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GOLDRUSH PERFORMANCE CHARTS :
SOURCE THE ECONOMIST
Please see earlier posts on this blog addressing supply, demand and prices and A Pessimists Guide to 2016
Link to Investor Literacy comment on $5.5 Trillion Government Bonds with negative yield and notes on negative interest rates
“The market may have started the year with a depressing note so far, but an eventual rosier 2016 will bring gold to new lows,” said Barnabas Gan, commodity economist for Oversea-Chinese Banking Corp. Ltd. (OCBC), in the bank’s commodity outlook report Wednesday 13th January… According to Gan, gold prices were pressured in 2015 not only by expectations for a U.S. Federal Reserve rate hike, which resulted in a stronger dollar, but also by lackluster physical demand from key markets like China and India... The “kingpin” for lower gold prices, according to Gan, is the prospect of higher U.S. rates in 2016, which would result in a stronger U.S. dollar, and a “rosy” global economic outlook…[W]e remain firm on our expectation for the U.S. Federal Reserve to hike interest rates, at least, by three more times this year to an eventual 1.25% print at end-year,” … “Should our expectations come to pass, gold prices are expected to stage another leg down to our forecast of $950/oz this year,”
Gan did note that if his expectations are incorrect and economic conditions worsen, he could see gold prices turn higher and touch $1,200 an ounce on safe-haven demand.
Steep equity market falls on January 14th and 15th support the view that three further Fed interest rates hikes this year are unlikely now. Further, if gold does spike down to $950, mine production will be uneconomic and supply will fall.
“China has launched interbank gold trading at the beginning of this year in an effort to open up the country’s bullion market. The trading mechanism is introduced by Shanghai Gold Exchange and the China Foreign Exchange Trading System.
“It is aimed to boost liquidity of interbank gold trading, and promote market making. Ten banks including China’s big four banks and a local branch of Australia and New Zealand Banking Group ANZ will act as first-tier market makers. Another six smaller Chinese banks are listed as second-tier market-makers.
“Before the new mechanism, banks were not allowed to trade gold with each other and could only buy the precious metal through the Shanghai Gold Exchange, which is the world’s biggest physical trading platform for the metal.” Source CCTV.com
LONDON, Jan 8 ICBC Standard Bank is buying the lease on Deutsche Bank’s London gold and silver vault, enlarging its footprint in the city’s bullion market, four industry sources close to the companies said on Friday.
China’s ICBC, which took a controlling stake in Standard Bank’s London-based Global Markets business last year, has also applied to become a clearing member of the London gold and silver over-the-counter business.
No one at ICBC Standard Bank was immediately available to comment and Deutsche Bank declined to comment.
The Chinese and South African lender is aiming to fill the gap left by Western banks, which are retreating from commodities to cut costs and reduce regulatory burden.
The article continues “…Because of China’s scale, its potential volatility and the limited room for conventional monetary manoeuvres, the global risk to domestic economic performance in the US, Europe and many emerging markets is as great as at any time I can remember. Policymakers should hope for the best and plan for the worst…
“…Policymakers who dismiss market moves as reflecting mere speculation often make a serious mistake. Markets understood the gravity of the 2008 crisis well before the Federal Reserve. They grasped the unsustainability of fixed exchange rates in the UK, Mexico and Brazil while the authorities were still in denial, and saw slowdown or recession well before forecasters in countless downturns. While markets do sometimes send false alarms and should not be slavishly followed, the conventional wisdom essentially never recognises gathering storms.“The Chinese financial services sector is about as large relative to gross domestic product as in Britain…
“…The Economist reports that, looking across all major countries over the past several decades, there were 220 instances in which a year of positive growth was followed by one of contraction. Not once did International Monetary Fund forecasts anticipate the recession in the April of the growth year…
“…Over the past year, about 20 per cent of China’s growth as reported in its official statistics has come from its financial services sector, which is now about as large relative to gross domestic product as in Britain, and Chinese debt levels are extraordinarily high. This is hardly a case of healthy or sustainable growth…
“…In recent years, China’s growth has come heavily from massive infrastructure investment; China poured more cement and concrete between 2011 and 2013 than the US did in the whole of the 20th century. This, too, is unsustainable. Even if it is replaced by domestic services, China’s contribution to demand for global commodities will fall… Because of China’s scale, its potential volatility and the limited room for conventional monetary policy the global risk to domestic economic performance in the US, Europe and many emerging markets is as great as at any time I can remember. Policymakers should hope for the best and plan for the worst…
Last year in response to requests to readers of this bog and friends I posted several comments on supply, demand and price expectations. The postings are still accessible on this website.