tsx, tsx-v, goldtsx, silver, junior resource

Auguries Gold: Still A Thing

jay

April 29, 2013

Gold market: Just can’t get enough of that yellow stuff.

Gold market: Just can’t get enough of that yellow stuff.

Gold was up (at press time) $67.50 (+4.8%) for the week to $1,469, and silver was up $1.07 (+4.6%) to $24.24. According to Reuters, “Gold rose more than 1% on Monday and held near its highest in more than a week, as a rebound in prices from multiyear lows failed to damp investor appetite for the precious metal, causing a shortage in physical supply.”

Reuters added, “Recent bleak US growth data that raised hopes the Federal Reserve would keep its current pace of bond buying at $85 billion a month also supported gold…. ‘One of the reasons why gold has dropped so much was the strong signs of US economic recovery. Now, we don’t see much of it,’ said Joyce Liu, an investment analyst at Phillip Futures in Singapore.”

That must have been the shortest US economic recovery on record: two weeks. Let’s review the bidding, shall we? The organic explanation of the gold collapse had three pillars. First, a recovery. Second, the concomitant easing of quantitative easing. And third, the forced sale of Cyprus’ gold reserves.

First-quarter US GDP growth came in at 2.5% Friday, “on expectations of a 3% increase…the biggest miss since 3Q 2011.” ZeroHedge contends that “the spending-spree-led ‘recovery’ won’t last” because “the US consumer is out of money”—the personal saving has collapsed, from about 6.5% in late 2012 to just over 2%. Meanwhile, “As of March 31, 2013, the US debt/GDP was 104.8%, up from 103% as of December 31, 2012, or a debt-growth rate that would make the most insolvent Eurozone nation blush.” So that’s one pillar down.

No recovery means Bernancus Magnus’ money geysers will keep spewing. That’s the second pillar down. As for the third, it turns out that Cyprus’ finance minister has declared that the liquidation of his country’s gold reserves “is not something we are tackling now.” Well, how about that.

It’s almost enough to persuade the dispassionate observer that the cause of the gold collapse was not organic at all—even before Mark McHugh’s revelation that “just one firm accounts for 99.3% of the physical gold sales at the COMEX in the last three months”: JPMorgan.

Gold has risen $147.05 (11.1%) since its April 16 low of $1,321.95. A deadcat bounce? Perhaps, but this particular feline would seem to have ingested quite a bit of flubber before its putative demise.

A mere 13 days ago, we were confidently informed that gold was most definitely no longer a thing. Now, people just can’t seem to get enough of it. Reuters: “Premiums for gold bars have jumped to multiyear highs in Asia because of strong demand from the physical market, which has led to a shortage in gold bars, coins, nuggets and other products. Holdings on the largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, continue to fall, in a sign investors have yet to regain confidence in gold. The holdings are now at their lowest since September 2009.”

GoldSeek reported April 25, “Over the last four weeks alone, total reported inventories of ETFs, funds and depositories collapsed by over 5.5 million ounces or in dollar terms, by over $7 billion. The largest physical removals were reported by the Comex at about 1.4 million ounces or nearly $2 billion, and the GLD, which reported total inventory removal of nearly 4 million ounces or roughly over $5.6 billion.”

GoldSeek asks, “Why is the multitrillion-dollar fund-management industry denouncing gold, while it quickly moves inventory out of registered warehouses? Where is the gold moving, and what is it telling us? Is this wholesale migration signaling an imminent geopolitical or major market event?”

At GoldMoney April 25, Alasdair Macleod suggests an answer.

There was a shortage of physical metal in the major centres before the recent price fall, which has only become more acute, fully absorbing ETF and other liquidation, which is small in comparison to the demand created by lower prices. If the [gold] fall was engineered with the collusion of central banks, it has backfired spectacularly….

This will likely develop into another financial crisis at the worst possible moment, when central banks are already being forced to flood markets with paper currency to keep interest rates down, banks solvent and to finance governments’ day-to-day spending….

History might judge April 2013 as the month when through precipitate action in bullion markets Western central banks and the banking community finally began to lose control over all financial markets.

Albert Edwards of Société Générale put it more apocalyptically April 25: “We have written previously, quoting Marc Faber, that ‘The Fed Will Destroy the World’ through their money printing.” Specifically, “We repeat our key forecasts of the S&P Composite to bottom around 450, accompanied by sub-1% US 10-year yields and gold above $10,000.” Interesting times, no?

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