Gold Bar “Supply Constraints” In Singapore Sees Record Premiums

Gold Bar “Supply Constraints” In Singapore Sees Record Premiums

Gold rose to a one-week high, as the dollar and stocks retreated after another 5% plunge in Japan’s Nikkei. Silver, platinum and palladium advanced also.

Physical gold demand remains robust internationally and supply issues in Singapore have led to premiums reaching a record high there.


Gold Spot $/oz, Daily, 3 Year – (Bloomberg)

Some of the buying on futures markets may be shorts being forced to cover their record short position. The COT (Commitments of Traders) data clearly shows that there is the strong possibility of a significant squeeze of speculators short gold. This could be a catalyst to propel gold higher.


Cross Currency Table – (Bloomberg)

Traders and speculators are watching the $1,413/oz resistance level. A daily close above this level will likely trigger the beginnings of a short squeeze.

Holdings in the largest bullion-backed exchange-traded product expanded yesterday for the first time since May 9.

Strong premiums for gold bars in Asia show that jewellers and investors are busy buying bullion on this dip. In Singapore, Reuters reports that “supply constraints” have sent premiums to “all time highs” at $7 to spot London prices.

Animal spirits are returning to the gold market in the ‘Land of the Dragon’ in this the ‘Year of the Snake’.

The volume for the Shanghai Gold Exchange’s benchmark cash contract surged to 19,599 kilograms yesterday from 15,641 kilograms the day before. In two days the volumes have nearly doubled and surged from 10,094 kilograms to 19,599 or 94%.


Nikkei Index, Daily, 1 Year – (Bloomberg)

Animal spirits have been greatly in evidence in global equity markets for many months now with abnormally strong gains seen in many surging markets. This is despite a very uncertain global economic outlook and great uncertainty regarding corporate earnings in the coming months.

With many stock markets overvalued on a host of benchmarks, there is the real risk of a material correction in the U.S. and other markets and this should lead to renewed diversification into gold.

It will also lead to renewed safe haven demand if other markets see stocks plummet as has been seen in Japan in recent days.


S&P 500 Index, Daily, 4 Year – (Bloomberg)

The 17% correction seen in the Nikkei in the last week alone, looks likely in the coming months in other markets which are increasingly being driven by liquidity, debt and margined speculation rather than value investing.

The rotatation out of gold and into stocks seen in recent months could reverse very quickly and investors may just as quickly rotate back into gold in order to hedge significant macroeconomic risks.

Source: http://www.goldcore.com/goldcore_blog/gold-bar-%E2%80%9Csupply-constraints%E2%80%9D-singapore-sees-record-premiums

Shanghai Gold Volumes Surge 55% As Singapore and Indian Brokers Sold Out

Today’s AM fix was USD 1,384.50, EUR 1,074.01 and GBP 919.14 per ounce.
Yesterday’s AM fix was USD 1,379.00, EUR 1,067.42 and GBP 913.43 per ounce.

Gold fell $13.70 or 0.98% yesterday to $1,381.00/oz and silver finished down 1.59%. Download FREE Guide to Gold here.

Gold edged higher today supported by strong physical demand internationally and especially in Asia.

Demand in the physical market continued to hold prices near $1,400/oz as the recent drops in the spot market encourage buyers internationally to accumulate bullion.

The paper gold market remains volatile and is likely to get more volatile but this is not deterring physical buyers and premiums remain strong in most markets.

Premiums in India and Hong Kong have fallen from the very high premiums of recent days but Singapore, Shanghai, Dubai, Turkey and western markets continue to see high premiums.

Overnight the volume for the Shanghai Gold Exchange’s cash contract surged 55% to 15,641 kilograms from a two-week low of 10,094 kilograms on May 27.

The Shanghai Futures Exchange announced yesterday that they will begin after-hours trading for gold and silver futures within one or two months.

In Singapore, gold coins and bars are being sold at high premiums compared to the spot price as there is not enough supply in the market to meet the strong demand.

Reuters quoted one broker who said that most of the bullion dealers in Singapore were sold out of bullion and that “everybody is buying and no one is selling.”

In India, certain states have either seen coin stocks fall to very low levels and others have actually run out of gold coins.

The drop in gold prices in April led to a surge in bargain hunting in India and globally which is continuing with prices below $1,400/oz.

In Hyderabad, a city of nearly 7 million people , gold and jewellery shops in the city have dwindling stocks of gold coins and bars. Some have completely run out of stock of the best-selling gold coins while others are having to ration their remaining stocks.

The gold rush is expected to continue for some time, due to delays in jewellery and coin shops receiving supplies of coins from banks and bullion brokers.

This is creating a delay in the entire supply chain.

The U.S. Mint sales of gold coins were the highest in 3 years after demand surged on the recent price drop.

Yesterday, the U.S. Mint resumed sales of their 1/10th ounce gold coin after the mint ran out of inventory last month and suspended sales amid record demand.

In the U.S., there are difficulties in sourcing British Sovereigns (0.2345 oz), Chinese Pandas (1 oz) and Australian Kangaroos (1 oz) in volume.

The Royal Mint (UK), The Perth Mint in Australia and other mints are seeing record levels of demand.

This morning The World Gold Council confirmed the very strong demand being seen globally and especially in Asia.

Asian gold demand from this April to June will reach a quarterly record as bullion buyers in China, India and the rest of the region take possession of supply freed up by selling from exchange-traded funds (ETFs), the WGC said.

“Asian markets will see record quarterly totals of gold demand in the second quarter of 2013,” WGC Managing Director Marcus Grubb said in a report released this morning.

Gold demand in India, the world’s largest buyer, is heading for a quarterly record after prices fell to a two-year low in April, The World Gold Council said.

“Even if ETF outflows continue in the United States, it is quite likely that the gold previously held in ETFs will find a ready market among Indian, Chinese and Middle Eastern consumers who are taking a long-term view on the prospects for gold.”

A long term view remains vital to protecting and growing wealth today.

It remains prudent to ignore the poorly informed analysis of the speculators who have been responsible for much of the destruction of wealth in recent years.

Few of them predicted this crisis and most do not understand the importance of diversification and the importance of gold as a safe haven asset. Nor do they know that gold remains nearly half its inflation adjusted high of $2,500/oz seen in 1980 (see chart) and the ramifications of that for the gold market in the coming months and years.

Those who continue to focus on gold’s academically and historically proven safe haven qualities as an important diversification will again be rewarded in the coming months.

Source: http://www.zerohedge.com/contributed/2013-05-29/shanghai-gold-volumes-surge-55-singapore-and-indian-brokers-sold-out

The Macro Story as Told by Gold, Copper and Oil

Gold’s been on a wild ride. After reaching a peak of $1,920 an ounce in September 2011, gold has tumbled 28% to the current ~$1,380 level forcing John Paulson to take a 47% loss in his gold fund during the first four months of this year, according to Bloomberg.

Unlike Paulson who maintained his positions in gold, other big players like George Soros and BlackRock cut their gold ETF holdings, while Goldman Sachs issued a sell recommendation on gold right before the yellow metal plunged 13% through April 15, the biggest drop in three decades. And by looking at the futures curve (chart below), market does not seem to expect gold to come back roaring any time soon.

 

QEs Not Hitting the Real Economy

Historically, gold is regarded as a good inflation hedge and store of value, typically thriving in an environment of high inflation, and/or weak U.S. dollar (currency debasement). With U.S. Federal Reserve’s three rounds of QE, the never-ending debt crisis in the Eurozone, hyperinflation and dollar debasement seem inevitable and supportive of gold for the long run, right?

 

Theoretically, Fed’s QE and near zero fed funds rate is supposed to encourage borrowing and spending from the private sector thus injecting money into the real economy. However, theory and reality don’t always see eye to eye.

 

Since the 2008 financial crisis, banks have significantly tightened the credit standard and are reluctant to lend. On the other hand, corporations are making money mostly from “streamlined” headcount and structure, but instead of the intended wealth distribution effect expected by the Fed such as investing back to the economy, or increase employee pay which would in turn increase consumer spending, most corporations are hoarding cash or use profits for dividend, share buybacks, or mergers & acquisitions with limited impact on the real economy.

 

Copper & Oil Indicating Weak Demand

The weak demand is also reflected in part of the commodity market fundamental. WTI crude oil inventory climbed to 82-year high and copper inventory at LME hit a 10-year high in April, while Goldman Sachs cut its “near-term” outlook for commodities.

 

Although some have argued oil and copper have lost their significance primarily due to increasing domestic oil production, and “temporary” excess copper supply. While the abundance of domestic shale oil production may have distorted the historical supply and demand relationship, but with the U.S. becoming the world’s largest fuel exporter, the fast and furious oil inventory build is nevertheless still an indication of a weak world economy. And I can’t imagine how the “temporary” buildup of copper inventory is not a sign of weak global economic condition?

 

Massive QEs, Limited Inflation?

On top of the overall weak spending and demand in the private sector, most of the developed countries are undergoing some shape or form of austerity with reduced government spending. China, the growth engine of the world, is having some problems of its own. The old-fashioned massive infrastructure building QE program got China through the 2008 financial crisis, and was the main driver behind commodity prices. But Beijing can’t afford another QE due to inflation concern (plus China has probably run out of things to build). Low wage levels means China consumers can’t really pick up the spending slack, coupled with bad credit problem (i.e., NPL: Non-Performing Loans), and recent capital flight, had many analysts worried enough to downgrade China’s growth prospect.

 

The simultaneous pullback from both the private and government sectors in U.S. Europe, and China is a major factor why Fed’s massive QEs have resulted in only limited inflationary pressure and increasing signs of deflation.

 

Dollar and Carry Trade Kills Gold

Nonetheless, when compared with Europe, China or any other regions in the world, the U.S. seems relatively more stable, and has been able to retain the “safe haven” status despite its own debt problem. With investors pouring money into U.S. equity and bond propping up the dollar, and weak demand suppressing inflation, two of the main conditions for a strong gold price — high inflation and a weak US dollar — are basically non-existent in the current macro environment. Furthermore, there was already a bit of disconnect between gold and the other commodity prices such as copper, and oil. So eventually, gold had to come to grip with the macro reality.

 

Another major factor against gold right now is that gold has no yield and is out of favor with the huge yield-seeking yen carry trade crowd (borrowing yen to invest in higher yield options) since bond and equity now are offering much better returns. Unless there’s a shock to the system such as a war breaking out in the Middle East, or an eventual debt crisis in Japan when people start seeking safety, there’s not much upside momentum for gold.

 

Gold’s Volatility Game

For now, the prevalent view is that the Fed will slow or exit QE3, and gold is out of favor under the the current macro trend. For example, Lim Chow Kiat, the chief investment officer of the Government of Singapore Investment Corp (GIC), thinks gold still looks overpriced as the usage of gold for industrial or consumer products doesn’t quite justify the prices. GIC is one of the world’s largest sovereign wealth funds.

As long as dollar maintain its strength and inflation remains tame, gold prices most likely will see considerable volatility swinging between rumors and speculation (e.g., some central banks may need to unload some of their holdings due to debt crisis), and Asia retail buying on the dip (South China Morning Post reported that many shops in Hong Kong were running out of the precious metal for the first time in decades.)

Technically speaking, gold‘s next support level should be $1,330 range with $1,320 as the major support when most physical retail buyers would rush in. If gold breaks below $1,300 hard, expect a major liquidation when even Paulson could be forced to sell and everybody piles in.

Source: http://www.econmatters.com/search/label/EconMatters