysis reveal a significant portion of production is already at a loss and at current levels there is the potential for substantial production lshortfalls.  Metal Focus’s findings are detailed in this recent  Kitco comment

 

For further analysis on gold supply, demand and prices please contact:

TheGoldwatcher@icloud.com

 

 

 

 

 

 

PRICED IN REMNINBI GOLD GAINS & COMMODITIES FALL

Chart illustrating Gold priced in offshore  Remninbi Courtesy  Ole Hansen Saxo Bank

Gold in offshore Chinese Renminbi

Ole Hansen  Head of Commodity Strategy Saxo Bank “Is Gold Getting Back Its Moxie
“What a difference one announcement makes, especially when that announcement comes from China and it involves its currency which has been very steady for a long time against the dollar while many other currencies have weakened.”
Commodities recovered a bit on Monday only to be struck down in flames on Tuesday when the Peoples Bank of China announced its new fixing mechanism which essentially opens the door for a continued devaluation. The fact that the weakening of the currency has continued today has left the market with the unpleasant guessing game of how far they are prepared to let it go. Our FX Strategist John Hardy is looking at a potential 10% devaluation before the PBoC halts the slide.

 

Commodities most affected by China demand

Two day commodity performances

Chart Courtesy Saxo Bank

The previous Goldwatcher posting illustrated emerging market currencies in freefall.   4.5%  Remninbi adjustment in two days isn’t free fall Remninbi  but loss is significant. Short covering  rally is likely to support the gold price.

 John Hardy Head of FX Strategy at Saxo Bank writes: 

“I suspect the move will stop as quickly as it began at some unknowable point in the very near future (perhaps 6.80 area in USDCNY where the rate was fixed during the global financial crisis and representing approximately a 10% move?) and then the PBoC will try to make things as boring as possible.”

GOLD BULLS IN RETREAT AFTER PLUNGE

This CNBC article addresses the gold price plunge…

“Gold slid over 4 percent to as low as $1,086 an ounce in early trade on Monday, before paring back some losses over the course of the day. It was down 2.3 percent at $1,107 at around 12:00 SG/HK time…

“…Around 5 tonnes of gold was sold on the Shanghai Gold Exchange within the space of two minutes between 09:29 and 09:30. The daily volume last week was about 25 tonnes,

 

Bulls concede defeat

“The disappointing performance of the yellow metal, which is down 6.4 percent on a year-to-date basis, has sent gold bulls into retreat.

“Technical analyst Daryl Guppy also warned of “bearish features” on the gold chart: “There is a higher probability of a future fall below $1,150 and a continuation of the downtrend towards historical support near $980.”

“Wherever you look, there really is no support for the precious metal,” said Howie Lee, investment analyst at Phillip Futures, who has been targeting gold to hit $1,100 since the start of the year.

“Developments in China, whether in terms of central bank buying or jewelry demand, are simply not sufficient to keep gold prices at high levels,”

 

PREVIOUS  GOLDWATCHER ON CHINA DEMAND

The  gold price spiked to over $1900 between 2007 and 2011 when gold was being over hyped as a safe haven.  In spite of the severe correction that followed the  prophets of doom continue to hype gold relentlessly.  Claims that  China is on course to imposing a new gold standard  to strengthen its credentials with the IMF is the latest absurd pitch.”

 

Readers of Goldwatcher Fact Based Analysis would not have been taken by surprise by the recent price plunge or previous price movements.

For details of Goldwatcher publications and Q&A sessions please email

thegoldwatcher@icloud.com

 

 

ETP GOLD HOLDINGS SINK TO RECORD LOW

Gold Price Weakness

Update 18th June 2015

Bitcoin surges as Grexit fears mount :

Gold up 1.45% AT $1201

Ole Hansen, Head of Commodity Strategy Saxo Bank: writes

“Investors have cut total holdings in Exchange-Traded Products backed by physical gold to a new six-year low following five consecutive weeks of selling.”

Charts Courtesy Ole Hansen Saxo Bank

ETP holdings, weekly change

ETP holdings, graphs

Gold Mining Costs  & The Price Buyers Are Willing To Pay

Mining costs are not uniform.  But, in relation to substantial volume producers,  indicated all in  costs are between  $950 and $1150 per oz. This price range corresponds with the prices buyers are currently willing to pay. If gold buyers are not prepared to pay a price that rewards production supply will fall, demand will exceed supply and the price will stabilise at a level that rewards producers.
The  gold price spiked to over $1900 between 2007 and 2011 when gold was being over hyped as a safe haven.  In spite of the severe correction that followed the  prophets of doom continue to hype gold relentlessly.  Claims that  China is on course to imposing a new gold standard  to strengthen its credentials with the IMF is the latest absurd pitch.

Moderation, Motivation, Strategy  & Timing

 The Goldwatcher  pitch has been that gold is well described as The Stateless Money Franchise. Moderation has been our Golden Rule and still is.  Sensible motivation, strategy and timing are of course  golden rules for all investing.
Gold is out of favour now with the investors who can access a range of alternative financial hedges and diversification opportunities. However gold  remains on the agenda for anyone interested in owning  an asset with a different risk reward profile to other financial assets. In this context  the case outlined in The Goldwatcher for owning gold as insurance against the unexpected and unthinkable remains compelling .

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