Tag Archives: metal

Gold Supply and Demand Fundamentals for Q1 2013

Posted on by

Global gold demand for the first quarter of 2013 declined both in terms of tonnage (-13%) and dollars (-16%).

The volume decline was driven primarily by 177 tonnes of outflows from ETFs, versus inflows of 53 tonnes last year. If we remove this component from the mix, total global demand actually increased by 8% during the first quarter.

It is somewhat odd to see that investment demand in the form of bars and coins climbed by a healthy 10.3%, while ETF investment demand turned negative and total holdings dropped by over 7%. Some of this divergence can be explained by investors exiting paper positions in precious metals in favor of taking possession of the physical metal. This decision stems from a growing distrust of the banks and financial institutions that act as custodians for the popular gold and silver ETFs. Many precious metals investors do not believe that the funds actually hold all of the physical to back up the paper claims.

These concerns have been somewhat validated in recent years by lawsuits against banks for charging storage fees on silver they didn’t actually store, large investors being forced to settle in cash, multi-year delays from countries seeking to repatriate their gold holdings, a strong case for paper manipulation of the prices by the largest banks and theft of customer funds at the largest commodity brokerages. I won’t re-hash the manipulation argument in this article, but suffice to say there has been a significant divergence between the physical and paper prices, suggesting that the COMEX price is not reflective of true free market pricing.

Due to all of the reasons mentioned above, it makes sense to look at investment demand with and without the paper-driven ETF component. And while it is somewhat concerning to see total demand with ETF outflows declining, that decline of 13% is rather small given the tonnage outflows from ETFs. And it is important to keep these outflows in perspective. While it is an abrupt turnaround from the inflows in previous quarters, total ETF holdings only dropped by 7% and are still above 2011 levels. Likewise, the 10% increase in demand for bars and coins suggests that the market for physical gold and silver remains strong.

It is also worth noting that investment demand increased significantly elsewhere in the world where paper ETFs are less utilized. Total investment demand for gold rocketed 52% higher in India and 22% higher in China.

Falling prices helped to drive up consumer demand for gold and silver jewelry. This demand climbed higher across the globe including in the U.S. (+22%), India (+27%) and China (+20%). In fact, Q1 marked the first quarterly increase in jewelry demand since 2005!

Central bank buying remained strong, as 109 tonnes were added to reserves during Q1. This marked the ninth consecutive quarter of net purchases, although demand cooled off a bit (-5%) versus the first quarter of 2012.

It is also interesting to note that sales of gold by signatories of the Central Bank Gold Agreement (CBGA) were non-existent in the first quarter of 2013. Cumulative sales are running at just under 200 tonnes, which is just a fraction of the 1,600 tonnes that would be permissible to date under the agreement. In other words, central banks around the globe continue to be significantly more interested in accumulating gold reserves than disposing of them.

Supply

Total gold supply was steady during the first quarter, with a small increase of around 1%. A 4% increase in mine production was countered by a decline in similar magnitude in the supply of recycled gold. It seems that most of the unwanted or unused gold that gets recycled has already been brought into the market through the barrage of cash for gold stores and advertisements.

Gross de-hedging by producers slightly outweighed fresh hedging to equate to 3 tonnes of new de-hedging in the quarter. Gold producers have significantly reduced the size of the global hedge book in the past few years and there appears to be no appetite to start new hedges, despite the sharp drop in gold prices. This signifies that the experts and executives at top mining companies continue to be very bullish about the future price of gold.

I think the takeaway from this latest WGC report is that gold demand remains strong globally, including a noted shift to physical bullion by investors and continued buying at elevated levels from central banks. European markets were weak and the outflow from ETFs is also somewhat concerning. But these ETF speculators are fickle, moving their money around to the hottest sectors in an attempt to follow the latest trends. They will likely pile back into the gold market as the price begins moving higher. In the meantime, most of the strong-hands that are long-term gold investors continue to hold their positions and buy the dips.

Therefore, I believe the data is suggesting that we are more likely in a short-term correction than a new gold bear market as Goldman Sachs and others would like you to believe.

The data and charts above are from the World Gold Council. Click here to download their full Q1 report.

Newsletter_Cover_Small_3DI am a buyer at current levels and believe purchasing in tranches is sound advice for any investor looking to take advantage of the discounted prices in both physical metals and mining equities. While it might be more exciting to chase exploding prices higher, the majority of profits are made by those that buy before lift-off, when everyone else is too scared to act.

Source: http://www.marketoracle.co.uk/Article40516.html

email

Gold Bullion: 4 Fundamental Facts

Posted on by

WHEN VOLATILITY prevails in the gold market, I love seeing so many different opinions because it promotes critical thinking and healthy markets, writes Frank Holmes, CEO and chief investment officer of US Global Investors.

But because gold is unlike any other commodity, many perspectives can be extreme, such as “goldenfreudes” who take pleasure in gold bugs’ pain.

I continue to persuade readers to take a balanced and thoughtful approach to the yellow metal. With this in mind, here are four facts to remember about gold that should help neutralize those extreme bullish and bearish views.

1. You can’t print more gold

The Federal Reserve continues to print fresh, crisp stacks of US Dollars amounting to $85 billion every month, driving up the balance sheet to almost $3 trillion Dollars. If Ben Bernanke continues churning out Dollars at this rate, by 2016, the balance sheet will more than double to $7 trillion Dollars.

And research has found that the price of gold moves in near-lockstep to each increase in the Fed’s balance sheet.

Even with the incredible two-day drop in gold prices, US Global portfolio manager Ralph Aldis calculated that the correlation between the rise in gold and the US balance sheet is 0.96. Perfect correlations of 1 are extremely rare in markets, but gold and the balance sheet have moved in sync with each other since 1999, before gold‘s bull run began.

2. Gold is viewed as a currency by central bankers

As gold was falling on April 15, Carl Quintanilla from CNBC asked me what I thought about how investors viewed currencies. I feel investors should look at how central banks around the world are viewing their own reserves. Although Cyprus and Italy were possibly forced to sell their gold holdings to pay down debts, take a look at the actions of emerging countries central bankers who are scooping up gold.

The World Gold Council (WGC) reported that in 2012, central banks purchased 535 tons when only a few years ago central banks were net sellers of gold. And it’s important to keep in mind that these central banks love these corrections, as they can purchase gold at cheaper prices.

Russia bought 75 tons, bringing its gold holdings to the seventh largest in the world, with about 1,000 tons. Last year, Brazil, Paraguay and Mexico purchased gold, as did South Korea, the Philippines and Iraq.

Turkey is another country that has been building reserves, though not from purchases. Rather the WGC says its growing gold reserves “reflect the increasing role that gold plays more broadly in the Turkish financial system as these reserves are substantially pledged from commercial banks as part of their required reserves.”

While the tonnage is only a fraction of the overall gold market, it is widely acknowledged that central banks are building their supplies of gold as a means to diversify their holdings away from the US Dollar and the Euro. As a percent of total reserves, many of these emerging countries mentioned above own very little gold. In fact, Pierre Lassonde, chairman of Franco-Nevada, has noted that even if emerging market central banks wanted to increase their gold reserves to 15 percent of total reserves, they’d have to buy 1,000 tons every year for the next 17 years!

3. A lack of love from the Love Trade is affecting fundamentals

Too many people focus on the Fear Trade, which is when investors buy gold coins or a gold ETF out of a fear of the fallout that may result from governments’ rising debt levels and weakening currencies.

The Love Trade, on the other hand, is the buying of gold out of an enduring love for gold. Two emerging countries that make up almost half of gold demand—China and India—have had a long relationship with the precious metal that is intertwined with their culture, religion and economy. With half of the world’s population buying gold for their friends and family, it’s important to put into context what is happening in their countries.

It was announced this week that China‘s income growth slowed in the first quarter of 2013, with urban household disposable income rising only 6.7 percent on a year-over-year basis. This is down from 9.8 percent in the first quarter of 2012, and “the slowest pace since 2001,” says Sinology’s Andy Rothman.

This is very important to gold, as China‘s income growth has been shown to be highly correlated to the price of the precious metal over the past decade.

China‘s weaker GDP also disappointed gold investors, but I believe this is only a temporary setback. It’s only a matter of how fast China will move to stimulate the economy, since this is a key to global growth.

In India, gold consumption has been hurt by both a weak rupee and government taxes on imports. In the first quarter of 2013 alone, gold imports declined 24 percent, according to Mineweb.

4. Corrections happen, but have historically offered buying opportunities

As of mid-April, the gold price on a year-over-year percentage change basis registered a -2.6 standard deviation. While minor corrections in the gold price happen frequently, a move this severe has never occurred before over the previous 2,610 trading days.

With gold‘s standard deviation drastically below the “buy signal” blue band, we consider the yellow metal to be in an extremely oversold position on a 12-month basis. The probability that gold will move higher over the next several months is high.

Source: http://goldnews.bullionvault.com/gold-bullion-4-fundamental-facts-051520135

Aussie Dollar Weakness A Dangerous Sign For Gold

Posted on by

The commodities front remains mixed as the U.S. dollar’s recent rally has put downward pressures on many resource prices. Furthermore, the ongoing bull run on Wall Street has prompted many investors waiting on the sidelines to jump into equities in lieu of chasing paltry yields in the bond market or lackluster returns in the commodities space.

Surprisingly, gold has managed to keep afloat in recent weeks amid the stock market euphoria, which is a commendable feat given the extreme selling pressures it saw earlier in April. The outlook for the yellow metal remains mixed, however, as technical patterns and currency market trends are hinting at another round of selling in the near future.

Seasoned gold traders are aware of the historically high correlation the metal exhibits relative to the Australian dollar, and as such, the recent weakness seen in this currency ought be treated as a potential signpost for further selling pressures in the gold market. The fundamental reason behind why the Aussie dollar bears a direct relationship with the price of gold is fairly straightforward; Australia is one of the largest producers of gold in the world, and as a result, its currency tends to follow the price of the yellow metal, although not necessarily in perfect tandem.

The Aussie dollar has been experiencing a steep sell-off over the past two weeks, whereas gold prices have dragged along sideways, thereby potentially hinting at an impending sell-off for the precious metal. Consider the three-year daily performance chart below for the currency pair Australian Dollar/U.S. Dollar:

Notice how the AUD/USD currency pair has been fairly range-bound, with resistance lying around 1.075 and support near 0.975.  Plain and simple, the Aussie dollar has more room to fall from a technical perspective, which should raise a few red flags for gold traders looking to buy into the yellow metal [see 5 Commodity Trading Mistakes You Could Be Making].

Although gold’s recent rally is certainly steep and encouraging, the yellow metal has a history of carving out multiple-bottoms before resuming its longer-term uptrend for good. The Aussie dollar sell-off does not by any means predict lower gold prices; however, it does hint at a higher possibility for a downturn in gold given the historically direct relationship between the two asset classes.

Source: http://commodityhq.com/2013/aussie-dollar-weakness-a-dangerous-sign-for-gold/