Commodity Trade Mantra

Silver & Base Metals Weaken Before Chinese Economic Data

Silver & Base Metals

Silver & Base Metals Weaken Before Chinese Economic Data

Silver & Gold Bulls are bidding up markets based on the monetary easing policies introduced over the last few weeks. While the Federal Reserve and the European Central Bank have done their part of monetary easing, countries like Japan and China are starting to copy the same, which explains why Commodity & Equity markets are mostly higher yet and may continue to push upwards in the days ahead. Central banks around the world are gaining exposure to Gold in recent years as compared to the past where they shed Gold assets rather regularly. A Chinese finance ministry researcher said the risks for inflation in China exceed the need for more economic stimulus. There is a slew of fresh economic data coming out of China on today. The Chinese economic data looks to be the most important data of the week for fresh momentum triggers in Silver, Gold & Base Metals.

Chinese Economic data – A reflection of weak external demand:

Chinese Premier Wen Jiabao may need to roll out more stimulus measures to support growth that’s poised to slow for a seventh quarter after the Bank of Japan’s surprise decision yesterday to expand monetary easing. A dispute between China and Japan over islands claimed by both threatens to interfere with trade between the nations, adding to challenges for Asia as Europe’s debt crisis weighs on export demand. The preliminary reading was 47.8 for a China PMI – Purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, compared with a final level of 47.6 last month. China’s gross domestic product expanded 7.6% in the second quarter from a year earlier, the smallest gain in three years and the sixth quarterly deceleration. Growth may cool to 7.4% this quarter.

Silver Bullishness to Continue:

Investors are continuing to be bullish on Silver in 2012, increasing their holdings of the precious metal that are at near record levels, said the Silver Institute today. Investors have so far purchased more than 32 million ounces of the white metal through Silver-backed exchange-traded products this year. Exchange-traded fund – Silver ETF Holdings now total more than 608 million ounces with a value of $20.5 billion through September 15. Silver Prices have risen more than 20% since the beginning of this year. Significantly, from January 2009 through September 15, 2012, the silver price has increased an astounding 211%. Factors leading to the price increase include a desire by investors to diversify their portfolios with hard assets, the diminished value of key currencies and continued global economic uncertainty. Silver also enjoys a wide range of important uses in industry. Industrial applications accounted for over half of world fabrication demand in 2011. Unlike Gold fabrication, which is heavily reliant on jewelry, Silver can call on a more diverse range of applications. Furthermore, in the short-term, many of these uses are relatively price inelastic, helping to create strong price support. But what is driving the price of Silver today is investor demand, say many precious metals analysts. In fact, some analysts have increased their fourth quarter Silver price projections given Silver’s recent price performance.

India Plans to Trim Gold Imports:

India’s central bank, the Reserve Bank of India said it will encourage more financial products in Gold to trim physical holding. RBI can provide people with an option having the financial attraction of gold without them having physically own it. That would in a sense reduce the pressure on Gold imports. Financial products on the lines of Gold ETFs are ideal that give options to investors to take advantage of price movement in the precious metal and allow people to buy or sell gold without physically holding it. Rising gold import has pushed India’s current account deficit to a record high of 4.2% in last fiscal. The Chairman of Indian Prime Minister’s Economic Advisory Council C. Rangarajan has said that an attractive product linked to the price of gold could help put brakes on a growing number of people buying gold as a hedge against inflation. India had earlier launched gold bond schemes including offering amnesty to those with unaccounted funds to prompt them to channelise money for productive uses rather than hoarding the physical asset. But these schemes had had very little impact. Gold Prices in India could remain under pressure on the INR rise & that would make Gold more attractive in India. Gold at lower prices in India would immediately attract buying.

Silver & Gold remain largely unaffected on BoJ announcement:

Silver & Gold got an early boost from the Bank of Japan announcing overnight a fresh economic stimulus package. However, the Crude Oil futures prices fell sharply again yesterday, the effect of which spilled over into some selling pressure in other commodity markets, including Silver & Gold. September 2012 has had a slew of major quantitative easing announcements. The Bank of Japan joined the party after the ECB & Fed announced unlimited easing measures earlier. The Bank of Japan eased monetary policy yesterday by boosting its asset-buying program, as prospects of a near-term recovery in the world’s third largest economy faded due to weakening exports and a prolonged slowdown in Chinese growth. There have also been the worries that a territorial dispute with China, Japan’s biggest trading partner, will damage exports even more. But, BOJ Governor Masaaki Shirakawa stressed that the move was prompted by recent disappointing data, not the Fed’s action, while the anti-Japanese protests in China played no part in the decision to ease, reported Reuters. The BOJ increased its asset buying and loan program, currently its key monetary easing tool, by 10 trillion yen ($127 billion) — double the usual amount — to 80 trillion yen, with the increase earmarked for purchases of government bonds and treasury discount bills. Standing over $1 trillion, the total stimulus is now equivalent to nearly a fifth of Japan’s economy. The BOJ expanded its target for purchases of government bonds and treasury discount bills by 5 trillion yen each, and extended the deadline for meeting the new overall target by six months to December 2013. It also scrapped a rule that limits purchases of government bonds to those yielding 0.1% or higher, a move aimed at smoothening fund supply as it faces growing problems force-feeding cash to markets already awash with excess liquidity. A recent slew of weak data, including a slump in exports and factory output, has made Japanese central bankers less convinced that global demand will soon pick up to help a recovery in the export-reliant economy. The Fed’s pledge last week to buy assets open-endedly to boost job growth, dubbed QE3 by Wall Street, had also piled pressure on the Japanese central bank to follow suit with its own steps to support an economy feeling the pinch from a strong Yen and the widening fallout from Europe’s debt crisis. Finance Minister Jun Azumi welcomed Wednesday’s move, saying it was bolder than expected and will have a positive impact on Japan’s economy by stabilizing currency moves.

Confidence in US Capital Markets:

Investor Confidence in investing in U.S. publicly-traded companies held steady at 71% this year. Confidence dropped from 75% in 2010 to 70% in 2011. Since 2008, investor confidence in audited financial information has held steady at around 70%. Source: CAQ. The Center is affiliated with the American Institute of Certified Public Accountants.

Other investor findings in this year’s survey include:

  • 70% of investors believe that the American economy will either stay the same or improve over the next year; only 20% believe it will get worse.
  • 25% of investors expect their personal financial situation to improve, and 64% expect it to stay the same  over the next year
  • The four top economic concerns investors have are: not having enough money for retirement; not being able to afford health care if they or a family member are seriously ill or injured;  not being able to maintain their current standard of living, and fear of losing their jobs
  • Investors identified independent auditors, financial advisors and brokers, and audit committees as most effective in looking out for investors’ interests.
  • Confidence in capital markets outside the United States fell to a low of 35% (from 43% in 2011).

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