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  • GBI Daily Insights: 11/14/13 0 comments
    Nov 14, 2013 9:32 AM | about stocks: GLD, IAU, GDX, GDXJ, ABX, NEM

    Featured Chart: Gold / Platinum

    (click to enlarge)

    In their latest report, Johnson Matthey predict that platinum demand will exceed supply be the most since 1999 this year, even though Y/Y demand growth from car manufacturers will fall for the first time since 2009. Platinum mine output is expected to increase 1.6% Y/Y, albeit from a 12-year low in 2012 as Zimbabwean production rises. While both tangible assets, platinum and gold differ in that gold has no real industrial application. The rebound in industrial activity following the financial crisis and vicious labor struggles in South Africa (75% of platinum mine supply) justify platinum outperforming gold in recent years. However, if the continued easing of monetary policy fails to jump start economic growth gold would soon regain its footing, and the gold/platinum ratio could be a valuable leading indicator.

    Gold in the Headlines:

    Thai commandos guard 300kg gold for Mahabodhi temple in Bihar - Times of India

    Two dozen commandos from Thailand are guarding nearly 300 kg gold in 13 boxes in Bihar's Bodh Gaya town as work began to cover the dome of 1,500-year old Mahabodhi temple in glitter.

    Taper Talk is Crushing Gold - TheStreet.com

    The price action in gold over the course of the past few months has been perplexing to say the least. With the continuation of the Federal Reserve's quantitative easing program in September, the surprise cut in interest rates by the ECB last week and generally speaking a weaker dollar the world was set up perfectly for higher gold prices. However the metal has had an extremely difficult time catching a bid above that $1,350 level, only briefly pushing through $1,400 in late August before snapping back to $1310 within weeks, crushing investors trying to pick a bottom.

    Gold: Down but not out - Investment News

    John Hathaway and Doug Groh predict "Gold should stabilize and a firm price be established as we head into 2014, given the accommodative and what we believe are even extreme monetary policies seen across the major economies in the world - namely Japan, Europe, and the United States."

    Gold comes off from 4-week low, but US stimulus fears remain - Reuters

    Gold rose on Wednesday after hitting a four-week trough in the previous session, although prices seemed poised to test further lows as fresh uncertainty over the fate of US stimulus measures dented bullion's appeal as a hedge against inflation.

    Overnight Macro Developments:

    Asia

    Japan GDP - 3Q GDP came in somewhat stronger than expected, rising 1.9% annualized (consensus 1.7%). We expect that the real GDP growth will reaccelerate this and next quarter. In our view, there will likely be no policy implication as this initial print is probably similar to what the BoJ had expected - JPM

    Japan - comments from Aso spark yen weakness - the Japanese fin min said the country isn't facing int'l criticism any more over Abenomics and added that Tokyo needed to ensure it retains FX intervention as a policy took and be ready to take action when markets become excessively volatile - Reuters

    South Korea - as widely expected, the Bank of Korea kept the policy rate on hold in a unanimous decision

    India inflation approx. inline; the Oct wholesale price reading came in +7% Y/Y vs. the St +6.95% (the number accelerated mildly from +6.46% in Sept) - Bloomberg

    Europe

    Germany - the EC has launched a probe into whether Germany's large current account surplus is harming the European economy overall - FT

    Eurozone GDP mild miss - the Y/Y measure came in -0.4% vs. the St modeling -0.3% (the Q/Q reading was in-line at +0.1%) - Bloomberg

    German GDP inline -the Q3 GDP came in +0.6% Y/Y vs. the St +0.6% - Bloomberg

    France - GDP came in +0.2% Y/Y vs. the St +0.3% (the prior Q was revised higher from +0.4% to +0.5%) - Bloomberg

    Italy - GDP came inline at -1.9% Y/Y (vs. the St -1.9%) - Bloomberg

    Americas

    The Yellen prepared text hit Wed night and was definitely "dovish" but not necessarily too surprising. She acknowledges the economic progress achieved so far but notes that more needs to be done (the present UR of 7.3% was called "too high" while inflation is "running below the Fed's goal of 2% and is expected to continue to do so for some time", suggesting she doesn't think either component of the mandate is being achieved). On the inflation front (which for many is their biggest criticism of Yellen), Yellen highlights how she was instrumental in formulating the 2% goal and expressed confidence in the target helping to anchor inflation expectations - JPM

    Fed debates ZIRP -WSJ (Hilsenrath) article - Fed officials are debating whether to "strengthen" their forward guidance language around ZIRP; some Fed officials would like to trim the UR threshold associated w/ZIRP although it isn't clear when such a move would come (if one comes at all). Not everyone wants to cut the UR trigger though and Bernanke could have difficulty in forging a consensus around the issue. The inflation threshold may be adjusted rather than UR - WSJ

    Treasuries - Gross doesn't think TSY yields will rise even if the Fed begins tapering; he has been raising exposure to TSYs, focused on the short-end of the curve (Gross thinks the ZIRP pledge will pin short-end rates) - Reuters

    Bond investors worry about falling liquidity - while primary issuance has been strong, liquidity in the secondary market has been falling and this is worrying some money managers. "Right now the buyside is the provider of liquidity in the market," said Gregory Nassour, co-head of investment grade portfolio management at Vanguard. "As the sell side shrinks and the buy side gets bigger and bigger, that's going to be a long-term systemic issue." - Reuters

    QE hasn't boosted stocks according to a McKinsey study - a study released Wed by McKinsey said there is no evidence to suggest QE has boosted stocks. Instead, the big impact was on lowering the cost of government debt ("since 2007, bond-buying programs in the United States, the UK and the euro zone have reduced costs for governments by a total of $1.6 trillion") - Reuters

    Health Care - Democrats abandon White House on ACA - anxious Democrats in Congress increasingly are threatening to abandon Obama over components of the ACA. A House vote this Friday could test the extent to which House Democrats are willing to break w/the President - NYT

    Obama vs. the generals - "But the gap between the Pentagon and the White House has rarely been wider" - Politico

    Commodities

    Art sales remain robust - a Sotheby's auction of post-war and contemporary art raised a total of $380MM, a record amount - WSJ

    Bitcoins endorsed by former gov't official - a former top exec at the Consumer Financial Protection Bureau has jumped on the bitcoin bandwagon - WSJ

    ADM: Archer Daniel Midland's bid shouldn't hurt food security: GrainCorp CEO Alison Watkins said that there shouldn't be a concern that ADM's $2.8B bid for the company would create risk for Australia's food security. The acquisition is waiting for final approval from Treasurer Joe Hockey after meeting with Australia's Foreign Investment Review Board - Bloomberg

    Severstal calls for global cooperation: Severstal CEO Alexei Mordashov said in an interview with the FT that he has called for some of the larger players in steel to create a global agreement to cut output and in essence reduce global capacity. FT

    Metals/Mining

    Gold demand falls to 4-yr low - gold demand was 869 tons in 3Q13, down 21% Y/Y and the lowest number since Q3:09. Marcus Grubb, managing director for investment at the WGC, acknowledged that the sentiment in the market had shifted. Data showed that China remains the world's #1 consumer of gold (India is usually the world's top consumer of gold) - FT

    LME's new rules aren't a quick fix: LME head of strategy and implementation Matthew Chamberlain said that the new warehouse rules won't fix the four year warehousing crisis overnight and one analyst said the new rules could raise volatility/lower liquidity - Bloomberg

    South Africa's AMCU union has lowered its wage demands at Impala Platinum, bringing it closer to resolving weeks of deadlock that had been threatening a strike at the world's No.2 platinum producer. The Association of Mineworkers and Construction Union's (AMCU) softening of its stance holds hope that strike threats at the three largest platinum producers in South Africa, the world's top producing country, will be scrapped - Reuters

    GBI Data Points*:

    Ruminations:

    3D printing technology is growing very quickly and will have major implications for the manufacturing industry. These printers now have the capacity to print metallic objects, and could soon be used in schools. However most analysts agree that 3D printing needs to (and eventually will) be able to produce larger objects at faster speeds.

    Click on image below for video of a miniature jet engine created using 3D printed parts:

    (click to enlarge)

    However, the biggest news to hit the 3D printing market may have come this week when GE announced plans to spend tens of millions of dollars to produce a real 3D printed jet engine. The company plans to triple the aviation business's 70-person 3D printing staff and quadruple the factory floor size in coming years.

    (click to enlarge)

    Whether or not 3D printers live up to the hype, the potential impact to manufacturing could be enormous. The lower cost of production would certainly be a deflationary force on the economy, and could strain the volume of shipping companies. The biggest impact could be on China. Although the Chinese are transitioning to a consumption-driven economy, they are still heavily reliant on manufacturing industries which could take a big hit if additive manufacturing maintains its torrid growth.

    Bonus: Wading rivers in Russia.

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