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Recession expected to hit as early as Q1 2012
By Bitupen Majumdar, JRG
The events such as debt crisis in the EU, US rating cut, slowing manufacturing in China, monetary tightening in emerging Asia, fresh austerity measures in the UK and EU are all likely to reverse the global economic recovery taking us to a fresh phase of recession may be as early as Q1 2012.
The upcoming recession may be a little worse and sustained one if policy makers fail to address the issues at hand properly.
It looks the monetary policy and the fiscal policy adopted starting 2008 failed to give the world a sustained push of recovery and recent data suggests global growth has been fragile except for some emerging countries.
A soft monetary policy many not be effective as private sector starts deleveraging from what we have seen in Japan during South East Asian recession. Richard Koo from Nomura sees it as a Balance Sheet Recession. In such a scenario fiscal spending boosts the sentiment. Currently, US and European countries are going ahead with vast austerity measures- opposite of what is required during a balance sheet recession- which may Lead to a sustained economic downtrend.
Given this, we may see continuous rise in investment demand for safe haven instruments. For example, Gold prices have appreciated sharply and rose to a new historic high of $1920 recently. US treasuries yield fell below 3% posting historic lows. (Bond price and yield are inversely co-related.)
Impact on metals-energy complex
The slowing down of global economy and fear of another recession led to some serious liquidation in metals and energy complex. NYMEX traded WTI Crude Oil prices posted low below $80 a barrel last month, after sustaining below the $100 per barrel level. With the outlook for economic growth in the US and EU revised downwards, the Organization of Petroleum Exporting Countries has cut its forecast for worldwide oil demand growth this year by 150,000 barrel per day. In its latest Monthly Oil Market Report, OPEC forecasts global oil demand will increase by 1.21 million barrel per day this year to average 88.14 million barrel per day.
OPEC noted that economic worries along with high oil prices have affected oil demand in the advanced economies of the Organization for Economic Cooperation and Development (OECD), leading to weaker-than-expected consumption during the summer driving season. And oil demand in the OECD is expected to continue to contract after a temporary rebound last year.
The industrial metals were under pressure while the case being less severe when it comes to Copper.
Copper is taking support from supply side issues despite demand outlook weakening. Worries about disruptions in copper-mine output sparked concerns among market participants, that deficit in 2011 may a bit larger than expected. Recent data from Chile, the world's largest Copper producer, has shown that a series of mine workers' strikes in July substantially reduced copper output. Copper output in the world's No. 1 producer totaled 373,498 tons in July, down 18 % from the same month last year, the INE said.
The July copper output figure was substantially below June copper output of 426,477 tons, reported by the INE last month. Chile has been hit by a wave of protests by mining workers demanding a bigger share of the copper price bonanza, including a two-week strike at Escondida, the world's top copper deposit, that started in July.
However, other metals were under pressure taking Silver into account as an industrial metal. However, Silver prices managed to take support from Gold prices as investment demand continue to rise.
The weakness in commodities may extend further in September while Gold may reach new highs. High yielding currencies such as INR may come under pressure v/s the US dollar.
There has been sharp swing in financial market last week with news flowing from the Euro zone and the US showed slowing growth, causing panic among inventors. The US stock market dropped, Germany and France crashed, emerging Asian stocks slid, high yielding currencies fell and safe haven US treasuries, German Bund UK Gilt and Gold rose.
Commodity based currencies such as Canadian Dollar and Australian Dollar had some pressure owing to selling momentum in general commodities.
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Gold: The only safe haven left
Not so long ago, US Treasuries were considered a " risk-free" investment. But the financial crisis, hulking budget deficits, political gridlock, and the Standard & Poor's debt downgrade have changed that perception – forever, writes Keith Fitz-Gerald, chief investment strategist at Money Morning.
Now there's only one safe -haven investment: gold.
Since surging to a record high earlier this month, the GoldPrice has slipped on profit taking. But don't let that minor correction fool you into thinking gold's bull run is over. The yellow metal's best days are still ahead.
How do I know? Because, unlike US debt, gold can't be downgraded. It has inherent value that's more reliable than the word of even the most powerful country on earth.
Gold was used as currency for centuries. In fact, it's still being used for transactions in places such as China, India, and much of the Middle East – regions that are eager to diversify away from the beleaguered US Dollar.
But now gold's also usurping the role US Treasuries have played for the better part of a century – that of the ultimate investment safe haven.
Just take a look.
From July 21, 2009 to mid-July of this year, the correlation between Treasuries (as represented by the iShares 20-Year Treasury Bond ETF (NYSE: TLT)) and gold (as represented by the SPDR Gold Trust ETF (NYSE: GLD)) was 0.5 – meaning that only half the movement of one coincided with the other.
However, in the period ranging from July 21, 2011 to Aug. 16, 2011, the correlation jumped by 78% to 0.89. That means gold and 20-year Treasuries are moving in near- perfect lock step.
What's the catalyst for this shift? I believe traders are using Gold to hedge their holdings against the systemic solvency risk of a global banking failure. Simply put, they're looking to cover their bets should the worst happen.
Far fetched? Not really. If the banking system crashes, it will take the developed world's financial system down with it. And when that happens, it's very likely that cash withdrawals or cash transfers will be frozen, as will the credit markets.
Thus, gold may be one of the few assets that's still actively traded, meaning there's still an independent pricing mechanism in place.
You will, for example, be able to price gold at the local pawnshop – just as easily as you'll be able to cut a deal on the corner of the street (though hopefully not at gunpoint).
At an institutional level, this is already happening, albeit with a slightly different twist.
ICE Clear Europe Ltd. – a unit of Intercontinental Exchange Inc. (NYSE: ICE) and one of Europe's top derivatives- clearing companies – is accepting gold as trading collateral. Earlier this year, JPMorgan Chase & Co. (NYSE: JPM) and the Chicago Mercantile Exchange (CME) also started accepting gold as trading collateral.
The advantage gold offers is incontrovertible . Bonds – be they US T reasuries or other types of securities – are limited by their sovereign backers. That means they are only as solid as the country that's backing them.
Hwahhh Ahhhh.............
Some Observations On Bob Pisani's Visit To GLD's Vault
Earlier today, we were delighted to see that after years of ridicule and provocations, the SPDR GLD ETF finally cracked and decided to do a wholesale PR campaign to comfort the investing public it actually does own its gold, by inviting none other than Bob Pisani in its secret warehouse which allegedly contains 40 million ounces of gold, of which HSBC is custodian and the Bank of England (the same Bank of England which will soon be about 99 tons lighter in gold content once it satisfies Hugo Chavez' physical delivery request) and London Bullion Market Association (“LBMA”) are subcustodians. While the 4 minute PR campaign is enjoyable and we invite readers to watch it, what is amusing is that it is sure to set off another set of conspiracy theories. Here's the reason: amusingly the very gold bar that Pisani demonstrates so eagerly for the camera, Rand Refineries ZJ6752, is somehow, at last check, missing from the full barlist as posted daily by the GLD.Whose is it? Where did it go? When was this clip shot? Inquiring minds want to know...
As the table below shows, the full list of ZJ serial numbers goes from 6700 to 6734 (go ahead, do your own search - link here).
ZJ6700 RAND REFINERY 404.775 402.994 9956
ZJ6701 RAND REFINERY 407 405.209 9956
ZJ6702 RAND REFINERY 405.325 403.541 9956
ZJ6703 RAND REFINERY 404.6 402.86 9957
ZJ6704 RAND REFINERY 404.825 403.084 9957
ZJ6705 RAND REFINERY 401.775 400.047 9957
ZJ6706 RAND REFINERY 406.5 404.752 9957
ZJ6707 RAND REFINERY 402.2 400.47 9957
ZJ6712 RAND REFINERY 403.55 401.814 9957
ZJ6713 RAND REFINERY 405.65 403.905 9957
ZJ6714 RAND REFINERY 403.35 401.615 9957
ZJ6715 RAND REFINERY 403.525 401.789 9957
ZJ6716 RAND REFINERY 403.4 401.665 9957
ZJ6717 RAND REFINERY 405.625 403.88 9957
ZJ6721 RAND REFINERY 405.225 404.779 9989
ZJ6723 RAND REFINERY 407 406.552 9989
ZJ6726 RAND REFINERY 407.7 407.251 9989
ZJ6727 RAND REFINERY 404.075 403.63 9989
ZJ6732 RAND REFINERY 407.45 407.001 9989
ZJ6734 RAND REFINERY 404.275 403.83 9989
... and ends there.
but this is where the conspiracy starts. Today is September 1. We assume Pisani shot the segment some time in the past week: between August 23 and August 30. Over this period the actual GLD tonnage as disclosed by GLD remained flat (fluctuated by +/- 1.51 tonnes from 1232.31 to 1230.8), so it is unlikely that any gold bars, and especially the one demonstrated by Pisani actually left the warehouse.
Of course, Pisani may have well shot the documentary some three weeks ago, when gold peaked at 1310 tons, although we assume he would have then said 1300 tons held by the warehouse, not 1200 as he did. If that is the case, there is a small chance based purely on statistics that ZJ6752 was promptly moved out of the warehouse upon a redemption event. The chance is about 1 in 10k or so, but still...
So, as a follow up, we would kindly ask Mr Pisani to answer: when did he shoot the documentary? Does he know the fate of the bar he was holding? Did he take it with him? Is the bar currently on its way to Chavez? Or worse yet, did GLD actually lease it to someone?
And so on... And so on...
Unfortunately, Bob, as you will soon learn first hand, when it comes to such things as secret bank vaults containing the world's only remaining hard currency, which can only be seen by reporters with clearance after being driven with a blindfold through the streets of London, who have to relinquish their cell phones and " GPS devices" to confirm their existence, it, unfortunately, does not build much credibility, and it is inevitable that conspiracy theories will and do start. And unfortunately, any PR campaign always tends to backfire.
Our advice: please tell your client HSBC to open up its vault to general observation and assay: at that point, we are confident all conspiracies will end.
Until then, be prepared to be retained by HSBC on a frequent basis as more and more ask themselves: what is really in that vault?
http://www.zerohedge.com/news/some-observations-bob-pisanis-visit-glds-vault
MORE CONSPIRACY!!! LOLX!!!
Cheer
Gold flat ahead of U.S. payrolls data
SINGAPORE, Sept 2 (Reuters) - Gold prices were littlechanged on Friday as investors remained cautious ahead of a key U.S. payrolls report due later in the day, after recent data sent mixed signals about the status of the world's largest economy.
FUNDAMENTALS
* Spot gold traded flat at $1,824.34 an ounce by 0025 GMT, on course for a weekly decline of 0.2 percent.
* U.S. gold GCcv1 was also little changed at $1,827.50, headed for a weekly gain of 1.7 percent.
* Caution is likely to prevail before the key U.S. August employment report is released at 1230 GMT. Nonfarm payrolls are expected to have increased 75,000, slowing from July's 117,000 rise, according to a Reuters survey.
* U.S. manufacturing unexpectedly grew in August and fewer Americans filed new claims for jobless aid last week despite a slump in confidence that threatened to push the economy back into recession.
* New York metal market will be closed on Sept. 5 in observance of the U.S. Labour Day holiday, but the CME Globex electronic platform will be open on Monday for shortened hours.
MARKET NEWS
* Wall Street's four-day rally ground to a halt on Thursday, with major indexes falling 1 percent on caution ahead of the labor market report expected to underscore fears the economy is headed for another recession.
* The dollar traded steady against a basket of currencies on Friday.
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Closing Gold & Silver Market Report – 9/1/2011
September 1, 2011
PREDICTIONS SAY UNEMPLOYMENT RATE IS 9%
Precious metals are trading slightly lower today, partly thanks to the U.S. dollar strengthening. Investors likely took profits in gold and stayed out of stocks, waiting on Friday’s jobs report. As a result of the dollar rallying, gold looks more expensive to other countries. Director of Tactical Investments at Waverly, Adam Grimes, says he sees no good reason why the dollar is trading higher other than technical trading.
The White House Office of Management and Budget released their number for the mid-session review, predicting real GDP growth at 2.6% and an unemployment rate of 9%. Jacob Lew, Office of Management and Budget Director, said, “The MSR largely confirms what we already knew – and what CBO already released – it underscores that we need to get back on a sustainable path, and that we need to invest in long-term economic growth and job creation.”
Some are saying Germany’s financial slowdown may be a good thing for the eurozone.
At 4:00 PM (CT) the APMEX precious metals spot prices were:
- Gold - $1,830.90 – down $3.80.
- Silver - $41.73 – down $0.11.
Morning Gold & Silver Market Report – 8/31/2011
August 31, 2011
PRIVATE JOBS REPORT DISAPPOINTS INVESTORS OPTIMISTIC
In overnight trading, global stocks were largely higher (along with platinum and palladium), while gold and silver were mainly flat. U.S. stock futures are still up after the slightly disappointing ADP Private-Sector Jobs report, which showed a gain of 91,000 jobs this month. Investors are clinging to optimism, however, and one group of analysts explained it by saying, “With the decline in the stock market, debate in Washington, and [the] downgrade to the U.S. credit rating, it very much could have been worse.” On tap for economic data today are releases of the Chicago purchasing managers index for August and factory orders for July.
In an effort to stimulate the troubled economy, specifically the housing market, the Obama administration is reported to be unveiling a mortgage relief program next week. The administration’s last initiative, the Home Affordable Refinance Program, fell vastly below expectations. The program was targeted to save up to 5 million homes from foreclosure, but has only prevented slightly over 800,000 to this point.
China is looking to increase its holdings on gold and other commodities yet again. An adviser to the People’s Bank of China told the China Business News that the emerging-market country should advance its position. The adviser, Xia Bin, said, “China should realize that gold is an important strategic reserve, and should increase its holdings over the long term, buying on price dips. In the past we have not established this as an investment principle, but now we must.”
At 8:08 am (CT) the APMEX precious metals spot prices were:
- Gold - $1,831,80 – no change.
- Silver - $41,84 – up $0.31.
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