Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19
Where is the Top for Natural Gas? - 7th Nov 19
Why Fractional Shares Don’t Make Sense - 7th Nov 19
The Fed Is Chasing Its Own Tail; It Doesn’t Care What You Think - 7th Nov 19
China’s path from World’s Factory to World Market - 7th Nov 19
Where Is That Confounded Recession? - 7th Nov 19
FREE eBook - The Investment Strategy that could change your future - 7th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Monetary Flood, Nothing At All, Then All at Once

Stock-Markets / Liquidity Bubble Feb 09, 2013 - 10:57 AM GMT

By: Adrian_Ash

Stock-Markets

Where money was tight, suddenly it's all arrived at once. Just like trouble does...

Everywhere we look, investors suddenly see nothing but blue skies, plain sailing ahead. Their change of heart makes us nervous, writes Adrian Ash at BullionVault.

New York's S&P index is back where it stood in July 2007 - right before the global credit crunch first bit, eating more than half the stock market's value inside 2 years...


Japan's Nikkei index has jumped by one third since mid-Nov., thanks to export companies getting a 20% drop in the Yen - the currency's fastest drop since right before the Asian Crisis of 1997...

And here in the UK - where the FTSE-100 stock index just enjoyed its strongest January since 1989, when house prices then suffered their biggest post-war drop - average house prices are rising year-on-year, even as the economy shrinks...

The common factor? Zero interest rates and money creation on a scale never tried outside Weimar Germany or Mugabe's Zimbabwe. Only the Eurozone has stood aside so far, and even then only a little. And yet gold and silver - the most sensitive assets to money inflation - are worse than becalmed.

Daily swings in the silver price haven't been this small since spring 2007. Volatility in the gold price has only been lower than Thursday this week on 15 days since the doldrums of mid-2005. Back then the Dollar also steadied and rose after multi-year falls. Industrial commodities outperfomed 'safe haven' gold too - a pattern echoed here in early 2013 by the surge in the price of useful platinum over industrially 'useless' gold.

Perhaps the flat-lining points to better times ahead. Gold after all is where retained capital hides when things are bad - a store of value to weather the storm. Or it may signal itchy feet in the 'hot money' crowd, now moving back into stocks and shares instead. But we can't shake the feeling that something awful is afoot. Gold and silver aren't making headlines today. Just like they didn't before the financial crisis began.

"Japan is on an unsustainable path of a strong Yen and deflation," wrote Andy Xie - once of Morgan Stanley, now director of Rosetta Stone Advisors - back in March 2012.

"The unprofitability of Japan's major exporters and emerging trade deficits suggest that the end of this path is in sight. The transition from a strong to weak Yen will likely be abrupt, involving a sudden and big devaluation of 30 to 40 percent."

Already since the Abe-nomic revolution announced in November the Yen has dropped more than 20% versus the Dollar. But "there is plenty of liquidity still parked in the Yen," Xie noted this week. Quite apart from the shock to America's trade deficit which surging shale-oil supplies deliver, "The Dollar bull is due less to the United States' strengths than the weaknesses in other major economies," he adds. And reviewing the last two major counter-trend rallies in the Dollar's otherwise permanent decline, "The first dollar bull market in the 1980s triggered the Latin American debt crisis, the second the Asian Financial Crisis. Neither was a coincidence."

Neither of those crises coincided with a bull market in gold or silver. Savers worldwide chose Dollars instead as the hottest emerging-market investments collapsed. But then neither of those slumps saw emerging-market central banks so stuffed with money, nor gold and silver so freely available to their citizens.

China's gold imports almost doubled last year, with net demand overtaking India for the world's #1 spot at last. This week the People's Bank of China pumped a record CNY860bn into the money markets ($140bn), crashing Shanghai's interbank interest rates by almost the whole one-percent point they had earlier spiked ahead of the coming New Year's long holidays.

The disparity, meantime, between the doldrums in precious metals and the bull market in Dollar-Yen trading can be seen by glancing at the US derivatives market. Yesterday the CME Group cut margin requirements on gold and silver futures. It raised the margin payments needed to play the Yen's lightening drop. One of those moves is likely bullish, short-term. But you'd to borrow money to choose.

Western pension funds are meanwhile pulling out of commodities, and just as liquidity floods back into the market. Both the Wall Street Journal and the Financial Times report how big institutions have quite hard assets "after finding they did little to protect their portfolios against inflation risk and the unpredictable returns of stocks." One of the biggest commodity hedge funds, Clive Capital has shrunk from $5 billion under management two years ago to less than $2bn today. And yet European banks - the major source of credit to commodities traders - are now reviving their commodities lending.

"The sector came close to panic 18 months ago," says the FT. But now "The banks want to be again my best friend," says a Swiss executive. "Funding concerns have now substantially dissipated," says SocGen's head of natural resources and energy finance, Federico Turegano.

There's plenty of money around to borrow, in short. Whether in Chinese banking, currency betting or commodities trading, where there was very little at all, suddenly it's all turned up at once. Which is just how trouble arrives. All that central-bank liquidity and quantitative easing has so far left consumer-price inflation unmoved, too.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules