Tag Archives: debt crisis

Société Générale Calls The End Of The Gold Bull Market … Again

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Gold stabilized today in global trading in Asia, Europe and the US. It has been trading near $1,550 an ounce / €1,250 an ounce. After two successive days of what seemed to be a mechanical sell off in both gold and silver, a very significant support level has been reached. Time will tell if this support area for gold (between $1,515 and $1,550 an ounce) will hold. As for now, enough buyers have appeared to pick up the yellow metal at these prices.

In the midst of this gold price drop, Société Générale published a “special report” titled “The End Of The Gold Era.” The bank’s bearish case is documented in 26 pages. The analysis resulted in a gold price prediction of $1500/oz  over 2013, and $1375/oz by the end of the year. It is worth taking the time to read through the document mainly to understand how a big financial institution looks at gold. That’s why we have added it to our public library and embedded it at the bottom of this article.

Interestingly, gold is literally on fire today in Japan (click to see the yen gold chart). Yen gold is up 3.3% after the announcement of the Bank of Japan to stimulate their economy with $ 1.4 trillion in the next 24 months. The operation is unprecedented in scale, surpassing the US Fed’s monetary bazooka. As a result, the Yen was hit hard; the euro and US dollar have strengthened against the Yen.

Yen gold today clearly showed that gold is a monetary asset. Gold simply reflects the value of a currency. It is not the gold price that is going up or down (as the mainstream thinking goes and as most commentators in the media tell); it is the value of a currency that fluctuates and the gold price that changes accordingly.

It remains astonishing how this monetary aspect of gold remains underexposed and misunderstood (at least, in our opinion). Société Générale is no exception to that. Their underlying vision is that gold is a tradable commodity. Nothing more, nothing less.

It should not come as a surprise that the words “monetary policy”, “debt monetization” and “deficit spending” do not appear in their report. The document mentions only twice the words “debt crisis,” once pointing to Europe and once confirming that the US debt is under control. In that respect, the following quote should refelect the most important assumption: “After the sequester debt will stabilize at around 75% of GDP.”

It is a fact that the US debt ceiling and the dollar gold price are almost perfectly correlated. That’s why we the expectations related to debt are critical, at least in our opinion. Société Générale believes the debt crisis is contained and that the worst is over:

The inflection point may already be behind us. While more needs to be done to put the US on a sustainable fiscal path, the policies already enacted from the spending cuts legislated in 2011 to the tax increases legislated in early 2013 have significantly improved the debt trajectory relative to their worst projections.

To be sure, more work needs to be done to put public debt on a sustainable trajectory. Current projections still show a debt ‚explosion‛ during the 2020-2050 period on the back of an ageing population.

The French bank considers neither debt nor the monetary aspect of gold as drivers for the gold price. Rather the document focuses on inflation. It clearly says that inflation should not be expected in the US. Furthermore, the researchers point to a stronger than expected economic recovery. Lastly, the bank’s belief in higher interest rates appears to be an important argument for gold’s bearish case.

The aim of our article is not to go against the arguments of the French bank. After all, we are not positioned to conduct extensive research, nor do we have access to the same amount of (economic) data in order to make our case. Instead, we thought it would be valuable to look at the track record of the bank when it comes to gold price predictions. A simple online search yielded several forecasts since 2008 and an easy-to-read chart.

gold price predictions societe generale gold silver price news

We checked the validity of the sources. They appear to be correct. The chart refers to the following articles:

From a Reuters article on 31 Oct 08: ”The most likely scenario for gold is it goes down a lot, especially if it is trading at historically high levels,” said Jesper Dannesboe, senior commodity strategist at Societe Generale. Because the fears of inflation will be replaced by fears of disinflation and that is a killer for gold. I think gold is going below $600 in this cycle.”

From a Reuters article on 18 Nov 08: “The bullish story on gold based on fears of inflation is dead.”

From a Bloomberg article on 6 Jan 09: “Societe Generale predicted gold will average $650 an ounce this year. Gold futures averaged about $874 last year.”

Read More: http://goldsilverworlds.com/gold-silver-price-news/societe-generale-calls-end-of-gold-bull-market/

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Gold Poised for Quarterly Loss as Cyprus Banks Reopen

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Gold traded little changed, set for the worst quarterly run since 2001, as the reopening of banks in Cyprus eased immediate concern Europe’s debt crisis will deepen, reducing the precious metal’s appeal as a store of wealth.

Gold for immediate delivery was at $1,596.50 an ounce at 2:31 p.m. in Seoul from $1,596.83 yesterday. Prices have fallen 4.7 percent this quarter, following a 5.5 percent slump in the three months through December, the first back-to-back losses since 2001. Cash gold was 0.5 percent lower at 319.60 yuan ($51.47) a gram on the Shanghai Gold Exchange.

A shopper looks at gold jewelry and ornaments at a gold and silver shop in Shanghai. Photographer: Qilai Shen/Bloomberg

The euro gained as Cyprus’s banks reopened with new rules curbing access to cash after being closed since March 16. Bullion is down after its 12-year bull run amid speculation the Federal Reserve will rein in stimulus.

“Our economists believe the contagion risks are limited, so it would appear that risk aversion has not risen high enough for gold to regain its sparkle just yet,” Suki Cooper, a precious metals analyst at Barclays Plc, said in a report e- mailed today.

Cyprus this week obtained a 10 billion-euro international bailout after the island agreed to shut down its second-largest lender and impose losses on uninsured deposits of more than 100,000 euros. The deal replaced a previous euro-area demand to impose a levy on all bank accounts. The 17-nation currency traded at $1.2825 after rising as much as 0.2 percent earlier.

Gold holdings in exchange-traded products slipped to 2,449.84 metric tons yesterday, about seven percent below a record in December, according to data compiled by Bloomberg.

Silver for immediate delivery rose 0.4 percent to $28.4613 an ounce, paring a second quarterly decline. Spot platinum traded little changed at $1,571.50 an ounce. Palladium was at $772 an ounce, set for a third straight quarterly gain.

Source: http://www.bloomberg.com/news/2013-03-29/gold-poised-for-second-quarterly-loss-as-banks-in-cyprus-reopen.html

All Money Printing Schemes End Badly

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By: GE Christenson

William H. Gross (manages the largest bond fund in the world – PIMCO) has much to say about Quantitative Easing and money printing. His latest article, Money For Nothin’ Writing Checks For Free, discusses Quantitative Easing (printing money) and the inevitable consequences. He notes that central banks have printed over six trillion dollars in the last few years. This begs the question, “Why not print even more?” Mr. Gross and many others have suggested that central banks should be hesitant with money printing schemes since they tend to end badly. He also quotes Sir Isaac Newton regarding the temporary success (and subsequent crash) of the English government’s money printing in the early 1700s South Seas bubble, “I can calculate the movement of the stars but not the madness of men.”

Congress can NOT reduce spending! (Would the deficit be eliminated if members of congress lost their salary and benefits every year the government overspent revenues?)We can solve an excess debt crisis by creating more debt! (Will vodka also cure alcoholism?)Printing money (QE4Ever) will create economic prosperity! (It creates wealth for banks, but not for the economy.)More government, at much more cost, will improve the economy!47,000,000 Americans on food stamps (SNAP) indicates a recovering economy!Paper money will always have value and will always be accepted in payment for real goods! (History indicates otherwise.)Loaning money to an insolvent government at about 3% per year for 30 years is a good investment when the government has assured us that it will devalue the dollars used to repay the loan!YOU can control your finances, wealth, and retirement.Gold is real money.Physical assets are safer than paper assets or digital “money” on a computer server. Avoid the train wreck.Gold will retain its value, dollars will not.If you own physical assets, you have less need to trust the safety of the stock market or the bond market.Physical assets are much less vulnerable to the actions of central banks, the “Plunge Protection Team,” High Frequency Trading, and other market manipulations.

“A man sees what he wants to see and disregards the rest.” Simon & Garfunkel

If the government needs money for excessive expenditures, it sees loans and a central bank that “prints money” and disregards the inevitable inflation.

If a bank sees huge unrealized losses on mortgages, derivatives, and mortgage-backed securities, it sees bailouts from the Federal Reserve along with lobbyists purchasing favorable legislation and disregards the economic cost to the nation.

If an aware individual sees unbacked paper money being printed in quantity, he buys physical assets such as gold and silver and disregards the continual media noise and nonsense.

Avoid the madness of men, and seek the safety and sanity of gold and silver. We have been warned.

GE Christenson
aka Deviant Investor

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