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Katchum
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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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  • Belgium Buys Enormous Amount Of U.S. Debt

    Thanks to Econoblogger Martin I was reminded that today we have another update on the U.S. foreign debt holders and surprise surprise. Belgium keeps on buying more than $50 billion of U.S. debt, much more than any other country is doing now. If Belgium keeps buying like this, it will hold even more debt than China in a year or so. I'm just wondering where they get the money from.

    (click to enlarge)

    Foreign U.S. debt holders

    Look how much they bought, starting from November 2013.

    U.S. debt held by Belgium

    I have no idea why they are doing this. That the ECB would buy U.S. treasuries to get the euro down, maybe. But why is Belgium buying so much U.S. treasuries? $50 billion accounts for 10% of Belgium GDP. Can they support this?

    We see Belgium's own public debt has been rising since the crisis. Instead of using the money for servicing its own debt, they buy U.S. debt.

    (click to enlarge)

    Debt to GDP Belgium

    Let's look at Belgium's treasury yields. The 10 year is at 2.2%, which is below the 2.7% of U.S. Nothing much to see here, but look what happens in November 2013. Yields on U.S. treasuries are going up. Do you remember what happened then?

    Yes, the Chinese came out saying they will stop buying U.S. debt. So who goes to the rescue? Belgium.

    (click to enlarge)

    Belgium 10 Year Yield

    U.S. 10 Year Yield

    Probably Belgium is the heart of Europe as Europe started from Belgium. These European people want to support the U.S.

    But actually, I think being in U.S. treasuries isn't such a bad idea at this moment. When stocks collapse, U.S. treasuries are pretty safe.What I'm worried about though, is that the U.S. dollar is now starting to collapse. The dollar cash index is moving towards 70, when Belgium holds all of these U.S. treasuries, it will realize losses on the U.S. dollar currency value. A 10% loss in currency value, means at least a $30 billion dollar loss for Belgium and I heard that they even bought U.S. treasuries that the Russians dumped in March 2014. These are dangerous things to do.

    For more info, here is a link to Zerohedge.

    Mar 18 1:14 PM | Link | Comment!
  • Calculating The Upside In Gold And Palladium

    Sometimes it is interesting to be able to estimate the price increase in something, for example palladium or gold. We do that via supply and demand analysis.

    Let's say that supply stays the same, because mines aren't going to suddenly increase their supply. Then we look only at the demand side. Because demand can go up and down very fast due to price fluctuations. If the gold price were to double, you could only buy half of the gold with the same money.

    1) The case of palladium:

    Currently we have a deficit of 1 million ounces of palladium per annum. This means that demand is 1 million ounces higher than supply. Currently the total demand of palladium is 8 million ounces and supply is 7 million ounces.

    So if supply stays the same and we want to close the deficit gap, then we need to increase the price of palladium so much that demand will drop to 7 million ounces. That's a 1/8 = 12.5% decrease in demand.

    There is a simple formula to calculate the price rise needed to decrease the demand by a certain percentage:

    price rise = (100/(1-Demand decrease)) - 100

    or

    price rise = (100/(1-12.5%)) - 100 =14.3%

    So if the palladium price rises 14.3%, then demand will fall 12.5%. That will close the deficit gap.

    Investors can then sell their profits when the palladium price has risen 14.3%.

    2) The case of gold:

    Let's do the same for gold. We have supply and demand numbers here.

    Supply = 3936 tonnes/annum

    Demand = 5670 tonnes/annum

    Deficit = 5670-3936 = 1734 tonnes/annum

    Demand will have to decrease 1734/5670 = 30% to close the deficit gap.

    If we want to close the deficit gap, the price of gold at a constant supply needs to rise:

    price rise = (100/(1-30%)) - 100 = 43%

    So gold needs to go from $1300/ounce to $1300*(1.43) = $1859/ounce to close the current deficit gap.

    So there is your gold price target: $1859/ounce.

    Tell me what you think, is this a realistic estimate?

    Tags: GLD
    Mar 06 12:18 PM | Link | 1 Comment
  • Chinese Lunar New Year Ends, Gold Demand Down?

    ... Absolutely not!

    People say that when the Chinese New Year ends (31 January), gold demand would come down.

    What do we see two weeks after Chinese New Year? A record amount of Chinese gold demand at 64 tonnes a week, that's 256 tonnes a month, above global mine supply.

    (click to enlarge)
    SGE Withdrawals (In Gold We Trust: Koos Jansen)

    I believe we could see an increase in gold demand when the price of gold rises. It seems counterintuitive, but the gold demand curve is not straight, it is curved (red graph below).

    We might see it happening right now.

    Tags: GLD
    Feb 22 7:44 PM | Link | Comment!
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