Alex Canahuate's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.com/user/5482271/comments http://seekingalpha.com/article/1126691/comments?source=feed#comment-14054751 14054751 Wed, 23 Jan 2013 13:42:28 -0500 http://seekingalpha.com/article/1126691/comments?source=feed#comment-14054311 14054311
Since it is generally accepted that a weaker currency is a boon for exporters, most industrialized nations want weak currencies as a means of exporting their way back to prosperity. However, if everyone adopts these weak-currency policies you get an actual currency war, with tit-for-tat policy decisions as one nation adopts new measures in response to another nation's. Already, certain individuals (like Jens Weidmann of the Bundesbank) are concerned Japan may be starting the next round of currency wars, and so with this in mind the Japanese have to be careful that their weak-yen policies don't raise the ire of the rest of the world.]]> Wed, 23 Jan 2013 13:32:16 -0500
Since it is generally accepted that a weaker currency is a boon for exporters, most industrialized nations want weak currencies as a means of exporting their way back to prosperity. However, if everyone adopts these weak-currency policies you get an actual currency war, with tit-for-tat policy decisions as one nation adopts new measures in response to another nation's. Already, certain individuals (like Jens Weidmann of the Bundesbank) are concerned Japan may be starting the next round of currency wars, and so with this in mind the Japanese have to be careful that their weak-yen policies don't raise the ire of the rest of the world.]]> http://seekingalpha.com/article/1126691/comments?source=feed#comment-14043641 14043641 Wed, 23 Jan 2013 09:47:01 -0500 http://seekingalpha.com/article/1126691/comments?source=feed#comment-14043231 14043231
The problem with gold as a safe haven is that the advent of ETPs and other paper gold products have introduced a high degree of institutional cash and the associated volatility into the gold market. This price gyration will naturally cause investors to question the safety of allocating funds to gold amidst a flight to quality - especially with a brief time horizon. From a short-term standpoint, I personally wouldn't recommend gold supplant a cash position, but if one expects to be out of the market for an extended period of time they may want to consider allocating a portion of those funds to gold.]]> Wed, 23 Jan 2013 09:36:51 -0500
The problem with gold as a safe haven is that the advent of ETPs and other paper gold products have introduced a high degree of institutional cash and the associated volatility into the gold market. This price gyration will naturally cause investors to question the safety of allocating funds to gold amidst a flight to quality - especially with a brief time horizon. From a short-term standpoint, I personally wouldn't recommend gold supplant a cash position, but if one expects to be out of the market for an extended period of time they may want to consider allocating a portion of those funds to gold.]]> http://seekingalpha.com/article/1107781/comments?source=feed#comment-13680441 13680441 Mon, 14 Jan 2013 09:25:37 -0500 http://seekingalpha.com/article/1096061/comments?source=feed#comment-13391391 13391391
The points you make regarding imported gold are certainly accurate. More importantly, with a huge swathe of India's population without access to banks or traditional financial services, what other option do they have? This is a cultural reality that cannot be changed overnight via policy/tax manipulation.

However, I can also appreciate the Indian government's interest in trying to utilize this ultimately unproductive hoard of gold under mattresses and in closets across India. I cannot deny, as you said, that gold is an important store of wealth for Indian families - and to that effect, provides a liquid asset in times of need. That said, the gold merely sitting, collecting dust, could be more productively utilized within the Indian financial system (assuming of course the infrastructure was in place to facilitate such - which at the moment it is not).

So while I don't mean to submit that gold imports are bad, I will maintain that this capital allocated towards physically hoarded gold could be more productively utilized within the Indian economy if only the financial framework and cultural biases were appropriately positioned.

However, as I indicate in the piece, the Indian government is a long way from incorporating the necessary changes to wean its population off its dependence on gold. As such, I personally don't anticipate any paradigm shifts in Indian gold demand in the short-to-medium term. If anything, the Indian government will adopt import taxes and other myopic, short-term approaches to what will prove to be a protracted campaign against physical gold.

I don't disagree that India could penalize other imports, but no other import that I am aware of (besides oil) comes close to representing the percentage of the trade deficit that gold does. And if the rupee slides lower and gold continues to move higher, gold imports as a percentage of India's trade deficit will continue to balloon. Given the very real possibility of this development, the Indian government seems to be labeling gold as enemy number one and I doubt it can be persuaded to change course in favor of another policy crusade in the short-to-medium term (despite the cultural and structural obstacles that in my opinion will make the government's success near-impossible in that time frame).]]> Mon, 07 Jan 2013 09:47:31 -0500
The points you make regarding imported gold are certainly accurate. More importantly, with a huge swathe of India's population without access to banks or traditional financial services, what other option do they have? This is a cultural reality that cannot be changed overnight via policy/tax manipulation.

However, I can also appreciate the Indian government's interest in trying to utilize this ultimately unproductive hoard of gold under mattresses and in closets across India. I cannot deny, as you said, that gold is an important store of wealth for Indian families - and to that effect, provides a liquid asset in times of need. That said, the gold merely sitting, collecting dust, could be more productively utilized within the Indian financial system (assuming of course the infrastructure was in place to facilitate such - which at the moment it is not).

So while I don't mean to submit that gold imports are bad, I will maintain that this capital allocated towards physically hoarded gold could be more productively utilized within the Indian economy if only the financial framework and cultural biases were appropriately positioned.

However, as I indicate in the piece, the Indian government is a long way from incorporating the necessary changes to wean its population off its dependence on gold. As such, I personally don't anticipate any paradigm shifts in Indian gold demand in the short-to-medium term. If anything, the Indian government will adopt import taxes and other myopic, short-term approaches to what will prove to be a protracted campaign against physical gold.

I don't disagree that India could penalize other imports, but no other import that I am aware of (besides oil) comes close to representing the percentage of the trade deficit that gold does. And if the rupee slides lower and gold continues to move higher, gold imports as a percentage of India's trade deficit will continue to balloon. Given the very real possibility of this development, the Indian government seems to be labeling gold as enemy number one and I doubt it can be persuaded to change course in favor of another policy crusade in the short-to-medium term (despite the cultural and structural obstacles that in my opinion will make the government's success near-impossible in that time frame).]]> http://seekingalpha.com/article/1095631/comments?source=feed#comment-13390361 13390361
While the Fed may ultimately decide to take similar action, personally I would expect the measure to have the same ineffectual results as the ECB's. Besides the questionable success of a deposit rate cut, another major consideration of such a move is the effect it would have on U.S. based money markets. Many of these funds are already having a very difficult time offering positive yields to investors, and a deposit rate cut would complicate those efforts. If the Fed cuts deposit rates and US banks begin to move reserves away from the central bank, but do not use the funds to underwrite loans, most likely these banks will allocate the reserves to the very same securities preferred by money markets. This development would pressure yields on these securities lower and exacerbate the challenge for money market funds to provide palatable returns to investors.

So while I agree that a deposit rate cut remains one of the few remaining policy tools at the Fed's disposal, I am not so confident they will utilize such a move in the short-term given these considerations. ]]> Mon, 07 Jan 2013 09:22:52 -0500
While the Fed may ultimately decide to take similar action, personally I would expect the measure to have the same ineffectual results as the ECB's. Besides the questionable success of a deposit rate cut, another major consideration of such a move is the effect it would have on U.S. based money markets. Many of these funds are already having a very difficult time offering positive yields to investors, and a deposit rate cut would complicate those efforts. If the Fed cuts deposit rates and US banks begin to move reserves away from the central bank, but do not use the funds to underwrite loans, most likely these banks will allocate the reserves to the very same securities preferred by money markets. This development would pressure yields on these securities lower and exacerbate the challenge for money market funds to provide palatable returns to investors.

So while I agree that a deposit rate cut remains one of the few remaining policy tools at the Fed's disposal, I am not so confident they will utilize such a move in the short-term given these considerations. ]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12475451 12475451
I can appreciate your point regarding gold prices being hindered by ETFs, but I do ultimately believe that investors will increasingly want to take direct delivery of their metal. Whether its Enron, MF Global, LIBOR rigging, or any one of a number of instances in which the financial system has displayed its proclivity for institutional favoritism, I think retail investors will become increasingly fatigued with the financial complex as a whole. This development would make direct ownership of unencumbered assets like gold increasingly attractive - rather than the proxy-ownership provided by ETFs, unallocated storage accounts, and the like. Time will tell, but I think the second leg of the gold bull market will be driven by physical demand as investors seek shelter from the uncertainty pervasive in broader financial markets. In our past conversations, we addressed that time conscientious investors prefer ETFs and similar vehicles, but I think a consistent erosion of investor confident in the financial system could reverse that preference.]]> Tue, 11 Dec 2012 09:25:40 -0500
I can appreciate your point regarding gold prices being hindered by ETFs, but I do ultimately believe that investors will increasingly want to take direct delivery of their metal. Whether its Enron, MF Global, LIBOR rigging, or any one of a number of instances in which the financial system has displayed its proclivity for institutional favoritism, I think retail investors will become increasingly fatigued with the financial complex as a whole. This development would make direct ownership of unencumbered assets like gold increasingly attractive - rather than the proxy-ownership provided by ETFs, unallocated storage accounts, and the like. Time will tell, but I think the second leg of the gold bull market will be driven by physical demand as investors seek shelter from the uncertainty pervasive in broader financial markets. In our past conversations, we addressed that time conscientious investors prefer ETFs and similar vehicles, but I think a consistent erosion of investor confident in the financial system could reverse that preference.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12441131 12441131
you make an interesting allusion to the goldsmiths of the 17th century. Mark Skousan's book "The Economics of a Gold Standard" does a good job of covering the development of the goldsmith services and its evolution towards fractional reserve banking and the fiat currency system. The only difference is that many ETFs provide no delivery of any kind, so any concerns of a "run" are nonexistent. Shareholders liquidating shares would simply mean a rebalancing of the ETFs outstanding metals contracts (if they are indeed operating in this fashion) as opposed to a more difficult re-orientation of physical supply. So I can certainly appreciate your point and it's interesting to think about. I have also read that certain ETF structures, like GLD, are designed to be difficult to audit. This could facilitate whatever balance sheet chicanery they may or may not be perpetrating. ]]> Mon, 10 Dec 2012 10:24:50 -0500
you make an interesting allusion to the goldsmiths of the 17th century. Mark Skousan's book "The Economics of a Gold Standard" does a good job of covering the development of the goldsmith services and its evolution towards fractional reserve banking and the fiat currency system. The only difference is that many ETFs provide no delivery of any kind, so any concerns of a "run" are nonexistent. Shareholders liquidating shares would simply mean a rebalancing of the ETFs outstanding metals contracts (if they are indeed operating in this fashion) as opposed to a more difficult re-orientation of physical supply. So I can certainly appreciate your point and it's interesting to think about. I have also read that certain ETF structures, like GLD, are designed to be difficult to audit. This could facilitate whatever balance sheet chicanery they may or may not be perpetrating. ]]> http://seekingalpha.com/article/1050511/comments?source=feed#comment-12440561 12440561
however, 2012 has seen gold and other precious metals increasingly following the directional cues of risk assets, and as such we have frequently seen metal sell off amidst bouts of risk aversion. If this paradigm is still the primary driver of metal prices in the short-term, we could easily see metals selling off with the broader risk complex following a US cliff dive. However, even if this should be the case, I would imagine that metals would recover with a higher degree of resilience than equities and risk currencies following a cliff-driven correction - especially considering the low-rate and loose policy implications of going over the cliff.]]> Mon, 10 Dec 2012 10:11:17 -0500
however, 2012 has seen gold and other precious metals increasingly following the directional cues of risk assets, and as such we have frequently seen metal sell off amidst bouts of risk aversion. If this paradigm is still the primary driver of metal prices in the short-term, we could easily see metals selling off with the broader risk complex following a US cliff dive. However, even if this should be the case, I would imagine that metals would recover with a higher degree of resilience than equities and risk currencies following a cliff-driven correction - especially considering the low-rate and loose policy implications of going over the cliff.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12374571 12374571
If ETFs were not holding the metal, then your observations are certainly accurate. And maybe current price action while ETF holdings are purportedly at highs does have some implications in this regard. However, it seems unlikely that all the ETFs are playing the same game...and could get away with it...but either way I agree it is suspicious. ]]> Fri, 07 Dec 2012 15:09:20 -0500
If ETFs were not holding the metal, then your observations are certainly accurate. And maybe current price action while ETF holdings are purportedly at highs does have some implications in this regard. However, it seems unlikely that all the ETFs are playing the same game...and could get away with it...but either way I agree it is suspicious. ]]> http://seekingalpha.com/article/1050511/comments?source=feed#comment-12356171 12356171
That said, I would say that if we saw $5,000/oz gold, such a move would very likely drag silver along for the ride. Especially considering that the bulk of Americans have yet to take any position in precious metals - so if gold reaches $5,000 many of the middle-to-lower income investors that would eventually enter the market would probably prefer to purchase silver as the perception will be they're getting more "bang for their buck."

An additional consideration is that given the comparatively smaller volumes in the silver market, a large influx of capital could effect a more dramatic price spike than a similar cash inflow into the gold market. Given that much of the upper echelon of investors have taken their positions (in gold, silver, and the like), the subsequent deluge of investment following a gold price surge of this magnitude would probably represent medium-to-small investors that can be reasonably expected to prefer silver. So I would think its safe to say that silver would benefit from such a parabolic rise in the gold price.]]> Fri, 07 Dec 2012 09:24:00 -0500
That said, I would say that if we saw $5,000/oz gold, such a move would very likely drag silver along for the ride. Especially considering that the bulk of Americans have yet to take any position in precious metals - so if gold reaches $5,000 many of the middle-to-lower income investors that would eventually enter the market would probably prefer to purchase silver as the perception will be they're getting more "bang for their buck."

An additional consideration is that given the comparatively smaller volumes in the silver market, a large influx of capital could effect a more dramatic price spike than a similar cash inflow into the gold market. Given that much of the upper echelon of investors have taken their positions (in gold, silver, and the like), the subsequent deluge of investment following a gold price surge of this magnitude would probably represent medium-to-small investors that can be reasonably expected to prefer silver. So I would think its safe to say that silver would benefit from such a parabolic rise in the gold price.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12324581 12324581
The gold confiscation exempted jewelry and "collectible" coins. However, there wasn't an explicit definition as to what constituted collectibles so its kind of nebulous what coins slipped under the wire. You're right about American jewelry generally having a lower gold content. I would say 14 and 18 carats is the most common gold content in American Jewelry.

Considering the dramatic slide the Rupee experienced against the dollar earlier this year, it makes sense that the Indian government wants to minimize gold ownership. Instead of holding the bulk of their wealth in gold, if Indians held cash Rupees it would create demand for the currency and shore up its valuation relative to other currencies.

You're certainly not along regarding your suspicions about the ETFs. I have read articles saying that the GLD prospectus specifically states it can substitute physical metal with paper contracts. I haven't sifted through the legalese myself, so I can't say that I have personally seen such language in GLD's prospectus, but certainly speculation abounds regarding their purported gold holdings. However, regardless of whether they're holding metal or not, the fact that investors have the perception that buying these shares is a de facto way of buying gold means that there is still substantial investor gold demand in the market. contrary to what recent price action would lead one to believe...]]> Thu, 06 Dec 2012 12:56:44 -0500
The gold confiscation exempted jewelry and "collectible" coins. However, there wasn't an explicit definition as to what constituted collectibles so its kind of nebulous what coins slipped under the wire. You're right about American jewelry generally having a lower gold content. I would say 14 and 18 carats is the most common gold content in American Jewelry.

Considering the dramatic slide the Rupee experienced against the dollar earlier this year, it makes sense that the Indian government wants to minimize gold ownership. Instead of holding the bulk of their wealth in gold, if Indians held cash Rupees it would create demand for the currency and shore up its valuation relative to other currencies.

You're certainly not along regarding your suspicions about the ETFs. I have read articles saying that the GLD prospectus specifically states it can substitute physical metal with paper contracts. I haven't sifted through the legalese myself, so I can't say that I have personally seen such language in GLD's prospectus, but certainly speculation abounds regarding their purported gold holdings. However, regardless of whether they're holding metal or not, the fact that investors have the perception that buying these shares is a de facto way of buying gold means that there is still substantial investor gold demand in the market. contrary to what recent price action would lead one to believe...]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12295661 12295661
With regards to Goldman Sachs' statements, I am constantly baffled by these analysts' decidedly oblivious approach to a healthier US economy. As I believe I have mentioned in past comments, the average maturity of total US debt is a mere 65 months or so. Literally trillions of dollars worth of debt will have to be rolled over in the next five years. Volcker-style rate hikes could have dire implications for the US' financing situation. Add this to the very real fact that we are at the end of a 30-year bull market in Treasuries and safe haven bonds, and the environment will be ripe for a bond selloff. If Treasury yields even go to their historical average (between 3-4% for the 10-year I believe), that would represent tens of billions (if not more) of dollars worth of additional debt servicing costs. As the percentage of tax revenues represented by debt servicing costs balloons, the US' borrower profile becomes increasingly unattractive adding additional upward pressure on Treasury yields. With this in mind, sluggish growth and a sustained low-rate environment are probably the best things for the US government as it (hopefully) determines a path to fiscal discipline and deficit/debt reduction. Considering all this, I don't necessarily think that a healthier US economy and rising interest rates would spell the end of the gold bull market.

I understand what you are saying regarding investors' sentiments not being dented by the 2011 correction in price, but you also have to realize that Americans were not allowed to own gold (with certain exemptions) between 1933-1975. We don't have the same cultural affinity for gold as many other cultures do. With this in mind, I don't think its unreasonable to think that investor confidence with regards to gold can be compromised by volatility and otherwise unexpected trading patterns. however you make a valid point regarding stocks and the fact that people keep coming back despite ever-rising volatility and uncertainty. Your similarly astute point regarding high gold price's enemy rings true, as many of my clients have espoused fears regarding "getting in at the top." Other than a damaged confidence in gold's safe haven aspects, what other reasons would you speculate could cause the correlation between gold and risk assets we have seen in 2012 (with the exception of recent trading)?

I agree that the current weakness in gold price seems out of place, but now that we're below the psychologically important $1,700 mark, technical selling pressure could push us lower. If we see consecutive closes below $1,680, I don't think its unreasonable to expect gold back in the $1,550-$1,600 range. Time will tell, but I think technical weakness combined with growing risk aversion as the fiscal cliff approaches could ultimately be bearish for gold in the immediate short-term (although you would intuitively assume gold should benefit from the current environment...). what is also strange about the current weakness in gold is that it happens despite record ETF holdings...go figure...]]> Wed, 05 Dec 2012 17:35:39 -0500
With regards to Goldman Sachs' statements, I am constantly baffled by these analysts' decidedly oblivious approach to a healthier US economy. As I believe I have mentioned in past comments, the average maturity of total US debt is a mere 65 months or so. Literally trillions of dollars worth of debt will have to be rolled over in the next five years. Volcker-style rate hikes could have dire implications for the US' financing situation. Add this to the very real fact that we are at the end of a 30-year bull market in Treasuries and safe haven bonds, and the environment will be ripe for a bond selloff. If Treasury yields even go to their historical average (between 3-4% for the 10-year I believe), that would represent tens of billions (if not more) of dollars worth of additional debt servicing costs. As the percentage of tax revenues represented by debt servicing costs balloons, the US' borrower profile becomes increasingly unattractive adding additional upward pressure on Treasury yields. With this in mind, sluggish growth and a sustained low-rate environment are probably the best things for the US government as it (hopefully) determines a path to fiscal discipline and deficit/debt reduction. Considering all this, I don't necessarily think that a healthier US economy and rising interest rates would spell the end of the gold bull market.

I understand what you are saying regarding investors' sentiments not being dented by the 2011 correction in price, but you also have to realize that Americans were not allowed to own gold (with certain exemptions) between 1933-1975. We don't have the same cultural affinity for gold as many other cultures do. With this in mind, I don't think its unreasonable to think that investor confidence with regards to gold can be compromised by volatility and otherwise unexpected trading patterns. however you make a valid point regarding stocks and the fact that people keep coming back despite ever-rising volatility and uncertainty. Your similarly astute point regarding high gold price's enemy rings true, as many of my clients have espoused fears regarding "getting in at the top." Other than a damaged confidence in gold's safe haven aspects, what other reasons would you speculate could cause the correlation between gold and risk assets we have seen in 2012 (with the exception of recent trading)?

I agree that the current weakness in gold price seems out of place, but now that we're below the psychologically important $1,700 mark, technical selling pressure could push us lower. If we see consecutive closes below $1,680, I don't think its unreasonable to expect gold back in the $1,550-$1,600 range. Time will tell, but I think technical weakness combined with growing risk aversion as the fiscal cliff approaches could ultimately be bearish for gold in the immediate short-term (although you would intuitively assume gold should benefit from the current environment...). what is also strange about the current weakness in gold is that it happens despite record ETF holdings...go figure...]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12269411 12269411
I hadn't seen the news about European banks trying to delay Basel III implementation, thanks for the link. I have seen the seeking alpha article on Basel III allowing gold as tier one capital, and while I will admit I have not searched as thoroughly as possible, at first glance I could not find any content from the BIS, Basel Committee, or similar institution corroborating this development. The only media outlets to pickup that story have been newsletters and gold bloggers...but I would love to see such a statement "straight from the horses mouth."

Assuming gold will indeed become categorized as tier one capital, I don't necessarily believe banks will be scrambling for the metal. I do think that banks will more aggressively pursue metal deposit accounts because they can hypothecate and rehypothecate client metal. That said, I don't know if banks would want their internal reserves held in gold given the inherent volatility in the gold market. Substantial spikes and precipitous falls that gold prices are inclined to have would dramatically complicate maintaining a static balance of reserves. While gold may not benefit from a deluge of new bank demand, gold will still benefit from this development given the additional credence it provides to the "gold is money" mantra.

I think you're right regarding the frustration of taxpayers being relatively incapable of stopping this progression of events given politicians' ability to scare them into thinking "this is what's best." That said, this creates an incredibly conducive environment for despots and demagogues. Greece's Golden Dawn is just one of a number of emerging nationalist parties across Europe that are realizing better and better turnouts at parliamentary votes...Golden Dawn's success, and the success of sympathetic parties, almost forced a Greek default when Greece's parliament could not form a coalition government. As things get worse...what happens when this style of party is capable of forming its own majority?

I agree that historically gold and dollar moved inversely as one was a hedge against the other. That said, I think we are slowly moving away from that dynamic and don't know when we can expect a more traditional inverse trading pattern between the two. In the advent of Greek concerns in 2010, we saw strong gold and strong dollar as a result of safe haven demand. However, the rally and subsequent fall in gold prices we saw in 2011 seems to have dented many investors' perceptions regarding gold as a safe haven. Increasingly, gold moves to the ebb and flow of the broader risk asset complex. However, as ridiculous as it is given the fiscal concerns in the U.S., I think we will see strong dollar/strong gold again as European concerns take center stage (assuming US politicians can just kick the fiscal can down the road - and as we have seen...that's about the only thing they are good for).]]> Wed, 05 Dec 2012 09:11:54 -0500
I hadn't seen the news about European banks trying to delay Basel III implementation, thanks for the link. I have seen the seeking alpha article on Basel III allowing gold as tier one capital, and while I will admit I have not searched as thoroughly as possible, at first glance I could not find any content from the BIS, Basel Committee, or similar institution corroborating this development. The only media outlets to pickup that story have been newsletters and gold bloggers...but I would love to see such a statement "straight from the horses mouth."

Assuming gold will indeed become categorized as tier one capital, I don't necessarily believe banks will be scrambling for the metal. I do think that banks will more aggressively pursue metal deposit accounts because they can hypothecate and rehypothecate client metal. That said, I don't know if banks would want their internal reserves held in gold given the inherent volatility in the gold market. Substantial spikes and precipitous falls that gold prices are inclined to have would dramatically complicate maintaining a static balance of reserves. While gold may not benefit from a deluge of new bank demand, gold will still benefit from this development given the additional credence it provides to the "gold is money" mantra.

I think you're right regarding the frustration of taxpayers being relatively incapable of stopping this progression of events given politicians' ability to scare them into thinking "this is what's best." That said, this creates an incredibly conducive environment for despots and demagogues. Greece's Golden Dawn is just one of a number of emerging nationalist parties across Europe that are realizing better and better turnouts at parliamentary votes...Golden Dawn's success, and the success of sympathetic parties, almost forced a Greek default when Greece's parliament could not form a coalition government. As things get worse...what happens when this style of party is capable of forming its own majority?

I agree that historically gold and dollar moved inversely as one was a hedge against the other. That said, I think we are slowly moving away from that dynamic and don't know when we can expect a more traditional inverse trading pattern between the two. In the advent of Greek concerns in 2010, we saw strong gold and strong dollar as a result of safe haven demand. However, the rally and subsequent fall in gold prices we saw in 2011 seems to have dented many investors' perceptions regarding gold as a safe haven. Increasingly, gold moves to the ebb and flow of the broader risk asset complex. However, as ridiculous as it is given the fiscal concerns in the U.S., I think we will see strong dollar/strong gold again as European concerns take center stage (assuming US politicians can just kick the fiscal can down the road - and as we have seen...that's about the only thing they are good for).]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12229951 12229951
Again, I have to do the research, but I am fairly confident that the terms of Ireland and Portugal's bailouts dictates a return to normal funding operations for both countries in 2013. Given ongoing Greek concerns and broader risk aversion, this return to markets may not be feasible. Time will tell, but if these nations are similarly subjected to unsustainable high funding costs, a second bailout for each will probably be required.

Combine this with the recent credit rating downgrade of the ESM and EFSF and we're looking at an increasingly untenable situation. And as you aptly pointed out, the misallocation of funds is not doing anything to help the "stronger" northern economies; with Germany releasing a string of increasingly disconcerting economic metrics that all point towards a recession. How many quarters of recession can taxpayers in Germany, Holland, Finland, Austria, etc. withstand before they start clamoring for an end to the bailouts?

All things considered, it is still hard to say for sure how things will play out - especially within the context of gold. At least in US dollar terms, gold price action in 2012 was highly correlated with similar moves in the risk asset complex. Given this consideration, should further Euro Zone instability cause a broader selloff in financial markets, we could ultimately see gold come down along with most other assets (the US dollar, among other safe haven currencies, would probably be a top performer). This situation could look very similar to 2008 when the metals space experienced substantial losses along with equities; the difference, however, is that metals bounced back following the collapse with a much higher degree of resilience.

However, a major distinction between now and then is that a possible collapse - or some other euro-oriented tribulation - could precipitate a wave of Europeans purchasing gold as the nature of the crisis will be the solvency of the monetary union. Simply going to cash, as is the common methodology, would not be a viable solution in this instance. This reality could potentially support gold despite a widespread selloff in most asset classes that may have normally included gold. ]]> Tue, 04 Dec 2012 09:45:54 -0500
Again, I have to do the research, but I am fairly confident that the terms of Ireland and Portugal's bailouts dictates a return to normal funding operations for both countries in 2013. Given ongoing Greek concerns and broader risk aversion, this return to markets may not be feasible. Time will tell, but if these nations are similarly subjected to unsustainable high funding costs, a second bailout for each will probably be required.

Combine this with the recent credit rating downgrade of the ESM and EFSF and we're looking at an increasingly untenable situation. And as you aptly pointed out, the misallocation of funds is not doing anything to help the "stronger" northern economies; with Germany releasing a string of increasingly disconcerting economic metrics that all point towards a recession. How many quarters of recession can taxpayers in Germany, Holland, Finland, Austria, etc. withstand before they start clamoring for an end to the bailouts?

All things considered, it is still hard to say for sure how things will play out - especially within the context of gold. At least in US dollar terms, gold price action in 2012 was highly correlated with similar moves in the risk asset complex. Given this consideration, should further Euro Zone instability cause a broader selloff in financial markets, we could ultimately see gold come down along with most other assets (the US dollar, among other safe haven currencies, would probably be a top performer). This situation could look very similar to 2008 when the metals space experienced substantial losses along with equities; the difference, however, is that metals bounced back following the collapse with a much higher degree of resilience.

However, a major distinction between now and then is that a possible collapse - or some other euro-oriented tribulation - could precipitate a wave of Europeans purchasing gold as the nature of the crisis will be the solvency of the monetary union. Simply going to cash, as is the common methodology, would not be a viable solution in this instance. This reality could potentially support gold despite a widespread selloff in most asset classes that may have normally included gold. ]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12193761 12193761 http://bit.ly/WDRBOn) detailing Americans' indebtedness in relation to income, almost all the metrics highlight a preference for paying down debts as opposed to consumption. Similarly, the velocity of money as detailed by a number of different metrics at the St. Louis Fed's site (http://bit.ly/VqDhNC) are at record lows. This sluggish flow of cash through the US economy vindicates Mr. van Eeden's arguments about muted inflation but does not necessarily mean that inflationary concerns are unfounded.

Mr. van Eeden indicates that the Fed can destroy the newly printed dollars by selling balance sheet assets back into the market - however, there is a very real restriction the Fed will have to consider. We are invariably at the end of a 30 year bull market in safe haven bonds, namely Treasuries. As Treasuries comprise a significant portion of the Fed's balance sheet, substantive Fed divestment from this particular asset could be a possible catalyst for other investors to similarly exit the position. With the US government's funding picture less-than-favorable (with an average maturity on outstanding marketable debt approximately 65 months), it has a staggering amount of debt to roll over in the next 5 years. It is unlikely that the Fed would take any action to precipitate a Treasury selloff and subject the US government to increasingly unsustainable borrowing costs.

That said, as he indicated 2013 will probably also be characterized by investor risk aversion. With this in mind, Treasuries may enjoy sufficient demand as a result to allow the Fed the opportunity to divest some of its Treasury positions to help "destroy" newly printed dollars in an effort to mitigate any rising inflationary pressures we might experience down the road. Ultimately, the Fed's ability to stem inflation via balance sheet divestment rests on the broader Treasury demand present in the market at the time inflation starts to become a greater concern.

The other traditional measure to combat inflation is raising interest rates. However, given the slow pace of the US recovery, the Fed will probably be reluctant to hike interest rates in advance of a more substantive US recovery. As such, the environment - from both an interest rate and future Treasury demand standpoint - presents pertinent risks to the Fed's capacity to combat rising inflation. I believe one could argue much of gold's current valuation accounts for these very real considerations when it comes time for the Fed to deliberate policy tightening.

Outside of any inflationary concerns, I would also argue that US citizens still have reasons to own gold. The reality is that the entire financial system has consistently given the retail investor base reason for discontent. Between high-frequency trading and associated market volatility, massive bank losses on exotic investments, and institutional collusion as evidenced LIBOR rigging, have given regular investors countless reasons to distrust the traditional financial complex and prefer to have a least a portion of their portfolios exposed to an asset unencumbered by the pervasive counter-party risk that characterizes conventional investments. Sovereign indebtedness and untenable solvency similarly provide legitimate and observable reasons for US citizens to continue demanding gold.

By many standard metrics, one could argue gold is overvalued. However, there are many concerns prevalent in the world economy that may not be easy to quantify but exist none-the-less that will continue to erode investor confidence in the traditional investment complex. The resulting reallocation of capital that ensues will result in large sums of money being re-directed to unconventional investments; it is not unreasonable to think one such investment will be gold. ]]> Mon, 03 Dec 2012 10:05:25 -0500 http://bit.ly/WDRBOn) detailing Americans' indebtedness in relation to income, almost all the metrics highlight a preference for paying down debts as opposed to consumption. Similarly, the velocity of money as detailed by a number of different metrics at the St. Louis Fed's site (http://bit.ly/VqDhNC) are at record lows. This sluggish flow of cash through the US economy vindicates Mr. van Eeden's arguments about muted inflation but does not necessarily mean that inflationary concerns are unfounded.

Mr. van Eeden indicates that the Fed can destroy the newly printed dollars by selling balance sheet assets back into the market - however, there is a very real restriction the Fed will have to consider. We are invariably at the end of a 30 year bull market in safe haven bonds, namely Treasuries. As Treasuries comprise a significant portion of the Fed's balance sheet, substantive Fed divestment from this particular asset could be a possible catalyst for other investors to similarly exit the position. With the US government's funding picture less-than-favorable (with an average maturity on outstanding marketable debt approximately 65 months), it has a staggering amount of debt to roll over in the next 5 years. It is unlikely that the Fed would take any action to precipitate a Treasury selloff and subject the US government to increasingly unsustainable borrowing costs.

That said, as he indicated 2013 will probably also be characterized by investor risk aversion. With this in mind, Treasuries may enjoy sufficient demand as a result to allow the Fed the opportunity to divest some of its Treasury positions to help "destroy" newly printed dollars in an effort to mitigate any rising inflationary pressures we might experience down the road. Ultimately, the Fed's ability to stem inflation via balance sheet divestment rests on the broader Treasury demand present in the market at the time inflation starts to become a greater concern.

The other traditional measure to combat inflation is raising interest rates. However, given the slow pace of the US recovery, the Fed will probably be reluctant to hike interest rates in advance of a more substantive US recovery. As such, the environment - from both an interest rate and future Treasury demand standpoint - presents pertinent risks to the Fed's capacity to combat rising inflation. I believe one could argue much of gold's current valuation accounts for these very real considerations when it comes time for the Fed to deliberate policy tightening.

Outside of any inflationary concerns, I would also argue that US citizens still have reasons to own gold. The reality is that the entire financial system has consistently given the retail investor base reason for discontent. Between high-frequency trading and associated market volatility, massive bank losses on exotic investments, and institutional collusion as evidenced LIBOR rigging, have given regular investors countless reasons to distrust the traditional financial complex and prefer to have a least a portion of their portfolios exposed to an asset unencumbered by the pervasive counter-party risk that characterizes conventional investments. Sovereign indebtedness and untenable solvency similarly provide legitimate and observable reasons for US citizens to continue demanding gold.

By many standard metrics, one could argue gold is overvalued. However, there are many concerns prevalent in the world economy that may not be easy to quantify but exist none-the-less that will continue to erode investor confidence in the traditional investment complex. The resulting reallocation of capital that ensues will result in large sums of money being re-directed to unconventional investments; it is not unreasonable to think one such investment will be gold. ]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12069111 12069111
http://read.bi/V8bQ5I

However the link below to an article by the Associated Press, then picked up by the Washington Post references the price fall but makes no mention of COMEX trade:

http://wapo.st/Rl3Suk

By no means conclusive, but this disparity in coverage does speak to the dynamic you reference in your comment. Unfortunately I don't have time to troll the other mainstream media outlet at this point to see if they similarly avoided the topic of COMEX positions, but if I had to speculate I would imagine they are similarly devoid of this content.

With regards to your situation, I couldn't agree more and would certainly be in similar positions. That said, I would also be interested to hear your take on the Norwegian kroner and Swedish krona. My FX trades have benefited immensely from the flow of euro deposits to these currencies. I would imagine they could provide an attractive option for diversification that can help mitigate your overall exposure to gold or any other concentrated positions you may have.]]> Thu, 29 Nov 2012 09:51:37 -0500
http://read.bi/V8bQ5I

However the link below to an article by the Associated Press, then picked up by the Washington Post references the price fall but makes no mention of COMEX trade:

http://wapo.st/Rl3Suk

By no means conclusive, but this disparity in coverage does speak to the dynamic you reference in your comment. Unfortunately I don't have time to troll the other mainstream media outlet at this point to see if they similarly avoided the topic of COMEX positions, but if I had to speculate I would imagine they are similarly devoid of this content.

With regards to your situation, I couldn't agree more and would certainly be in similar positions. That said, I would also be interested to hear your take on the Norwegian kroner and Swedish krona. My FX trades have benefited immensely from the flow of euro deposits to these currencies. I would imagine they could provide an attractive option for diversification that can help mitigate your overall exposure to gold or any other concentrated positions you may have.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12046221 12046221
That said, mainstream media (especially in the US) is dominated by a few conglomerates and if - for whatever reason - they do not want to propagate investments in gold, they can influence their programming accordingly.

With regards to the tax considerations, I couldn't agree with you more. I just wish the U.S. had such favorable tax treatment when it comes to gold. Here, ownership is quickly losing any anonymity it once had and any profits are subject to a higher tax rate than with stocks (gold is subject to a 28% capital gains rate while stocks are subject to a long-term capital gains rate of 15%...although all this could change depending on how the fiscal cliff is handled).

Given the nature of your financial environment, and your propensity to prefer gold, you are in a different situation than me. I can completely understand why you would be profit-oriented if gold represents a more significant portion of your portfolio. And I agree regarding human nature and the desire for profits...it does take some discipline to detach yourself but it is easier for me because gold only represents a small allocation within my portfolio.]]> Wed, 28 Nov 2012 15:10:11 -0500
That said, mainstream media (especially in the US) is dominated by a few conglomerates and if - for whatever reason - they do not want to propagate investments in gold, they can influence their programming accordingly.

With regards to the tax considerations, I couldn't agree with you more. I just wish the U.S. had such favorable tax treatment when it comes to gold. Here, ownership is quickly losing any anonymity it once had and any profits are subject to a higher tax rate than with stocks (gold is subject to a 28% capital gains rate while stocks are subject to a long-term capital gains rate of 15%...although all this could change depending on how the fiscal cliff is handled).

Given the nature of your financial environment, and your propensity to prefer gold, you are in a different situation than me. I can completely understand why you would be profit-oriented if gold represents a more significant portion of your portfolio. And I agree regarding human nature and the desire for profits...it does take some discipline to detach yourself but it is easier for me because gold only represents a small allocation within my portfolio.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12031501 12031501
However, the real question is: in the advent of concerns regarding availability, will these people begin trying to take delivery? while I can't disagree that there is a new social paradigm favoring electronically owned gold - I still think there would be a panic if word got out these institutions didn't own what they said.

I think the major consideration in this vein is will delivery delays, outlandish premiums, and any other prohibitive measures taken by depositories be sufficient to waylay individuals looking to take delivery of their gold. Under normal circumstance, you are definitely right in that ETFs and their ilk provide powerful features of persuasion to keep people from wanting their gold. But if the general public increasingly hears of fraudulent storage practices and nonexistent gold piles, I don't know if its safe to assume people will benignly accept that their metal is safe. I think everyone will increasingly clamor for delivery and this wave of abrupt physical demand could be sufficient to topple the "house of cards."

However, for this to take place there has to be a catalyst that precipitates the surge in physical demand. I don't know what that would be, and it might never occur. If that's the case, than I would agree with you that Westerners will probably remain content with their paper-backed metal holdings.

Outside of any possible supply squeezes, I believe the most likely scenario to unfold that could push gold higher despite would-be manipulators' best efforts are rising mining costs as you mentioned earlier.

However, to discuss the matter within a different context - the motivations behind someone's investments in gold can also change the approach. Personally, I allocate a percentage of my portfolio to gold as a core holding - insurance against the worst case scenarios (and of course continued monetary debasement of the fiat currencies). I don't purchase gold for speculative or profit-oriented reasons. My speculative positions in metals (and they're small because I prefer to speculate in the FX markets) are in platinum and palladium. I like silver as well, and it has an allocation in my portfolio also similar to that of platinum/palladium. But the point I am trying to make is that depending on the nature of your gold purchases, it may not matter if the price rises or falls. This sounds contrary to what you would expect to see in an investment forum, but I believe that gold can play a role in one's portfolio above and beyond being a profit center.

I very much appreciate your comments. This type of back and forth is the best way to formulate and vet ideas. ]]> Wed, 28 Nov 2012 09:18:05 -0500
However, the real question is: in the advent of concerns regarding availability, will these people begin trying to take delivery? while I can't disagree that there is a new social paradigm favoring electronically owned gold - I still think there would be a panic if word got out these institutions didn't own what they said.

I think the major consideration in this vein is will delivery delays, outlandish premiums, and any other prohibitive measures taken by depositories be sufficient to waylay individuals looking to take delivery of their gold. Under normal circumstance, you are definitely right in that ETFs and their ilk provide powerful features of persuasion to keep people from wanting their gold. But if the general public increasingly hears of fraudulent storage practices and nonexistent gold piles, I don't know if its safe to assume people will benignly accept that their metal is safe. I think everyone will increasingly clamor for delivery and this wave of abrupt physical demand could be sufficient to topple the "house of cards."

However, for this to take place there has to be a catalyst that precipitates the surge in physical demand. I don't know what that would be, and it might never occur. If that's the case, than I would agree with you that Westerners will probably remain content with their paper-backed metal holdings.

Outside of any possible supply squeezes, I believe the most likely scenario to unfold that could push gold higher despite would-be manipulators' best efforts are rising mining costs as you mentioned earlier.

However, to discuss the matter within a different context - the motivations behind someone's investments in gold can also change the approach. Personally, I allocate a percentage of my portfolio to gold as a core holding - insurance against the worst case scenarios (and of course continued monetary debasement of the fiat currencies). I don't purchase gold for speculative or profit-oriented reasons. My speculative positions in metals (and they're small because I prefer to speculate in the FX markets) are in platinum and palladium. I like silver as well, and it has an allocation in my portfolio also similar to that of platinum/palladium. But the point I am trying to make is that depending on the nature of your gold purchases, it may not matter if the price rises or falls. This sounds contrary to what you would expect to see in an investment forum, but I believe that gold can play a role in one's portfolio above and beyond being a profit center.

I very much appreciate your comments. This type of back and forth is the best way to formulate and vet ideas. ]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12014711 12014711
If there is any concern about availability, people will begin trying to take delivery of the huge amounts of gold stored on behalf of clients by innumerable banks, depositories, and the like. Delayed delivery, excessive fees, or any other measures to inhibit people's ability to take delivery of gold would cause a media frenzy. Assuming people begin to snatch up whatever available physical supply is left, dealers and wholesalers will have to raise premiums out of necessity as opposed to some collusion with manipulators. Inexorably rising premiums on physical metal would provide yet another stark example of a disconnect between the paper price of gold and the cost for the real thing. Even if spot prices do not move dramatically as a result of this, people's end cost to purchase physical gold will. Once traders and regular speculators catch wind of this, they will go long gold and the cost to any manipulators would correspondingly rise. Perhaps they could hold back the tide by taking ever-larger short positions, but it would be hard for them to reconcile the uncharacteristically high premiums for physical metal. So long as this is the case, speculators/investors going long gold will have reason to remain bullish on the price outlook, giving them the confidence to sustain their positions even while gold prices do not shoot higher right away. While this isn't ironclad evidence that the market will pursue its "natural progression," I would maintain that a supply shortage would pose greater problems to any would-be manipulators than you indicate.

I think your observation regarding mine production costs is especially astute. This dynamic plays into a broader theme I would submit as a reason for the market's natural progression to play out: inflation, or at the very least, concerns of impending inflation. Oil prices, labor costs, and a host of other mine expenses will continue to rise despite an obstinately static gold price. Irrespective of the huge volumes of fiat money being printed, rising oil prices will be an immutable product of burgeoning middle class populations in the emerging economies. Whether its 5 years or 25 years from now, oil and broader energy consumption has to grow. Ultimately, would-be manipulators would have to depress the price of all mine input costs to accomplish their goals in perpetuity.

While price pressures remain muted as consumers globally prefer to deleverage and save, central banks are still printing inordinate amounts of money. If we ever break out of the doldrums and experience a legitimate global economic recovery, all that hoarded cash will begin to flow through the world's economy at ever-rising velocities. While Bernanke and his ilk maintain that they can withdraw the excess liquidity from the economy, we are in the proverbial uncharted waters. The measures the Fed have taken - like the Bank of Japan and similar entities - are truly unprecedented. Their espoused ability to keep a lid on price pressures is based in economic theory, but has not been tested in practice on the scale that would be necessary. As such, ongoing inflationary concerns could similarly complicate any price manipulation going forward. It will be hard to depress the price of an asset when there's suddenly larger and ever-rising quantities of money chasing a finite supply of said asset.

I don't mean to imply that you're wrong, or that outright and protracted manipulation is impossible, because who's to say how things will develop going forward. There are just too many variables to consider - many of which we don't recognize until after the fact. However, certain dynamics at play do warrant attention and could aid the market in finding equilibrium; despite the best attempts by those who may (or may not) prefer otherwise. I guess we'll see for sure as time passes...but it is definitely worthwhile to consider both sides of the coin in the meantime.]]> Tue, 27 Nov 2012 18:00:33 -0500
If there is any concern about availability, people will begin trying to take delivery of the huge amounts of gold stored on behalf of clients by innumerable banks, depositories, and the like. Delayed delivery, excessive fees, or any other measures to inhibit people's ability to take delivery of gold would cause a media frenzy. Assuming people begin to snatch up whatever available physical supply is left, dealers and wholesalers will have to raise premiums out of necessity as opposed to some collusion with manipulators. Inexorably rising premiums on physical metal would provide yet another stark example of a disconnect between the paper price of gold and the cost for the real thing. Even if spot prices do not move dramatically as a result of this, people's end cost to purchase physical gold will. Once traders and regular speculators catch wind of this, they will go long gold and the cost to any manipulators would correspondingly rise. Perhaps they could hold back the tide by taking ever-larger short positions, but it would be hard for them to reconcile the uncharacteristically high premiums for physical metal. So long as this is the case, speculators/investors going long gold will have reason to remain bullish on the price outlook, giving them the confidence to sustain their positions even while gold prices do not shoot higher right away. While this isn't ironclad evidence that the market will pursue its "natural progression," I would maintain that a supply shortage would pose greater problems to any would-be manipulators than you indicate.

I think your observation regarding mine production costs is especially astute. This dynamic plays into a broader theme I would submit as a reason for the market's natural progression to play out: inflation, or at the very least, concerns of impending inflation. Oil prices, labor costs, and a host of other mine expenses will continue to rise despite an obstinately static gold price. Irrespective of the huge volumes of fiat money being printed, rising oil prices will be an immutable product of burgeoning middle class populations in the emerging economies. Whether its 5 years or 25 years from now, oil and broader energy consumption has to grow. Ultimately, would-be manipulators would have to depress the price of all mine input costs to accomplish their goals in perpetuity.

While price pressures remain muted as consumers globally prefer to deleverage and save, central banks are still printing inordinate amounts of money. If we ever break out of the doldrums and experience a legitimate global economic recovery, all that hoarded cash will begin to flow through the world's economy at ever-rising velocities. While Bernanke and his ilk maintain that they can withdraw the excess liquidity from the economy, we are in the proverbial uncharted waters. The measures the Fed have taken - like the Bank of Japan and similar entities - are truly unprecedented. Their espoused ability to keep a lid on price pressures is based in economic theory, but has not been tested in practice on the scale that would be necessary. As such, ongoing inflationary concerns could similarly complicate any price manipulation going forward. It will be hard to depress the price of an asset when there's suddenly larger and ever-rising quantities of money chasing a finite supply of said asset.

I don't mean to imply that you're wrong, or that outright and protracted manipulation is impossible, because who's to say how things will develop going forward. There are just too many variables to consider - many of which we don't recognize until after the fact. However, certain dynamics at play do warrant attention and could aid the market in finding equilibrium; despite the best attempts by those who may (or may not) prefer otherwise. I guess we'll see for sure as time passes...but it is definitely worthwhile to consider both sides of the coin in the meantime.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-12000051 12000051
Unfortunately, the ability of traders to use complex investment strategies has surpassed regulators' ability to monitor them. that being said, I think we could spend all day deliberating the various methods in which institutional investors can manipulate asset prices.

In the end, if you are purchasing metal for the right, long-term reasons, any price manipulation that may be taking place can only help you. If there is no manipulation - then no harm, no foul. If there is manipulation, then you and I are afforded an artificially low (and attractive) entry price for our metal purchases. ultimately, it will be the short-term speculative metal traders that are hurt by manipulation; but those who purchase metal for the long-run will probably not be unduly inconvenienced by whatever institutional chicanery is at play because the market's natural progression will win out in the end.]]> Tue, 27 Nov 2012 12:27:36 -0500
Unfortunately, the ability of traders to use complex investment strategies has surpassed regulators' ability to monitor them. that being said, I think we could spend all day deliberating the various methods in which institutional investors can manipulate asset prices.

In the end, if you are purchasing metal for the right, long-term reasons, any price manipulation that may be taking place can only help you. If there is no manipulation - then no harm, no foul. If there is manipulation, then you and I are afforded an artificially low (and attractive) entry price for our metal purchases. ultimately, it will be the short-term speculative metal traders that are hurt by manipulation; but those who purchase metal for the long-run will probably not be unduly inconvenienced by whatever institutional chicanery is at play because the market's natural progression will win out in the end.]]> http://seekingalpha.com/article/1023541/comments?source=feed#comment-11955001 11955001
However, I would say that the crux of the statement regarding the dangers of an erosion of confidence in the dollar and in Treasuries is a legitimate concern. While the Treasury bull market may yet have some room to run, I think most can agree we are at the tail end and the risks of an emerging bear market in bonds is real. Even though the interest rate policies across the developed world will probably remain static for the foreseeable future, which will delay the immutable development of a bond bear market, the risk of a Treasury exodus is real. European debt concerns will similarly delay this eventuality, but yield starved investors cannot be overly enamored of their Treasury positions given the negative real interest rates realized on many of these securities. While this reality may not directly or immediately influence the argument regarding confiscation, it is safe to assume that the government will be reluctant to adopt any policies/measures that could compromise Treasury demand.]]> Mon, 26 Nov 2012 09:14:01 -0500
However, I would say that the crux of the statement regarding the dangers of an erosion of confidence in the dollar and in Treasuries is a legitimate concern. While the Treasury bull market may yet have some room to run, I think most can agree we are at the tail end and the risks of an emerging bear market in bonds is real. Even though the interest rate policies across the developed world will probably remain static for the foreseeable future, which will delay the immutable development of a bond bear market, the risk of a Treasury exodus is real. European debt concerns will similarly delay this eventuality, but yield starved investors cannot be overly enamored of their Treasury positions given the negative real interest rates realized on many of these securities. While this reality may not directly or immediately influence the argument regarding confiscation, it is safe to assume that the government will be reluctant to adopt any policies/measures that could compromise Treasury demand.]]> http://seekingalpha.com/article/1023541/comments?source=feed#comment-11946921 11946921 Sun, 25 Nov 2012 20:52:34 -0500 http://seekingalpha.com/article/1023541/comments?source=feed#comment-11946621 11946621
Another consideration regarding the introduction of some global reserve currency is the time frame in which such structural changes could be effected. Europe's monetary union took a decade of deliberation before its inception. How long can we expect similar proceedings to take on a global scale?

Even if we assume a global reserve currency is "in the works," the infrastructural and procedural requirements necessary to allow a global adoption of a new currency are staggering. Not to mention the fact that the dollar is used in the preponderance of global transactions, and commandeers the lion's share of business and national reserves, the extrication of the global economy from dollar-dependence is not realistic in the short-term. That being said, the long-term trajectory of the dollar is disconcertingly established to the downside, which could inevitably necessitate the very measures you cite. Case in point, the bilateral agreements many countries, namely China, have negotiated to allow for cross border transactions to be settled in domestic currencies without need to use the dollar.

I don't disagree with your statements, but I do believe the very real dynamics you describe can be interpreted in a slightly different context - at least in the short-to-medium term.

As you indicate, the fact that China is the world's largest gold producer and simultaneously the second largest gold importer (and is positioned to outstrip India as early as this year or next) speaks to a well-established policy regarding its reserves management. This reality is a stark example of a broader trend in emerging market central banks - which represent the majority of substantive central bank gold purchases in recent years.

If we can accept that the observable change in net central bank gold demand - from multiple decades of net liquidations to the current dynamic of net purchases - is driven by the central banks in emerging markets, it is also safe to assume that said demand could simply be a product of reserve diversification and a prudent reallocation of dollar-heavy portfolios.

You're absolutely right that central bank gold demand augurs certain trends in these banks' policy skew. However, considering the fact that most purchases are done by central banks with significantly smaller gold positions (relative to gold's percentage of overall reserve allocation) than their counterparts in the developed world, it is not unreasonable to think these acquisitions were completed to accomplish much-needed diversification rather than surreptitious maneuvering for an imminent introduction of a new global currency (which ultimately could be, or even likely will be, the case further down the road).

The true motivation of the piece was to dispel the pervasive concerns regarding a "re-imagined" FDR confiscation. Confiscation via regulation - especially in the speculative realm - is perfectly feasible. In that vein, unfavorable tax treatment and a larger degree of oversight in general could similarly be utilized to decrease gold's allure as a core/insurance investment. However, these plausible scenarios do not necessarily jive with the fear of an imminent grab of all physical bullion in the U.S. ]]> Sun, 25 Nov 2012 20:36:09 -0500
Another consideration regarding the introduction of some global reserve currency is the time frame in which such structural changes could be effected. Europe's monetary union took a decade of deliberation before its inception. How long can we expect similar proceedings to take on a global scale?

Even if we assume a global reserve currency is "in the works," the infrastructural and procedural requirements necessary to allow a global adoption of a new currency are staggering. Not to mention the fact that the dollar is used in the preponderance of global transactions, and commandeers the lion's share of business and national reserves, the extrication of the global economy from dollar-dependence is not realistic in the short-term. That being said, the long-term trajectory of the dollar is disconcertingly established to the downside, which could inevitably necessitate the very measures you cite. Case in point, the bilateral agreements many countries, namely China, have negotiated to allow for cross border transactions to be settled in domestic currencies without need to use the dollar.

I don't disagree with your statements, but I do believe the very real dynamics you describe can be interpreted in a slightly different context - at least in the short-to-medium term.

As you indicate, the fact that China is the world's largest gold producer and simultaneously the second largest gold importer (and is positioned to outstrip India as early as this year or next) speaks to a well-established policy regarding its reserves management. This reality is a stark example of a broader trend in emerging market central banks - which represent the majority of substantive central bank gold purchases in recent years.

If we can accept that the observable change in net central bank gold demand - from multiple decades of net liquidations to the current dynamic of net purchases - is driven by the central banks in emerging markets, it is also safe to assume that said demand could simply be a product of reserve diversification and a prudent reallocation of dollar-heavy portfolios.

You're absolutely right that central bank gold demand augurs certain trends in these banks' policy skew. However, considering the fact that most purchases are done by central banks with significantly smaller gold positions (relative to gold's percentage of overall reserve allocation) than their counterparts in the developed world, it is not unreasonable to think these acquisitions were completed to accomplish much-needed diversification rather than surreptitious maneuvering for an imminent introduction of a new global currency (which ultimately could be, or even likely will be, the case further down the road).

The true motivation of the piece was to dispel the pervasive concerns regarding a "re-imagined" FDR confiscation. Confiscation via regulation - especially in the speculative realm - is perfectly feasible. In that vein, unfavorable tax treatment and a larger degree of oversight in general could similarly be utilized to decrease gold's allure as a core/insurance investment. However, these plausible scenarios do not necessarily jive with the fear of an imminent grab of all physical bullion in the U.S. ]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-11821531 11821531
That said, as gold becomes increasingly publicized and ETFs and similar vehicles provide global investors with unprecedented access to the gold market, volatility and news-driven price action will only increase. Whatever the reasons, short-term downside movement in price does not detract from the set of entrenched fundamentals you listed.]]> Tue, 20 Nov 2012 15:42:24 -0500
That said, as gold becomes increasingly publicized and ETFs and similar vehicles provide global investors with unprecedented access to the gold market, volatility and news-driven price action will only increase. Whatever the reasons, short-term downside movement in price does not detract from the set of entrenched fundamentals you listed.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-11782191 11782191
As the percentage of total tax receipts allocated to merely servicing our debt grows, the government's borrower profile will be increasingly unattractive. Combine this with the reality that we are at the end of a multi-decade bull market in Treasuries (among other bonds) and the propensity of global investors to stampede the exits, and one can reasonably submit that rising interest rates represent one of the major risks facing the US government going forward.

That said, I certainly agree with your statements - to include the solid technical foundation for the silver/oil consolidation argument. Additionally, rising tensions in the Israel-Palestine conflict - not to mention the progress the Iranians have made in uranium enrichment - means there is substantial geopolitical risk that could push oil and gold higher (which can generally be expected to pull silver along for the ride) despite the possibility for a wider risk-off correction in most major asset classes.

Interesting and scary times we're living in... ]]> Mon, 19 Nov 2012 16:22:58 -0500
As the percentage of total tax receipts allocated to merely servicing our debt grows, the government's borrower profile will be increasingly unattractive. Combine this with the reality that we are at the end of a multi-decade bull market in Treasuries (among other bonds) and the propensity of global investors to stampede the exits, and one can reasonably submit that rising interest rates represent one of the major risks facing the US government going forward.

That said, I certainly agree with your statements - to include the solid technical foundation for the silver/oil consolidation argument. Additionally, rising tensions in the Israel-Palestine conflict - not to mention the progress the Iranians have made in uranium enrichment - means there is substantial geopolitical risk that could push oil and gold higher (which can generally be expected to pull silver along for the ride) despite the possibility for a wider risk-off correction in most major asset classes.

Interesting and scary times we're living in... ]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-11779001 11779001
That being said, as you point out, much of the growth in gold production is in emerging economies. Oftentimes mining sectors in these regions are incredibly susceptible to short-term squeezes in credit availability. As lending to companies operating in these regions is done so judiciously, any shocks to the global financial system could cause an abrupt evaporation of the short maturity debt instruments that many of these companies rely on for financing. Should this occur, the capital intensive mining operations in these regions could realize production stoppages until access to financing returns.

Silver on the other hand is largely produced as a byproduct of base metal mines. So stalling global growth and falling base metal prices could precipitate a rash of base metal mine closings as mining companies wait for prices to stabilize. The result is dwindling silver production despite static, or rising silver investment demand.

Central banks certainly are the shadow figures in the gold market. While many gold bugs argue that the major shift in central bank gold reserve management (i.e. the end of multiple decades of net liquidations and the beginning of a new era of net purchases by central banks - mainly led by emerging markets) will remain a major factor underlying gold prices going forward. While there is some merit to this argument, especially since many central bank reserves are unduly exposed to the dollar so it makes sense that many will begin diversifying, you raise a very good point regarding possible liquidations by indebted European central banks. Should these entities sell large quantities of gold into a market lacking sufficient demand to absorb the influx of supply, prices will move lower.

With this in mind, central bank operations could feasibly act to support or depress gold prices in short order depending on how these European central banks proceed. However, institutional gold sales do not always have to pressure prices lower. If one of the European central banks drops gold tonnage onto the market, and it is immediately snapped up by another central bank or similar institution (i.e. when the IMF sold 200+ tons in 2010, the Indian central bank purchased the majority of it immediately and prices shot significantly higher), we could actually see a rally in prices because an immediate purchase following the liquidation indicates the purchaser believes gold is still a good value at the prevailing levels.

]]> Mon, 19 Nov 2012 15:06:53 -0500
That being said, as you point out, much of the growth in gold production is in emerging economies. Oftentimes mining sectors in these regions are incredibly susceptible to short-term squeezes in credit availability. As lending to companies operating in these regions is done so judiciously, any shocks to the global financial system could cause an abrupt evaporation of the short maturity debt instruments that many of these companies rely on for financing. Should this occur, the capital intensive mining operations in these regions could realize production stoppages until access to financing returns.

Silver on the other hand is largely produced as a byproduct of base metal mines. So stalling global growth and falling base metal prices could precipitate a rash of base metal mine closings as mining companies wait for prices to stabilize. The result is dwindling silver production despite static, or rising silver investment demand.

Central banks certainly are the shadow figures in the gold market. While many gold bugs argue that the major shift in central bank gold reserve management (i.e. the end of multiple decades of net liquidations and the beginning of a new era of net purchases by central banks - mainly led by emerging markets) will remain a major factor underlying gold prices going forward. While there is some merit to this argument, especially since many central bank reserves are unduly exposed to the dollar so it makes sense that many will begin diversifying, you raise a very good point regarding possible liquidations by indebted European central banks. Should these entities sell large quantities of gold into a market lacking sufficient demand to absorb the influx of supply, prices will move lower.

With this in mind, central bank operations could feasibly act to support or depress gold prices in short order depending on how these European central banks proceed. However, institutional gold sales do not always have to pressure prices lower. If one of the European central banks drops gold tonnage onto the market, and it is immediately snapped up by another central bank or similar institution (i.e. when the IMF sold 200+ tons in 2010, the Indian central bank purchased the majority of it immediately and prices shot significantly higher), we could actually see a rally in prices because an immediate purchase following the liquidation indicates the purchaser believes gold is still a good value at the prevailing levels.

]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-11764651 11764651
Many individuals have espoused the inevitable rise in precious metal prices as a result of a supply squeeze in the physical precious metals markets. The catalyst for this squeeze would be a broader market realization that there are more outstanding paper contracts purportedly backed by metals than there is physical metal available. If there is indeed a disparity between physical supply and the shadow supply represented by paper contracts, and more importantly, this became a generally accepted reality, then prices could rise despite a large number of short positions.

Many imagine a situation reminiscent of the silver market in the late 70's when the Hunt brothers influenced a major rally in silver prices as they began to exercise silver contracts and started taking delivery of the metal by the tractor trailer. More important than the truth of whether or not the Hunt brothers could precipitate a "collapse" of the paper silver market was the perception that they could. Ultimately, everything comes down to how the general populace will interpret and subsequently respond to a disconnect in the physical and paper markets.

Within the context of the situation you have witnessed in your physical metals market, you are certainly correct that institutional and speculative shorts in the paper markets could depress the price despite an ever-rising physical demand base. That being said, this dynamic is only sustainable so long as the general public accepts that nothing is out of the ordinary. The current delay you are experiencing could certainly speak to a very real shortage in available metal for delivery - but until a substantive portion of market participants acknowledge the existence of this supply-side shortage, the delays you are experiencing will probably not affect a material change in prices. So long as people are patient and accept without question the rising wait times for delivery, the delays you are experiencing will probably go largely unnoticed.

Here, in the U.S., physical metal is still available for delivery in a timely fashion so I would say that the supply/demand component of the European metals market is probably distorted on account of the ongoing debt concerns and associated demand for physical metal. However, this dynamic alone is probably not enough to elicit a substantial price rise (as you indicated).

Perhaps if European metals options were being increasingly exercised, or large institutions like the Bundesbank were unable to take delivery of their gold upon request, we might see a rise in prices as a knee jerk response to perceived supply concerns. Until the European delivery delays manifest in more markets, or for some reason cause people to question the availability of physical supply, your delays will probably continue without exerting significant influence on global prices.

With this in mind, if the global economic situation deteriorates at a parabolic rate, before there is a more widespread cognizance of supply concerns, then you could be quite right that the "insurance" component of precious metals will not become evident until after the fact. It all comes down to how investors around the world interpret a situation - as opposed to the actual facts of the matter.]]> Mon, 19 Nov 2012 09:57:49 -0500
Many individuals have espoused the inevitable rise in precious metal prices as a result of a supply squeeze in the physical precious metals markets. The catalyst for this squeeze would be a broader market realization that there are more outstanding paper contracts purportedly backed by metals than there is physical metal available. If there is indeed a disparity between physical supply and the shadow supply represented by paper contracts, and more importantly, this became a generally accepted reality, then prices could rise despite a large number of short positions.

Many imagine a situation reminiscent of the silver market in the late 70's when the Hunt brothers influenced a major rally in silver prices as they began to exercise silver contracts and started taking delivery of the metal by the tractor trailer. More important than the truth of whether or not the Hunt brothers could precipitate a "collapse" of the paper silver market was the perception that they could. Ultimately, everything comes down to how the general populace will interpret and subsequently respond to a disconnect in the physical and paper markets.

Within the context of the situation you have witnessed in your physical metals market, you are certainly correct that institutional and speculative shorts in the paper markets could depress the price despite an ever-rising physical demand base. That being said, this dynamic is only sustainable so long as the general public accepts that nothing is out of the ordinary. The current delay you are experiencing could certainly speak to a very real shortage in available metal for delivery - but until a substantive portion of market participants acknowledge the existence of this supply-side shortage, the delays you are experiencing will probably not affect a material change in prices. So long as people are patient and accept without question the rising wait times for delivery, the delays you are experiencing will probably go largely unnoticed.

Here, in the U.S., physical metal is still available for delivery in a timely fashion so I would say that the supply/demand component of the European metals market is probably distorted on account of the ongoing debt concerns and associated demand for physical metal. However, this dynamic alone is probably not enough to elicit a substantial price rise (as you indicated).

Perhaps if European metals options were being increasingly exercised, or large institutions like the Bundesbank were unable to take delivery of their gold upon request, we might see a rise in prices as a knee jerk response to perceived supply concerns. Until the European delivery delays manifest in more markets, or for some reason cause people to question the availability of physical supply, your delays will probably continue without exerting significant influence on global prices.

With this in mind, if the global economic situation deteriorates at a parabolic rate, before there is a more widespread cognizance of supply concerns, then you could be quite right that the "insurance" component of precious metals will not become evident until after the fact. It all comes down to how investors around the world interpret a situation - as opposed to the actual facts of the matter.]]> http://seekingalpha.com/article/1013141/comments?source=feed#comment-11697111 11697111
Gold's recent correlation with risk assets is a transient dynamic in my opinion. Many investors tried to jump on the gravy train in 2011 when gold rallied from the $1500s to over $1900. However, when the inevitable correction came, many people who purchased gold for the wrong reasons became distrustful of the "safe haven" qualities provided by gold. But the fact remains that assets immune from the counter-party risk that characterizes most conventional investments will be increasingly attractive going forward.

Who can say when investors will be re-enamored of gold and the broader metals complex, but in my opinion it is just a matter of time. Especially with the Fed and other central banks promising record low interest rates for the foreseeable future, the opportunity cost of holding non-interest bearing assets like gold will remain depressed. This reality, combined with the uncertainty and political/economic tension cited by filipo above will ultimately form the core argument advocating at least a portion of everyone's portfolio be invested in precious metals.]]> Fri, 16 Nov 2012 15:02:03 -0500
Gold's recent correlation with risk assets is a transient dynamic in my opinion. Many investors tried to jump on the gravy train in 2011 when gold rallied from the $1500s to over $1900. However, when the inevitable correction came, many people who purchased gold for the wrong reasons became distrustful of the "safe haven" qualities provided by gold. But the fact remains that assets immune from the counter-party risk that characterizes most conventional investments will be increasingly attractive going forward.

Who can say when investors will be re-enamored of gold and the broader metals complex, but in my opinion it is just a matter of time. Especially with the Fed and other central banks promising record low interest rates for the foreseeable future, the opportunity cost of holding non-interest bearing assets like gold will remain depressed. This reality, combined with the uncertainty and political/economic tension cited by filipo above will ultimately form the core argument advocating at least a portion of everyone's portfolio be invested in precious metals.]]>