Monday, March 10, 2014

Gold Gives More Mixed Signals Than a Drive-Through Traffic School

Are these bullish or bearish times for gold? It depends on who you read.  

First one hard fact: SPDR Gold Trust (GLD), the world's largest gold-backed exchange-traded fund, said its holdings rose 1.5 metric tonnes to 805.20 tonnes on Friday. It wasn't too long ago that that the GLD was well below 800 tonnes. The fact is, gold-backed ETFs are buying gold; a year ago, they were selling. That is a huge shift in the market.  

Beyond that fact, things get a bit murky.

For example, Reuters reports that gold dropped this morning due to a one-two-combo of strong U.S. jobs data (which eased worries of an economic slowdown) and the fact that China's export data unexpectedly tumbled, which increases worries of an economic slowdown in China. 

That doesn't make much sense, does it? In an interconnected world, China and the U.S. should more or less go in the same direction.

On the other hand, Bloomberg reports that hedge fund managers are the most bullish on gold and other commodities (particularly agricultural commodities, from my observation) since December of 2012. The 11% rally in gold since the start of the year certainly helps. The same story reports that Goldman Sachs sees gold slumping to $1,000 this year.  I guess by now, we all can guess that Goldman is in the market to buy cheap gold, right?

However, the China Gold Association says gold demand in China is poised to drop to 250 metric tonnes this quarter, down 17% from a year earlier. Higher prices are blamed. In the same reports, however, CGA expects total annual demand will rise to about 1,176 metric tonnes. Production in 2014 will match last year’s output of 428.16 tonnes.  

Another wild card -- also from China -- is that Chaori Solar Energy Science & Technology Co., a manufacturer of solar panels, has defaulted on a bond.  This is the first time the Chinese government hasn't stepped in to backstop company bonds.  This default ratchets up the fear trade, in my view.

And the ongoing crisis is Ukraine is sending shockwaves through gold, energy, grains and more. "When uncertainty and even downright panic grips other parts of global financial markets, the tried and true reflex is to buy gold. "

Obviously, gold is giving off more mixed signals than a drive-through traffic school.

Other Commodities & Markets

So there's no inflation, eh? Here's a jaw-dropping chart ...



 Check out the countries with +25% food inflation since 2007.  Russia and Brazil have seen food prices rise more than 50%.  India has seen food prices rise more than 75%. This is how we get to The Boiling Point, my friends.

The EIA reports that Natural Gas output from Marcellus—spread over Pennsylvanian and West Virginia—crossed the 13 Bcf/d mark in late 2013, compared with just over 2 Bcf/d four years ago.

And yet, stockpiles of natural gas and coal are expected to decline to six-year lows by the end of this month, government data show. You can blame that on frigid weather.

The World Bank raised its 2014 growth forecasts for advanced nations in January to 2.2% from 2%, while cutting its estimates for developing nations to 5.3% from 5.6%.

At the same time, China last week retained a target for 7.5% growth in 2014 for the $9 trillion economy. Gross domestic product expanded 7.7% in 2013, the same pace as in 2012. But China's CSI 300 Index plunged to its lowest level in five years, which is hardly a vote of confidence.

Another no-confidence vote comes from copper. Remember my story from February 6, "Doctor Copper Delivers a Warning to the World"? Well, today the price of the metal fell to its lowest level in four years.  Copper is called Doctor Copper because it tells you the health of the global economy. China accounts for 40% of global copper demand.

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