The Daily Market Report: Gold Rebounds Into Range Amid More Evidence of Gold-Flow from West to East
23-Apr (USAGOLD) — Gold is firming within the recent range as yesterday’s housing market inspired optimism about the U.S. economy was largely dashed today. The dollar has retreated along with yields, proving some buoyancy for the yellow metal.
Gold dropped yesterday after both existing home sales in March and the FHFA home price index for February bested expectations. The thinking seemed to be, that if the housing market recovery is finally gaining traction, then just maybe the U.S. economy could withstand a rate hike sooner rather than later.
The 10-year Treasury yield jumped to approach the 2.00% level for the first time in about a month. The dollar firmed in reaction, which pushed gold to a 3-week low.
Today however, new home sales for March saw a whopping 11.4% drop, the largest in nearly 2-years. Yesterday’s optimism gives way to renewed uncertainty about the overall health of the economy. Yields are falling, the dollar has retreated as well; and while gold is trading higher, it isn’t anywhere close to retracing all of yesterday’s losses.
Bottom line: Gold remains well contained within the recent range, even as additional evidence of strong Asian demand is revealed. A Bloomberg article this morning shows that Swiss gold exports to China nearly doubled to 46.4 tonnes in March. At the same time, exports to India more than doubled to 72.5 tonnes.
Where’s all that gold coming from? Much of it came from the UK, where much of the gold that backs various ETPs is stored.
Swiss gold imports from the UK surged 561% in March to 97.2 tonnes, from 14.7 tonnes in February. So as disillusioned traders move out of their paper gold positions, the real gold is shipped off to Switzerland to be re-refined into Asian friendly .9999 kilo-bars and then on to destinations in Asia and subcontinental Asia.
It is a continuation of the much discussed flow of physical gold out of weak hands in the West to strong hands in the East. This is the same flow that may have helped China to triple their gold reserves over the last six-years.
Those strong Eastern hands aren’t going to release their grip on that gold for the foreseeable future. Perhaps never.
When the next financial crisis strikes the West — and we assuredly draw closer to that eventuality with each passing day — getting your hands on physical gold is going to be far more difficult than it was during the last crisis. When Lehman Brothers collapsed back in 2008 and the global economy was brought to the brink of catastrophe, frightened investors scrambled for the protection one can only find in physical gold. Supplies of gold coins and bullion tightened dramatically, and premiums rose accordingly.
The time to build your gold holdings is during the relative calm between crises. If you wait until the next crisis is underway, you will assuredly pay both a higher price and a higher premium . . . if you can get any gold at all.
