A month ago we were delighted to counterpoint Charlie Munger's prior remarks about the level of "civilization" of a given consumer based on their sentiment vis-a-vis gold, by demonstrating that Chinese purchases of gold from Hong Kong rose to a record. To wit: "Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government. Shipments in March rose 59 percent from February, yesterday's data showed." We have just gotten the April update, and, lo and behold, the country which is now the biggest buyer of gold, having surpassed India, just set a new record: "Gold imports by mainland China from Hong Kong climbed 65 percent to a record in April,advancing for a third straight month as investors sought a hedge against financial-market turmoil and an economic slowdown. Shipments totaled 103,644.5 kilograms (103.6 metric tons) in the month from 62,913 kilograms in March, according to export data from the Census and Statistics Department of the Hong Kong government today. In the first four months, imports were 239,174 kilograms from 27,114 kilograms a year earlier, according to Bloomberg calculations. China doesn’t publish such figures." In other words: in the first four months of 2012 Chinese purchases have increased by an unprecedented 782% over 2011.
And this is only from Hong Kong! Said otherwise: "Is the PBOC, which officially has just 1,054 tons of the yellow metal, quietly and relentlessly stockpiling gold?" Oh yes.
Expect a formal announcement from the Chinese central bank in the months ahead, indicating the country's gold hoard has increased by at least 100%. What happens then to the price of gold is rather self-explanatory.
Increased imports by the second-largest consumer after India may help extend a rebound in the precious metal that’s been driven by speculation the U.S. Federal Reserve may add to stimulus this month to safeguard the recovery. Spot gold rallied 4.1 percent on June 1 after U.S. jobs data missed expectations.
China’s central bank may also be boosting holdings, according to Wang Xinyou, a senior analyst at Agricultural Bank of China Ltd.
“The fundamentals are intact for a bull market in gold,”
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Mainland China’s gold imports from Hong Kong surged more than sixfold in the first quarter, adding to signs that the country may displace India as the world’s largest consumer of the precious metal on an annual basis.
Imports from Hong Kong were 135,529 kilograms (135.53 metric tons) between January and March, from 19,729 kilograms in the year-earlier period, according to data from the Census and Statistics Department of the Hong Kong government. Shipments in March rose 59 percent from February, yesterday’s data showed.
Demand has climbed in the world’s second-largest economy as rising incomes and curbs on property speculation boosted purchases. China may become the biggest user annually this year, according to a forecast from the producer-funded World Gold Council. Last year, total Indian demand including for jewelry and investment was 933.4 tons to China’s 769.8 tons.
“We’re looking at another solid year for Chinese demand based on these early numbers,” said Nick Trevethan, senior commodities strategist at Australia & New Zealand Banking Group Ltd. “While it’s largely related to price, negative real interest rates should keep demand strong.”
Gold has lost 15 percent from its record $1,921.15 an ounce in September as the European debt crisis, combined with reduced expectations for further monetary easing by theFederal Reserve, boosted the dollar. Spot gold traded 0.6 percent lower at $1,629.20 at 5:24 p.m. in London.
The prospect of China becoming the largest bullion user reflects the country’s economic ascendance. Per capita gross domestic product has more than doubled since 2000, according to World Bank data. The country is already the world’s top consumer of copper and biggest producer of steel.
Gold shipments to the mainland climbed in March to 62,913 kilograms, the Hong Kong data showed. That compares with 39,668 kilograms in February and 9,166 kilograms in March 2011. China doesn’t publish gold-trade data. Last year, imports from Hong Kong more than tripled to 431,226 kilograms.
The purchases through Hong Kong may signal that the mainland is accumulating reserves, London-based brokerage Sharps Pixley Ltd. said in February. The nation last made its reserves known more than two years ago, stating them at 1,054 tons.
“Summer is usually the low season for gold consumption,” said Liang Ruian, director at Pinpoint Investment Consulting Ltd. in Beijing. “If we can see growth even in the low season, it represents the resilient nature of China’s gold consumption.”
China expanded 8.1 percent in the first three months of 2012 from a year earlier in the fifth quarterly deceleration as authorities cracked down on property speculation. Inflation was 3.6 percent in March, below a government target of about 4 percent. So-called real interest ratesare negative when the amount paid to savers on deposits is less than inflation.
Indian Finance Minister Pranab Mukherjee said yesterday that he was withdrawing an excise tax on precious-metal jewelry, boosting prospects for the country’s gold demand this year. Imports in April had plunged to 30 tons to 35 tons from 90 tons a year earlier, according to the Bombay Bullion Association.
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Pressure is growing on Europe’s leaders to focus less on austerity and more on stimulating growth as the 17 countries that use the euro face record high unemployment and a recession that is spreading across the region.
Eurozone unemployment rose by 169,000 in March, official figures showed Wednesday, taking the rate up to 10.9 percent — its highest level since the euro was launched in 1999.
The seasonally adjusted rate was up from 10.8 percent in February and 9.9 percent a year ago and contrasts sharply with the picture in the U.S., where unemployment has fallen from 9.1 percent in August to 8.2 percent in March.
Europe’s rising unemployment reflects the downturn in the eurozone economy as governments enact austerity measures — spending cuts and higher taxes — to reduce their budget deficits and slow the growth of their debts. Eight eurozone countries — including Greece, Spain and the Netherlands — have seen their economies shrink for two straight quarters or more, the common definition of a recession.
Austerity has been the main prescription across Europe for dealing with a debt crisis that’s afflicted the continent for nearly three years and has raised the specter of the breakup of the single currency. Three countries — Greece, Ireland and Portugal — have already required bailouts.
As Europe’s economic outlook darkens, economists are becoming more skeptical of the strict adherence to austerity. They say the region’s policymakers need to place more emphasis on stimulating long-term growth. Pro-growth measures include freeing up the labor markets so that it is easier for workers to find jobs across the eurozone and introducing legislation that breaks down barriers to competition.
“The question is how long EU leaders will continue to pursue a deeply flawed strategy in the face of mounting evidence that this is leading us to social, economic and political disaster,” said Sony Kapoor, managing director of Re-Define, an economic think-tank and policy advisory company.
In a nod to shifting attitudes about austerity, European Central Bank president Mario Draghi recently called for a “growth pact” in Europe to work alongside the “fiscal pact” that has placed so much importance on controlling government spending.
With elections in Greece and France this weekend, there are hopes — certainly among the 17.4 million people unemployed in the eurozone — that Europe may temper, if not reverse, its focus on austerity.
“With the potential changing of political leaders, coupled with confirmation that nearly half of the eurozone is officially in recession, the strategy of continuing austerity is being widely challenged,” said Gary Jenkins, managing director of Swordfish Research.
France’s Socialist presidential candidate Francois Hollande — who is leading incumbent Nicolas Sarkozy in the polls — has said he would renegotiate the eurozone’s austerity-focused fiscal pact to include measures that would encourage growth. The pact requires countries to keep their budget deficits to within 3 percent of economic output — a major reason why Spain, Italy and other governments are slashing spending.
Austerity has been pushed hardest by Germany, Europe’s biggest economy, as a way to convince markets and international investors that the region has a grip on its problems. However, Germany’s economy is beginning to show signs of vulnerability and analysts say this could prompt Chancellor Angela Merkel to moderate her stance.
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According to the latest IMF statistics at least 12 countries are known to have increased their gold reserves in March indicating the continuation of a trend now going back more than two years, and one which has been on its own a substantial supporter of the higher gold prices seen over the period. Overall Central Banks appear to have purchased no less than 58 tonnes in the month, which could suggest an acceleration in their increases in holdings if buying at this rate continues throughout the year.
While the majority of these countries only raised their reserves by a very small amount, there were indeed some quite significant purchases - notably from Mexico, which increased its holdings by 16.81 tonnes to a total of 122.58 tonnes; Russia with purchases of 16.55 tonnes giving it total reserves now of 895.75 tonnes; Turkey with 11.48 tonnes taking it to 209.6 tonnes in its reserves. Argentina bought 7 tonnes taking its holdings to 61.74 tonnes, Kazakhstan with 4.3 tonnes - up to 96.16 tonnes and Ukraine with 1.18 tonnes bringing its holding to 29.21 tonnes. A further half dozen countries raised their holdings by increments of less than a tonne.
This, of course, only shows the figures for those nations which are, one assumes, wholly transparent in reporting their gold holdings. There have been some quite sharp ‘upwards adjustments' in the past from some countries which have been less open in their reporting - notably China which is assumed by most observers to be building its gold reserves strongly over the three years since it last announced an upgrade in its holdings.
The continuing upwards trend in Central Bank purchasing is yet another indicator of unease in the sector about the prospects for those currencies - notably the dollar, the euro, the pound sterling and the Japanese yen - which provide the bulk of their monetary reserves. Gold is seen as probably a much less risky investment in the current environment. It is perhaps time that those gold doubters took note!
Last year Central Banks that do report their statistics were seen to have bought 439.7 tonnes of gold and many gold analysts are predicting similar levels of purchases in 2012. If the March IMF statistics are anything to go by this figure could even prove conservative, although admittedly Central Bank purchases in January and February were very small by comparison with the March figures.
Consumer prices rose modestly in March amid signs a spike in gasoline costs was ebbing, but inflation still outpaced workers' earnings and threatened to undermine spending.
The Labor Department said on Friday consumer prices increased 0.3 percent last month. Gasoline prices rose 1.7 percent, a sharp slowdown from February when costs at the pump rose more than three times as quickly.
Still, workers' earnings fell 0.4 percent in March after adjusting for the increase in prices.
Other data showed consumer sentiment slipped in April as higher gasoline prices hit household budgets.
"The underlying problem of inflation outstripping wage gains remains. That is the danger for the economy in the long run," said Joseph Trevisani, a market strategist at Worldwide Markets in Woodcliff Lake, New Jersey.
For the U.S. Federal Reserve, the reports gave mixed signals about how much room there might be to take new measures to boost economic growth.
The possibility of weaker consumer spending supports arguments for further stimulus, but the consumer price data suggested inflation might not cool as quickly as expected.
Core inflation, which strips out food and energy prices, climbed 0.2 percent, pushed higher by rising rents, medical care costs and used car prices.
In the 12 months to March, core CPI increased 2.3 percent after rising 2.2 percent in February. Barclays Capital said this reading could rise further this year.
The persistence of core inflation could reduce the Fed's maneuvering room for easing policy. "This could hem the Fed in," said Boris Schlossberg, head of research at GFT Forex in Jersey City.
Overall consumer prices rose 2.7 percent year-on-year, down from a reading of 2.9 percent in February.
The inflation data was in line with expectations and financial markets took their cue from abroad.
Government debt prices rose and stocks fell as renewed concerns over Spain's rising borrowing costs and disappointing Chinese growth data heightened concerns over the global economy.
Amid recent signs of weakness in the labor market, investors have been betting the Fed could unleash further monetary stimulus to boost growth, although comments by Fed officials this week suggested the central bank is on hold as it waits to see whether the recovery gains traction.
The Fed, which meets on April 24-25 to debate its policy course, cut benchmark interest rates to near zero in 2008 and has bought $2.3 trillion in bonds to push other borrowing costs lower. It has said it will probably hold rates super low until at least late 2014 to help the economy as it limps back from the 2007-2009 recession.
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It was a challenging week for gold investors. Although the yellow metal has been on a spectacular 11-year bull run, recent strength in the economy has some thinking gold’s heyday is over.
As I often say, investing, like life, is about managing expectations—even throughout gold’s decade-long rise, price action over the short term can go both ways. It helps to look at what happens after short-term drops. For example, looking at the past decade of one-day 5 percent declines in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5 percent in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.
The 1.7 percent drop experienced over the past month shouldn’t surprise gold investors given the seasonal pattern for gold. Whereas gold rises nearly 2 percent in both January and February, over the past 11 years, it’s been a non-event for gold to correct in March.
In addition, it’s a good reminder that bullion has historically been less volatile than the stock market: the 12-month rolling volatility over the past 10 years for gold was 13 percent. For the S&P 500 Index, the 12-month rolling volatility over the same period was 19 percent.
This March, there seemed to be one main driver eight thousand miles away negatively affecting gold prices. I often say that government policy is a precursor to change, and fiscal policy strongly affected the Love Trade in India last month. To trim its current account deficit, India’s finance minister proposed doubling the customs tax on the precious metal. It was soon reported that jewelers closed shops in protest.
As a result, gold imports into the world’s largest gold market fell 55 percent.
It’s not the customs tax that has the gold shops boycotting, says UBS Investment Research firm. Jewelers’ “prime gripe is with the new 1 percent excise duty on unbranded jewelry” leading to a greater recording of gold transactions, which means more regulation and red tape. What’s so egregious to jewelers is the excise tax will be retroactive so those shop owners holding old gold stocks will have to pay duty on those as well, says UBS.
I believe this is only a temporary sell-off for India. As I often discuss in my presentations, traditional festivals and holidays drive gold demand in India because of their strong history with gold. With their love for the yellow metal, Indians hold the belief that gold “will perpetually rise,” although there are certain buyers that wait for a “psychologically important $1,600 level,” keeping in mind the strength of the rupee, says UBS.
While the seasonal Love Trade period for gold generally falls between August and February, an important holiday is coming up which has historically driven higher sales of gold. Akshaya Tritiya festival occurs on April 24 this year. This is an important occasion for Hindus, celebrated annually in late April or early May, depending on the Hindu calendar. Buying and wearing of gold jewelry is important on this day, as UBS says it’s one of the two “biggest gold buying events” in the Hindu calendar. The second event isDhanteras, which occurs during the peak seasonality period for the yellow metal.
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March NFP big miss at just 120K. Unemployment rate declines from 8.3% to 8.2%. Futures slide, for at least a few minutes before the NEW QE TM rumor starts spreading. The household survey actually posted a decline in March from 142,065 to 142,034. Considering Birth Death added 90K to the NSA number, the actual number was almost unchanged. And as always, as we predicted when Goldmanhiked its NFP forecast yesterday from 175K to 200K saying "if Goldman's recent predictive track record is any indication, tomorrow's NFP will be a disaster", Goldie once again skewers everyone. Finally, Joe LaVorgna's +250,000 forecast was just 100% off... as usual.
The unemployment rate drops to 8.2% for one simple reason: the number of people not in the labor force is back to all time highs: 87,897,000.
Global food prices rose in March for a third straight month with more hikes to come, the UN's food agency said on Thursday, adding to fears of hunger and a new wave of social unrest in poor countries.
Record high prices for staple foods last year were one of the main factors that contributed to the Arab Spring uprisings in the Middle East and North Africa, as well as bread riots in other parts of the world.
The cost of food has risen again this year after coming down from a February 2011 record peak.
The FAO index, which measures monthly price changes for a basket of cereals, oilseeds, dairy, meat and sugar, averaged 215.9 points in March, up from a revised 215.4 points in February, the United Nations' Food and Agriculture Organisation (FAO) said.
Although below the February 2011 peak of 237.9, the index is still higher than during a food price crisis in 2007-08 that raised global alarm.
"The food crisis has not gone away since then," said Emilia Casella, spokeswoman for the U.N.'s World Food Programme. "Prices are a big concern and have remained a large reason why people are food insecure."
The FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters there was scope for more price rises in the first half of this year, particularly for corn and soybeans, which could also drive up the price of wheat.
Higher food prices mean higher import bills for the poorest countries, which do not produce enough food domestically.
The net cereal import bill of the low-income food-deficit countries, known as LIFDCs, is expected to rise to a record $32.62 billion in 2011/12 from $32.28 billion in 2010/11 because of higher prices and lower domestic production, the FAO said in March. Poor countries face unrest if they cannot find the cash.
"Rising food prices are placing fresh pressure on policymakers globally at a time when many governments just have less money," said Larbi Sadiki, an expert in North African politics at Britain's Exeter University.
"In north Africa, food subsidies are a red line, especially in Tunisia and Egypt," he said. "Citizens can be expected to take to the streets to demand social justice."
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Gold rose to a two-month high after Federal Reserve Chairman Ben S. Bernanke said he sees signs the U.S. economy is improving, boosting prospects for commodity demand.
“Indicators of spending, production, and job-market activity have shown some signs of improvement,” Bernanke said today in prepared testimony to the House Budget Committee in Washington. Improving growth prospects will help buoy gold as “deflationary concerns subside,” said Scott Gardner, the chief investment officer at Verdmont Capital SA in Panama.
“When economic news comes in better than expected, it boosts commodities, including gold,” Gardner said in an e-mail.
Gold futures for April delivery gained 0.6 percent to settle at $1,759.30 an ounce at 1:35 p.m. on the Comex in New York, after reaching $1,763.80, the highest since Dec. 2. The metal climbed 11 percent last month, the biggest January rally since 1983.
Gold also got a boost from investors seeking a haven against inflation, after Bernanke cautioned that the U.S. outlook is still “uncertain,” boosting speculation that the Fed will increase stimulus measures to continue the expansion. Last month, the central bank pledged to keep the benchmark U.S. interest rate low until at least late 2014.
“People are speculating that very soon the Fed may talk about quantitative easing,” Sterling Smith, an analyst at Country Hedging in St Paul, Minnesota, said in a telephone interview.
Silver futures for March delivery climbed 1.1 percent to $34.175 an ounce in New York, after touching $34.35, the highest since Nov. 16.
On the New York Mercantile Exchange, platinum futures for April delivery advanced 0.4 percent to $1,629.90 an ounce, climbing for the second straight day. Palladium futures for March delivery rose 1.6 percent to $707.65 an ounce, jumping the most in more than a week.
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