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Updated: 8 hours 12 min ago

Dealing Desk: Goldmoney customers back in the buying mood – but not for gold

Thu, 11/27/2014 - 12:38
GoldMoney customers have been back in the buying mood this week, but the yellow metal hasn't featured highly on their shopping list.

Dealing Manager at the online bullion dealer, Kelly-Ann Kearsey said, 'Customer activity has certainly been more positive this week. We've not seen large orders, but there have been a lot of smaller buys mostly for silver, but also for platinum and palladium. Any selling we've seen has come out of the UK and Swiss vaults with Via Mat Hong Kong this week's favoured destination. Gold activity has been relatively neutral, with around the same amount of buyers to sellers.'

'Gold's neutral activity might be a reflection of the market's focus on the weekend's Swiss Referendum, as well as the continued strengthening of the dollar. If there is a yes vote and the Swiss central bank has to buy back 1,500 tons of gold, then this will undoubtedly have an impact on the market. At present a "no" vote has been factored into the market and if confirmed would lead to a non-event.'

'Obviously today has been quiet due to the Thanksgiving holiday in the USA and generally at this time of year, as we head towards Christmas, the markets are quieter. However there are many who think that silver and gold are a good buy at present, with gold in particular failing to break through the resistance level at $1200, so measured buying as opposed to panic safe haven accumulation is likely to be the norm for the rest of this year.'

16:00 27/11/14: Week on week performance: Gold rose just 0.3% to $1,191.29; Silver gained 0.6% to $16.23; Platinum added 1.4% to $1,216.20 while Palladium put on 4.9% to $804.65.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneynews

That G20 meeting

Fri, 11/21/2014 - 07:10
G20 gatherings of world leaders on the surface are all the same: they conclude with a meaningless anodyne statement that everyone can agree with. But these meetings do serve a purpose: they allow the world leaders to meet informally and exchange views.

Since the last G20 in St Petersburg in 2013 when there was a high degree of conviction that economic growth would return, the global economic outlook has instead deteriorated significantly. Instead of last time's mutual bonhomie over the prospect of their collective success, the world's leaders this time are almost certainly worried. They would have learned about the failure of monetary policy everywhere. They would have had this first-hand from Japan's delegation, which is on its way to financial and currency destruction. The despair in the European delegations would have been obvious as well.

The problem is that post-war monetary theories have failed to deliver. Lower interest rates and increased quantities of money in order to promote economic growth no longer work. The abandonment of the laws of the markets in favour of stimulating consumer demand by monetary means has turned out to be a blind alley. Time will tell, but if the global economy is heading for a slump, the banking system will become overburdened with defaulting borrowers, and government deficits will rise uncontrollably, especially in the welfare nations. This cannot be permitted to happen under any circumstances. It is therefore quite likely that the alternative to monetary-driven policy, accelerated government deficit spending as a pre-emptive measure, will be tried instead. And in this respect the relative success of the British and American economies will be attributed to their large budget deficits, while the misery of austerity is identified with the problems in France and the southern Eurozone.

These are bad and confused arguments, but they will be emotionally attractive to the political class, while the central bankers probably feel it is time the politicians took responsibility for economic management. Furthermore, it is surely becoming obvious that monetary solutions only enrich the bankers. And the most effective way of countering deflation, economists will argue, will be for demand-led price rises for consumer products, which have a better chance of coming about through increased government spending. And do not be surprised if economists argue that governments need to take over the debt-creation process to kick-start the business cycle.

We might look back on Brisbane as a milestone in global economic policy, when governments and central banks changed the emphasis of economic management from monetary stimulation through the financial system towards a greater emphasis on direct government intervention. In the process two things are likely to happen: currencies will begin to lose their purchasing power with respect to everyday goods, and government bond yields are likely to rise, undermining financial asset valuations.

This will certainly puff up GDP, because government spending is a significant part of it. But the idea that controlled price inflation can be engineered flies in the face of all experience. If the emphasis does shift from monetary solutions towards more aggressive government spending the risk will also shift towards an uncontrollable decline in purchasing power for currencies. It will be very good for inflation hedges like gold.

Market report: Better tone for volatile gold

Fri, 11/21/2014 - 06:56
Gold has had a volatile week, but rose from $1147 last Friday afternoon to a high of $1205 on Tuesday.

On Wednesday the price moved between down $25 on the latest opinion poll on the Swiss referendum, then recovered to $23 before falling again on the release of the Fed's FOMC minutes. However, despite these unsettling swings gold rose on the week by about $30 overall, making it two weeks in a row as shown in our first chart.

Open interest on Comex also continued to increase, which is healthy because it indicates fresh buying instead of bear-closing (closing of existing short positions should lead to a contraction of open interest).

Having broken down through major support at the $1180-$1200 level which had held for eighteen months, one would expect gold to consolidate before attempting to break back up through it. If and when it does break convincingly upwards, gold will be sending a strongly positive technical signal.
Silver followed a similar pattern, and the corresponding supply level is at $17.

There is little more to say about silver at this juncture, while there is so much going on in gold. This week the backwardation between physical spot gold and one month forward delivery in London has persisted at over 0.2%, which is extreme. Until the acute shortage of bullion is resolved, it is hard to see how the price of gold can go much lower.

There is little sign of this shortage being satisfied. China's public demand continues to absorb almost all global mine supply with Shanghai deliveries of 227 tonnes in October alone, and a further 106.5 tonnes in the first two weeks of November. Indian demand continues at a high level with 106.3 tonnes imported for October, about four times the shipments of a year earlier. These two countries accounted for 335 tonnes of bullion last month, while gold mine supply ex-China is only 200 tonnes per month. It is a fair assumption that all other Asian states are also seeing reasonable demand, partly because gold is the Asian family's "pension fund", and partly because prices are extremely attractive.

It's hardly surprising the physical market is so tight. The head of Russia's central bank, Elvira Nabiullina, in a statement to the Russian parliament said that the central bank had bought 150 tonnes of gold this year. It is a fair bet that oligarchs close to the government have noted this buying and may be accumulating bullion as well. And with a collapsing yen, the Japanese appetite must also be being encouraged.

The only official disposer of gold has been the hapless Ukrainian central bank, which reported this week that virtually all its gold, which was 42.3 tonnes at the end of last year, has simply vanished.

In economic news, last week's G20 meeting produced nothing of immediate interest with leaders promising to encourage economic growth of an extra 2%. The FOMC meeting also said little, only indicating a lack of concern about events outside America, which is understandable given that the US has a very large internal economy with relatively minor reliance on foreign trade.

However, economists are now revising their US growth expectations downwards, reflecting the polar vortex which has frozen and immobilised much of the country.

Next week

Monday.

UK: Nationwide House Prices, CBI Distributive Trades.

Tuesday.

UK: BBA Mortgage Approvals.
US: Core PCE Price Index, GDP (2nd est.), FHFA House Price Index, S&P Case-Shiller Home Price Index, Consumer Confidence.

Wednesday.

UK: GDP (2nd est.), Index of Services.
US: Core PCE Price Index, Durable Goods Orders, Initial Claims, Personal Income, Personal Spending, Chicago PMI, New Home Sales, Pending Home Sales.

Thursday.

Eurozone: M3 Money Supply, Business Climate Index, Consumer Sentiment, Economic Sentiment, Industrial Sentiment.
Japan: CPI, Real Household Spending, Unemployment, Industrial Production, Retail Sales.

Friday.

Japan: Construction Orders, Housing Starts.
Eurozone: Flash HICP, Unemployment.

Dealing Desk: Quiet trading as the gold price hangs in limbo

Fri, 11/21/2014 - 06:35
It's been a quiet week for online bullion dealer, GoldMoney, despite warnings about a global economic slowdown.

Gold is traditionally seen as a safe haven asset, but GoldMoney's Dealing Manager, Kelly-Ann Kearsey said despite some small price increases week on week, that sentiment is not providing much support to the metal at present, 'We've seen net selling in gold and silver this week from our customers, although they have been small orders, nothing large scale. The fact the US Consumer Price Index year on year has come in under the Federal Reserve Bank's target has added to Fed expectations that inflation pressures have lessened. That in itself has weakened gold's hedge value.

'The selling we've seen has mostly been out of our UK and Swiss vaults, with Singapore, as usual, the beneficiary. It is unusually quiet for November, and the Swiss referendum might be partially responsible. The 'Save our Swiss gold' proposal to make the Swiss National Bank hold at least 20% of its assets in the precious metal, will go to the polls in ten days. If the Swiss do vote in favour it will have an impact on the market as the Swiss bank will need to buy large amounts of gold. For now it's wait and see.

'Gold has stayed below its key US$1200 resistance level with geopolitical risk factors not currently impacting the market. With the Christmas holiday period approaching, when markets are going to quieten down further, gold looks to be keeping out of the spotlight for the next few weeks.'

16:00 20/11/14: Week on week performance: Gold rose 2.2% to $1,188.00; Silver gained 3.3% to $16.14; Platinum added 0.1% to $1,200 while Palladium put on 2.1% to $767.00.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneyupdate

Bank gearing in the Eurozone

Fri, 11/14/2014 - 05:43
According to the ECB's Bank Lending Survey for October banks eased their credit standards in the last quarter, while their risk perceptions increased.

This apparent contradiction suggests that the 137 banks surveyed were at the margin competing for lower-quality business, hardly the sign of a healthy lending market. Furthermore, the detail showed enterprises were cutting borrowing for fixed investment sharply and required more working capital instead to finance inventories and perhaps to cover trading losses.

This survey follows bank lending statistics since the banking crisis to mid-2014, which are shown in the chart below (Source: ECB).


It is likely that some of the contraction in bank lending has been replaced with bond finance by the larger credit-worthy corporations, and Eurozone banks have also preferred buying sovereign bonds. Meanwhile, the Eurozone economy obviously faces a deepening crisis.

There are some global systemically important banks (G-SIBs) based in the Eurozone, and this week the Financial Stability Board (FSB) published a consultation document on G-SIBs' capital ratios in connection with the bail-in procedures to be considered at the G20 meeting this weekend. The timing is not helpful for the ECB, because the FSB's principle recommendation is that G-SIBs' Tier 1 and 2 capital should as a minimum be double the Basel III level. This gives operational leverage of between 5 and 6.25 times risk-weighted assets, compared with up to 12.5 times under Basel III.

The FSB expects the required capital increase to be satisfied mostly by the issue of qualifying debt instruments, so the G-SIBs will not have to tap equity markets. However, since Eurozone G-SIBs are faced with issuing bonds at higher interest rates than the returns on sovereign debt, they will be tempted to scale back their balance sheets instead. Meanwhile bank depositors should note they are no longer at the head of the creditors' queue when their bank goes bust, which could affect the non-G-SIB banks with higher capital ratios.

If G-SIBs can be de-geared without triggering a bank lending crisis the world of finance should eventually be a safer place: that's the intention. Unfortunately, a bail-in of a large bank is unlikely to work in practice, because if an important bank does go to the wall, without the limitless government backing of a bail-out, money-markets will almost certainly fail to function in its wake and the crisis could rapidly become systemic.

Meanwhile, it might appear that the ECB is a powerless bystander watching a train-wreck in the making. Businesses in the Eurozone appear to only want to borrow to survive, as we can see from the October Bank Lending Survey. Key banks are now being told to halve their balance sheet gearing, encouraging a further reduction in bank credit. Normally a central bank would respond by increasing the quantity of narrow money, which the ECB is trying to do despite the legal hurdles in its founding constitution.

However, it is becoming apparent that the ECB's intention to increase its balance sheet by up to €1 trillion may not be nearly enough, given that the FSB's proposals look like giving an added spin to contraction of bank credit in the Eurozone.

Market Report: Is gold turning the corner?

Fri, 11/14/2014 - 05:32
After a very strong rise last Friday precious metals drifted lower-to-sideways for most of the week, but behind this unexceptional behaviour there are some tectonic shifts under way.

The chart below is of the gold price and open interest on Comex.


When the price rose on Friday open interest increased by 16,366 contracts, an enormous rise, and volume was exceptionally heavy as well. Events such as this often mark a turning-point in markets, and open interest has continued to grow, especially on Wednesday when a further 12,852 contracts were added. Furthermore, the gold forward rate in London between spot and one month has gone sharply negative, indicating a severe physical shortage.

Last Friday's exceptional action was noted by technical analysts, so much so that the Bank of America's MacNeil Curry, their chief technical analyst, instantly called it a major bottom. Since chartists all follow similar methods it is very likely that the record number of shorts harbour serious doubts.

The next chart is silver.


There's no doubt that the action is in gold rather than silver, and while volume was good on Friday when gold had its sharp rise, silver was noticeably muted until open interest rose strongly on Wednesday. If silver is to recover from here, it looks like it will be led by gold. In both cases however, the jump in open interest tells us it is new buying and not bear-closing driving the market, which is positive.

I referred to tectonic shifts in my opening paragraph. This week combined regulatory fines inflicted on five major banks totalled $4.3bn, which according to the Financial Times takes total bank fines in 2014 to a staggering $56.5bn. The latest settlement was in respect of foreign exchange fixes only; but earlier in the week the FT ran a story that one of the banks, UBS, is to settle allegations of misconduct at its precious metals trading business at the same time. However, in the FCA's notice there was no mention of precious metals, so that is presumably to come. So is the result of the German bank regulator's (Bafin) investigation into Deutsche Bank's precious metals dealings.

Dealers in the major banks are now reluctant to talk to almost anyone in other firms in case innocent remarks are misconstrued. The result is that dealing collusion has become more or less impossible, so it is reasonable to assume that control over gold and silver prices by the big players acting in concert will be significantly reduced in future. This is important, because it appears to rule out some of the actions routinely used in the past – April 2013 springs to mind – when severe shortages of physical metal threatened to drive the price considerably higher.

In short, continuing regulatory investigations are likely to extend to announcements involving precious metals, and dealers are now so jumpy we can effectively rule out future collusion. We will probably look back on these developments and conclude that they have fundamentally altered the character and behaviour of the market. And our starting point, indicated by a near-record negative Gold Forward Offered Rate (GOFO) rate, is an acute shortage of physical stock.

Late news: Yesterday the World Gold Council announced that central banks bought 93 tonnes of gold in Q3, led by Russia with 55 tonnes. Late late news: Shanghai Gold Exchange deliveries last week were up 20% to 54.2 tonnes.

Next week


Monday.

Eurozone: Trade Balance.
US: Empire State Survey, Capacity Utilisation, Industrial Production.

Tuesday.

UK: CPI, Input Prices, ONS House Prices, Output Prices.
Eurozone: ZEW Economic Sentiment.
US: PPI, NAHB Builders Survey, Net Long-Term TICS Flows.
Japan: BoJ Monetary Policy Meeting.

Wednesday.

Japan: All Industry Activity Index, Leading Indicator (Final), Customs Cleared Trade.
Eurozone: Current Account.
US: Building Permits, Housing Starts.

Thursday.

Eurozone: Flash Composite PMI, Flash manufacturing PMI, Flash Services PMI.
UK: Retail Sales, CBI Industrial Trends.
US: CPI, Initial Claims, Flash manufacturing PMI, Existing Home Sales, Leading Indicator, Philadelphia Fed Survey.

Friday.

No material announcements.

Dealing Desk: Market stabilises after sales

Thu, 11/13/2014 - 13:00
Online bullion dealer GoldMoney saw markets stabilize last week after the sales of the previous seven days.

GoldMoney's Head of Dealing and Settlements, Roland Khounlivong said, 'We had a much more stable week, the market has held steady. Total activity had decreased by 50% from the peak that we hit with sell orders.

For the first-time this year our buy-sell ratio reached 60%.

We are net sellers of gold this week and net buyers of silver, and the volumes in platinum and palladium did not change much. We can see that, given the level of gold-silver ratios, people are hunting for bargains and entry points, and silver appears much more interesting than gold from that perspective.

Behind all of these changes is the overall trend of the strengthening of the US Dollar against major currencies, and the good shape of US equity. And that makes people much more interested in risky assets, as opposed to safe haven assets such as precious metals.

Over the next seven days the focus will be very much on the US, as we are due to see data on US Retail Sales tomorrow, followed up by Industrial Production figures on Monday and CPI stats on Thursday.'

16:00 13/11/14: Week on week performance: Gold rose 1.4% to $1,161.90; Silver rose 1.6% to $15.63; Platinum dropped 0.1% to $1,198.35 while Palladium rose 2.4% to $768.98.


NOTES TO EDITOR


For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneyupdate

Deflation comes knocking at the door

Fri, 11/07/2014 - 05:42
There is little doubt that deflationary risks have increased in recent weeks, if only because the dollar has risen sharply against other currencies.

Understanding what this risk actually is, as opposed to what the talking heads say it is, will be central to financial survival, particularly for those with an interest in precious metals.
The economic establishment associates deflation, or falling prices, with lack of demand. From this it follows that if it is allowed to continue, deflation will lead to business failures and ultimately bank insolvencies due to contraction of bank credit. Therefore, the reasoning goes, demand and consumer confidence must be stimulated to ensure this doesn't happen.

We must bear this in mind when we judge the response to current events. For the moment, we have signs that must be worrying the central banks: the Japanese economy is imploding despite aggressive monetary stimulation, and the Eurozone shows the same developing symptoms. The UK is heavily dependent on trade with the Eurozone and there is a feeling its strong performance is cooling. The chart below shows how all this has translated into their respective currencies since August.



Particularly alarming has been the slide in these currencies since mid-October, with the yen falling especially heavily. Given the anticipated effect on US price inflation, we can be sure that if these major currencies weaken further the Fed will act.

Central to understanding the scale of the problem is grasping the enormity of the capital flows involved. The illustration below shows the relationship between non-USD currencies and the USD itself.


The relationship between the dollar's monetary base and global broad money is leverage of over forty times. As Japan and the Eurozone face a deepening recession, capital flows will naturally reverse back into the dollar, which is what appears to be happening today. Economists, who are still expecting economic growth for the US, appear to have been slow to recognise the wider implications for the US economy and the dollar itself.

The Fed, bearing the burden of responsibility for the world's reserve currency, will be under pressure to ease the situation by weakening the dollar. So far, the Fed's debasement of the dollar appears to have been remarkably unsuccessful at the consumer price level, which may encourage it to act more aggressively. But it better be careful: this is not a matter susceptible to fine-tuning.

For the moment capital markets appear to be adapting to deflation piece-meal. Analysts are revising their growth expectations lower for Japan, the Eurozone and China, and suggesting we sell commodities. They have yet to apply the logic to equities and assess the effect on government finances: when they do we can expect government bond yields to rise and equities to fall.

The fall in the gold price is equally detached from economic reality. While it is superficially easy to link a strong dollar to a weak gold price, this line of argument ignores the inevitable systemic and currency risks that arise from an economic slump. The apparent mispricing of gold, equities, bonds and even currencies indicate they are all are ripe for a simultaneous correction, driven by what the economic establishment terms deflation, but more correctly is termed a slump.

Market Report: PMs hit by strong dollar

Fri, 11/07/2014 - 05:38
The dollar continued its upward path against the major currencies this week, and gold and silver prices suffered accordingly.

The bears have maintained the upper hand, as shown in the following charts of Comex prices and Open Interest.

In both cases Open Interest has been rising, indicating a substantial and growing short position, though silver's fell sharply in heavy volume on Wednesday on technical grounds: it appears that someone rolled 6,000 contracts out of the December future into an option position. The other side of the precious metals trade is a strong dollar, strong equities and robust bond markets, which taken all together indicate that portfolio managers are universally bullish and ignoring risk. Time will tell if this Panglossian view is justified.

Silver has been particularly vulnerable, and the gold/silver ratio now stands at almost 75 times. This is not unprecedented but can be regarded as extreme. The result is retail demand for silver coins and bars has escalated, in the former case leaving the US Mint sold out of silver eagles. Demand for gold coins and small bars has also taken off with dealers in Germany and Austria reporting brisk business. Demand in China and India has also increased noticeably in recent weeks, and the Shanghai Gold Exchange reported this morning deliveries of 47.45 tonnes in the week ending 7th November, almost double the rate in July.

If Chinese and Indian citizens are increasing their purchases it is a fair bet that other Asians are as well. The big ETF, GLD, has lost only 28 tonnes since mid-October, hardly enough to make much difference, so it is no surprise that based on GOFO rates gold is now in high backwardation.

Global economic news this week has not been encouraging with growing evidence of slump conditions in Japan and developing in the Eurozone. Eurozone difficulties are affecting the UK, and the slide in the JPY, EUR and GBP against the US dollar confirms this diagnosis. At some stage, these economic difficulties will have an impact on the US economy, and without aggressive monetary action from the Fed it is hard to remain bullish of equities. Furthermore bonds are likely to see a surge in supply as government deficits widen again and corporations seek liquidity.

Put another way, financial markets today reflect very little risk, a situation that seems likely to change radically in the coming months. That being the case, there is likely to be a positive reassessment of gold and silver prices.

To summarise, today the headline story is the continuing bear-trend in precious metals fuelled by a strong dollar. This ignores the fact that demand for physical bullion is increasing significantly at these levels, and it is not dollar strength that prevails, but weakening foreign currencies driven by credit contraction, real or anticipated. Risk-off looks like being replaced by risk-on in the coming months.

Next week

Monday.

Eurozone: Sentix Indicator.
Japan: Bank Lending Data, Current Account.

Tuesday.

Japan: Economy Watchers Survey, Consumer Confidence, M2 Money Supply.

Wednesday.

UK: Average Earnings, Claimant Count Change, ILO Unemployment Rate.
Eurozone: Industrial Production.
US: Wholesale Inventories.
Japan: Key Machinery Orders.

Thursday.

Japan: Capacity Utilisation, Industrial production (Final).
US: Initial Claims, Budget Deficit.

Friday.

UK: Construction Output.
Eurozone: GDP (1st Est.), HICP.
US: Import Price Index, Retail Sales, University of Michigan Sentiment, Business Inventories.

Dealing Desk: Existing investors sell as newcomers see opportunity

Thu, 11/06/2014 - 12:27
As precious metals prices fell across the board this week, online bullion dealer, GoldMoney saw its customers also selling across all metals.

GoldMoney's Dealing Manager, Kelly-Ann Kearsey said, 'Gold was by far the most likely to be sold this week, followed by silver and although the sell-off has been mostly out of the western vaults in the UK and Switzerland, we have also seen some selling out of Hong Kong.

'What is interesting is that we've seen this behaviour from our customers before. It's not large holdings being completely liquidated, but small order sales. Our customers have sold before when the price is falling, then they wait until it turns around and buy back when it is rising again consistently, effectively speculating some of their holding to buy back at a lower price.

'The other trend for this week has been that some of our older, dormant accounts have started to show buying interest, so clearly there is some appetite for the lower prices. Indeed while gold has hit a four and a half year low this week, silver has been even harder hit. The gold/silver ratio is at 74, the highest it's been in five years which now means silver is relatively speaking cheaper than gold since 2009.

'Prices could be further impacted tomorrow if the US unemployment figures continue to boost the dollar, particularly with the yellow metal which has lost its safe haven sheen. Next week's Chinese retail sales and industrial production figures could provide further direction amid speculation of a slowing down in Chinese gold purchasing in the last few weeks.

16:00 06/11/14: Week on week performance: Gold lost 4.3% to $1,146.28; Silver slipped 5.9% to $15.39; Platinum also dropped 3% to $1,199.95 while Palladium fell 3.6% to $751.00.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.2billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneyupdate

Time to watch for market signals

Mon, 11/03/2014 - 08:56
Kelly-Ann Kearsey, dealing manager at GoldMoney talks to The Telegraph about some of the key pointers that are likely to influence the gold market over the next week.

Read the full article here.

China’s gold strategy

Fri, 10/31/2014 - 06:16
China first delegated the management of gold policy to the People's Bank by regulations in 1983.

This development was central to China's emergence as a free-market economy following the post-Mao reforms in 1979/82. At that time the west was doing its best to suppress gold to enhance confidence in paper currencies, releasing large quantities of bullion for others to buy. This is why the timing is important: it was an opportunity for China, a one-billion population country in the throes of rapid economic modernisation, to diversify growing trade surpluses from the dollar.

To my knowledge this subject has not been properly addressed by any private-sector analysts, which might explain why it is commonly thought that China's gold policy is a more recent development, and why even industry specialists show so little understanding of the true position. But in the thirty-one years since China's gold regulations were enacted, global mine production has increased above-ground stocks from an estimated 92,000 tonnes to 163,000 tonnes today, or 71,000 tonnes* ; and while the west was also reducing its stocks in a prolonged bear market all that gold was hoarded somewhere.

The period I shall focus on is between 1983 and 2002, when gold ownership in China was finally liberated and the Shanghai Gold Exchange was formed. The fact that the Chinese authorities permitted private ownership of gold suggests that they had by then acquired sufficient gold for monetary and strategic purposes, and were content to add to them from domestic mine production and Chinese scrap thereafter rather than through market purchases. This raises the question as to how much gold China might have secretly accumulated by the end of 2002 for this to be the case.

China's 1983 gold regulations coincided with the start of a western bear market in gold, when Swiss private bankers managing the largest western depositories reduced their clients' holdings over the following fifteen years ultimately to very low levels. In the mid-eighties the London bullion market developed to enable future mine and scrap supplies to be secured and sold for immediate delivery. The bullion delivered was leased or swapped from central banks to be replaced at later dates. A respected American analyst, Frank Veneroso, in a 2002 speech in Lima estimated total central bank leases and swaps to be between 10,000 and 16,000 tonnes at that time. This amount has to be subtracted from official reserves and added to the enormous increase in mine supply, along with western portfolio liquidation. No one actually knows how much gold was supplied through the markets, but this must not stop us making reasonable estimates.

Between 1983 and 2002, mine production, scrap supplies, portfolio sales and central bank leasing absorbed by new Asian and Middle Eastern buyers probably exceeded 75,000 tonnes. It is easy to be blasé about such large amounts, but at today's prices this is the equivalent of $3 trillion. The Arabs had surplus dollars and Asia was rapidly industrialising. Both camps were not much influenced by western central bank propaganda aimed at side-lining gold in the new era of floating exchange rates, though Arab enthusiasm will have been diminished somewhat by the severe bear market as the 1980s progressed. The table below summarises the likely distribution of this gold.

Today, many believe that India is the largest private sector market, but in the 12 years following the repeal of the Gold Control Act in 1990, an estimated 5,426 tonnes only were imported (Source: Indian Gold Book 2002), and between 1983 and 1990 perhaps a further 1,500 tonnes were smuggled into India, giving total Indian purchases of about 7,000 tonnes between 1983 and 2002. That leaves the rest of Asia including the Middle East, China, Turkey and South-East Asia. Of the latter two, Turkey probably took in about 4,000 tonnes, and we can pencil in 5,000 tonnes for South-East Asia, bearing in mind the tiger economies' boom-and-bust in the 1990s. This leaves approximately 55,000 tonnes split between the Middle East and China, assuming 4,850 tonnes satisfied other unclassified demand.

The Middle East began to accumulate gold in the mid-1970s, storing much of it in the vaults of the Swiss private banks. Income from oil continued to rise, so despite the severe bear market in gold from 1980 onwards, Middle-Eastern investors continued to buy. In the 1990s, a new generation of Swiss portfolio managers less committed to gold was advising clients, including those in the Middle East, to sell. At the same time, discouraged by gold's bear market, a western-educated generation of Arabs started to diversify into equities, infrastructure spending and other investment media. Gold stocks owned by Arab investors remain a well-kept secret to this day, but probably still represents the largest quantity of vaulted gold, given the scale of petro-dollar surpluses in the 1980s. However, because of the change in the Arabs' financial culture, from the 1990s onwards the pace of their acquisition waned.

By elimination this leaves China as the only other significant buyer during that era. Given that Arab enthusiasm for gold diminished for over half the 1983-2002 period, the Chinese government being price-insensitive to a western-generated bear market could have easily accumulated in excess of 20,000 tonnes by the end of 2002.

China's reasons for accumulating gold

We now know that China had the resources from its trade surpluses as well as the opportunity to buy bullion. Heap-leaching techniques boosted mine output and western investors sold down their bullion, so there was ample supply available; but what was China's motive?

Initially China probably sought to diversify from US dollars, which was the only trade currency it received in the days before the euro. Furthermore, it would have seemed nonsensical to export goods in return for someone else's paper specifically inflated to pay them, which is how it must have appeared to China at the time. It became obvious from European and American attitudes to China's emergence as an economic power that these export markets could not be wholly relied upon in the long term. So following Russia's recovery from its 1998 financial crisis, China set about developing an Asian trading bloc in partnership with Russia as an eventual replacement for western export markets, and in 2001 the Shanghai Cooperation Organisation was born. In the following year, her gold policy also changed radically, when Chinese citizens were allowed for the first time to buy gold and the Shanghai Gold Exchange was set up to satisfy anticipated demand.

The fact that China permitted its citizens to buy physical gold suggests that it had already acquired a satisfactory holding. Since 2002, it will have continued to add to gold through mine and scrap supplies, which is confirmed by the apparent absence of Chinese-refined 1 kilo bars in the global vaulting system. Furthermore China takes in gold doré from Asian and African mines, which it also refines and probably adds to government stockpiles.

Since 2002, the Chinese state has almost certainly acquired by these means a further 5,000 tonnes or more. Allowing the public to buy gold, as well as satisfying the public's desire for owning it, also reduces the need for currency intervention to stop the renminbi rising. Therefore the Chinese state has probably accumulated between 20,000 and 30,000 tonnes since 1983, and has no need to acquire any more through market purchases given her own refineries are supplying over 500 tonnes per annum.

All other members of the Shanghai Cooperation Organisation** are gold-friendly or have increased their gold reserves. So the west having ditched gold for its own paper will now find that gold has a new role as Asia's ultimate money for over 3 billion people, or over 4 billion if you include the South-East Asian and Pacific Rim countries for which the SCO will be the dominant trading partner.

*See GoldMoney’s estimates of the aboveground gold stock by James Turk and Juan Castaneda.
**Tajikistan, Kazakhstan, Kyrgyzstan, Uzbekistan, India, Iran, Pakistan, and Mongolia. Turkey and Afghanistan are to join in due course.

Market Report: FOMC hits gold and silver

Fri, 10/31/2014 - 05:54
Trading in precious metals was quiet until Wednesday morning, when prices began to soften. When the FOMC meeting released its policy statement at 2.00pm EST, gold and silver responded by falling heavily, with gold breaching the $1200 level yesterday (Thursday) and silver crashing through $17 to a low of $16.33.

This morning (Friday) gold and silver fell further in overnight ahead of the London opening, with gold trading down to $1173 and silver at $16.00. It is clear that the bears, including the bullion banks with short books, mounted an attack on the $1180 level, where there were stops to take out.

So a major test is taking place and the bears are winning. Behind these moves is a strong US dollar, weakening commodities generally, and a collapsing yen. The dollar is responding to the absence of further quantitative easing, traders seemingly surprised that the Fed is ignoring signs of economic weakness. To the contrary, the Fed's FOMC statement pointed out that unemployment continues to fall. Furthermore, there is little doubt the Fed is mindful of the lower budget deficit and the lack of liquidity in bond markets, the consequence of the Fed being the dominant buyer of Treasuries.

While currency markets interpreted the FOMC minutes as hawkish, this is an overstatement. After all, the Fed had clearly stated that QE would end this month, and unless there is some sort of crisis to back-track on, renewed QE would have only undermined the Fed's credibility. The truth has probably more to do with extremes of bullishness fuelling equities, with broker loans soaring to new heights and sovereign bonds ignoring any future upturn in interest rates. Fund managers committed to a perpetual state of market elevation are not about to spoil the atmosphere with thoughts it might just be a bubble.

Along with all the positive sentiment in equities and bonds goes negative sentiment in precious metals. In both gold and silver it appears that new bear positions have been opened, making both metals heavily oversold. First let us look at gold.

The chart tells a simple story. Since end-August Comex Open Interest has risen sharply as the gold price fell, indicating it has become increasingly oversold. Since 21st October, OI has risen strongly while the price has collapsed. We can be sure that this market is easily in record oversold territory, which should be confirmed by Managed Money shorts in the Commitment of Traders Report out tonight.

Silver, which has been falling sharply, tells a similar story.

The price trend has been unremittingly downwards, while Open Interest is close to the highest level of the last two years. The gold/silver ratio is now at 73, testament to silver's poor relative performance.

In other news, Russia's central bank announced it bought a further 37.2 tonnes of gold in September taking its reserves to just under 1,150 tonnes. This is its largest purchase since November 1998, indicating today's low prices are taken to be an opportunity by Russia to add to her reserves. And last week Shanghai deliveries remained high at 59.68 tonnes, no doubt responding to low prices.

Next week

Monday.

UK: Halifax House Prices Index, Markit Manufacturing PMI.
Eurozone: Manufacturing PMI.
US: Manufacturing PMI, Construction Spending, Vehicle Sales.

Tuesday.

Japan: Vehicle Sales.
UK: Markit Construction PMI.
Eurozone: PPI.
US: Trade Balance, Factory Orders, IBD Consumer Optimism.

Wednesday.

Eurozone: Composite PMI, Services PMI, Retail Trade.
UK: Market Services PMI.
US: ADP Employment Survey.

Thursday.

Japan: Leading Indicator.
UK: Industrial Production, Manufacturing Production, BoE MPC Meeting and Rate Decision.
Eurozone: ECB Deposit Rate.
US: Initial Claims, Non-Farm Productivity, Unit Labour Costs.

Friday.

UK: Trade Balance.
US: Non-Farm Payrolls, Unemployment, Consumer Credit.

Dealing Desk: GoldMoney customers buy silver as the bears prowl the market

Thu, 10/30/2014 - 13:52
Obviously the big news of the week for the bullion markets came from the Federal Reserve which ended its quantitative easing bond buying and was surprisingly upbeat about the economy.

It wasn’t just gold which suffered, silver also dropped heavily, but GoldMoney’s Dealing Manager, Kelly-Ann Kearsey said the online bullion dealers’ customers were more upbeat about the industrial metal, ‘Whilst we’ve see net gold selling among our customers, we have concurrently seen net buying of silver. It’s not been everyone’s preference as on the main markets it’s lost fairly heavily, but it’s certainly caught the attention of some of our customers and kept silver’s trading with us in the positive.’

The one trend which hasn’t seen any change has been in the flow of bullion from the west to the east, ‘We’ve seen continued selling out of our western vaults, particularly the UK and Switzerland, and the biggest beneficiary has been the Malca-Amit vault in Singapore. ‘Overall our trade flows have been fairly steady and indeed the buyer/seller ratio is at 1 showing a perfect balance between buyers and sellers. However there are some more big pointers out next week which are likely to give further direction to the market. Those figures include the US Institute of Supply Management (ISM) Manufacturing data, US employment data, the Chinese Purchasing Managers Index (PMI), and the European Central Bank meeting which could all give further indication of where the world’s economies are heading and provide further focus for the bullion markets.’

16:00 30/10/14: Week on week performance: Gold lost 2.3% to $1,198.17; Silver slipped 4.4% to $16.36; Platinum also dropped 0.3% to $1,237.25 while Palladium rose 2% to $778.75.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world’s leading providers of physical gold, silver, platinum and palladium for retail and corporate customers.Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.4billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneyupdate

James Turk - 2 Key Charts, Gold & The Destruction Of Money

Mon, 10/27/2014 - 08:24
With continued uncertainty in global markets, James Turk sent King World News two incredible charts that readers around the world must see, and he also discussed gold, the destruction of money and much more.

Read the full interview here.

Markets and reality disconnected

Fri, 10/24/2014 - 06:26
The behaviour of financial markets these days is frankly divorced from reality, with value-investing banished.

Markets have become distorted by Rumsfeld-knowns such as interest rate policy and "market guidance", and Rumsfeld-unknowns such as undeclared market intervention by the authorities. On top of these distortions there is remote investing by computers programmed with algorithms and high-frequency traders, unable to make human value-assessments.

Take just one instance of possible "market guidance" that occurred this week. On Thursday 16th October, James Dullard of the St Louis Fed hinted that QE might be extended. In the ensuing four trading sessions the Dow rallied over 5%. Was this comment sparked by signs of slowing economic growth, or by a desire to buoy up sliding equity markets? Then there is the vested interest of keeping government funding costs low, which raises the question whether or not exceptionally low bond yields, particularly in the Eurozone, are by design or accidental.

Those who support the theory that it is all an evil plot will also note that governments and their central banks through exchange stability funds (set up with the explicit purpose of market intervention), wealth funds and state pension funds have some $30 trillion to direct as they see fit. The reality is that there is intervention across a range of markets; but most of the mispricing is in the hands of private, not government investors. For evidence look no further than the record level of brokers' loans to buyers of equities, who with greed worthy of a latter-day South-Sea Bubble seek to gear up their speculative profits.

These are not markets with widespread public participation, buying dot-coms and the like. Instead ordinary people have given their savings and pension funds to professionals who speculate on their behalf. It is the professionals who talk about the Yellen put, meaning the Fed simply won't let prices fall significantly. We can fret about who is actually responsible for market distortions, instead we should ask who benefits.

Governments: in the past they have covered their debts through a process dubbed financial repression, when artificially low interest rates and bond yields were the principal mechanism whereby wealth is transferred from savers to the government. This process still goes on today. Forget government inflation figures: when did a bank deposit net of taxes last give a positive return after your cost of living increases?

Zero interest rate policy lays the process bare, and turns savers into borrowers. Mr Average has replaced savings with mortgages and car loans. And while the elderly and other passive savers are still defenceless against financial repression, the process has taken on a new twist. The transfer of wealth to governments now targets investment managers.

Investment and hedge funds we invest with together with the banks which take our deposits speculate on our behalf. They think that with a Yellen or Draghi put underwriting markets a ten-year government bond with a two per cent yield is an attractive investment. In doing so they are transferring financial resources to governments in a variation on old-fashioned financial repression.

Our dysfunctional markets have become little more than the essential prerequisite, as Louis XIV's finance minister Colbert might have said, to plucking the goose for the largest amount of feathers with the minimum of hissing.

 

Market Report: Precious metals subdued as panic over

Fri, 10/24/2014 - 05:37
For gold and silver it has been a week of two halves: first prices rallied to a peak on Tuesday, then declined to show net losses for the week on Wednesday for silver and Thursday for gold.

Broadly these precious metals reflected first weakness then strength in the US dollar. And equities reversed the nervousness of the previous week after a FOMC member suggested QE would be extended, with the S&P 500 closing up 7% on Thursday from its October 15 low.

So it has been panic over for the moment in the markets and back to business as usual for precious metals. However there are signs of good underlying demand for physical gold, with the Shanghai Gold Exchange delivering 68.37 tonnes into public hands over the holiday period (two weeks with only five trading days), and a further 51.5 tonnes last week. The chart below shows gold withdrawn from the SGE this year, totalling 1,547 tonnes so far, on course for a 1,900 tonne total this year, only 300 tonnes short from the 2013 total.

There has been a significant pick-up in deliveries in recent months. Indian demand for gold has recovered as well, with the Diwali festival coming up, coupled with attractive prices. Jewellers reported demand being up about a third on last year.

An opinion poll of voters in next month’s referendum on the Swiss National Bank’s gold policy shows 45% to 39% in favour of requiring the SNB to repatriate its gold held abroad, maintain 20% gold on its balance sheet, and sales of gold prohibited. So far, the gold market is ignoring this startling development, but if the SNB is forced by law to comply with these measures one can imagine chaos ensuing as the SNB attempts to comply while the Russian and Asian central banks are also buying; not to mention the likely political pressure on other European central banks to do the same thing. You never know: the SNB might just be the victim of a protest vote.

Russia continues to add to her reserves, taking them to nearly 1,150 tonnes making her the fifth largest official holder. Ignoring all this positive news of physical gold passing from weak into strong hands, the Managed Money category on Comex still has near-record short positions as shown below.

And silver shorts are even more dramatic, clearly in record territory:

The fact that public speculators are so short is strong evidence that the outlook is for higher prices on a massive bear squeeze, and not the fall in prices universally expected by the talking-heads in capital markets.

Next week

Monday.

Eurozone: M3 Money Supply.
UK: CBI Distributive Trades.
US: Pending Home Sales.
Japan: Retail Sales.

Tuesday.

US: Durable Goods Orders, Durables Ex-Transport, S&P Case-Shiller Home Prices, Consumer Confidence, Federal FOMC meeting starts.
Japan: Industrial Production,

Wednesday.

UK: BoE Mortgage Approvals, Net Consumer Credit, Secured Lending, M4 Money Supply.
US: FOMC Fed Funds Rate.

Thursday.

Eurozone: Business Climate Index, Consumer Sentiment, Economic Sentiment, Industrial Sentiment.
US: Core PCE Price Index, GDP, GDP Deflator, Initial Claims, Personal Income, Personal Spending.
Japan: CPI Core, Real Household Spending, Unemployment.

Friday.

Japan: Housing Starts, Construction Orders, BoJ Overnight Rate.
Eurozone: Flash HICP, Unemployment.
US: Core PCE Price Index, Employment Cost Index, Chicago PMI,

Dealing Desk: GoldMoney sees steady volumes and Palladium price jump

Fri, 10/24/2014 - 05:25
The week has seen a mixed picture with net selling of gold, net buying of silver and a 5% increase in palladium prices, but all eyes are on the US with key figures on GDP and a report from the Federal Open Market Committee due next week.

Movements of gold and silver prices were exactly in line with last week, but the palladium bounced back after last week’s big drop.

The last seven days have seen stats confirming slowing growth in China – midweek Chinese GDP figures showed the weakest growth since 2009 – and a more upbeat message supported by better-than-expected corporate earnings in the US.

GoldMoney’s Dealing Manager, Kelly-Ann Kearsey said, ‘We have seen much more selling of gold this week against net buying of silver, continuing the trends that we saw last week. ‘After slipping below the gold price for the first time in 12 months last week, palladium has been our top performer this week.

The price of palladium has come up roughly 5% - a significant move when the other metals have barely shifted. ‘We are still seeing steady volumes, with movements of net selling in our Switzerland vault but also buying in our Singapore vault – that has been a consistent picture for some time.’

16:00 23/10/14: Week on week performance: Gold rose 1.0% to $1,226.90; Silver slipped 1.3% to $17.11; Platinum also dropped 0.3% to $1,241.25 while Palladium rose 4.9% to $763.75.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.4billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneyupdate!

Dealing Desk: GoldMoney sees steady volumes and Palladium price jump

Thu, 10/23/2014 - 12:46
The week has seen a mixed picture with net selling of gold, net buying of silver and a 5% increase in palladium prices, but all eyes are on the US with key figures on GDP and a report from the Federal Open Market Committee due next week.

Movements of gold and silver prices were exactly in line with last week, but the palladium bounced back after last week’s big drop.

The last seven days have seen stats confirming slowing growth in China – midweek Chinese GDP figures showed the weakest growth since 2009 – and a more upbeat message supported by better-than-expected corporate earnings in the US.

GoldMoney’s Dealing Manager, Kelly-Ann Kearsey said, ‘We have seen much more selling of gold this week against net buying of silver, continuing the trends that we saw last week. ‘After slipping below the gold price for the first time in 12 months last week, palladium has been our top performer this week.

The price of palladium has come up roughly 5% - a significant move when the other metals have barely shifted. ‘We are still seeing steady volumes, with movements of net selling in our Switzerland vault but also buying in our Singapore vault – that has been a consistent picture for some time.’

16:00 23/10/14: Week on week performance: Gold rose 1.0% to $1,226.90; Silver slipped 1.3% to $17.11; Platinum also dropped 0.3% to $1,241.25 while Palladium rose 4.9% to $763.75.

NOTES TO EDITOR

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 715411, or email gwyn@directinput.je

GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for retail and corporate customers. Customers can trade and store precious metal online easily and securely, 24 hours a day.

GoldMoney currently has over 22,000 customers worldwide and holds $1.4billion of precious metals in its partner vaults.

GoldMoney has offices in Jersey and Hong Kong. It offers its customers storage facilities in Canada, Hong Kong, Singapore, Switzerland and the UK provided by the leading non-bank vault operators Brink's, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

GoldMoney is regulated by the Jersey Financial Services Commission and complies with Jersey's anti-money laundering laws and regulations. GoldMoney has established industry-leading governance policies and procedures to protect customers' assets with independent audit reporting every 3 months by two leading audit firms.

Visit www.goldmoney.com.

Follow the GoldMoney Dealing desk team on Twitter: @goldmoneyupdate!

Why the business cycle is failing

Fri, 10/17/2014 - 05:41
Since WW2 economic theorists have posited that demand in the economy could be stimulated by a combination of deficit spending by the government and by suppressing interest rates.

The separation of demand from production was promoted by Keynes and interest rate management of the economy by monetarists, though there is considerable overlap between the two. Yet no progress in economic management has been achieved: instead we appear to be on the brink of a major economic dislocation.

Far from banishing the business cycle, it has become worse. To understand why it's worth looking at the reason the concept is failing.

Without government intervention, the economy clears its goods and services at prices determined by the consumer. All production in free markets is aimed to satisfy consumer demand. Equally, the consumer has to earn in order to spend, so his efforts are directed at producing goods and services others are prepared to buy. An economy so based carries uncertainty for the individual which he offsets by saving some of his surplus income, and through financial intermediaries his savings are leant to businesses for investment in the means of production.

If only the world was so simple. Instead we have government, which in modern times increasingly intervenes. We are all familiar with attempts from the pharaohs onwards to divert economic resources towards projects not designed to satisfy human consumption. What is less understood is intervention by manipulating the cost and quantity of money.

If a central bank forces lower interest rates on the market, this falsely alerts the businessman to a savings glut, the result of a reduction in consumption. His first response is therefore to cut his costs so that he can lower his prices to protect his profits. When interest rates remain low he begins to think about investing in more efficient means of production, so that he can keep his prices low and compete in difficult markets. And when he finds that interest rates still remain low he becomes more confident about the future and plans for expansion.

So far the objectives of the central bank are being achieved. The recession has been stopped and modest growth restarts. Furthermore some businesses are cautiously hiring people again. In a nutshell, this describes the current position in the US and UK economies, where there is patchy evidence of capital spending and increasing employment. But then we run into a roadblock: the businessman finds that all other businesses have fallen for the monetary trick, and everyone is chasing the same rainbow. Normally price inflation results, interest rates rise and before very long the businessman is forced to cut his losses. Then the cycle starts over again.

Only this time, the final act of the business cycle is ending differently. The accumulated burden of debt has become too great for consumers and even governments themselves to bear. Financial reality is finally intervening, and consumption simply cannot grow as the Keynesians and monetarists intended. What was originally an economic problem, believed to be solvable by deficit spending and interest rate management has become a financial problem.

The truth of this statement appears to be finally dawning on bond and equity markets, with a rush into the safe haven offered by the former and an aversion to the risks in the latter, a process that having just started has a long way to go.

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