Friday, April 25, 2014

weekly gold

Gold remains the safety bid that people flock to in troubled times!  The turbulence between Russia and the Ukraine was just enough to propel Gold out of the downtrend.  It may have initially been short-covering but may turn into a real bull run if the Ukraine situation escalates.  The Russian/Ukraine situation has escalated in Donetsk with potential conflict possible which is supportive of the Gold market. Pro-Russian activists have kept the tensions front and center.   The Ukraine government responded sending troops to Kharkiv when the activists started to take over buildings in the eastern portion of the Ukraine.   Russia cautioned the Ukraine that any possible violence could escalate into  a civil war.   China and Japan had been main buyers of US Treasuries and the US Dollar as debt instruments.  Recently, they have whittled down their US assets and have been accumulating Gold.  Banks in China actually developed Gold Accumulation Plans with support of the World Gold Council so that investors could eventually take delivery if they so desired.  The banks have about 17,125 branch offices with the GAP introduced to help the people build their wealth.  They do keep their physical products separate from the paper assets.  Projections from the World Gold Council have the Gold demand increasing in China 25 % over the next four years.  The population alone may more than double creating further demand without external factors.  India had been the number one buyer of Gold until 2013 when China overtook them.  2013 was a robust buying year in Gold by the Chinese, but it is thought that 2014 may be more of a consolidation year.  China may hold about 2.716 tons of Gold while the US may hold 8.812 tons.  China, in previous years, had suffered the effects of hyperinflation leading many to hedge for future events.  They believe that the US economic policies will someday destroy the dollar which would propel the Gold to new highs.  China may have their own predicament with a potential credit crisis for which the Gold may also be of use.  It had been used for gift giving for the Chinese Lunar New Year or Spring Festival and more recently Valentine's Day and Mother's day.   Only the pure Gold would be considered investment grade.  The demand for Gold in India may increase as a key festival is on tap.  Wedding season may warrant a relaxation of the import taxes which remain at about 10 % which further constraints.  Turkey's central bank had decreased their Gold reserves by 1.2 metric tons and 7.3 metric tons recently.   Central banks are still net buyers of the Gold with holdings increasing 6.3 million ounces last year.  The banks are projected to buy 5.4 million ounces in 2014.  The industrial demand for Gold has reached about 92.0 million ounces in 2013.  Investment demand had decreased to 30.9 million ounces in 2013.  The Central Bank of Iraq had acquired 36 metric tons of Gold in March.  Chinese buyers purchased about 125 tons of Gold in February.  Mexico had increased their holdings by 78.5 tons of Gold in March.    Supplies of Gold above ground are estimated to be about 177,200 tons according to the World Gold Council.  Gold remains as one of the most liquid assets that has rallied in the face of the worst calamities in our history books.  Yet without the fear and anxiety we may see a lower range for Gold.   The CME Group has plans for a Gold contract at the Shanghai Gold Exchange.  This would be a lease agreement for a physically settled contract.  

More sanctions to come from the G7 to Russia!  The sanctions may be the only way to avoid a military confrontation, yet going back into the provocation that may have contributed to "Pearl Harbor" we must walk a fine line of diplomacy.   The wall of worry is expanding and the sanctions while punishing Russia are affecting the markets globally.  The Standard & Poor's credit rating agency downgraded Russia's credit rating today.  The Russian central bank had then increased a key interest rate.  Visa and MasterCard stand to lose a great deal with the sanctions imposed as hundreds of millions of cards are held in Russia. The Russian President countered with ideas to begin Russian self-contained credit payment systems.   The old adage "sell in May and go away" may somehow come to fruition this year due to totally unrelated events that may support the cliché.  If the equities sell off, the Gold should acquire the allocations among a few other hard assets.  The US and Russia have danced around potential conflicts in the past without any military use.  Each knows that the end result may just result in the end.  It must be determined if Kiev may have illegally entered into the turmoil.  The agreement signed in Geneva last week by the US, Russia, the European Union and Ukraine was to disarm the rebels.  Russia stands by their right to protect Russian citizens according to the Geneva agreement.  No one wants a military resolution, so the US and allied countries are attempting to increase the sanctions against Russia.  Russia is already suffering with a weak Ruble and some lackluster data.   Any further bloodshed may cause the conflict to escalate.  Diplomacy is vital among the leaders of these nations to look for an accord for the benefit of life as we know it.   The global marketplace still has fragility as Japan's flip from trade surplus to a deficit  of about 1.446 trillion Yen in March exceeded expectations of 1.070 trillion Yen.  It would not be a surprise for Japan to use additional tools to support their economy.   Still the Yen has been used as a safe-haven in light of the Ukraine situation.  It is a wait and see situation to monitor if the potential conflict in the Ukraine could possibly erupt into more.  The powers have strong backing in allies, both the US and Russia, so any further gas on the fire could ignite a conflict that no one wants to imagine.   The Russian borders and Crimea have been close with many of its people Russian born.   The vote was in favor of Crimea to secede and ask the Russian Federation for Membership.  Crimea had belonged to Russia back in the 1954 until Nikita Khrushchev had given the Black Sea region to the Ukraine.  Russian President Putin defends his right to send troops to the Ukraine on behalf of the Russian citizens residing there.  He actually stayed within the treaty limit of 25,000 troops initially, but it was reported that about 40,000 troops and even more perhaps remain around the Ukraine border.   The Ukraine is seeking financial aid from the IMF of up to about $18 billion to help the country out of the debt.  Russia is experiencing the punishing effects of the sanctions as the sovereign wealth funds had outflows.  Global leaders still regard Russia's action as grabbing a country for benefits perhaps derived from the resources of the region.   World leaders are intent on watching Putin to be sure his "annexing" stops at Crimea!   British Prime Minister David Cameron regarded this action as a breach of international law.  Sanctions may be imposed on Russia still yet regarding this action such as travel bans and financial sanctions.  About $5.5 billion of outflows have already transpired this year in Russia in light of the sanctions.   US sanctions have already stopped the Visa and MasterCard services at the Bank Rossiya in St. Petersburg.  Sanctions on parties in Putin's inner circle have been targeted.  The sanctions have already had an impact on Russia as Fitch's credit rating agency has cut the outlook to BBB negative.  Loans have been called in and gold reserves have fallen to $493.2 billion as of March 14th.   The G-8 said that they will suspend the G-8 Summit in Sochi this year.  The Organization for Economic Cooperation and Development has spoken of revoking Russia's entrance into the organization.  Asset blockades, financial and trade sanctions have all been suggested.  Putin may pay about $3 billion ++ costs to annex Crimea.  The problem seems to be a history of violating international boundaries for the Russian President.  Putin retorts that the US and NATO have come close to the Russian borders.  The currencies have become extremely volatile especially for the ruble and the hryvnia.   Russia is also set on building the relationship with China.  China has been one of the only countries holding loyalty to Russia and not condemn the country for the Crimea situation.  China is a superpower that will matter and Russia wants to use that strength.   Russia and the US had fought on the same side during WWI and WWII yet tensions still run very deep.  US Secretary John Kerry and European Union foreign policy chief Catherine Ashton met in Geneva to discuss a disarmament in the Ukraine of all illegal armed groups.   US Vice President Biden warns Russia that time is short for action to dissolve any potential conflict.  Pro-Russian militia occupying areas in the eastern Ukraine do not consider to be part of any deals reached by the US, Russia, Ukraine or EU.     Russian troops seized the Crimean port of Sevastopol raising their flag.   Russia's take-over of Crimea will perhaps consist of pension adjustments up to the Russian pensions, raises, infrastructure upgrades such as quite possibly a bridge and a tunnel.  The EU may proceed to lighten imports of natural gas from Russia.  The Euro Zone and the world would feel the pressure of the sanctions as many global workers are employed by Russian companies.   Russia and the US both have an accord on nuclear terrorism threats realizing that international cooperation is necessary to provide a stronger front. 

Today's PMI Services Flash for April is 54.2 while the previous reading was 55.5.  Consumer Sentiment for April was at 84.1 while the previous reading had been 82.6.  The US Initial Jobless Claims for the week of April 19th was up 24,000 new claims for unemployment insurance to 329,000 while the previous week had 304,000.  The Continuing Claims which have a week lag time were down 61,000 to 2.680 million.  Durable Goods New Orders for March were 2.6 % while the previous reading was 2.2 %.  The Durable Goods excluding transportation were 2.0 % while the previous reading was 0.2 %.  The Kansas City Fed Manufacturing Index for April was 7 while the previous reading was 10.  The Bloomberg Consumer Comfort Index for April was -25.4 while the previous reading was -29.1.  The PMI Manufacturing Index Flash for April was 55.4 while the previous reading was 55.5.  New Home Sales for March came in rather lackluster perhaps due to inventory shortages at 384,000 while the previous reading had been 440,000.  The MBA Purchase Applications for the week of April 18th Composite was -3.3 % while the previous reading was 4.3 %.  The Purchase Index was -3.0 % while the previous reading was 1.0 %.  The Refinance Index was -4.0 % while the previous reading was 7.0 %.  The ICSC-Goldman Store Sales for the week of April 19th was 0.4 % while the previous reading was -0.3 %.  Redbook Store Sales for the week of April 19th were 3.7 % while the previous reading was 2.6 %.  The FHFA House Price Index for February was 0.6 % while the previous reading had been 0.5 %.   Existing Home Sales SAAR  for March were -0.2 % or 4.59 million annual rate while the previous reading was -0.4 % or 4.600 million annual rate.  The Richmond Fed Manufacturing Index level change for April was 7 while the previous reading was -7.  The Chicago Fed National Activity Index Level for March at 0.20 while the previous level was 0.14.  This is a report to gauge the economic activity and inflationary pressure.    The Leading Indicators for March were 0.8 % while the previous reading was 0.5 %.  The last Nonfarm Payrolls for March was 192,000 while the previous reading was 175,000.  Though better than February's report, the forecast of 206,000 left some traders disappointed with the moderate number.  The Unemployment rate was left unchanged at 6.7 % while the forecasts were for 6.6 %.  The Average Hourly Earnings was 0.0 % while the previous reading had been 0.4 %.  The Average Workweek was 34.5 hours while the previous reading was 34.2 hours.  The Private Payrolls was 192,000 while the previous reading was 162,000.   Friday, we look forward to the PMI Services Flash Level for April forecast at 56.2 while the previous reading was 55.5.  Consumer Sentiment Index for April is forecast at 82.5 while the previous reading was 82.6.  Next week is huge, we have so many reports such as the GDP and the Employment report which is forecast between 203,000 and 250.000 so far.  We have the FMOC.  The country is walking a fine line of potential conflict as well.    

Gold Chart





No comments:

Post a Comment