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Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a... More
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  • Run On GLD ETF Starting?

    It is very odd that Shanghai demand is now receding.

    Today the SGE withdrawals of gold fell again 16% from last week to only 21.4615 tonnes. See chart below, courtesy of Koos Jansen: In gold we trust. So demand for gold in China is really dropping fast as premiums between China and London are still at zero, indicating that demand for gold from China is very unnaturally low.

    (click to enlarge)

    However, the GLD ETF had something interesting to tell. The GLD physical stock finally started dropping hard since yesterday, while I had thought it would start increasing.

    (click to enlarge)

    GOFO rates are now very negative historically hitting new lows. Maybe this tells us that GLD is finally having a run on gold due to supply tightness. Because China isn't buying, so who is actually taking delivery from GLD now? Maybe the retail investors themselves, demanding for the physical. I'm just guessing around, could also just be storage fee payments.

    Tags: GLD
    Apr 18 4:42 AM | Link | Comment!
  • Capacity Utilization Pointing To 5% Annual Inflation Next Year

    Capacity utilization rate is a leading indicator for inflation. And the latest number is at 79.2, a new record high since the bottom of the crisis. If history is an indicator, we should see huge inflation rates in a year from now.

    The chart below points to a year over year CPI rate of 5% in the coming future. And we're already half to that number as the latest consumer prices pointed to a 0.2% increase in prices in the month of March, or a 2.4% inflation rate per annum.

    You can be sure that inflation is coming and you should prepare for that accordingly.

    Apr 16 3:38 PM | Link | Comment!
  • Long Term GOFO Rates Hit New Lows

    If you really think that gold is going to crash, I need to point out one thing and that's the GOFO rate.

    Recently, the 12 month GOFO rate has hit a new low we have never seen since 1989.

    (click to enlarge)

    Let's zoom in to 2009-2014: We have a new solid low here.

    (click to enlarge)

    So not only the short term GOFO rates (1 month to 3 months) are negative now, also the long term GOFO rates are hitting new lows. So there is a tremendous stress building in the gold market. Historically negative GOFO rates are bottoms in the gold price.

    This makes me very bullish in gold at this moment. Because gold lease rates are now much higher than the interest rates/bond yields. This indicates to me that the bond market is about to collapse, bond yields will be going higher, because gold lease rates cannot be higher than the corresponding bond yields. Either bond yields will be going up, or gold has to go up. It's one of the two.

    On another note, we see that the Federal Reserve tapering, is actually just talk. Because some entity is buying U.S. bonds via Belgium at a rate of 30-40 billion USD a month, which is exactly how much tapering we have had. The Federal Reserve is throwing sand in our eyes, don't be fooled. They are actively propping up the U.S. bond market, artificially lowering the bond yields below the gold lease rates.

    U.S. debt held by Belgium (Billion USD)

    Apr 15 11:37 AM | Link | Comment!
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