# Note added 1st February 2016 :
Link to Investor Literacy comment on $5.5 Trillion Government Bonds with negative yield and notes on negative interest rates
Ray Dalio, billionaire founder and head of Bridgewater Associates, one of the world’s most successful money managers, consistently makes the case for investors to own gold as protection against adverse outcomes with other investments. His view is unambiguous:
The Economist cite BCA Research as having defined the debt supercycle as” the period since the Second World War in which debt levels have inched persistently higher and notes “BCA now thinks the Debt Supercycle has come to an end. This is not because the overall level of debt has fallen; indeed, if one excludes the financial sector, the global level is still rising (see above chart)… monetary policy has failed to create a credit boom in the private sector, even with the help of zero short-term interest rates.”
As early as 2013 BCA commented : “The Supercycle reached an important inflection point in the recent economic and financial meltdown with authorities reaching the limit of their ability to get consumers to take on more leverage. This forced the government to leverage itself up instead. Once fiscal policy is pushed to the limits of sustainability, the debt Supercycle could come to a violent end.”
RAY DALIO ON CENTRAL BANKS RISK PUSHING ON STRING
“I have a controversial view that is based on my alternative economic template, and I feel a responsibility to share at this precarious time.
“In brief, the Federal Reserve’s template, and that of most economists and market participants, reflects the business cycle (however) there are two important cycles to pay attention to — the business cycle, or short-term debt cycle, and the debt supercycle, or long-term debt cycle
“We are seven years into the expansion phase of the business/short-term debt cycle — which typically lasts about eight to 10 years — and near the end of the expansion phase of a long-term debt cycle, which typically lasts about 50 to 75 years…Since the long-term debt cycle issue is the biggest issue that separates my view from others, I’d like to briefly focus on its mechanics…
“…There are limits to spending growth financed by a combination of debt and money. When these limits are reached, it marks the end of the upward phase of the long-term debt cycle. In 1935, this scenario was dubbed pushing on a string…
“This scenario reflects the reduced ability of the world’s reserve currency central banks to be effective at easing when both interest can’t be lowered and risk premia are too low to have quantitative easing being effective.”
Noting our capital allocation system is driven by spreads Dalio writes:
“…where things now stand across the world’s reserve currencies. expected returns of bonds (and most asset classes) are relatively low in relation to the expected returns of cash. As a result, it is difficult to push the prices of these assets up and it is easy to have them fall. And when they fall, there is a negative impact on economic growth.
When this configuration exists…stimulating demand is more difficult, and restraining demand is easier, than is normally the case.
At such times the risks are asymmetric on the downside…
DISCLAIMER ON INVESTMENT ADVICE
1: This website is not advisory. Opinions, comment and analysis are provided for information, are not intended as investment advice and may not be used as investment advice.
2: Investors seeking advice should retain the services of a regulated and qualified adviser.
3: Opinions expressed in comment on this site have short sell by dates and may be past their sell by the date when they are read.
Reuters reported on January 8th ” 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..
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.
# Note Added 7th January
GOLD PRICE HAS BREACHED $1100
Back to 5th January posting:
ANNOUNCING THE GOLDWATCHER MONITOR
Gold is insurance against the unexpected and the unthinkable. Gold is poised to breach the psychologically and technically important $1100 threshold.
Gold pundits like to punt gold demand as coming from fear or love trades. But they ignore the more important trade trades – i.e. the speculative punts that can account for most the money flowing in and out of gold.
The global risk landscape this time last year was fairly tame and I posted several comments on gold price prospects for the year that proved to be useful. Last month I posted a link to Bloomberg’s Pessimists guide for 2016 that’s also worth reading again.
An easy and ill informed approach to gold this year will be to say the world is in an unholy mess again. BUY GOLD. That sounds like a no brainer – depending whether you think a no brainer is a proposal so obvious you don’t need a brain or a proposal that will only work if you have no brain.
IAN BREMMER’S ANALYSIS ON THE TOP 2016 RISKS
We all have access to quality information in the information age . Here is a link to analysis on the top 2016 risks published in the last few days by the internationally recognised strategist Ian Bremmer.
THE GOLDWATCHER IN 2016
In the seven years since the global financial crisis erupted investor anxiety has been focused mainly on the economic and financial problems that followed . There is still cause for concern over many of these problems. But in 2016 the spotlight has moved to global geopolitical crises and, absent a miracle, is going to stay there.
THE GOLDWATCHER MONITOR
It’s likely gold will be finding its way back on important asset allocation agendas. Institutional and private money managers will need up to date and unbiased information on all aspects of supply and demand for gold and possibly for silver and other precious metals. Supplying such information will obviously be beyond the scope of this open access free blog launched in 2007 to promote The Goldwatcher book.
Providing ongoing reliable information will require a dedicated team of remunerated contributors who will together produce THE GOLDWATCHER MONITOR
For further information on
THE GOLDWATCHER MONITOR
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.
Picture credit Boomberg
# Note added 8th January 2016
December 15, 2015
Bloomberg News asked dozens of former and current diplomats, geopolitical strategists, security consultants, and economists to identify the possible worst-case scenarios, based on current global conflicts, that concern them most heading into 2016.
# Trump wins U.S Presidency
# Oil climbs to $100 per barrel
# The UK leaves the European Union
# Banks hit by cyber attack
# The EU crumbles under anti-immigration fears
# China’s economy falls, military rises
# Israel attacks Iran’s nuclear facilities
# Putin sidelines America
# Climate change heats up
# Latin America’s lost decade
Goldwatcher Comments are being published in the Goldwatcher Investor Literacy page
CHART GOLD HOLDINGS IN EXCHANGE TRADED PRODUCTS COURTESY OLE HANSEN SAXO GROUP
The above chart tweeted by Ole Hansen reflects two important fundamental developments – further clearance of the overhang of speculative gold in Exchange Traded Products and a significant revival in Indian demand that needs to be reviewed in relation to the Indian Government’s initiatives to monetise gold hoarded in the country aimed at reducing future imports.
Speculative interest in gold may also have been spiced up by the current political impasse over the US Budget that must be resolved by the end of September to avoid any shut down of Government activities. This is potentially unsettling. But the issue will almost certainly be resolved without any shut down that acually interrupts significant Government activities.
Financial markets are already unsettled by these and other concerns including economic problems in China and recent revelations on Volkswagen’s deception on emission measurement – serious on its own and possibly involving other manufacturers. These concerns may also have influenced increased speculative interest in gold. But, unlike the important supply and demand factors illustrated in the chart above, they don’t affect fundamental supply demand dynamics.
UPDATE; 25th August 13.30 GMT:
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.
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.”
Gold is likely to be back on the agenda of investors “demonstrating appropriate concern” over adverse developments and uncertainties.
For information on Goldwatcher Analysis and Events please e-mail
TWITTER : @JohnKatzGoldwatcher