Tag: gold market

Is Gold Still a Safe-Haven?


Historically, gold prices have been influenced by certain market conditions and have been the antithesis of the stock market. As the U.S. economy grew weaker and interest rates dropped, most experts expected the price of gold to shoot up as investors fled a risky market for the safe-haven of gold. However, the expected massive spike in the price of gold never occurred, leading many in the industry to rethink gold’s place in a portfolio.

Over the last few weeks, global equities have fallen to a two-year low, yet gold never rallied. In fact, according to Bloomberg Business, “gold’s volatility rose right along with a measure of equity turbulence, diminishing its appeal as a haven. As stocks started to recover, the metal kept falling because of reports that signaled gains for the U.S. economy.”

Gold bucking its historical trend has been frustrating for investors. Many financial professionals went heavy into gold expecting the slumping markets to boost gold prices. Instead, the stock market rallied killing any hopes of a jump in gold at this time.

“A good test for gold was the latest round of volatility, and gold did not do much, since it has become unattractive as a safe haven,” Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Nassau, Bahamas-based Deltec International Group, told Bloomberg Business.

Despite recent market trends and many analysts wondering if gold is no longer a safe-haven, there are many reasons to remain optimistic about gold’s future.

Why Gold Is Still a Smart Investment

The yellow metal’s largest obstacle has been the complete lack of inflation after the Federal Reserve implemented its Quantitative Easing (QE) program in order to stimulate the economy. Most experts still remained baffled by this, and continue to issue statements that inflation may still happen at any time.

Hyperinflation Ahead?

Ron Paul recently took to his YouTube channel in order to warn investors that there are “big changes coming for the U.S. economy.” He believes that QE created another economic “bubble” and we are on the verge of having to pay the piper. He fears that the inflation we have been avoiding will eventually make an appearance and it won’t be pretty. If Dr. Paul is proven correct, a hyperinflation scenario could spell doom for the U.S. dollar, making physical gold a very attractive investment.

Increased Demand for Physical Gold

Another reason to not write off gold is the increased physical demand from India and China, which make up almost half of the global market for gold. According to the Wall Street Journal, since late July, large Indian and Chinese retail investors have increased their buying of physical gold.

“Both gold investments and jewelry buying is seeing some recovery from a low base, “ Jammy Chan, head of Greater China for Gold Bullion International, told the Wall Street Journal.

In addition, China’s economic issues have shown no signs of dissipating even after the surprise devaluation of the yuan. This is a strong sign that even though the Federal Reserve may raise interest rates because of positive economic data in the U.S., the global economy is still struggling and gold is a global commodity.

“Gold will probably see some buyers return after investors realize there will probably be one rate hike this year, and that too, not a very big one,” Dan Denbow, a portfolio manager at the $820 million USAA Precious Metals & Minerals Fund in San Antonio, told Bloomberg Business.

Big Financial Firms Buying Gold

Finally, a recent report from Seeking Alpha, has shown that both Goldman Sachs and HSBC, two of the world’s biggest players in the commodities market, have recently made large purchases of physical gold for their own house accounts. This occurred even after Goldman Sachs issued a statement recommending that investors play the gold market on the “short side.” Both of these financial companies invest millions of dollars into research in order to know what we do not. So it really does make one wonder what they know that would lead them to buy tremendous amounts of gold for themselves.

Lately gold has not followed its historical trends, but neither has the global economy. We seem to be in uncharted waters. What does seem clear, however, is that the economic problems are not going anywhere anytime soon and there are many signs that they may get worse before they get better. Physical gold in a portfolio may just prove itself as a safe-haven once more.

Goldman Sachs and HSBC Betting Big on Gold


Despite each issuing notices to investors that the market for gold is looking bearish, both Goldman Sachs and HSBC took delivery of over 3 tons each of physical gold this month. According to Seeking Alpha, “On August 6, 2015, Goldman Sach took delivery of a 3.2-ton purchase of physical gold.” On the same day, HSBC also took possession of 3.9 tons of the yellow metal.

The report claims that these purchases were “registered as being for the benefit of the bank’s own house account, rather than the accounts of customers.” So do the banks know something that we don’t? Why tell investors one thing and then do another?

In an interview about the gold market, Jeffrey Currie, from Goldman Sachs, told MarketWatch, “In longer term, we definitely like playing this market on the short side. We think we are in a structural bear market, not only in gold, but across the commodity complex, as the individual commodity stories are reinforcing to one another, creating a negative feedback loop.”

While this outlook may be true for the paper-gold market, which can function more like a standard stock, the physical gold market is showing some major signs of life. Seeking Alpha reports that physical gold demand “will exceed known supplies by at least 1,350 tons in 2015. More in 2016.”

So why would the banks advise their investors to the contrary? Seeking Alpha believes that they may be “setting up the paper market in order to buy from the physical market very cheaply.” Sounds a bit like a conspiracy theory, but the report offers some evidence.

HSBC strategists have been reported as saying there is a “drift towards Fed tightening and the associated USD strength, low global inflationary pressure, weak gold demand from India and China and market positioning and momentum.”

According to the article, this statement was made only a few days before a report was issued showing India had a 61% increase in gold imports between April and May. How could HSBC not know about this at the time of their strategy statement? HSBC is one of the largest participants in the Indian import market. Then they went and made this 3.9-ton purchase.

The biggest question raised by these actions is: what do the banks know that your average investor does not? Seeking Alpha believes that the banks are setting up a “Big Long,” similar to the now famous “Big Short” that Goldman Sachs is known to have taken before the 2008 market crash. Going long on physical gold would set the banks up for huge profits if the world does see a collapse of the worldwide bond bubble, which many analysts have been predicting. Since physical gold is known to increase in value as markets drop, the banks could make a killing by purchasing physical gold now on the lower side.

Even if this is just a conspiracy theory, the fact remains that these banks are saying one thing and doing another. Banks that spend millions and millions of dollars to know what everyone else does not in order to stay ahead of the market. These banks are stocking up on physical gold now, which means they must believe they are getting a good deal on a long-term investment.

Gold Prices Fall as Investors Wait on Fed Creating Buying Opportunity


Most of the recent U.S. economic reports have shown positive data, leading investors to speculate that the Federal Reserve may finally decide to start raising interest rates from their rock bottom levels. This could be bad for gold prices initially, as gold does not pay interest. However, global tensions and strong demand in the physical gold market, especially from China, could signal a prime buying opportunity.

According to the Wall Street Journal, “Gold prices fell on Monday as investors focused on the impact of recent upbeat U.S. economic reports on future monetary policy action from the Federal Reserve.” This continues the trend from last week of investors shifting from gold back into the stock market. Gold investors are very familiar with this trend, as this happens any time there is positive economic news.

Savvy gold investors know not to panic, however, as this is just speculation and there are many other factors to consider. First off, it is not a foregone conclusion that the Fed will raise rates.

“The timing is there in terms of the Fed wanting to raise interest rates, the question is will they be able to?” Ira Epstein, a broker with Linn & Associates in Chicago, told the Wall Street Journal.

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There is also the upcoming release of the U.S. employment report on Friday, which should have a big impact on the Fed’s decision.

“If the data suggests further pressure on average hourly income and increased strength in the labor market, the Fed may have its last window to move, which would have an initial negative impact on gold, but given the China issues, probably a buying opportunity,” Peter Hug, global trading director with Kitco Metals Inc., said in a note to clients obtained by the Wall Street Journal.

Concerns about China’s economic health had led to a nice rally in gold prices recently and their issues show no signs of abating anytime soon. Which is why gold may take a hit with the Fed decision, but may still remain a strong investment given the state of the economies of other global powers.

Another positive sign for the future of gold prices is the state of global demand for physical gold. Since late July, large Indian and Chinese retail investors have increased their buying of the yellow metal. This is significant, since the two countries make up about 50 percent of the world’s retail demand for gold.

“Both gold investments and jewelry buying is seeing some recovery from a low base,” Jammy Chan, head of Greater China for Gold Bullion International, told the Wall Street Journal.

So despite the impact of the looming Fed decision on interest rates, there are still many reasons to feel good about physical gold.

Price of Gold Weekly Recap: August 10 – August 14, 2015

gold price recap


What goes up in the economic world usually comes down, but when one stock goes down, it pushes other investment opportunities up. The relationship between currencies and the price of gold represents one such zero-sum game, a game that currencies have been winning handily through 2015. The beginning of the end may be in sight for the gold bear market, however, as the precious metal climbed above $1,100 per ounce on a steady growth streak through the opening half of August.

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Monday would be the high point of the week after gold gained through the previous five consecutive trading days, closing out at nearly $1,125 per ounce. Much of the gains came on the back of the Chinese yuan devaluation, which Yahoo news initially reported as being unable to swing gold. Nervous investors, however, decided to come back to the gold fold as China’s currency tatters at the seams.

Tuesday saw gold dip for the first time in a week, dropping by seven dollars per ounce. Silver prices fell nearly a full one percent, though this news came on the back of the London Silver Market dropping their Silver Fix spot price after over 100 years of operations.

A minor drop overall on Wednesday categorized a trading day without much movement. With only 110,000 contracts for gold futures trading hands, the gold craze appeared to have tempered off. Without currency gains, however, gold remained in the driver’s seat.

Thursday saw gold recover almost all the value lost in the prior two trading days. Like earlier trading sessions, this recovery came on the back of the Shanghai stock market losing big—more than five percent in a single day—and investors looking for a hedge against the yuan’s struggling performance.

Friday closed out the trading week with gold at $1,117, the second consecutive week with gold over $1,100 and a one-month high. With the Fed hike as little as a month away, the conditions appear to be set for a short-term bull gold market with the possibility to extend further if investors aren’t keen on U.S. currency.

China’s Long-Term Plan to Impact Gold Pricing


Rumors of China’s intention to be actively involved in gold price fixing have been confirmed by the recent actions of a number of Chinese banks and lenders. In June, Bank of China joined the London Bullion Market Association, a group of banks that set the twice-daily gold price. (The traditional London Gold Fix was replaced by the LBMA in March.) Bank of China Ltd. joins the 10 other firms that participate in the twice-daily auction, including Bank of Nova Scotia, Goldman Sachs, Barclays, HSBC Bank, and JPMorgan Chase London.

Chinese Banks Join Pricing Group

While Bank of China was the first Chinese bank to become a part of the gold fixing process, at least two other banks are expected to start participating in the coming months. Industrial & Commercial Bank of China Ltd. has announced its intentions and is expected to join the pricing group in the next few months.

In addition to this active involvement in the London markets, the Shanghai Gold Exchange also seeks approval from the People’s Bank of China to launch its yuan-dominated gold fix prior to the end of 2015. Combined with further participation by as many as 15 additional Chinese banks, these moves are intended to ensure China is no longer at the mercy of the New York and London markets.

Physical Gold Vs. Speculators

While China and India are often in competing positions as the largest global users of gold, China wants to ensure the role of speculators in the Comex and London markets is tamped down. Specifically, the Chinese at the Shanghai Gold Exchange note that less than 5 percent of the contracts initiated on Comex result in physical delivery of gold. On the other hand, the world’s largest over-the-counter gold trading market is currently found in London. Most recent clearing data indicates an average $20.2 billion in gold was traded each day in April, according to the LBMA.

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Unknown Role of a Yuan Fix

While China is currently the world’s largest producer and consumer of gold, it is forced to use dollar-denominated pricing affected by the huge volume of trading on the Western exchanges. It would benefit China to trade in yuan, as has been proposed.

The mid- and long-term impact of producing a yuan fix is a hotly debated question. Since the yuan is not fully convertible between the current dollar fix, there is some question of which will become the preferred pricing option. When the yuan fix becomes an accepted pricing medium, as expected, it will provide China the significant market influence it is seeking. For example, the nation could well demand both foreign companies and local consumers of gold to conduct transactions based on the domestically controlled yuan price.

If the yuan fix takes off, China could compel local buyers and foreign suppliers to pay the domestic yuan price, making the London fix less relevant in the world’s biggest bullion market. This could occur even as the two forms of price setting might find a way to co-exist in the marketplace.

Part of a Larger Strategy

These initiatives to play a larger role in setting the price of gold are part of a larger effort by China to influence international trade and finance in many commodity sectors. It has also been active in the currency markets to increase the viability of the yuan as a recognized and serious competitor to the dollar.

Adding to the mix of tactics to achieve its strategic financial goals, China is known to be stockpiling huge quantities of physical gold. While the actual numbers of tons held are under question, some analysts put the amount as high as 2,500. This plays well into the strategy of stabilizing the country’s foreign exchange holdings and increasing global respect for the yuan. (This strategy is even further aided by the large investments into the Silk Road Gold Fund, a government-controlled gold investment fund.)

The sum of these actions is expected to play an increasing role in global gold prices in the coming months. Notwithstanding the current uncertainty in China’s equity markets, the overall expectation is that China’s role in gold fixing and the anticipated yuan-denominated trading currency will ultimately weaken the dollar, and therefore most likely result in an upward pressure on gold prices.

Ron Paul Warns of Coming Turmoil in the Financial Markets


Recently, Ron Paul took to the internet air waves to give his report and viewpoint on the state of the U.S. and world economies. It is fair to say that he is not optimistic and he shared several reasons why. Dr. Paul also pointed out a number of signs to look for that could very well point to an economic drop greater than that of 2008.

“The problems we face today come from the attitude that there is a free lunch. Yet rarely those who seek a free lunch bother to ask who ends up paying for it.”

Dr. Paul calls the idea that both the rich and poor are seeking out a free lunch, “welfarism.” He feels that the majority of Americans feel they will benefit from a redistribution of wealth; something Dr. Paul calls a “scam.” Even though it may seem moral to support redistribution, this type of action comes at the expense of the “creators of wealth.” He argues that if all the incentive to create wealth is taken away, then there will be nothing to redistribute.

He specifically names economist Paul Krugman as a supporter of welfarism and redistribution. Dr. Paul believes that these backers secretly believe the plan has failed but they now only support the idea out of an “intellectual need and gratification that their views must never be questioned or abandoned because it could be seen as an admission of mistaken social and economic theory.” Dr. Paul thinks that this “intellectual stubbornness to prove they are right has driven [the U.S.] economy and most of the world’s to a point that hasn’t been seen since the 1930’s Great Depression.”

Dr. Paul is also not a big fan of the Federal Reserve. He thinks it is silly for people to believe that these money managers have the ability to predict the future of the economy and that they are “all-knowing” and should be entrusted to determine what interest rates should be. Dr. Paul believes in a free market economy, where interest rates are set by the market, not in a boardroom.

“This one policy of manipulating interest rates to lower-than-market level has caused great harm to the economy and the full effects of pretending our money managers have the wisdom to know what the proper rates should be, especially since 2008, has not yet been felt. The consequences will not be minor, surprises will be many.”

The Federal Reserve’s plan of Quantitative Easing (QE) has helped the economy recover, but Ron Paul, like many experts, feels that it has only created a bubble, and bubbles burst.

“The world has never faced the gross misallocation of capital that exists today. It may be fun while it lasts, but it always ends in a crash.”

He argues that in a free market economy there is never a need for deliberate economic slowdowns (like QE), because there would never be bubbles. Ron Paul feels the only reason the current “flawed” U.S. economic system has lasted so long is because of how rich America is. “It takes a long time to squander that great wealth.”

Ron Paul points out the many signs that the coming correction will be greater than the 2008 crash.

  • There is a big push to replace the U.S. dollar as the world’s reserve currency. The Chinese yuan now has a legitimate chance CROSSLINK of at least joining the dollar at this level.
  • The size of the world debt is “unbelievably huge”.
  • There are very clear signs that the bull market in bonds, which started in 1981, has come to an end.

Dr. Paul suggests that investors keep an eye on the following indicators to predict when the correction is near.

  • Keep an eye on the price of gold. An increase in gold price means that investors are preparing for a drop in the market.
  • Watch for a spike of interest rates, especially on the 10-year T-bill.
  • A sharp correction in the stock market.
  • A sharp fall in bond prices; commonly associated with “panic selling”.
  • The Federal Reserve suggests another QE.

Things may not necessarily be as dire as Dr. Paul warns, but there is certainly a growing consensus among economic experts that some sort of correction is not only near, but necessary. This is the reason many financial advisors suggest that investors have physical gold make up about 10-20 percent of their portfolio. Gold can be a hedge against inflation, drops in the stock market, and a drop in the value of the U.S. dollar. All things Ron Paul believes are right around the corner.