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Gold
and silver have
given up a small bit of yesterday’s strong gains in all currencies
(especially the euro – see chart below) but are up more than 1% and 3%
respectively on the week. Asian equity indices were higher
overnight and are higher for the week, except for India where there are growing
concerns about surging inflation and interest rates. European indices are
higher today and most are up by some 1.5% to 2% on the week – as are US
indices.
 
US Government 10 Year Bond – 10 Year (Weekly)
Government bond markets continue to creep higher with the
benchmark 10 year yields in the UK, Germany and US rising 3.53%, 2.6% and a
substantial 6.8% respectively just this week. The rise in the US 10 year is
one of the biggest market movements this week and bears watching as it
appears to be breaking out above resistance at 3.5% (see chart above). So too
does the US 30 Year treasury which has risen to 4.66%, meaning the 30 year
yield is 2.76% higher just this week.
Ben
Bernanke warned
yesterday that not hiking the debt ceiling could put the US “into a
position of defaulting on its debt and the implications of that, for our
financial system, for our fiscal policy, for our economy, would be
catastrophic.” This would obviously have a negative impact on paper
assets denominated in dollars and other fiat currencies.
While
US bonds are weaker this week, German and UK bonds have fallen more sharply
so far in 2011 with yields rising 9.3% and 11.5% respectively.
UK Government 10 Year Bond – 10 year (Weekly)
The scale of commodity price increases and growing inflation internationally
will likely see US government bonds continue to come under pressure and the
US may take further steps to monetise their massive liabilities, thereby
further debasing the US dollar. Other developed nations face similar fiscal
and monetary challenges, and their bond markets and currencies similar
risks.
Copper,
wheat and rice are
up 3.9%, 4.4% and 8% respectively this week alone and so far in 2011, they
are up 2.3%, 8% and 13.3%.
Markets
will watch Egypt today and the instability in Egypt and the Middle East is
contributing to higher oil prices with NYMEX crude up 1.8%
and Brent crude up 2.54% this week.
The
National Inflation Association reported overnight that wheat prices are up
100% since June and warned that food and energy price inflation could lead to
food riots spreading from Egypt across the world and even to the US by 2015.
They believe that this is a further sign that massive inflation and
potentially hyperinflation is coming in the coming months and years.
All
eyes will be on the US Non Farm payrolls number today and
whether the tentative economic recovery continues to be jobless. Given the
scale of hedonic adjustments and manipulation of the methodologies of
calculating the unemployment figures, the numbers are somewhat dubious and
not wholly reliable.
Baltic Dry Index – 5 Year (Daily)
A far more important measure of the health of the global economy is the Baltic
Dry Index which measures international dry-bulk commodity-shipping
costs and is seen as an excellent proxy for global trade and thus the health
of the global economy (see chart above). After a massive collapse, from
nearly 12,000 to 666 in December 2008, it subsequently recovered somewhat in
2009. It then gradually fell in 2010 and it is down 8% this week alone and
41% so far this year.
The
continuing fall in the Baltic Dry Index strongly suggests that the global
economic recovery is not as robust as claimed and that we may be on the verge
of a double-dip recession and a bout of stagflation – possibly a severe
one.
Gold’s
price surge
yesterday was likely a combination of short covering, the very bullish demand
figures out of China, accommodative monetary policy sounds from Trichet and
Bernanke. The geopolitical situation in Egypt and the Middle
East likely also led to buying.
Gold
was particularly strong in euros and surged from EUR 962 to over EUR 994 in
minutes. The ECB’s ultra-accommodative monetary policy continues and
the EBC is losing credibility regarding inflation. Also, the very survival of
the euro, as we know it today, in the coming years continues to be in
doubt.
Gold in Euros – 10 Day (Tick)
Former United States ambassador to the United Nations, John Bolton's comments
that Israel should bomb Iran if Mubarak falls has not got much attention.
While Bolton’s neo-conservative politics are out of favour in the
current White House, his hawkish views would be shared by some in the
Pentagon and intelligence agencies.
Gold
Gold is
trading at $1,349.65/oz, €990.50/oz and £837.62/oz.
Silver
Silver is
trading at $28.90/oz, €21.21/oz and £17.94/oz.
Platinum
Group Metals
Platinum is
trading at $1,836.35/oz, palladium at $813/oz and rhodium at $2,450/oz.
News
(Dow Jones)-- PRECIOUS METALS: Gold Eases In Asia; Egypt Situation In
Focus
Gold fell a
little while trading in a narrow range in Asia Friday, in a regional market
thinned by Lunar New Year public holidays in many countries, but holding most
of the gains put on overnight after U.S. Federal Reserve Chairman Ben
Bernanke effectively underscored a continued easy money policy.
At
0520 GMT, spot gold was bid $1,351.40 a troy ounce, down $4.20 from
Thursday's New York close, towards the lower end of the day's trading range
thus far of $1,350.30 to $1,355.55. Tocom December gold rose Y51 to Y3,560 a
gram.
Technically,
gold has bounced off a key target area around $1,320, said Jonathan Barratt,
Managing Director of Sydney-based Commodity Broking Services; for the past
two days the firm has been urging clients to take long positions.
But
other issues are also supporting gold, he said, adding that the crisis in
Egypt could be worsening, and is now a flight-to-quality story for
gold.
(Bloomberg)
-- Gold May Gain on Physical Buying, Political Unrest, Survey Shows
Gold may
advance as this year’s drop boosts physical purchases and political
tensions in the Middle East spur demand, a survey found.
Thirteen
of 24 traders, investors and analysts surveyed by Bloomberg, or 54 percent,
said the metal will rise next week. Eight predicted lower prices and three
were neutral. Gold for April delivery was down 0.6 percent for this week at
$1,334 an ounce at 11:15 a.m. yesterday on the Comex in New York.
Gold
declined in January for the first month since July, and has dropped 6.9
percent since setting a record $1,432.50 in December. Protesters have clashed
with supporters of Egyptian President Hosni Mubarak this week as the
political turmoil that has engulfed the Middle East the past month spread to
Yemen.
(Bloomberg)
-- CME Raises Margins for Silver, Copper, Platinum After Today
CME Group Inc.
raised margins for silver, copper and platinum, effective after the close of
business today, the exchange said in a statement on its website.
(Bloomberg)
-- Investors Treat London Luxury Homes Like Gold: Chart of the Day
London luxury
homes act more as a haven for wealth than other types of real estate and have
more in common with gold, according to Savills Plc.
The
CHART OF THE DAY shows how the number of sales of central London homes
costing more than 5 million pounds ($8 million) follows a similar pattern as
the three-month percentage change in gold prices.
“It’s
as much about storing wealth as it is about real- estate investment -- the
way that gold behaves,” said Yolande Barnes, head of residential
research at the London-based property broker.
Overseas
investors currently account for 60 percent of buyers of high-end homes in
central London compared with about 40 percent in 2009, Savills estimates.
Russians are the biggest group, with 20 percent of all purchases.
Prime
residential properties in the city appreciated by about almost 5 percent last
year, Savills estimates. Average values for homes across the U.K. dropped 3.4
percent, according to an index released on Jan. 10 by Halifax, the
mortgage-lending arm of Lloyds Banking Group Plc.
(Bloomberg)
-- Gold Futures Rise as Much as 1.8% on Signs of Mideast Tensions
Gold rose as
much as 1.8 percent on signs of escalating tensions in the Middle East.
The
Muslim Brotherhood movement denied calling to revoke Egypt’s peace
treaty with Israel and said the country’s parliament has the right to
review the pact if the people want. Mohamed Saad El-Katatni, a member of
Muslim Brotherhood’s top executive body, spoke in a phone interview
today.
Gold
futures for March delivery reached $1,355.80 an ounce on the Comex in New
York, the highest in two weeks.
(Wall
Street Journal) -- Old Yeller! Gold Jumps on Egypt, Big Ben
Gold seems to
have snapped out of its funk today.
On the
Comex, gold rose for the second time in three days, adding a solid $20.80, or
1.6%, to $1352.30. Cousin Silver also added 1.5% to $28.7330, its fourth
increase in five sessions.
The
events in Egypt are certainly helping the dark-hearted goldbugs gather more
adherents. Chaos is, umm, golden to them. But perhaps more important than the
violence in Egypt, the big central bankers unexpectedly released a dole of doves
today despite more signs of the recovery improving.
Jean-Claude
Trichet, head of the European Central Bank, has recently associated himself
with concerns about incipient inflation. Earlier today, however, after the
ECB policy meeting he stressed that the ECB isn’t about to raise
short-term rates anytime soon
Mark O’Byrne
Goldcore
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