The Daily Market Report: Gold May Be Nearing “Peak Production”


31-Mar (USAGOLD) — Gold extended modestly lower in overseas trading today, before rebounding back to steady on the day. The rebound in the dollar to a six-session high is conspiring to keep the yellow metal in check.

Near-term focus remains on Fed rate hike expectations. Chairwoman Yellen adopted a somewhat more hawkish tone on Friday, saying a rate hike “may well be warranted later this year.” That was widely perceived to be a walking-back some of her post-FOMC meeting dovishness.

Of course, everything remains data dependent. Unless there is a significant upswing in economic momentum, it still strikes me as unlikely that rate lift-off can reasonably be justified. The Fed does not have a particularly impressive forecasting record, but even so, their own projections remain less than optimistic.

In a research report released last week, Goldman Sachs European metals and mining analyst Eugene King warned that the world only has about 20-years worth of minable gold reserves remaining. This story has gotten quite a bit of play over the last couple of days, but talk of “peak gold” is nothing new. See the ZeroHedge story from Friday.

That little sliver of a blue bar at the far left is Goldman’s representation of total gold reserves. It ain’t much…

Peak gold production typically occurs ~20-years after peak discovery, according to a presentation from late last year by Goldcorp. The latter threshold was hit in 1995 according to Goldcorp, suggesting that peak production may occur sometime around this year.

While global mining output continues to climb, be aware that none of the output from China — the world’s largest producer — is making it to the open market. That may be true to some degree for Russia as well.

The above chart from Wikipedia tells a compelling story about gold production: What happened to top producer South Africa in 1970 may be about to happen to the world as a whole. If Goldman’s and Goldcorps expectations are even modestly close to being accurate, diminishing supply in the years ahead should be broadly supportive to the price of gold.

Cross reference this supply information with the recent report from ANZ Bank, where gold demand in Asia alone is expected to double over the next 15-years, and you have a recipe for potentially explosive price action. Substantial growth of the middles classes in China, India, Indonesia, Japan, South Korea, Malaysia, Philippines, Singapore, Thailand and Vietnam is expected to drive gold demand for the region from 2,500 tonnes to 5,000 tonnes by 2030. ANZ sees scope for new record high prices.

Posted in Daily Market Report, Gold News, Gold Views |

US consumer confidence rose to 101.3 in Mar, above expectations of 96.5, vs 96.4 in Feb.

Posted in Economic Data |

US Chicago PMI rose to 46.3 in Mar, below expectations of 51.4, vs 45.8 in Feb.

Posted in Economic Data |

S&P/Case Shiller home price index for 20-cities (nsa) ticked lower to 172.9 in Jan vs 173.0 (+0.1%) in Dec.

Posted in Economic Data |

Gold better at 1186.65 (+0.75). Silver 16.71 (unch). Dollar higher. Euro lower. Stocks called lower. US 10yr 1.95% (unch).

Posted in Markets |

In 20 years, the world may run out of minable gold


30-Mar (MarketWatch) — In another two decades rare commodities may become seriously scarce.

According to Goldman Sachs, the world has about 20 years each of known minable reserves of gold GCJ5, -1.21% diamonds and zinc. Platinum PLJ5, -2.08% copper HGK5, +0.56% and nickel reserves only have about 40 years or less left.

“The combination of very low concentrations of metals in the Earth’s crust, and very few high-quality deposits, means some things are truly scarce,” Eugene King, European metals and mining analyst at Goldman Sachs, wrote in a recent research note.

“Gold has been used as a measure of wealth for more than 4,000 years, as the ancient Egyptians soon worked out that gold was not only shiny and heavy, but rare,” he said.

…“Peak gold is not a new concept at all,” said Peter Grant, analyst at precious-metals dealer USAGOLD. “Mining output has been fairly flat for years, but new discoveries of gold have been falling rapidly.”

Still, “if we do reach peak gold in the near future, one would logically expect this to be broadly supportive to the price of gold for years to come,” said Grant.

[source]

Posted in Gold News, Gold Views |

Oil could fall below $30 a barrel, but here’s why that’s a good thing

30-Mar (MarketWatch) — Oil futures could tumble as far as the mid-$20s before bottoming. But if history is a guide, that could be a positive scenario for stocks as corporate earnings and consumers reap the benefit of lower energy prices, said Scott Minerd, global chief investment officer at Guggenheim Partners.

But first, Minerd sees little reason to expect a significant near-term rebound for oil prices.

The supply-demand dynamics remain decidedly unfavorable, he said in a meeting with reporters Monday, particularly with storage capacity at the Cushing, Okla., delivery hub likely to run out in coming weeks. That will put even more crude on the spot market. He also isn’t convinced rig counts have fallen far enough to stop U.S. oil production from rising.

[source]

Posted in Deflation, Markets |

ECB Bond-Buying Program Could Hinge on German Debt Supply

30-Mar (Wall Street Journal) — The European Central Bank may have to tweak the rules of its massive bond-buying program because German debt is in short supply.

The ECB plans to buy €60 billion ($65 billion) of assets each month until at least September 2016 to kick-start the region’s economy. German government bonds form a cornerstone of the program, accounting for about €11 billion in monthly purchases. The ECB has said it would buy bonds from two to 30 years in length as long as the yield is above its deposit rate of -0.2%, and that it doesn’t expect any problems finding them.

But yields on many German bonds are already lower than that. The ECB’s own rules prevent it from buying 42% of already-issued German government bonds, compared with 28% shortly before March 9 when the stimulus program began, according to Tradeweb data.

Many traders say the central bank will run out of road unless the central bank changes some terms of its bond-buying.

[source]

Posted in Central Banks, Monetary Policy, QE |

Peak Gold? Goldman Calculates There Is Only 20 Years Of Gold Supply Left


27-Mar (ZeroHedge) — Late last year, when looking at a Goldcorp slideshow, we noticed something surprising: the gold miner had forecast that 2015 would be the year when gold production would peak among the mining industry.

…According to a report issued by Goldman’s Eugene King looking at commodity scarcity, the chart below “shows that there are only 20 years of known mineable reserves of gold and diamonds.”

…Of course, this analysis is meaningless in a vacuum: if the “known reserves” of gold plunge in the coming decade, no matter how many gold futures and GLD short sales are conducted by the BIS, the price will have to go up, and it will go up high enough to where a new surge of gold miners will come online and find thousands of new tons of gold reserves around the globe.

Unless they don’t, and Goldman is correct that “peak gold” may have arrived. This will be even more true if over the coming years the long overdue fiat economic panic finally washes over the globe, and a revulsion toward central bank policies forces a scramble into gold whose value (if not price since fiat currencies will be redundant) soars.

[source]

Posted in Gold News, Gold Views |

The Daily Market Report: Gold Retreats on Yellen’s More-Hawkish Tenor


30-Mar (USAGOLD) — Gold starts the week on a defensive note, weighed by renewed uncertainty about the timing of the Fed’s next move on interest rates. This uncertainty has also lifted the dollar and prompted some profit taking in the yellow metal.

Speaking on monetary policy last Friday, Fed chair Yellen said that the long-awaited lift-off “may well be warranted later this year.” This of course came with the usual caveats about data dependence and such, so there wasn’t really a shift from the tenor that was perceived as dovish two-weeks ago.

At this point, it seems like guidance is designed to confuse investors and keep them on their heels. The data are predominantly weak and deflationary pressures remain evident. PCE for February came out this morning at a mere +0.1%, below expectations of +0.3%, versus -0.2% in January.

In recent weeks those rate hike expectations have shifted from March, to June and now to September or later. Unless there is a marked turnaround in growth and inflation expectations, I maintain a rate hike in 2015 is unlikely. Even if that first rate hike comes, the second one is likely to be a long way down the road.

Posted in Daily Market Report, Gold News, Gold Views |

US Dallas Fed index plunged to -17.4 in Mar, well below expectations of -9.0, vs -11.2 in Feb. Weak oil prices blamed.

Posted in Economic Data |

Yemen in freefall: How chaos could spiral into all-out regional war

30-Mar (CNN) — Foreign intervention in Yemen’s chaos has dramatically raised the stakes in the Arabian Peninsula, threatening to expand what is already a civil war into a conflict pitting Iran against Saudi Arabia and an Arab coalition.

The Saudis launched Operation “Decisive Storm” last Wednesday with dozens of airstrikes in an effort to blunt the advance of Houthi militia and allied army units on the port of Aden — and to protect the last bastion of Yemen’s internationally-recognized President Abd-Rabbu Mansour Hadi. There were also strikes in and around the capital, Sanaa, which resumed early Monday.

…Yemen is becoming the latest battleground in a contest for regional superiority between Saudi Arabia and Iran that goes back to the overthrow of the Shah during Iran’s Islamic Revolution in 1979. It now resembles Syria, or Bosnia 20 years ago: a patchwork of shifting fiefdoms where force is the only means of influence.

[source]

Posted in Geopolitical Risks |

US personal income +0.4% in Feb, in line with expectations, vs +0.4% in Jan; PCE +0.1%, below expectations of +0.3%, vs -0.2% in Jan.

Posted in Economic Data |

Angela Merkel warns Greece that reform plan must add up

30-Mar (The Guardian) — Over in Helsinki, Angela Merkel has warned that Greece’s reform programme must “add up”, while insisting that Germany wants to avoid Grexit.

And her counterpart, Alex Stubb, has told reporters that Greece cannot expect its aid conditions to be changed, and time is running out.

[source]

Posted in European Debt Crisis |

Gold falls 1 pct as Yellen signals US rate hike on track

30-Mar (Reuters) – Gold dropped for a second straight session on Monday, slipping further from a three-week high, as the dollar climbed after Federal Reserve Chair Janet Yellen signaled the U.S. central bank may be on course to raise interest rates later this year.

Bullion may be set to give up recent gains fueled by the Fed’s March policy statement that it was prepared to move more slowly in hiking U.S. rates than the market expected. The metal rose for seven consecutive sessions after the Fed’s meeting this month in its longest rally since 2012.

On Friday, Yellen said an increase in the Fed’s benchmark rate “may well be warranted later this year” given sustained improvement in U.S. economic conditions.

[source]

PG View: The data qualifier remains, but the goal seems to be to keep investors from making big bets one way or another.

Posted in Gold News, Gold Views |

Gold lower at 1186.00 (-12.40). Silver 16.72 (-0.229). Dollar higher. Euro lower. Stocks called higher. US 10yr 1.96% (unch).

Posted in Markets |

Review & Outlook – April, 2015

Reflections in a Golden Eye
Rejection, repatriation and redemption in the gold market

germanmoney

Caveat venditor

Let the seller beware! The German citizen/investor who put away a few rolls of 20 mark gold coins (.2304 tr ozs. shown below) in 1918 would have done so at 119 marks per ounce. By early 1920 the previous rapid inflation had suddenly given way to deflation. Had that gold owner decided to cash in on gold’s significant gains thinking runaway inflation was over, a 100,000 mark investment would have made him or her a millionaire. The glow, however, would have quickly worn off. By late 1921 the runaway inflation had resurfaced but now with a vengeance. Gold shot to 4,000 marks per ounce. By mid-1922 gold reached 10,000 marks per ounce and the wholesale price index went from 13 to 70.  By late 1922, the roof caved in. Gold traded at 134,000 marks per ounce.  In January, 1923, it cracked 1,000,000 marks per ounce.  By midyear, it broke the 100 million marks per ounce barrier and at the peak of the hyperinflationary breakdown, it sold for over 100 billion marks per ounce.  The individual who thought he or she had the cat by the tail and cashed-in his or her golden chips during the 1920′s deflation became a millionaire. In short order though, that millionaire became a pauper as wave after wave of hyperinflation washed over the German economy. One moral from this somewhat frightening tale is that becoming a millionaire or even a billionaire on one’s gold holdings was inconsequential. Another is not to give up one’s hedge until there is ample evidence that it is no longer needed. Momentary nominal profits can be illusory.

Caveat venditor!

Also:
New Fix same as the old Fix
Federal budget myths and reality
How gold benefits from the yuan’s challenge to the dollar
The potential effects of the gold repatriations on the rest of the market

Review & Outlook April Special Report. We welcome your visit.
Sign-up here for an e-mail alert when we publish the next issue of Review & Outlook

Posted in all posts |

End-of-week top gold news

Friday, 27-Mar-2015

Lydia Mulvany (Bloomberg) Yellen Gives Gold Bulls Biggest Rally on Rates Since January “Janet Yellen gave gold bulls a gift when she signaled policy makers aren’t rushing to raise interest rates. Gold had its biggest weekly gain in two months on the prospect that U.S. rates will stay lower for longer.”

Note: Gold had a good week last week and was able to add to gains this week amid ongoing reallocations associated with a more dovish than expected Fed.

Izabella Kaminska (FTAlphaville) Is the Fed bluffing on rate hikes? “It might not be polite to say it overtly, but concerns are growing that the Fed’s rate hiking promises may be nothing more than a big bluff. The vogue for doubting Fed rhetoric started in earnest on March 11, when Ray Dalio, founder of hedge fund firm Bridgewater Associates, wrote to investors that there was a risk if the Fed raised rates too fast it could create a market rout similar to that of 1937.”

Note: My doubts about a Fed rate hike stretch back considerably further than March 11. I was en vogue early!

Tommy Stubbington (Wall Street Journal) Torrent of Cash Exits Eurozone “A wave of cash is leaving the eurozone, where returns on safe assets are infinitesimal, if they are positive at all, and headed to the U.S. and other refuges such as Denmark and Switzerland.”

Note: Though the WSJ doesn’t mention it specifically, there is ample evidence to suggest that some of those outflows are going into gold.

Kooz Jansen (BullionStar) Indian Gold Import Exploding In March “March has not even ended, though preliminary data indicates India has already imported over 130 tonnes of gold this month. A conservative estimate suggests total gross import can reach 150 tonnes of gold this month.”

Note: That’s an impressive number, especially when you consider all the duties and restrictions that remain in place.

Ira Iosebashvili (Wall Street Journal) Gold Prices Hit Three-Week High on Interest-Rate Expectations “Gold prices rose to their highest level in three weeks on Wednesday, as weak U.S. data bolstered the argument the Federal Reserve would likely take its time before raising interest rates.”

Note: Durable goods orders tumbled in February, missing expectations by a wide margin and prompting negative revisions to GDP forecasts.

Debarati Roy & Eddie Van Der Walt (Bloomberg) Gold Rallies for 7th Day as Yemen Turmoil Boosts Precious Metals “Gold headed for its longest run of gains in more than two years as Saudi Arabia and its allies started bombing targets in Yemen, boosting demand for a haven.”

Note: Military action in Yemen added to already high geopolitical tensions, promoting safe-haven flows into gold.

Juan Carlos Artigas (World Gold Council) Gold in a rising dollar environment “Generally, there is an inverse correlation between gold and the dollar. However, our analysis shows that the gold price increases more when the dollar weakens than it falls when the dollar strengthens. In our view, the dollar’s relationship with gold has changed dramatically over the past decades and is likely to shift further as demand moves East and the world moves to a multicurrency system.”

Note: We noted repeatedly throughout the recent dollar rally that gold was proving remarkably resilient. As the dollar index set new 12-year highs, the yellow metal wasn’t even able to get below last November’s low. As for the move to a “multicurrency system”; that’s a polite way of reminding us that the dollar is falling out of favor a s the sole global reserve currency.

(Reuters) China should boost gold reserves to 5 pct, says World Gold Council “China should increase its gold holdings to around 5 percent of its total foreign exchange reserves to help diversify currency risks, the World Gold Council (WGC) said. China currently holds about 1.6 percent of its foreign exchange reserves in gold, which is relatively low compared with developed countries and some developing countries, WGC China managing director Roland Wang said.”

Note: I don’t think China particularly needed the nod from the WGC to continue their voracious accumulation of gold as a reserve asset. Everyone is pretty aware that China has been building reserves consistently since they surprised the world in 2009 by announcing they had accumulated 1054 tonnes of gold. Their efforts are likely to continue for some time to come.

Posted in Gold News, Gold Views |

Fed rate hike may be warranted later this year: Yellen

27-Mar (Reuters) – The U.S. Federal Reserve is giving “serious consideration” to beginning to reduce its accommodative monetary policy and a rate hike may be warranted later this year, although a downturn in core inflation or wage growth could force it to hold off, the central bank’s chief said on Friday.

Fed Chair Janet Yellen said that after the first rate increase a further, gradual tightening in monetary policy will likely be warranted. If incoming data fails to support the Fed’s forecast, the path of policy will be adjusted, she said.

“With continued improvement in economic conditions, an increase in the target range for that rate may well be warranted later this year,” Yellen said in prepared remarks at a monetary policy conference at the Federal Reserve Bank of San Francisco.

Yellen added that the timing and the path of a Fed hike would depend on the incoming economic data.

[source]

PG View: Perhaps a modestly more hawkish tenor, to keep investors on their heels in the wake of the more dovish than expected tone at the FOMC meeting. The qualifiers remain though and any move is still data dependent.

Posted in Central Banks, Monetary Policy, QE |

ECB’s Weidmann: ‘No more emergency loans for Greece’

27-Mar (Independent) — The head of Germany’s Bundesbank has said that he is opposed to more emergency funding for Greece, adding that debt in the Eurozone has entered the “danger zone”.

Speaking to the weekly Focus magazine Jens Weidmann said: “Until the autumn, an improvement in the economy had been discernible. But the new [Greek] government has gambled away a lot of trust.”

He added: “I am opposed to an increase in the emergency loans.”

As the head of Germany’s Central Bank, Mr Weidmann wields a strong influence on the European Central Bank’s decision-making governing council, which he also sits on.

In the text of a speech to be delivered at a conference in Frankfurt he added: “In the euro area we are already in the danger zone – at least with regard to public debt standing at 91pc and corporate debt at 105pc.”

[source]

Posted in all posts, European Debt Crisis |

No One Sees Easy Way Out on Ukraine

26-Mar (New York Times) — Hardly anyone expects Ukraine to get better before it gets worse, or for the latest set of commitments in last month’s cease-fire agreement to be kept.

Instead, senior Western diplomats and analysts are predicting a further escalation of tensions, including the placing of Russian nuclear weapons in newly annexed Crimea; more unrest in cities like Mariupol and even Odessa; more advances by Russian-supported rebels against an under-gunned and dispirited Ukrainian Army; and attempts to destabilize the Western-leaning government in Kiev, beginning with President Petro O. Poroshenko.

Mr. Poroshenko, weakened by the loss of Crimea and a large, contiguous chunk of eastern Ukraine, faces Western demands for economic overhauls, increased energy prices and a crackdown on corruption to justify billions in loans and aid. He also confronts new challenges from oligarchs like Igor V. Kolomoisky over control of energy companies and private militias with flexible loyalties to the state, or what’s left of it.

The West, which claims to be united, is actually divided over Russia’s actions in Ukraine and how to respond.

[sources]

Posted in all posts, Geopolitical Risks |

The Daily Market Report: Gold Appears Poised for Second Consecutive Weekly Gain


27-Mar (USAGOLD) — Gold turned mildly corrective Friday, drive by profit taking after notching seven consecutive winning days. Despite the pullback, the yellow metal appears poised for a second consecutive higher weekly close. After dipping to an intraday low of $1192.00, gold is once again probing above $1200.

The main driver for gold recently has been the realization that the era of über-accommodative monetary policy is not coming to an end any time soon. With the BoJ and ECB in full easing mode with QE, the Fed which had been hinting at a rate hike this year, has now taken on a much more dovish tone. That has pushed rate hike expectations from March, to June to September…and more out now thinking lift-off wont happen this year at all.

Rising geopolitical tensions in the middle east are also helping to underpin gold. The Saudi coalition bombing intensified today amid concerns that the conflict is devolving into a proxy war between Saudi Arabia and Iran. This will likely perpetuate the already seething hatred between Sunnis and Shiites, potentially leading to an even broader conflict in the region.

The retreat in the dollar and recent stock market volatility have been supportive to gold as well. The dollar decline was triggered by the Fed’s dovishness. Stocks have generally risen on easier policy expectations, but this time equity investors seem to be giving greater credence to diminished growth prospects. As investors move out of shares, they frequently reallocate to safe-havens like gold.

Posted in Daily Market Report, Gold News, Gold Views |

China should boost gold reserves to 5 pct, says World Gold Council

26-Mar (Reuters) – China should increase its gold holdings to around 5 percent of its total foreign exchange reserves to help diversify currency risks, the World Gold Council (WGC) said.

China currently holds about 1.6 percent of its foreign exchange reserves in gold, which is relatively low compared with developed countries and some developing countries, WGC China managing director Roland Wang said.

“The ideal amount should be at least 5 percent of its total forex reserves,” Wang told Reuters in an interview in Hong Kong.

…Increased gold holdings could boost investor confidence at a time when China is pushing the internationalization of the yuan, he added.

[source]

Posted in all posts, Gold News, Gold Views |

Gold falls on dollar after 7-day rally; set for 2nd weekly gain

27-Mar (Reuters) – Gold fell on Friday, snapping a seven-day rally as the dollar rebounded after Federal Reserve officials signalled they remained on track to raise rates this year, but the metal still looked set to post its second straight weekly gain.

…Saudi Arabia and its allies launched air strikes in Yemen on Wednesday, rattling wider markets and supporting gold, usually seen as an insurance against risk.

…Despite Friday’s losses, gold was on track to finish the week up around 1.5 percent after its seven-day rally, the metal’s longest winning stretch since August 2012.

Gold had gained strength after the Fed sounded cautious at its policy meeting last week about the pace of an interest rate increase, prompting the dollar to fall from multi-year highs.

[source]

Posted in Gold News, Gold Views |

Here Are the Countries With the Most Gold Reserves, and the Ones That Have Been Buying it the Most


27-Mar (Bloomberg) — At the turn of the millennium, it seemed that gold was starting to go out of fashion with the world’s central bankers as a reserve asset.

Between January 2000 and March 2009, central banks reduced their reserve holdings of gold by more than 114 million troy ounces. Since then—possibly driven by the recovery in gold prices and the global financial crisis—central banks have steadily been increasing their holdings.

…t is not the top four adding to reserves since 2009 that has caused the turnaround in global holdings. Instead it is emerging and developing markets that have been loading up on gold, with Russia, India, and Turkey accounting for more than 60 percent of the net change in global gold holdings.

[source]

Posted in Gold News, Gold Views |

Yemen Conflict Devolves Into Proxy War

27-Mar (Wall Street Journal) — The conflict in Yemen is quickly devolving into a wider regional conflagration, pitting Shiite Iran and an allied militant group against Saudi Arabia and other Sunni Arab states that came together to launch airstrikes on those militants.

The coordinated Arab attacks led by Saudi Arabia began early Thursday morning and targeted the Shiite-linked Houthi militant group in Yemen. They followed weeks of talks on forging a joint military force to combat what some nations see as regional threats from Iran coupled with a U.S. reluctance to intervene.

[source]

Posted in Geopolitical Risks |

University of Michigan consumer sentiment (final) 93.0 in Mar, above expectations of 91.8, vs 91.2 preliminary print and 95.4 in Feb.

Posted in Economic Data |

Saudi-led coalition pounds Yemen with airstrikes a second day

27-Mar (CNN) — A coalition of Middle Eastern forces pounded positions in Yemen from the air overnight in the second day of a campaign to bring a rebel group to its knees.

…Iran denounced the military intervention. Marzieh Afkham, a spokeswoman for the country’s Foreign Ministry, said the operation will throw an already complicated situation into further turmoil and disrupt chances at a peaceful resolution to Yemen’s monthslong internal strife. It also won’t help a region already facing terrorist threats from groups like ISIS and al Qaeda, she said.

[source]

Posted in Geopolitical Risks |

US Q4 GDP (third report) unch at +2.2%, below expectations of +2.4%, vs +5.0% in Q3.

Posted in Economic Data |

Gold steady at 1202.16 (-1.00). Silver 17.15 (+0.08). Dollar better. Euro lower. Stocks called lower. US 10yr 1.99% (unch).

Posted in Markets |