Commentary for Monday, Nov 17, 2014 – Gold closed down $2.00 at $1183.00 as the Japanese yen moved lower and the US dollar strengthened. Gold seemed content in overnight trading and continued in a narrow trading range into the domestic market.
After Friday’s big move (up $23.90) I would have expected more action – especially over the weekend as the world considers more quantitative easing. But this was not to be and we should be grateful we are not giving back gains considering the technical picture for gold leaves a great deal to be desired.
So Japan’s economy is officially in recession even though Prime Minister Abe has been promising and delivering more fiat money to kick start an economy which has been on the decline for more than a decade. The problem with this failure of Abenomics might be bigger than you might expect as Europe continues in a mess and China detractors claim “something ain’t right” over there.
How all this may relate to gold is also “on the back burner” but worth watching. As the theory goes there is only so much a loose money policy can do to “help” struggling economies. And world governments have thrown the monetary kitchen sink at deflationary forces since 2007.
There is some improvement in the US but generally everyone else is still stuck in the mud.
The idea now being that governments might be forced to keep interest rates low for a much longer time than was thought in order to forestall falling back in recession or worse a deflationary spiral which will further hurt job creation and GDP growth.
The result of this extended extremely low interest rate policy globally will be inflation. And inflation is good for gold and bad for fiat money creation which might be morphing from a temporary economic “fix” into a way of life.
There are now growing concerns that the Indian government may invoke further restrictions on gold imports. Gold imports have risen sharply in India partly as a response to lower prices – imports of 143 tonnes is September and 150 tonnes in October may pose problems with the Indian current account balance.
Even though there have been promises of eliminating or reducing the still intact 10% import fee on gold nothing has officially been done. Now there are fears this import tax might even be increased which would result in further smuggling and increased black market transactions.
Silver closed down a sleepy $0.26 at $16.05. I still believe you are in the “sweet spot” range for the physical silver market so I am surprised the public is not more excited.
Platinum closed down $11.00 at $1201.00 and palladium was down $3.00 at $768.00.
This from Kira Brecht (Kitco) – Long Term Gold Trends: China’s Middle Class Is Still Growing – It is easy for Western gold investors to focus on U.S. Federal Reserve policy as a key driver for gold prices. But, that also may be short-sighted and narrow focused.
Over the past five to ten years roughly 60-70% of all gold demand has been going to emerging markets. Think China and India. Going forward, physical demand will only continue to grow from those regions as their middle classes continue to grow and their economies mature.
While the Western media is filled with talk about how China’s economy is slowing, even a 7% gross domestic product (GDP) rate is enviable. Let’s compare the numbers. For 2014, U.S. GDP is forecast at 2.2%, Japan’s growth rate is estimated to grow at 0.9%, and the Euro area is seen growing 0.8%, according to Credit Suisse. The U.K. is doing a little better at a 3.0% pace, while China is forecast at a 7.3% pace. While double digit and 10%+ growth figures may be only seen in the rear view window for China —a 7% growth handle is nothing to shrug off.
Digging deeper into the population trends, there is still significant upside for the middle class to grow within China. With an overall population of about 1.36 billion, the Chinese middle class is still growing. Let’s look at some numbers.
“China’s GDP per capita went from $400 in 1989 to about $7,000 in 2013,” said James Pressler, vice president at Northern Trust. What that means if you divide total GDP by the total population that equals roughly $7,000 for every person in China in 2013. And, it is an explosive move over a 24 year period.
Is this shift from peasant to middle class over? Not likely? “The western half of China still has population that is not achieving the wealth and affluence. A lot of the people on the western side have a go east strategy,” Pressler said.
How do those GDP per capita numbers compare to the U.S.? “In the U.S., GDP per capita went from $22,923 to $53,042 during the same period. The last time GDP per capita in the U.S. was $7,000 was 1974 when it was $7,260 – inflation had a lot to do with sending incomes higher at that point. GDP per capita in the U.S. has not been below $500 since the midst of the Great Depression, when it was $456. So, this means it took the U.S. 41 years and a few bouts of inflation to do this, and China did it in just 24,” Pressler noted.
What’s ahead for China? There is still significant room for the middle class to grow, Pressler said. Pointing to the GDP per capita numbers, Pressler estimated “I could see that doubling to $14,000 per head in the next 10-15 years.”
Looking at the recent gold demand numbers out of China, on the surface the third quarter numbers don’t look good. But, then you have to remember this is a year-on-year comparison —and that is what is key. According to the World Gold Council, “In China, jewellery demand for Q3 2014 was down 39% year-on-year to 147 tonnes. Ouch, sounds bad, right?
But, remember the year-over-year part. Third quarter 2013 saw blockbuster physical buying from China, which means the comparison, is down from that highly elevated number last year. Let’s compare the third quarter China numbers which were “broadly in line with both Q3 2012 and the 5-year average of 148.2 tonnes and 154.9 tonnes,” the World Gold Council said.
Just shows you, it pays to read beyond the headlines, right?
Bottom line? The middle class still has more to grow. And, that means more people with a cultural affinity for gold as a vehicle to store, preserve and grow wealth, actually having the capability to buy gold. Don’t underestimate the power of the rising East when it comes to gold. That story is just getting started.
This from Kristen Gelineau (Associated Press) – G-20 Leaders Agree On $2 Trillion Boost To Growth – BRISBANE, Australia (AP) — Under pressure to jolt the lethargic world economy back to life, leaders of G-20 nations on Sunday finalized a plan to boost global GDP by more than $2 trillion over five years. The fanfare, however, was overshadowed by tensions between Russian president Vladimir Putin and Western leaders.
The communique from the Brisbane summit of Group of 20 wealthy and emerging nations revealed that the plan for jumpstarting growth includes investing in infrastructure, increasing trade and the creation of a global infrastructure hub that would help match potential investors with projects.
Leaders also aim to reduce the gap between male and female participation in the workforce by 25 percent by 2025, saying that would put 100 million more women in employment and reduce poverty. Speaking at the end of the summit, Australia’s Prime Minister Tony Abbott said countries will hold each other to account by monitoring implementation of their commitments to boost growth.
The G-20, criticized in recent years as being all talk and no action, was urged to deliver measurable results this year. Perhaps in response, the group said the International Monetary Fund and OECD will also play a role in monitoring progress and estimating the economic benefits of the growth plan.
IMF managing director Christine Lagarde dismissed concerns that countries might fudge their growth figures, saying that while the monitoring isn’t scientific, it’s a thorough and detailed process.
“We’ll make sure they keep their feet to the fire,” she said.
The G-20 communique says if the $2 trillion initiative is fully implemented, it would lift global GDP by 2.1 percent above expected levels by 2018 and create millions of jobs. Abbott said countries agreed on more than 800 new measures to spur the global economy, which the IMF describes as facing a “new mediocre.”
“People right around the world are going to be better off,” he said.
But the G-20, which represents around 85 percent of the global economy, faces an uphill struggle to implement its plan after international agencies downgraded their global growth forecasts in recent months. Growth in China and Japan has weakened and Europe is teetering on the brink of another recession.
And experts warned that the countries would need to comply with every one of the 800 measures to achieve the 2.1 percent target, a virtually impossible task, given the difficulties they will inevitably face in pushing some of the policies through in their home countries.
“There are two questions: whether the specifics are credible and whether the political backing by leaders is convincing,” said Thomas Bernes, an analyst with the Center for International Governance Innovation, a Canadian-based think-thank.
Abbott said the group had been most productive on the issue of trade, calling it the “key driver of growth.” The leaders adopted reforms to streamline customs procedures and reduce regulatory burdens.
Despite Australia’s push to keep the summit focused on the economy, the meeting was largely overshadowed by tensions between Putin and Western leaders over the escalating conflict in Ukraine, where Moscow is supporting pro-Russian rebels in the country’s east.
Putin was the first leader to depart Australia, leaving before the communique was issued. He told reporters he left ahead of a final leaders’ lunch because he wanted to rest before returning to work.
Abbott has been particularly strong-worded in his criticism of Russia since a Malaysia Airlines plane was shot down in July over a part of eastern Ukraine controlled by Russian-backed separatists, killing all 298 on board. Australia lost 38 citizens and residents in the MH 17 disaster.
Abbott said he and Putin had engaged in a “very robust” discussion about the situation in Ukraine. “I utterly deplore what seems to be happening in eastern Ukraine,” Abbott said. “I demand that Russia fully cooperate with the investigation, the criminal investigation of the downing of MH17, one of the most terrible atrocities of recent times.”
The G-20 also tackled the tricky issue of tax evasion by multinationals, declaring that profits should be taxed in the country where they are earned. There has been an ongoing effort by governments to crack down on the practice of big companies such as Google and Amazon moving profits earned in one country to others with lower tax rates.
The G-20 endorsed a common reporting standard for the automatic exchange of tax information, which will begin by 2017 or 2018.
Rights groups’ reactions to the communique were relatively positive. Oxfam said it was happy the leaders tackled tax evasion, but called for a global tax summit where all countries would have a say in deciding fair tax rules. Tim Costello, chair of the Civil Society 20 group, or C-20, was relieved the communique specified that the beneficiaries of the additional growth would include the poor. “We’ve taken a few small steps forward,” he said. “Inclusive growth, which really requires the benefits to flow to jobs and to the poor and to women, is in the text, rather than flowing to profits and the top 5 percent.”
Thousands took part in more than two dozen protests throughout the weekend, but only a handful of arrests were reported. Tensions briefly flared on Sunday when Aboriginal rights activists burned an Australian flag, but police didn’t intervene.
The walk-in cash today was quiet today and the phones were also a no-show – it was not really dead as there were spurts of business but nothing serious. Surprising really considering Friday’s pop – so perhaps the traders are tired or the public has lost short term interest – or both. Stay tuned – this market may not stay quiet for long as Europe continues to tank – ISIS creates misery – and the metals continue their way to “cheaper levels”. Sooner or later the Chinese and Indian physical market will tip the scales.
The GoldDealer.com Unscientific Activity Scale is a “4” for Monday. The CNI Activity Scale takes into consideration volume and the hedge book: (last Tuesday – 7) (last Wednesday – 4) (last Thursday – 4) (last Friday – 8). The scale (1 through 10) is a reliable way to understand our volume numbers. The Activity Scale is weighted and is not necessarily real time – meaning we could be very busy and see a low number – or be very slow and see a high number. This is true because of the way our computer runs what we call the “book”. Our “activity” is better understood from a wider point of view. If the numbers are generally increasing – it would indicate things are busier – decreasing numbers over a longer period would indicate volume is moving lower.
Email confirmation using a PDF File when buying or selling is functional. It also includes the various forms of payment and includes bank wire instructions. And you can now see your actual invoice or purchase order on your computer screen.
When you buy or sell please check to see if we have your current email on file and that your computer will accept our email (no spam).
About shipping information – when buying or selling your rep will walk you through your current mailing information. Thanks for keeping us up to date if you have moved.
Our four flat screens downstairs with live independent pricing (BullionDesk.com) are a big hit with the cash trade. Live pricing moves all the buy/sell product prices on a real time basis. Yes – you can visit the store with cash and walk away with your product. Or you can bring product to the store and walk away with cash. When buying from us remember if you exceed $10,000 in cash (the real green kind) a Federal Form is necessary.
In addition to our freshly ground organic coffee offered visitors throughout the day we have added cold bottled water, cokes and Snapple. We have also added fresh fruit in a transparent attempt to disguise our regular junk food habits.
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We will be closed Thursday and Friday (Nov 27th and 28th) for Thanksgiving.
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