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Market report: Markets in limbo

Fri, 07/31/2015 - 10:18
Gold and silver remain close to their lows for the year, discouraged as usual by dollar resilience.

Precious metals appear to be in limbo: speculative buyers are discouraged above all by their disappointing performance during the Greek crisis, and the possibility that a Chinese stock market crash might lead to forced selling of gold by Chinese speculators. So far, the latter concern has proved unfounded with public demand in China accelerating on lower prices and exceeding global mine output on its own. As well as Chinese demand, anecdotal evidence tells us that at these prices physical demand from the public has increased elsewhere, with gold sovereigns becoming scarce in London. And our dealers yesterday reported buyers outweighing sellers this week.

Desultory trading has led to a large fall in open contracts in gold futures on Comex, with the August contract running off the board instead of being rolled forward. This is shown in the next chart, and we can assume that this will have relieved the oversold condition somewhat.

The gold price bottomed last Friday at $1,079, and after rallying from that level to a high of $1,104 was sold down yesterday morning to a low of $1,083, which is the same price in early European trading this morning. Silver fared better, outperforming gold, and in this case open interest has held up, the nearest active contract being September. This is our third chart.

On Wednesday the Federal Open Market Committee published their latest minutes, which were virtually unchanged from the previous ones. According to Fed-watchers, the odds probably favour a December rate hike over September, assuming no other factors come into play.
The Fed has so far dismissed suggestions that external factors will affect its timing, such as a collapsing Chinese stock market and a weakening euro driven by a rapidly disintegrating Greek economy. But it is hard to envisage a Fed that simply ignores these important developments, when a higher Fed funds rate would increase global asset and currency instability.

For now, this is a topic of uncertainty, coming towards a crunch-point. Both these problems are likely to strengthen the dollar, particularly against the euro, which looks likely to weaken to under dollar parity. Until this issue is resolved, gold faces selling pressure in futures markets.

This analysis describes what looks like a developing crisis. On one side are the markets, which are awash with fiat currency beginning to be driven by fear; on the other is the Fed, seemingly powerless to act conventionally with interest rates at the zero bound. For patient holders of gold it can only be a matter of a month or two before something breaks, but until it does it could continue to be a rough ride.

I shall tweet Chinese demand for last week when the information becomes available today on @MacleodFinance.

Next week

Monday

Eurozone: Manufacturing PMI.
UK: IPS/Markit Manufacturing PMI.
US: Core PCE Price Index, Personal Income, Personal Spending, Manufacturing PMI Construction Spending, ISM Manufacturing.

Tuesday

UK: Nationwide House Prices.
Eurozone: PPI.
US: Factory Orders, IBD Consumer Optimism

Wednesday

Eurozone: Composite PMI, Services PMI, Retail Trade.
UK: Halifax House Price Index.
US: ADP Employment Survey, Trade Balance, ISM Non-Manufacturing.

Thursday

Japan: Leading Indicator (Prelim.).
UK: Industrial Production, Manufacturing Production, BoE Base Rate.
US: Initial Claims.

Friday

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

The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Dealing Desk: Precious metals drift on interest rate talk currents

Thu, 07/30/2015 - 12:55
The precious metals bears are still prowling around this week, with relatively little change in prices week on week.

However, as Dealing Manager Kelly-Ann Kearsey explains, this week was similar to the last with plenty of buying by its customers, 'We are into the holiday season now so trading is going to generally be lighter than usual, meaning any fairly large buy or sell orders will create some waves; but whilst we have seen some profit taking at GoldMoney, there are still more individual buyers than sellers.

'All of the metals are drifting somewhat, with gold floating down to close on its 2010 levels so that will have persuaded some to profit take. The markets are being completely dominated by US rate hike talk, and after the dollar had a slightly bumpy ride this week it has now stabilised. This stabilisation follows news that the US economy grew at an annual rate of 2.3% in the three months to June, and amid further talk from Federal Reserve Chair, Janet Yellen, that there could still be a rate hike this year.

'As usual the selling has been out of the UK and Switzerland, with buying going into Singapore and Canada. We're not expecting any drama over the next few weeks as people vacate offices for their summer holidays, but the autumn could turn interesting as further rate hike speculation returns.'

Week on week price performances
30/07/15 16:00. Gold down just 0.1% to $1,092.16, Silver up 0.3% to $14.75, Platinum up 0.9% to $982.75 and Palladium up just 0.1% at $618.72.

NOTES TO EDITOR
For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 735 253, or email gwyn@directinput.je

GoldMoney
GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for private and corporate customers, allowing users to buy precious metals online. The easy to use website makes investing in gold and other precious metals accessible 24/7.

Through GoldMoney's non-bank vault operators, physical precious metals can be stored worldwide, outside of the banking system in the UK, Switzerland, Hong Kong, Singapore and Canada. GoldMoney partners with Brink's, Loomis International (formerly Via Mat), Malca-Amit, G4S and Rhenus Logistics. Storage fees are highly competitive and there is also the option of having metal delivered.

GoldMoney currently has over 20,000 customers worldwide and holds over $1billion of precious metals in its partner vaults.

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.

Further information:

Visit: Goldmoney.com or view our video online

China’s 1929 moment

Thu, 07/30/2015 - 07:21
Anyone with a nose for markets will tell you that the Chinese government's attempt to rescue the country's stock markets from collapse is far from succeeding.

Bubbles collapse, period; and government interventions don't stop them. Furthermore, we are beginning to see a crack widen in the foundations of China's capital markets that could end up undermining the whole economy.

Since the government owns the banking system, some of the knock-on effects will doubtless be concealed. A consequence for China is that domestic financial instability could threaten her current plans for the international development of her currency. Here the timing couldn't be worse, because in a few months the IMF is due to announce its decision about the inclusion of the renminbi in the SDR*. The odds were in favour of China succeeding in this quest, on the basis that China was deemed to have fulfilled the necessary conditions, and the IMF itself has been supportive.

A 1929-style collapse in China's stock markets would change this delicate balance. In mainstream macroeconomic theory, the only way China can resolve her excessive financial imbalances is to devalue the renminbi against other SDR currencies, hardly a good start for a new member. The IMF, probably egged on by the Americans, could be forced to defer its decision again, reviewing it in 2020.

This would be a bad outcome, given China has set her sights on joining the IMF's top table. There can be little doubt that the recent announcement increasing her gold reserves by only 600 tonnes was made in the context of her desire for the currency to be included in the SDR. If she is rejected, China could swing the emphasis more firmly towards gold, which she owns and mines in abundance.

If Plan A fails, it is time for Plan B. It is almost certain China has substantial undeclared holdings of physical bullion. The enabling regulations for China's gold accumulation programme go back to 1983, and the State will have acquired the bulk of its bullion before it permitted its own citizens to buy from 2002 onwards. Western analysts seem generally unaware that the bulk of China's acquisition of gold was in the late twentieth century, the last time the west was dishoarding huge quantities of bullion into a prolonged bear market, and she had massive capital inflows followed by trade surpluses to offset. This was the basis for my speculation last October that Government holdings could have grown to 20,000 tonnes by 2002, which explains why public ownership was then permitted.

The Chinese government almost certainly views gold as the ultimate money. The time is approaching for Plan B when a higher gold price would serve her interests better than membership of the SDR. It would reduce China's debt levels expressed in the ultimate money, without currency intervention. And it would also boost the personal wealth of her people. In short, it would be popular with ordinary people, at a time when the authorities' credibility is threatened by internal financial developments.

It must be tempting. The effect on western capital markets, having been drained of physical bullion and left with uncovered gold liabilities, could be very interesting. After all, the Chinese curse was for us to live in interesting times.

*Special Drawing Rights

The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Market Report: Commodity rout

Fri, 07/24/2015 - 08:17
Industrial commodities, including energy and base metals, were aggressively sold this week as more evidence came in that the global economy is stalling, with world trade having now declined for five months.

Gold was attacked and broke the $1,100 level last weekend to slide to new lows, down 7.9% on the year and silver is now down 4.8%. It is notable how well silver has held up, when it usually moves about twice as much as gold.

There are two reasons behind silver's relative strength. The first is the already substantial short position in silver limiting its fall, and the second is that the cause of the sharp decline in precious metal prices was a bear raid on gold. Whoever engineered it chose their timing carefully: it was very late on a Sunday evening in US time, and the Tokyo market (TOCOM) was shut for a holiday. By dumping several thousand contracts in a very thin market the seller was able to trigger stops, yielding an immediate profit.

The decline in world trade behind the commodities rout has been evident for some time from China's import/export figures, so is hardly a surprise. However, futures markets have become dominated by speculative players with hot money, the result of central banks' monetary policies, instead of a mechanism for producers to sell their production forward to hedge price risk. Volatility has increased to levels that would probably not otherwise be seen.

This is reflected in record short positions in a range of commodity contracts. The chart below, which is of hedge fund short positions in gold on Comex illustrates the almost universally negative sentiment driving prices.

Records in bearish positions are continually being broken. But equally, there were some hedge funds brave enough to be long, and they were obviously the target of the bear raid.

The longs are roughly average for this contract so there was clearly profitable scope for the bear raid that occurred.

Meanwhile, the fall in the gold price has predictably ignited widespread demand for bullion, according to various reports from around the world. The Shanghai Gold Exchange announced a sharp jump in deliveries to 61.8 tonnes, for the week ending 10th July when the gold price averaged $1,150. This was up 39% on the previous week and exceeds global weekly mine output of about 58 tonnes. It will be interesting to see how much prices at the $1,100 level increase Chinese demand, and if you follow me on Twitter (@MacleodFinance) I shall tweet the number for the previous week (to July 17) when it is available later this morning. When one country absorbs all new supply, you know that despite all the bearish chatter, gold is under-priced in the market.

There is an FOMC meeting scheduled this week, and on Wednesday we may hear more definitively about the long-expected rise in the Fed Funds Rate, which is the rate commercial banks are paid on their reserve holdings at the Fed. The likely reason the Fed is getting optimistic that it can raise the rate is banks have withdrawn $145bn from the Fed's reserves in the last three months. This fact coupled with improving employment figures could bring forward an interest rate increase. But double-guessing the Fed on this is not easy, because the FOMC members seem to believe their own official forecasts; that the prospects for the US economy remains rosy, while as stated above world trade outturns suggest otherwise.

Next week

Monday

Eurozone: M3 Money Supply.
UK: CBI Industrial Trends.
US: Durable Goods Orders.

Tuesday

UK: Nationwide House Prices, GDP(1st Est.), Index of Services.
US: S&P Case Shiller Home Prices, Consumer Confidence, FOMC Meeting (to 29th).
Japan: Large retailers Sales, Retail Sales.

Wednesday

UK: BoE Mortgage Approvals, Net Consumer Credit, Secured Lending, M4 Money Supply, CBI Distributive Trades.
US: Pending Home Sales, FOMC Interest rate decision, Fed Funds Rate.
Japan: Industrial Production.

Thursday

Japan: Vehicle Sales.
Eurozone: Business Climate Index, Consumer Sentiment, Economic Sentiment, Industrial Sentiment.
US: Core PCE Price Index, GDP Annualised, GDP price Index, Initial Claims.
Japan: CPI Core, Real Household Spending.

Friday

Japan: Construction orders, Housing Starts.
Eurozone: Flash HICP, Unemployment.
US: Employment Cost Index, Chicago PMI.

The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Dealing Desk: Precious metals slide as the bears prowl the markets

Fri, 07/24/2015 - 06:58
Monday saw a drop in the gold price, partly triggered by Asian markets and rumours that some big funds might be dumping gold into the market.

Not surprisingly there was some panic selling as a result, but as Dealing Manager, Kelly-Ann Kearsey, explains, there were still many buyers prepared to put some money into the yellow metal: 'We had a 73% increase in activity compared to last week and while there were some selling orders we actually had more customers buying - albeit in smaller amounts. The usual vaults, UK and Switzerland saw the bulk of activity.

'A conclusion to the Grexit situation and indications of rising inflation in the US, and thus an increased likelihood of a rate hike, dampened gold's safe haven status and brought out a riskier appetite among investors. Moving forward, the American driving season and summer holidays in many markets, should indicate a quiet period, but one where any fairly large movements could have a significant effect on the markets.

'Silver was also on the selling list for some GoldMoney customers this week, although the gold/silver ratio has improved slightly. There was little activity with platinum and palladium.

'Next week brings the US Durable Goods Orders on Monday and then the Federal Open Market Committee meeting on Wednesday which might give further food to investors.'

Week on week price performances
23/07/15 16:00. Gold fell 4.5% to $1,092.81, Silver lost 2.3% to $14.71, Platinum dropped 3.3% to $973.99 and Palladium was down 2.2% at $617.97. Gold/Silver ratio: 74

NOTES TO EDITOR
For more information, and to arrange interviews, please call Gwyn Garfield-Bennett on 01534 735 253, or email gwyn@directinput.je

GoldMoney
GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for private and corporate customers, allowing users to buy precious metals online. The easy to use website makes investing in gold and other precious metals accessible 24/7.

Through GoldMoney's non-bank vault operators, physical precious metals can be stored worldwide, outside of the banking system in the UK, Switzerland, Hong Kong, Singapore and Canada. GoldMoney partners with Brink's, Loomis International (formerly Via Mat), Malca-Amit, G4S and Rhenus Logistics. Storage fees are highly competitive and there is also the option of having metal delivered.

GoldMoney currently has over 20,000 customers worldwide and holds over $1billion of precious metals in its partner vaults.

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.

Further information:

Visit: Goldmoney.com or view our video online

Gold and Gibson’s Paradox

Thu, 07/23/2015 - 07:21
There is a myth prevalent today that the gold price always falls when interest rates rise.

The logic is that when interest rates rise it is more expensive to hold gold, which just sits there not earning anything. And since markets discount future expectations, gold will even fall when a rise in interest rates is expected. With the Fed's Open Market Committee debating the timing of an interest rate rise to take place possibly in September, it is therefore no surprise to market commentators that the gold price continues its bear market. Only the myth is just that: a myth denied by empirical evidence.

The chart below is of a time when the opposite was demonstrably true. From March 1971 to December 1979 the trends in both interest rates and the gold price rose and fell at the same time. It is worth noting that this occurred over more than one business cycle, so it is not a relationship which was cycle-dependant.

The myth is therefore satisfactorily debunked. To understand why this relationship between interest rates and gold is not as simple as commonly believed, we must take the argument further to bring in commodities generally and visit the tricky subject of Gibson's Paradox. This paradox is based purely on long-run empirical evidence, when gold was transaction money, covering the two centuries between 1730 and 1930. It observes that the level of wholesale prices and interest rates are positively correlated. It is not the price relationship that is consistent with the quantity theory of money, which presupposes that interest rates correlate to the rate of price inflation instead of the price level itself. This maybe a reason why monetarists mistakenly argue, as we also discovered in the seventies, that central banks can manage the rate of inflation through interest rate policy. The common view in markets today about the relationship between interest rates and price inflation is wholly at odds with the longer-run evidence of Gibson's Paradox and accords with the more fashionable quantity theory instead.

Gibson and his paradox are generally forgotten today, and those who centrally plan our money and markets appear unaware of the challenge it poses to their monetarist preconceptions. Keynes, no less, described Gibson's Paradox in 1930 as "one of the most completely established empirical facts in the whole field of quantitative economics", and Irving Fisher also wrote in 1930 that "no problem in economics has been more hotly debated". Even Milton Friedman agreed in 1976 that "The Gibson Paradox remains an empirical phenomenon without a theoretical explanation".*

Resolving this paradox can be left to another time; instead we shall consider the implications by looking at price relationships between wholesale prices and interest rates in a post-gold world. The next chart is of producer prices measured in gold compared with one-year Treasury yields.

I have taken the St Louis Fed's "Producer Price Index by Commodity for Crude Materials for Further Processing" to more closely reflect commodity price trends, and to reduce the additional considerations of changes in processing margins over time. The one-year interest rate is preferred to the original evidence of Gibson's Paradox, which used the yield on undated British Government Consols stock as being the only continual information on rates available, because we need to more firmly link the evidence to modern interest rate policies.

Looking at the chart, it is hardly surprising that Gibson's Paradox was quashed from the time of the Nixon Shock in 1971, when the US unlocked a huge rise in the gold price by ending the Bretton Woods Agreement. Instead, the gold price took on a life of its own, driving down wholesale prices priced in gold for the next nine years. The rise in the index from 1980 to 2000 reflected gold's subsequent bear market when gold fell from $800 to $250, but the influence of Gibson's Paradox appears to have returned thereafter.

This conclusion might be considered suspect; but the chart tells us that not only are producer prices at their lowest for thirty-five years when measured in sound money, the price level also coincides with zero interest rates. In theory, it accords precisely with Gibson's Paradox. So where do we go from here?

There is only one way for interest rates to go from the zero bound, it being only a matter of time, time which according to the Fed is now running out. Commodity prices in their role as raw materials therefore seem set to rise with interest rates, if the Paradox is still valid. Furthermore, the evidence from this analysis suggests that wholesale prices are suppressed even more than the price of gold. This being the case, when the interest rate cycle turns the potential for higher raw material prices measured in dollars could be truly spectacular, even more so in the event the gold price rises at the same time, which seems likely in the event that financial markets become destabilised by higher interest rates.

It is worth repeating at this point that the economic consensus, which adheres to the quantity theory of money and has been comforted by the apparent absence of consumer price inflation in the wake of the post-Lehman monetary expansion, takes a diametrically opposite view to that indicated by the Paradox. The prospect of a turn in the interest rate cycle is expected to drive the dollar's exchange rate higher still, weakening commodity prices and gold even further. In the language of the dealers, everyone is on the same side of the trade, meaning the dollar is technically over-bought and commodities over-sold.

Gibson's Paradox says it will turn out otherwise, and it could be central to linking the cyclical relationship between interest rates, securities markets, and commodity prices. It becomes much easier to see how these relationships tie together. Rising interest rates would almost certainly be accompanied by a potentially large fall in overpriced bond and stock markets as speculative positions are unwound, the former even undermining bank solvency ratios.

The flight of speculative capital from falling markets has to go somewhere, particularly if cash balances held in the banks are at a growing risk from systemic default. The Paradox tells us that these are the conditions for commodities to become the safe haven of choice for the highest levels of speculative money ever recorded since fiat currencies dispensed with their golden anchor. Ergo, Gibson's Paradox probably still holds.

*All three quotes are taken from Barsky & Summers, National Bureau of Economic Research Working Paper No. 1680, (August 1985).

The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Market Report: Extremes become more extreme

Fri, 07/17/2015 - 06:40
Gold and silver continued to drift lower over the course of the week, with gold trading at $1,145 and silver at $15.02 in early European trade this morning.

This is close to the lowest prices we have seen since 2010. At the same time equities have rallied strongly and the S&P 500 Index is within a whisker of its all-time high.

It is a crazy world. On the New York Stock Exchange margin debt has hit all-time records at $500bn, roughly double that at the top of the dot-com bubble in 2000 when valuations rose to the highest ever recorded. This is at a time when China's stock markets have begun at the very least a serious bear market; at worst embarking on a 1929-style market crash.

Contrast this irrational exuberance with the situation in the gold market: the hedge funds have never been so bearish, with hedge fund (managed money) gold shorts on Comex at all-time records, shown in the chart below (the dotted line is the long-term average).

Even the balance of longs and shorts, the net position, has fallen to 2,099 contracts, the lowest recorded.

These are the positions revealed by the Commitment of Traders (COT) report for Tuesday 7 July. Since then gold's open interest has jumped sharply on a falling gold price, which can only happen if yet more shorts have been opened. Open interest is shown in our next chart.

Open interest has increased by 18,575 contracts since the last COT report, and assuming these contracts represent hedge funds selling yet more shorts in the wake of Greece's agreement to new negotiations, not only will the hedge fund shorts have rocketed to an unprecedented 120,000 contracts (373.24 tonnes equivalent) but for the first time ever they will be net short.

The situation in silver on 7 July was even more bizarre, with short contracts for managed money at 56,859 contracts, which at 5,000 ounces each represents one third of annual mine production. The only redeeming factor is that open interest has decreased by about 9,000 contracts since Tuesday 7th July. We have no way of knowing ahead of tonight's COT figures whether on balance managed money longs or shorts are capitulating; but if gold is any guide it could be longs. The next chart shows the last known position.

In both metals, these extreme positions are at a time of low and diminishing liquidity in underlying bullion markets. Hedge funds are ignoring not only this important factor, but they also seem unaware that the professional dealers are squaring their positions.

We can see that extreme extremes are the order of the day in financial markets that are seemingly oblivious to risk. Doubtless hedge funds that have shorted precious metal futures to buy equities have done well and may be relying on this strategy being underwritten by the central banks: a Yellen put option for equities and a call option for gold. But as the Peoples Bank of China can today confirm this strategy is not fool proof, and when it goes wrong it goes wrong in spades.

Next week

Monday

Eurozone: Current Account.
UK: CBI Industrial Trends.
Japan: BoJ releases minutes.

Tuesday

Japan: leading Indicator (Final).
UK: Public Borrowing.

Wednesday

Japan: All Industry Activity Index, Customs Cleared Trade.
UK: BoE MPC minutes released.
US: FHFA House Price Index, Existing Home Sales.

Thursday

UK: BBA Mortgage Approvals, Retail Sales, CBI Distributive Trades.
Eurozone: Flash Consumer Sentiment.
US: Initial Claims, Leading Indicator.

Friday

Eurozone: Flash Composite PMI, Flash Manufacturing PMI.
US: Flash Manufacturing PMI, New Home Sales.

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Dealing Desk: A see-saw week for gold and the USD

Thu, 07/16/2015 - 11:16
There has been a clear divergence in the fortunes of the Dollar and the Euro this week which has weighed heavy on the gold price and the yellow metal's safe haven status.

Head of Dealing and Settlements Roland Khounlivong, said, 'Today's announcement that the Greek parliament has agreed the new austerity measures and therefore agreed to creditor conditions, has pushed the Euro down around 1.5% from last week, and given some investors their risk appetite back.

'Gold's see-saw relationship with the US dollar has meant that as it strengthened this week, so gold went south. Helping the swing was US Chair of the Federal Reserve Board, Janet Yellen, who said the raising of interest rates there is very much on the agenda. She also confirmed that the US economic recovery is on track and won't be worried by the situation in Greece or the shaky Chinese stock market.'

The result has been gold heading back to mid March levels, but the gold/silver ratio is still well above 70, with silver being much cheaper relative to its yellow cousin. 'Silver is still underpriced in comparison,' says Roland Khounlivong, 'and now we're entering the holiday period we can expect the market to be relatively quiet until at least the end of August.

There will be some interesting figures out tomorrow in the form of the US Consumer Price Index, but then next week little in the way of interest and therefore we can expect the market to drift a little in the coming weeks.'

Week on week price performances
16/07/15 16:00. Gold down 1.6% to $1,144.67, Silver off 2.0% to $15.06, Platinum slipped 1.4% to $1,007.49 and Palladium fell 1.0% at $631.72. Gold/Silver ratio: 76

 

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

GoldMoney
GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for private and corporate customers, allowing users to buy precious metals online. The easy to use website makes investing in gold and other precious metals accessible 24/7.

Through GoldMoney's non-bank vault operators, physical precious metals can be stored worldwide, outside of the banking system in the UK, Switzerland, Hong Kong, Singapore and Canada. GoldMoney partners with Brink's, Loomis International (formerly Via Mat), Malca-Amit, G4S and Rhenus Logistics. Storage fees are highly competitive and there is also the option of having metal delivered.

GoldMoney currently has over 20,000 customers worldwide and holds over $1billion of precious metals in its partner vaults.

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.
Further information:
Visit: Goldmoney.com or view our video online

Credit deflation and gold

Thu, 07/16/2015 - 11:07
There is a common view in financial markets that credit deflation is bad for gold prices, because gold nowadays is regarded as an asset to be sold in the scramble for cash when people are forced to pay down their debts.

When asked by Congressman Ron Paul his opinion on gold four years ago, Ben Bernanke replied it was not money, just another asset, appearing to confirm this view.

Doubtless Bernanke's view is shared by nearly all other central bankers in the advanced economies and by executives in the banks which have profited handsomely from monetary and credit inflation. But it is not shared by the majority of ordinary savers around the world who see it still as the ultimate store of value at a time of fiat currency inflation. For them, gold is the money to save, driven out of circulation by inferior currencies. We know this to be true throughout Asia where the bulk of the world's population lives; but even millions of ordinary Americans continue to accumulate silver eagles because they still recognise the monetary attributes of precious metals.

Crucially, the assumption in capital markets that gold is no longer money but just an asset or commodity has all but destroyed our understanding of its monetary relationships. Financial analysts fail to appreciate the difference in behaviour of sound money compared with that of unsound money during a contraction of bank credit. This can be empirically established by looking at the relationship between gold and the US dollar in the great depression, when bank credit contracted substantially after the Wall Street crash, and gold was then revalued upwards by 69% to $35 in 1935. The whole point of unsound money is that it can be devalued relative to sound money, as it was at that time, in order to stabilise prices that would otherwise fall; a policy option that is not available to central banks adhering to a gold standard.

In the days of a gold - or more correctly - a gold exchange standard, the collapse of excessive bank credit was always sudden, and vicious in proportion to the previous expansion. Since credit was expanded out of thin air by banks without underlying stocks of gold to cover it, inevitably slumping prices became associated with bank failures, and central banks were set up to insulate commercial banks from this brutal reality. Saving over-extended banks always requires the artificial lowering of interest rates and the expansion of the money quantity to restrain the currency's purchasing power from rising against declining commodities. Gold therefore remains a store of value for savers because it cannot be devalued in this way by a central bank.

This is becoming relevant again given that the escalating credit problems in China appear to be leading towards a 1929-style stock market crash, which if it follows the well-established playbook, will be followed by an economic slump. Today China is the largest commercial consumer of commodities, just as America was in the late 1920s, and her slowing economy is putting downward pressure on commodity prices, pushing up the purchasing power of money of the other major currencies. Put another way, falling energy and commodity prices in yuan are forcing deflation upon the rest of us. So even though investors in gold have seen its dollar price trade broadly sideways for the last three years, its purchasing power measured against most commodities has actually been rising. More recently, gold has also been an effective store of value against weaker currencies, notably the euro and yen.

Now that China's credit deflation is beginning to be exported to the US through lower commodity prices, there is a growing assumption that the dollar will strengthen further. This has encouraged hedge funds to sell gold futures to capture the dollar's rise. In terms of purchasing power it is certainly true that the currency has a deflationary element in it. However, if the Federal Reserve refused to expand the quantity of dollars in circulation, abandoning commercial banks to face the full force of a credit contraction, the purchasing power of the dollar would rise as if it were sound money. But the Fed was set up to do the exact opposite, so it has a clear duty to weaken its currency in this event. Therefore, when the balance of risk swings towards a credit contraction in the US, gold will rise against the dollar because the Fed through its monetary policy is certain to ensure it does so.

This will also surprise market traders who think that a continuing collapse in Chinese stock markets will force liquidation of gold holdings by the Chinese public. There is little doubt that distressed speculators will come under pressure to sell gold if they own it, but this argument ignores the certainty that during a credit contraction government-issued currencies always weaken against gold. So having acquired substantial quantities of gold for itself and having also ensured it is widely held by its public, the Chinese government is arguably in a more compelling position to encourage a gold revaluation as a means of stabilising her economy in a credit crisis than America was eighty years ago. It will be China's only option, and if the government doesn't go for it, China's middle classes certainly will.

We are already seeing the People's Bank of China engaging in reflationary policies to contain the stock market crash. This is a normal central bank response. Doubtless it will maintain the managed peg against the US dollar, partly because China is committed to building confidence in her own currency as a replacement for the dollar in international settlements, and partly because currency devaluation would be seen in the markets as a failure of economic policy. Furthermore, China can reasonably expect US monetary policy to do some of its reflationary work for it.

Therefore, instead of devaluing against the dollar, a rise in the yuan gold price is almost certain to occur. Of course, whether or not China revalues her gold reserves remains to be seen, but allowing the price to rise fits in with the logic of the relationship between sound and unsound money when a credit contraction threatens to become a serious issue.

This simple fact could override all the geostrategic considerations upon which China-watchers have tended to focus. A gold revaluation would be presented to the world as bound up with China's domestic economic problems, instead of an act aimed at undermining the dollar's reserve status: a solution that is less confrontational than outright disagreement with Western central banks over gold's role in the international monetary order.

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Market Report: Two Horsemen of the Apocalypse

Fri, 07/10/2015 - 07:52
If we can reassign meanings given to the biblical Four Horsemen of the Apocalypse from the original, we can then say financial markets saw two of them this week.

The first brought us the Greek Crisis which went from very bad to impossible to resolve, and the second was a collapsing stock market in China. Between them these two events triggered another flight into the US dollar, which would have been far worse without central bank intervention. With the dollar rising against the euro, commodity prices, particularly energy and oil, have fallen sharply, with US Crude down over 15% in the last month.

Against falls of that magnitude the falls in gold of 3% and silver at 7% over the same period could have been worse. Very few market participants in Western capital markets use gold as a safe-haven in troubled financial times thinking of them primarily as commodities, seeing the dollar and US Treasuries as risk-free; so it's no surprise that the dollar rose and Treasury yields fell.

China's stock market may or may not be guided out of its slump by government intervention. The Greek crisis appears to be the greater currency danger, with Greece being only part of the problem. As principal creditor to Italy, Spain and Portugal, the real problem is with Germany, which cannot afford economically and politically to write off these debts, and the ECB which is in negative equity on Greece alone. And if this becomes increasingly obvious in the coming weeks, confidence in the Eurozone and the euro itself can be expected to erode.

A third Horseman may soon hove into sight. A credit implosion in China plus a slump in Eurozone confidence and economic activity would be powerful negatives for the US economy, possibly bringing yet more extraordinary measures from the Federal Reserve. The Fed is unlikely to stand by idly and watch from afar the collapse of the Eurozone's $11 trillion economy, nor can it stand by while stock prices in the US slide if Chinese negativity spreads to other markets. It is at that point that owners of physical bullion should sleep better at night than those that have none.

Silver
The market set-up is now extreme, with falling prices in futures markets generating physical buying of precious metals, a dichotomy that should lead to a more general scramble for physical metal eventually. This is already evident in silver, with the US Mint cleaned out of silver eagles and unable to supply any more until August at the earliest.

Silver is a good example of how extreme market positions have become. The chart below is of Managed Money short contracts on Comex.

This category of speculative shorts is the highest on record, and represents 273 million ounces, or over 30% of global mine production. These shorts are in an illiquid market, and have allowed professional dealers to square their books. This is reflected in record longs for swap dealers.

Admittedly, this is a one-sided view that excludes the managed money long positions and the swap shorts; but the objective is to show just how unbalanced the futures market for silver has become.

Next week

Monday

Japan: Capacity Utilisation, Industrial Production.
US: Budget Deficit.
UK: BRC Retail Sales Monitor.

Tuesday

UK: CPI, Input Prices, ONS House Prices, Output Prices.
Eurozone: Industrial Production.
US: Import Price Index, Retail Sales, Business Inventories.

Wednesday

UK: Average Earnings, Claimant Count Change, ILO Unemployment Rate.
US: Empire State Survey, PPI, Capacity Utilisation, Industrial Production.

Thursday

Eurozone: HICP, Trade balance, ECB Deposit Rate, Refinancing Rate.
US: Initial Claims, NAHB Builders' Survey, Net Long-Term TICS Flows.

Friday

US: Building Permits, CPI, Housing Starts.

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Dealing Desk: Gold returns to the spotlight amid Asian stock slump

Thu, 07/09/2015 - 13:14
The Greek/Euro union may have been teetering on the brink this week, but the precious metals markets remained somewhat ambivalent to the situation - until Asia's woes hit the headlines.

Head of Dealing and Settlements at GoldMoney, the online precious metals dealer, Roland Khounlivong, said gold has been surprising analysts, 'The tensions in Europe have helped push the risky assets south, but although we'd usually expect gold to gain from its safe haven value, it was in fact dipping earlier this week, with the strength of the US dollar mostly to blame. That has now changed, however, with what's been going on in Asia. Gold has jumped from its lowest level of about US$1,150 an ounce to around $1,163. The slump in Chinese stock markets, which has started spreading in Asia, has caused a reaction from the west.

'Yesterday's technical problems on the US stock exchange also helped increase the panic levels and sustain the gold price which leapt $14 in 24 hours. Today's US Jobless claims showed a slightly downbeat note which has pushed a few more bargain hunters into the safe haven of gold, but we're expecting the decision on Sunday to be the main driver of next week. Greece's Euro fate could prompt some interesting reaction on the markets Monday.

'GoldMoney customers have been particularly positive towards gold, with some marginal interest in platinum. The gold/silver ratio is standing at 76, showing it's a real bargain in comparison.

'This week we have seen more interest in our UK vaults than usual, while Singapore has been quieter.'

Week on week price performances
09/07/15 16:00. Gold up slightly 0.02% to $1,163.26, Silver off 1.66% to $15.36, Platinum down 5.09% to $1,021.74 and Palladium off 8.21% at $637.97.

 

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

GoldMoney
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Productivity misconceptions

Thu, 07/09/2015 - 09:35
In the media warm-up for Wednesday's UK budget, we were told of Britain's poor productivity and Chancellor Osborne subsequently confirmed that his priority is to address it.

Comparative figures for Europe quoted by the BBC were sourced from the OECD and are replicated in the chart below.

It represents GDP per hour worked, using the US dollar on a purchasing power parity basis across different EU nations. And it shows the UK as lagging other European countries badly, which presumably is why the Chancellor feels the need to act.

These statistics are misleading. France is shown as even more productive than Germany, which cannot be true. France's unemployment is at 12% and private sector employment is only 62% of the OECD's "economically active population". This is not a productive economy. Furthermore the public sector is 57% of GDP, compared with 44% for the UK.

Trying to measure average hourly productivity the OECD way is simplistic and based on assumptions. The formula is GDP divided by total hours worked, so we are being asked to take GDP for granted, when it is in fact an incomplete summation of production value. And in GDP there is no distinction between product commanded onto the market by government and goods and services freely demanded by consumers. And we cannot know hours worked because very few businesses today clock employees in and work out beverage, comfort and lunch breaks.

We can construct a better and more relevant productivity indicator, based on the cost of employment, which is not addressed by the OECD approach. Government, which is an economic cost, should be eliminated from all estimates of production by removing the sector from GDP entirely to isolate the part we actually want, the private sector. The private sector's costs in supporting the state, the taxes that fund unproductive government spending, should also be removed from private sector GDP. And because we produce to consume, this means as proxy for the cost of government subtracting all taxation from private sector GDP, whether it is on production or consumption.

Next, only the employed and self-employed in the private sector should be included in the divisor by eliminating public sector workers and the unemployed. The result of all these changes produces a very different result, shown in the chart below.

This information is not only more relevant than the OECD's misleading estimate of productivity, but it is more useful for international businesses interested in the relative costs of employment.

We should take this one step further and consider the position from our statistically averaged employee. The following table shows the estimated net income of an employee whose cost of employment to an employer is equal to the national average production per private sector worker as shown in the revised chart above.

We now have a new perspective on the subject of productivity. In order to match the high productivity rates shown in the OECD's productivity statistics, a French worker takes home only €834 per month, and the Italian not much more. For them there's little point in working. However, the Brit's take-home pay is more than any of the others, including that of the average German employee.

What this exposes is that the principal determinant of productivity is not the relative skill and dedication of workers as suggested by the OECD's figures, but the cost of employment. An employer after paying employment and income taxes can less easily afford to pay a living wage in France and Italy. It seems bizarre that official indicators of productivity ignore employment costs, which is after all far more relevant to prospective employers.

Let us hope someone draws this to George Osborne's attention.

 

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Referral Programme

Wed, 07/08/2015 - 13:00
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Join the Referral Programme

Choose your Referral Code – this unique code means that we can recognise your referrals and reward you for promoting GoldMoney.

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To start earning from referrals, share your Referral Code to friends and family.  They can enter this code during the sign up process.

Tracking my earnings

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Referral Programme terms and conditions

Wed, 07/08/2015 - 12:53
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Market Report: Precious metals subdued

Fri, 07/03/2015 - 05:53
Gold and silver had a poor week, with no relief from drifting prices after the end of the second quarter.

The gold price opened on Monday morning in the Far East at $1,187 and fell to a low point at $1,158 yesterday. Silver mirrored gold's move falling from $16.05 to $15.50. Both metals rallied yesterday afternoon with gold down slightly but silver up 14 cents. In early European trading this morning there were further small gains.

The news this week was dominated by Greece, which should have led to European demand for gold, and it was indeed reported that Greeks were buyers of British sovereigns and that European bullion demand picked up somewhat from low levels. Precious metals were otherwise side-lined and left to drift in markets dominated by central bank intervention in foreign exchanges, with the Swiss National Bank triggering a very strong rally in the euro on Monday, driving the rate from an overnight low below 1.1000 to the US dollar to 1.1270.

This rally in the euro was counterintuitive given the Eurozone crisis. Central banks must have been on red alert over last weekend when it became clear that Greece was going to default on an IMF loan repayment and that her banks were going to remain closed for the whole week ahead of this Sunday's referendum. The result is that the euro showed every sign of being closely managed.

The excitement in the Eurozone has obscured the collapse in China's stock markets, with the Shanghai index crashing 30% in little more than a fortnight. And yesterday, the US's Labour Force Participation Rate fell to its lowest since 1977, indicating the US is dipping back towards recession. While China is facing a contracting credit bubble, the US economy is simply stalling; both developments implying global monetary policies are likely to gain a new inflationary impetus.

While this implies higher prices for precious metals in the medium term, the bears point to gold's disappointing performance during the Greek crisis. Furthermore oil prices have continued their decline which is also regarded as a negative factor.

The underlying vested interest is the high level of short positions on Comex, which showed no sign of being unwound in the first few trading days of the new financial quarter. This is shown in the chart below, which demonstrates increasing open Interest in Comex gold futures, despite a falling price over the last fortnight.

In the last Disaggregated Traders Report the Managed Money category had record short positions, and this bearish momentum has held for the moment. While the prospects for today suggest a modest rally on bear-closing on Comex's Globex platform ahead of the weekend, US markets are closed for the Independence Day public holiday.

In other news, China is stepping up her involvement with gold, having announced the Shanghai Gold Exchange will introduce a gold fix priced in yuan by the year end, and this coincides with the Bank of China's application to become a direct participant in the London bullion market. Combined these moves can be regarded as a tentative move towards a floating gold-renminbi conversion rate. This being the case, it will be an important step towards the remonetisation of gold.

Next week

Monday

Japan: Leading Indicator.
UK: Halifax House Price Index.
Eurozone: Sentix Indicator.
US: ISM Non-Manufacturing Index.

Tuesday

UK: Industrial Production, Manufacturing Production, NIESR GDP Est., BRC Shop Price Index.
US: Trade Balance, Consumer Credit.
Japan: Bank Lending Data, Current Account.

Wednesday

Japan: Key Machinery Orders, M2 Money Supply, Economy Watchers Survey.

Thursday

UK: BoE Rate Decision.
US: Initial Claims.

Friday

Japan: Consumer Confidence.
UK: Construction Output, Trade Balance.
US: Wholesale Inventories.

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Dealing Desk: Precious little attention on gold as platinum and silver shine

Thu, 07/02/2015 - 13:20
The Greek Gods might be stomping their feet on Mount Olympus, but it appears the precious metals markets are not interested as the greenback retains control.

Dealing Manager at online precious metals dealer, GoldMoney, Kelly-Ann Kearsey said, 'There hasn't been the safe-haven buying you'd expect at a time like this when Greece could be about to exit the European currency. Our customers have been playing the market. We saw some profit taking before the gold price dipped, but it has been the bargain buys of platinum and silver which have seen most of the action this week.

'Instead, the market is looking at gold through green tinted glasses, focusing on the potential rate hike in the USA and a strong dollar. It means that gold is at a four week low despite potential Euro troubles. In fact, had European customers bought gold in Euros eighteen months ago they'd be sitting comfortably as their gold stock will have risen 25% in value against the currency. This lends weight to the yellow metal's currency fluctuation protection.'

GoldMoney customers have spotted the advantage to be had with platinum and silver. 'Platinum is down ten percent this year, nearing a six year low, and our customers seem to recognise that with plenty of buying this week. Likewise, silver is also seeing increased purchases thanks to its current pricing.

'Monday will be the day of reckoning as markets open following the Greek referendum and the US Independence day holiday. We could see a rollercoaster ride for metals next week as investors look to take position ahead of the Euro turbulence.'

Week on week price performances
02/07/15 16:00. Gold down 0.8% to $1,163.06, Silver off 1.2% to $15.62, Platinum down 0.2% to $1,076.49 and Palladium up 2.7% at $695.00.

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

GoldMoney
GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for private and corporate customers, allowing users to buy precious metals online. The easy to use website makes investing in gold and other precious metals accessible 24/7.

Through GoldMoney's non-bank vault operators, physical precious metals can be stored worldwide, outside of the banking system in the UK, Switzerland, Hong Kong, Singapore and Canada. GoldMoney partners with Brink's, Loomis International (formerly Via Mat), Malca-Amit, G4S and Rhenus Logistics. Storage fees are highly competitive and there is also the option of having metal delivered.

GoldMoney currently has over 20,000 customers worldwide and holds over $1billion of precious metals in its partner vaults.

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.
Further information:
Visit: Goldmoney.com or view our video online

Greece’s referendum

Thu, 07/02/2015 - 05:56
This coming Sunday Greece will hold its referendum.

The question to be asked is not, as the foreign press initially reported it, about leaving the euro. It is about accepting or rejecting the troika's bail-out terms.

The Greek government's finance minister is making this distinction clear to voters in the few days remaining. As if to ram the point home, Greece was reported earlier this week to be considering taking out an injunction at the European Court of Justice to block attempts to expel Greece from the euro on the grounds that there is no mechanism to do so. Well, there is in the Lisbon Treaty, but it needs Greece's approval, which amounts to the same thing. Indeed, in a blog written over a year ago the then economist Yanis Varoufakis wrote, "In short, the answer to a German 'Go jump' can be 'We shall not jump but we shall stay rock solid within the Eurozone and behind our demand for a debt conference. Just watch us'". Now that he is finance minister he is ensuring his prediction will come to pass.

Behind the press reports there is also a common, dangerous assumption; and that is Greece would be better off out of the euro with its own currency, which it can devalue at will. This is not what Varoufakis seeks. He is not naïve enough to think that a new drachma is a panacea. The truth is simpler: Greece is drowning in debt and needs to negotiate at least a partial default, a point Varoufakis has made time and time again.

Unfortunately, in the minds of the Eurozone establishment, for which read Germany as the main creditor-nation, a negotiated default cannot be permitted: it's the red line. Give in to Greece and you have Portugal, Italy and perhaps Spain and eventually France demanding the same forgiveness. The Eurozone's banks, while reasonably free of Greek debt, are loaded up with sovereign debt issued by these nations and cannot take haircuts on it without going under. It would not only undermine the Eurozone, but it could trigger a global financial crisis as well.

Furthermore the Greek government's own spending is exceptionally high, and from a creditor's point of view should be addressed. This is behind the troika's emphasis on radical pension reform, already rejected by this far-left government. But there comes a time when even the most lenient creditor has to bite the bullet and face reality, and that is what Germany is now being forced to do.

Of course this is a black-or-white argument, and reality is usually shades of grey. Normally politicians seek compromises so the press is naturally prone to believing that negotiations could be restarted at any time. However, Germany's continuing insistence that the law will prevail means Varoufakis's point will be addressed, if not through debt compromise, through the full pain of the financial rug being pulled. It really would be the end of the paved-with-debt road for Greece.

Paradoxically the worst outcome for everyone, creditors included, would be for the electorate to accept the troika's terms by voting 'Yes' in the referendum. If this happens Greece's debt problem will only be deferred, but not for long. The diversion of economic resources to pay debt-interest tightens the screw on the Greek economy, because the burden of debt escalates as GDP contracts, hastening economic collapse instead of deferring it. The troika, as instrument for this financial torture would naturally be judged by Greece's people to be motivated by hard reparations, just as France was with Germany in the wake of the Versailles Treaty of 1919. Follow this route and the life of the Eurozone may be extended for a year or so, but the political consequences could hasten its destruction. Germany's red line is very thin indeed.

Instead, a 'No' vote should be an opportunity in the absence of a post-referendum agreement for Greece to scrub all its international debt and start again. It will get no substantive financial help from the EU or financial markets, so the government would be forced to address bloated government spending itself without resorting to money-printing. At least Greece's electorate will bear full responsibility for its own future.

It was easy to deride Varoufakis as the game-theorist turned finance minister wholly out of his depth negotiating with his hard-nosed opposite numbers in the Eurozone. History may judge him instead to have played a poor hand very well indeed.

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

The euro crisis

Mon, 06/29/2015 - 07:51
Make no mistake; the Greek crisis is a euro crisis that threatens the solvency of the ECB itself, and therefore confidence in the currency.

Before going into why, a few comments on Greece will set the scene.

Last weekend it became clear that Greece is heading for both a default on its government debt and also a failure of its banking system. With the benefit of hindsight it appears that the Greek government was unwilling to pretend that it was solvent and extend its financial support as if it was. The other Eurozone finance ministers and the troika were not prepared to accept this reality.

There is no immediate benefit from debating why. What matters now are the economic and financial consequences, which are basically two: the Eurozone's banking system is very fragile and cannot absorb any sovereign default shocks easily, and the ECB itself now needs refinancing. Let's concentrate on the ECB first.

The losses the ECB face from Greece alone are about twice its equity capital and reserves. The emergency liquidity assistance (ELA) owed by Greece to the ECB totals some €89bn, and the TARGET2 balance owed by the Bank of Greece to the other Eurozone central banks is a further €100.3bn, which at the end of the day is the ECB's liability. The total from these two liabilities on their own is roughly twice the ECB's equity and reserves, which total only €98.5bn. Given the likely collapse of the Greek banking system and the government's default on its debt, we can assume any collateral held against these loans, as well as any Greek bonds held by the ECB outright are more or less worthless.

The ECB has two courses of action: either it continues to support Greece to avoid crystallising its own losses or it recapitalises itself with a call upon its shareholders. The former appears to have been ruled out by last weekend's events. For the latter a rights issue looks challenging to say the least, because not all the EU national central banks are in a position to contribute. Instead it is likely that some sort of qualifying perpetual bond will be issued for which there should be ready subscribers.

How this is handled is crucial, because there is considerable danger to the ECB from the instability of the whole Eurozone banking system, which is highly geared and extremely vulnerable to any reassessment of sovereign credit risk. If you believe that the Greek crisis has no implications for Italy, Spain, Portugal and even France, you will rest easy. This surely is how the ECB would like to represent the situation. If on the other hand you suspect that the collapse of the Greek banking system, plus their sovereign default, together with a knock-on effect in derivative markets, have important implications for euro-denominated bond markets, you will probably run for the hills. The latter being the case, highly geared Eurozone banks are likely to face difficulties, and they will affect the ECB's own holdings of all bonds, both owned outright and held as collateral against loans to rickety banks.

In short, the ECB's balance sheet, which is heavily dependent on Eurozone bond prices not collapsing, is itself extremely vulnerable to the knock-on effects from Greece. As the situation at the ECB becomes clear to financial markets, the euro's legitimacy as a currency may be questioned, given it is no more than an artificial construct in circulation for only thirteen years.
In conclusion, the upsetting of the Greek applecart risks destabilising the euro itself, and a sub-par rate to the US dollar beckons.

End note on gold
This week should see the dollar strong against the euro and the euro price of gold can be expected to rise. The extent to which these happen may depend on whether or not central banks intervene. For what it's worth last time this happened (over Cyprus February 2013) Europeans were reported to be requesting physical delivery against their unallocated gold accounts. The following April a co-ordinated bear raid of unprecedented size pushed the gold price down from $1580 to a low of $1183. The purpose of the raid was to disabuse investors of the safe-haven trade, in which it succeeded.

There is little such appetite for gold bullion today so a similar move is probably viewed by central banks as unnecessary; but if the gold price was to move significantly higher attempts to defuse the rise are less likely to succeed because there are very few sellers in western markets and the short positions on Comex in the Managed Money category start at record levels.

 

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Market Report: Greece and short positions

Fri, 06/26/2015 - 05:23
Hedge funds and high-frequency traders have finally forced gold into a US dollar loss this year as shown in our introductory chart, but silver is still in positive territory.

This week gold declined $29 with a break from the $1200 level to $1171, and silver fell 40 cents to $15.70 early this morning in European trade.

As I wrote last week, in the run-up to the half-year precious metals' prices face a conflict between window-dressing for the lowest possible valuation, and the systemic risk that is Greece. The window-dressing motive is still there, but the pressures from Greece lessened on Monday when everyone thought a deal had been agreed, leading to a relief rally in equity markets and a corresponding fall in gold. As the week progressed it became clear that the proposed deal was not acceptable to the troika* of the IMF, ECB and the European Commission, but precious metals continued to drift lower.

Understandably, the troika observed that the Greek government's proposals were harmful to the economy and ultimately will make her debt less secure. The lack of resolution therefore increases Greece's systemic risk, making precious metals more attractive as a hedge.

But not for now it seems. Monday's false hopes of a Greek resolution allowed the bears on Comex to drive gold and silver prices lower, which suits both commercial traders and money managers. The position however has become extreme, with money managers' short positions the highest they have ever been. This is shown in the next chart, which is updated to 16th June (the dotted line is the long-term average for reference).

In the last ten days Open Interest has risen by an extra 21,000 contracts, which suggests that Managed Money shorts are even further into record territory, as much as 100,000 contracts. At the same time, Managed Money long positions are only a little below average, suggesting some hedge funds do have an eye on systemic risk.

The extreme short position is therefore controversial with a minority in the investment community. Monitoring sentiment generally, we find a growing influential minority of big investors expressing serious concerns over the failure of monetary policy and the distortion on market valuations. These sentiments appear to be reflected in speculative hedges in precious metals on Comex. The preponderance of sellers has given the big four commercial traders an opportunity to reduce their shorts to a level book, which is significant given their historical net short position has averaged over 90,000 contracts. Swaps, mainly representing bullion banks hedging risk elsewhere, have also reduced their exposure to historically low levels.

Market sentiment is therefore telling us the shorts are like lambs, which as they put on weight are getting closer to their appointment with destiny. The potential for a bear squeeze against money managers short of gold futures is greater than it has ever been. Market insiders, whose greatest risk is always from sharply rising prices, have squared their books telling us that they see this risk as well.

Meanwhile Open Interest in silver is not only at an all-time record, but continues to rise on falling prices, which is our last chart.

This is very unusual. Normally, Open Interest rises in phase with the price; instead it is rising on a falling price. In this case, Commercials including Swap Dealers have cut their net shorts by betting against new Managed Money short positions. The result is that outstanding bets in this market now exceed a billion ounces, not only a new record by far, but 115% of annual global mine production.

Next week

Monday

UK: Nationwide House Prices, BoE Mortgage Approvals, Net Consumer Credit, Secured Lending, M4 Money Supply, GfK Consumer Confidence.
Eurozone: Business Climate Index, Economic Sentiment.
US: Pending Home Sales.

Tuesday

Japan: Construction Orders, Housing Starts.
UK: Current Account, GDP (3rd Est.), Index of Services.
Eurozone: Flash HICP, Unemployment.
US: S&P Case-Shiller Home Price, Chicago PMI, Consumer Confidence.

Wednesday

Japan: Tankan Survey, Vehicle sales.
Eurozone: Manufacturing PMI.
UK: CIPS/Markit Manufacturing PMI.
US: ADP Employment Survey, Manufacturing PMI, Construction Spending, ISM Manufacturing, Vehicle Sales.

Thursday
Eurozone: PPI.
US: Initial Claims, Non-Farm Payrolls, Unemployment, Factory Orders.

Friday

Eurozone: Composite PMI, Services PMI, Retail Trade.
UK: CIPS/Markit Services PMI.

* The term Troika, which comes from the Russian meaning 'group of three', is used to describe the European Commission, International Monetary Fund and European Central Bank

Disclaimer: The views and opinions expressed in the article are those of the author and do not necessarily reflect those of GoldMoney, unless expressly stated. Please note that neither GoldMoney nor any of its representatives provide financial, legal, tax, investment or other advice. Such advice should be sought form an independent regulated person or body who is suitably qualified to do so. Any information provided in this article is provided solely as general market commentary and does not constitute advice. GoldMoney will not accept liability for any loss or damage, which may arise directly or indirectly from your use of or reliance on such information.

Dealing Desk: Bargain hunting and some Sterling good buys

Thu, 06/25/2015 - 12:42
It's been a week where precious metals' prices have been dominated by the conflicting pressures of a stronger US economy and dollar versus a potential Greek exit from the Eurozone.

Dealing Manager Kelly-Ann Kearsey said, 'After gold's rise above the psychological $1200 level last week, prices took a hit when US GDP figures showed the economy is on a stronger road to recovery than first thought. This was good news for America and the dollar; however, it hit the gold price. We saw our customers engage in some profit taking before the slip, but the last few days have been dominated by buying as the lower price and the Greek uncertainty encouraged safe haven buying.

'It's not just gold which has benefited. Silver and platinum have also been on the shopping list for GoldMoney customers keen to snap up the metals at their bargain pricing. Both metals have industrial usage so an improving economic climate will up their demand.

'UK data showing mortgage approvals hitting a ten month high in May helped Sterling rise sharply on the foreign exchange market and concurrently decreased the relative price of gold which has now hit a seven month low in Sterling.

'Looking forward if the economic news remains positive we're likely to also see some gold purchasing as an inflation hedge.

Of course the Greek debt situation is currently dominating minds and markets. The final hours have come and with still no deal, there are concerns it could result in an exit of the country from the Euro with global economic repercussions. For now all the markets can do is wait and see.'

Week on week price performances
25/06/15 16:00. Gold down 2.4% to $1,172.60, Silver slipped 3.3% to $15.81, Platinum off 0.3% to $1,078.75 and Palladium down 6.2% at $676.75.

 

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

GoldMoney
GoldMoney is one of the world's leading providers of physical gold, silver, platinum and palladium for private and corporate customers, allowing users to buy precious metals online. The easy to use website makes investing in gold and other precious metals accessible 24/7.

Through GoldMoney's non-bank vault operators, physical precious metals can be stored worldwide, outside of the banking system in the UK, Switzerland, Hong Kong, Singapore and Canada. GoldMoney partners with Brink's, Loomis International (formerly Via Mat), Malca-Amit, G4S and Rhenus Logistics. Storage fees are highly competitive and there is also the option of having metal delivered.

GoldMoney currently has over 20,000 customers worldwide and holds over $1billion of precious metals in its partner vaults.

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.

Further information:
Visit: Goldmoney.com or view our video online

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