Why are investors around the world buying physical Gold & Silver when futures prices are actually crashing sharply & sentiments are negative? While CFTC data shows, Hedge funds cut their net-long position, or bets on higher prices, by 79% since October to 42,318 contracts in the week to Feb 19. Investors sold 103.7 metric tons from Gold ETPs last month, the most ever, according to Bloomberg data going back to 2003. While the 2,508.5 tons now held is the least in five months, it’s valued at $128 billion and is 4.7% below the Dec 20 record. In contrast, the physical Gold buying from India, the world’s biggest Gold consumer has been above-average for the last few months consistently. The excessively strong Gold Demand from India has in fact compelled the Indian Government to raise the import duty from 1% to 6 % in a 13-month period to rein in a massive Current Account Deficit. Currently, Gold in INR terms is back at levels seen in May 2012 and 12% below the highs seen in the INR-denominated Gold Price in Nov 2012. The decline in the local gold price in Indian therefore already more than offset the rise in import duty taxes. Average volumes this year on the Shanghai Gold Exchange’s benchmark contract have been more than double last year’s levels. Silver imports by China in Jan rose by 36% YoY to 152 tons, the strongest growth rate since May 2010, said Barclays. China’s Silver imports in powder form rose by a healthy 68% YoY and Silver Jewelry imports also recovered by 62% YoY after a weak 2012.
Indian and Chinese demand will rise at least 11% this year, the London-based World Gold Council said Feb 14. The US Mint sold 80,500 ounces of American Eagle Gold Coins in February 2013– 28% more than last year’s monthly average (The number was 27,000 in Feb 2012). US Mint sold 3,368,500 of American Eagle Silver Coins in February 2013 (The number was 1,490,000 in Feb 2012). Central banks added 534.6 tons to reserves last year, 17% more than in 2011, and will be strong buyers this year, the World Gold Council estimates. “Our Gold Physical Flow Index has made a dramatic recovery over the past few days moving from just below zero (below zero indicates net selling) to a value of 150 today, which by historical comparisons indicates particularly strong buying,” said Standard Bank. Russia, China &Turkey have increasingly been building up their already massive Gold Reserves. Why is all this demand for Gold Bullion increasing when the Futures market shows a sharp decline in Gold Investment sentiment? It is not the Real Gold Investment sentiment that has been hammered, but it’s the trust in Paper Gold & Silver that is getting hit due to price manipulations by big market players out of vested interests. The trust in real paper Currency & governments is what is slowly but steadily being hammered. This hammering of sentiment in Currency & governments is what is, driving people to physical Gold and Silver investment.
Gold Futures closed notably lower Thursday on speculative selling interest after markets extended small early losses as the US Dollar index rose higher. Gold Futures prices have been negatively affected on notions that the US Economy is headed further up which has triggered a “risk-on” trader and investor mentality. Gold Futures prices have posted declines for a 5th straight month in February, the longest run of monthly losses since 1997. Gold Market traders are divided on the outlook for Futures Prices, balancing central bank concern that more economic stimulus is needed against signs of recovering growth. Gold Futures are trading 17% below the record $1,921.15 set in September 2011 and this year’s drop took it below the 200-day moving average. Bullion’s 14-day relative strength index on technical charts fell to 19.3 on Feb 20, below the level of 30 that indicates that a rebound may be imminent. That was the lowest since 1999, the year when Gold Prices fell to a 20-year low. The RSI was at 34.8 yesterday. Gold Futures sentiment is the lowest we have seen it in recent years & the bullion trade seems oversold on a host of benchmarks.
US Federal Reserve Chairman Ben Bernanke defended the $85 billion in monthly buying this week as a support for the US Economy and ECB – European Central Bank President Mario Draghi signaled stimulus will continue. Draghi signaled in Munich two days ago that the ECB has no intention of tightening monetary policy anytime soon. Bank of England Deputy Governor Charles Bean said Feb. 27 that policy makers were ready to add more monetary stimulus. Japanese Prime Minister Shinzo Abe has nominated a new central bank governor, raising the likelihood of further monetary stimulus this year. There is no expectation of any serious monetary tightening in any major economy anytime soon as the bond buying poses little risk of asset-price bubbles or Inflation, Bernanke said Feb 26. Though higher Inflation is clearly noticed in each aspect of daily living, these central bankers maintain their stand that inflation stays subdued & way below their expectations. What really are their expectations? Will only complete civil unrest & mass agitations make them realize & confess to the Inflation? I do not think that they are not aware of the Inflation levels, but the figures seem to be cleverly manipulated to show inflation historically low & the economy exceptionally healthy. Why are nations around the world devaluing their currencies? If the economy is so healthy, then why is the unemployment yet so high? Moreover, if the economy is really improvising as being claimed since over a couple of years now, what was the need to in fact launch a new Quantitative Easing in Oct 2012 to Infinity as the $85 billion of monetary infusion is said to continue till unemployment does not dip below 6%? The QE or Fiscal Stimulus is a tool in the Central Bankers hand to trigger a sagging Economy. Does raising your debt create employment or does it eliminate the remotest chance of creating or adding employment in the long term as more debt keeps piling up? This constant QE will help create only two things in the longer run & they are – Inflation & Asset Bubbles. These two together will then create endless misery monsters for the society at large.
Irrespective of what Central Bankers claim, facts state – Inflation expectations measured by the break-even rate for five- year Treasury Inflation Protected Securities rose 11% this year and reached a four-month high on Feb. 6. The February sell-off in Gold & Silver seems to have been driven by markets running ahead of fundamentals. Stimulus is having a smaller impact on Gold & Silver than previously. The real key is whether Stimulus will succeed in creating growth, which is ultimately what drives the physical demand or the lack of it for Gold & Silver.
What happens when Hyperinflation strikes in full force & Asset Bubbles burst? Well – There will be some other Central Bankers to face that & answer the plethora of painfully bitter questions then. So why worry now? Now is the time to brag like Bernanke did in this week’s testimony statement – “My Inflation Record is the best of any Federal Reserve chairman in the postwar period, or at least one of the best, about 2% average inflation.” Ron Paul, a 2012 libertarian Presidential candidate, slammed Mr. Bernanke for his arrogance and went on to address the middle class crisis – explaining how the inflation rate is much higher for those shopping at the local grocery stores and going about their daily lives, regardless of what the government is telling them. Additionally, Ron Paul directly questioned Bernanke about the present day Gold phenomena – central banks buying record amounts of the precious yellow metal – despite the fact that Bernanke told Paul that “Gold is not Money” back in 2011. History does prove that paper money always fails while Gold Always Prevails As Hard & Truly Valuable Money.
The US government’s likely inability to agree on a taxing and spending plan by the March 1 sequestration deadline on Friday is being mostly ignored in the world market place late this week, as the US stock market rallied sharply Wednesday amid a Risk-On trader and investor mentality. That is attracting investor interest in other assets & away from safe-haven Gold & Silver this week. The trajectory of the US Economy beyond the first three months of 2013 lacks clarity. The end of a 2% payroll tax break for millions of Americans, higher gasoline prices and the potential of deep federal spending cuts triggered by the so-called sequester could pinch growth moving forward, economists say. The US Economy grew in the final three months of 2012 instead of shrinking for the first time since the end of the recession as originally reported. The US GDP expanded at an annual 0.1% pace in the fourth quarter, the Commerce Department said Thursday. Initially the government said last month that the economy contracted by 0.1%, which would have marked the first decline since the second quarter of 2009. American consumers are a big reason why the economy performed better than the scant 0.1% gain in GDP suggests. They boosted spending by 2.1%, down from 2.2% in the original report, to mark the largest gain in three quarters. Consumer spending accounts for up to 70% of the US Economy. But was that spending done out of hard cash or credit card spending? Recent data shows that record Americans are under huge credit card spending debts with no logical repayment solutions on the horizon. They have been lead to believe that the Economy is rising & that things will get all the better. Will this debt also be an eligible factor for a fresh round of QE or will this debt ridden Americans also get some form of QE to infinity till their economic recovery is also seen? People want to believe that things are going to get better. But reality is that things cannot get better with more & more debt added each day. They will in fact worsen. The Economy improvisation Illusion may simply prove to be the Twilight Glow before the Darkness sets in. If more Debt was the right solution to Debt Problems, Debt would not have been a Problem in the first place. Austerity or Spending cuts will trigger higher Unemployment & thus quicken the pace of such issues rising & so – Kick the Can further again.
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