All posts by David Allen

HSBC expects gold price to be up 10% by the end of 2015

Posted on 19 August 2015 with 1 comment from readers

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HSBC, the fourth-largest bank in the world, is predicting that the price of gold will be up 10 per cent by the end of this year and finish the year worth around $1,225 an ounce. Gold is down six per cent year-to-date.

The bank believes Goldman Sachs and other commentators are wrong to say gold will fall in price as interest rates go up. HSBC’s analysis of the data showed that the last four times that the Fed raised interest rates the gold price went up, not down.

Fed policy change?

The Federal Reserve is widely expected to raise rates later this year for the first time since 2006, albeit the Chinese equity crash, devaluation and trade slowdown might well scupper that plan anyway.

Goldman’s argument is that gold pays no interest or dividends, so when interest rates go up then investors will shift away from gold. ArabianMoney has pointed out that this is wrong before: in the late 1970s gold prices rose eight-fold amid very high interest rates.

That’s because gold is a hedge against inflation and higher interest rates are generally an indication that inflation is coming or already a problem.

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All the same, inflation does not seem to be an imminent issue facing the global economy.Indeed, deflation is far more the worry of the moment with commodity prices, aside from gold and silver, in free fall and China devaluing its currency.

Then again precious metals are an excellent hedge against deflation and devaluation too, especially when their own price cycle has just bottomed out as it appears to have done this summer.

Gold has completed the classic 50 per cent bull market price retracement that also happened in 1975-6, and is preparing for the final stage of its bull market that started back in 2001.

Price spike?

That won’t be a 10 per cent price advance, although that might be the first sign of it by the end of the year, but a massive price spike. Think how the Chinese equities shot up recently before their crash. This is how markets behave.

Where will the gold price get to in 2016? $5,000+ as Martin Armstrong forecast in 2009 (click here), or $8,800 in a repeat of the 1976-80 spike?

Another early warning of this spike is the conversion of banks like HSBC to the idea of gold as an investment class. For gold output is falling and reserves are tightly held, and once retail investors like HSBC’s customers begin to seriously chase the price up then anything could happen.

Will others now follow Stanley Druckenmiller’s 20% gold allocation?

Posted on 17 August 2015 with no comments from readers

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Billionaire investor Stanley Druckenmiller has just raised his gold holdings to 20 per cent of the asset allocation reported by his Duquesne Family Office, according to Zerohedge.com.

He’d not been a big investor in gold in the recent past despite public warnings about the danger of zero interest rates and money printing. But this latest filing showed that at the end of June his largest portfolio allocation was 2.9 million shares in the GLD exchange traded fund, or 20 per cent of total holdings.

Trend setter?

You have to wonder if this will not set a trend among hedge fund managers whose raison d’être is to hedge risk? Gold is the classic hedge against both deflation and inflation as a store of value, although ironically its recent four-year bear market makes it an even better buy at the moment.

Many potential investors are waiting for the gold price to collapse by 50 per cent from its peak of $1,923 almost four years ago. Jim Rogers is among them.

However, trying to call the bottom could be an expensive mistake if gold now continues higher from its recent summer lows. To be fair it has already completed a 50 per cent retracement of its bull-market advance and that could be enough before resuming its upward trajectory (click here).

Chinese devaluation

More fundamentally the Chinese devaluation that started last week could be an important catalyst for higher gold prices. First, it was the stock market boom in China that cut demand for gold in the first half and that has now gone bust; and secondly the devaluation policy response will cause a rush to buy hard assets before the yuan drops in value again.

Given that China was the biggest buyer of gold last year this is very important for the gold market. Could it be that New York speculators will now jump on this bandwagon and Mr. Druckenmiller has just gotten in ahead of the crowd?

The price action for gold over the past week since the Chinese devaluation announcement suggests he was prescient in his purchase of bullion, and probably got in at the market low. Buyers today can still buy at very reasonable prices but they likely won’t stay down for very long.

Gold price hits $1,118 as China adds to its official gold reserves again

Posted on 14 August 2015 with 1 comment from readers

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The gold price jumped to $1,118 on news that China, the world’s biggest bullion consumer, has disclosed a 1.1 per cent increase in its gold reserves in July to 54 million ounces, according to data released on Friday by the central bank.

On July 17th the country ended six years of mystery surrounding its hoard, revealing a 57 per cent jump in assets since 2009 and overtaking Russia to become the country with the fifth-largest stash. However, this is still widely believed to be an understatement of the true gold reserves held by China.

Reserve status

The IMF said earlier this month that more work was needed on data transparency before deciding whether to grant the yuan reserve status. China devalued the currency this week and announced a shift to a more market-driven exchange rate mechanism.

Bullion remains a large part of many central banks’ reserves, decades after they stopped using it to back paper money. Stockpiles of the metal help China to diversify its foreign-exchange holdings as the world’s second-largest economy seeks to raise the international profile of its own currency.

The central bank said on July 17th that it had boosted bullion assets to 1,658 tonnes, up from 1,054 tonnes in 2009, when it last updated the figures. The US has the biggest reserves at 8,133 tonnes.

Golden hedge

Many central banks remain exposed to a small number of key reserve currencies and look to gold as a hedge against volatile currency movements, according to the World Gold Council.

Countries will probably buy 400 tons to 500 tons of the metal this year, the council said in May. Russia more than tripled its hoard since 2005 and Kazakhstan has raised its holdings every month since October 2012.

Fed preparing a 50% market crash proposes Deutsche Bank

Posted on 06 September 2015 with no comments from readers

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The Federal Reserve may already have pencilled in a 50 per cent crash in US stock markets as a neat way to remove a lot of the liquidity created by its QE money printing suggests Europe’s largest bank, Deutsche Bank in a new report.

As ZeroHedge.com explains today: ‘DB’s Dominic Konstam implicitly ask out loud whether what comes next for global capital markets (most equity, but probably rates as well), is nothing short of a controlled demolition. A premeditated controlled demolition, and facilitated by the Fed’s actions or rather lack thereof…’

Premeditated crash?

The DB report itself says: ‘The more sinister undercurrent is that as the relationship between negative rates has tightened with weaker liquidity since the crisis, there is a sense that policy is being priced to ‘fail’ rather than succeed.

‘Real rates fall when central banks back away from stimulus presumably because they ‘think’ they have done enough and the (global) economy is on a healing trajectory. This could be viewed as a damning indictment of policy and is not unrelated to other structural factors that make policy less effective than it would be otherwise – including the self evident break in bank multipliers due to new regulations and capital requirements.’

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As to what happens next? Back to the ZeroHedge analysis again: ‘Well, DB casually tosses an S&P trading a ‘half its value’, but more importantly, also remarks that what we have also said from day one, namely that ‘helicopter money’ in whatever fiscal stimulus form it takes (even if it is in the purest literal one) is the only remaining outcome after a 50 per cent crash in the S&P.’

In order words, QE4 to keep the show on the road. In that case why not just keep the current show on the road and forget about having a crash? What if that is not now possible, and this is the least worst option?

Central banks live in a la-la land where mere mortals fear to tread. However, the consequences of all the money printing of the past few years have already ended in a stock market crash in China, so why not the US where stock market valuations are also very high on historic measures?

Chinese precedent

We’ve certainly heard it said that the People’s Bank of China has deliberately used a stock market crash to mop up its liquidity problems. Why not see the Fed do the same? It could well be the only route back to normal interest rates and investment dividends.

Would there be a hurried panic reaction in the opposite direction by the Fed with a QE4? We would put money on it and buy gold and silver to profit from that last great bubble before the great global reset of currencies that will be the end of this volatile period, and a transition away from the dominance of global financial markets.

Be careful you could be about to lose rather more than your shirt!

Dubai house prices drop 8% while transactions crash by 69%, what next?

Posted on 31 July 2015 with no comments from readers

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Average Dubai house prices fell eight per cent year-on-year to the end of the second quarter, according to agents JLL, while the volume of transactions slumped 69 per cent from 23,800 in the first half of last year to 7,400 in the same months of 2015.

This is a marked contrast to the two-thirds crash in house prices that occurred in 2009 when Dubai was hit by a double-whammy of the global financial crisis and a bursting housing bubble.

No big bust

Abu Dhabi’s intervention in late 2013 to stop another bubble forming in Dubai housing is the reason why this has not happened again. In 2013 Dubai house prices rose by the most in the world. But in the autumn transaction costs were doubled from two to four per cent and mortgage criteria tightened at the behest of the UAE Central Bank.

That put a huge break on the market and prices began to fall by the second half of 2014. If house prices had been allowed to continue on their rocket ship trajectory post 2013 then the outcome would almost certainly have been another 2009-style crash.

JLL notes that this is a sign of a ‘more mature’ property sector in Dubai, and something that will make it more attractive to long-term real estate investors who dislike boom-and-bust cycles.

The property prices will change based on the demand and the population. It will see both inflation and deflation in the same year. So that the real estate builders can face profits as well as losses. They should be bold enough to face the both. In Dubai, the population is always getting increased, because many people from India are going to Dubai to earn money. So, there is no chance for the reduction of population in Dubai. The people in India why not try here to live a happy and luxurious life without leaving to other countries.

The debate now is whether the Dubai property market is going to be oversupplied by is upcoming development pipeline or not.

Growing population

Recent population growth rates of seven per cent per annum suggest not. JLL says that even a reduction to five per cent growth will take the population 400,000 higher by 2020, requiring more accommodation than the current development pipeline can offer.

Off-plan projects may also slow delivery if the local economy stalls as many found out in 2009-2010, while projects can also be cancelled and consolidated again. Most of the developers are government owned or controlled so this is a matter of central planning. Delivery delays are common anyhow.

For example, Emaar today announced the $229 million building contract award for its The Hills apartment project at the gateway to the Emirates Living Community. This off plan project was first launched two years ago in 2013. How long will it be before the buyers actually move in? 2018?

Over or under supply?

The construction of villas and apartments takes time and the market can also be caught short of property as it was in 2012-13 when the Arab Spring suddenly boosted demand for safe haven homes in Dubai and the local economy recovered from the global financial crisis more quickly than expected.

All property markets are cyclical. What is notable today in Dubai is that the cycle is now indeed more that of a mature economy than an emerging market, so the massive highs and lows have ended, short of a major regional or global catastrophy.

Absent such an event – or even because of it if subsequent money printing boosts oil prices as it did in 2009-13 – then Dubai property prices will probably fall modestly until autumn 2016 and then consolidate and bottom out ready for the next boom until 2020 and the Dubai Expo.

US stocks set to follow the Chinese crash says Jim Cramer

Posted on 28 July 2015 with 2 comments from readers

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Mad Money presenter and hedge fund manager Jim Cramer knows that no one wants to hear this, but the US markets are going to follow China down.

Some say that Cramer’s theory is completely ridiculous; they think that the U.S. has nothing to do with China. They believe that US markets are not linked because when the Shanghai Stock Exchange Composite Index nearly doubled from November to June, the US market did not double along with it. But that’s not true.

China crisis

First, there is a huge number of large American companies that export to China. Second, because it is now widely known that the Chinese communist government is not as shrewd or masterful as once thought. And third, because the US market is always held hostage by futures trading, which tends to be a reaction to whatever bad is happening overseas.

America has far established itself as the biggest superpower of the modern world and authoritatively interferes in the civil and political issues of countries under crisis. Colonialism had ended much before, but the US has often been called as ‘world police’ because of being omnipresent in all the global issues. If it is the rising tension between the North and South Korea or the hostage camps in the African and Middle-East countries scorching under civil war and extremism, the US is always in the commanding position. For a business involved in creating Bitcoin Loophole review, any drop in the popularity of bitcoins will definitely have a say in its business.

When the level of involvement is like this, it is imperative that any change in the atmosphere of these countries will send waves strong enough to cause some kind of ramification in the US economy.  It may be manifested in the form of decreased exports, reduced oil supply and hence volatility in oil price, manufacturing bottlenecks, self-sided financial policies, weak defense ties and allied relationships etc and China being the largest rising economy and the most populous country, US is bound to get the Chinese rays.

And it’s not like China was doing well in the first place. All of the indicators of economic growth are trending lower. The only shred of hope that Cramer sees is that the Baltic Freight Index still holds up, but that’s it…


Video link click here!

Posted on 28 July 2015Categories: Banking & Finance, Bond Markets, Global Economics, Hedge Funds, Investment Gurus, Investment Management, Personal Finance, Sovereign Wealth Funds, US Stocks, Video Channel

Martin Armstrong calls cyclical bottom for gold prices, now to $5,000?

Posted on 26 July 2015 with 1 comment from readers

Famously controversial futurologist, economist and business cycle expert Martin Armstrong, who forecast ‘$5,000+’ an ounce gold for 2016 on November 7th 2009 more than five years ago, now says gold touched rock bottom last week.

His website comment last week said: ‘If we hold $1,084 for the weekly closing, then we can see a two week bounce and everyone will proclaim the low, so hurry up and buy more.’

Gold’s rising now

Gold bounced back to $1,099 at the close of last week, comfortably beating this bottom-marker and proclaiming the end of the recent sell-off.

The precious metal has tested a critical 50 per cent retracement of its bull market run. That is to say it fell to the mid-point between its $1,923 top in 2011 and $247 starting point in 2000.

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Dr. Armstrong’s doomsday downside to the gold price is now not going to happen. He had warned: ‘If we close below these numbers, then we can see a two week panic to the downside and a test of the 1980 high. If that unfolds, then the latter target may be further down. So we play it by the numbers.’

So will gold prices now head to $5,000-plus as the world enters a second global financial crisis of unimaginable dimensions? That is what this forecaster said would happen next year more than five years ago (click here).

He’s been right many times before, and his prognosis for the gold price outlook in 2009 was also very accurate… Back then he commented: ‘We should see a temporary high in 2010-11 with a retest of support in 2012-13 with a rally into 2016.’ He also got the ‘explosive rally’ of 2011 spot on target.

Debt deflation spiral

The crucial difference between Dr. Armstrong and most gold forecasters is that he has always argued that it would not be consumer price inflation that sent gold prices rocketing upwards but a general loss of confidence in governments and by extension paper money or sovereign bonds in a period of deflation.

And what are we seeing today as China deals with its stock market crash and the eurozone struggles with Greece? Deflation led by commodity prices and a loss of liquidity as bond markets dry up. The US is not going to be immune from these pressures, and is also carrying a huge debt.

Gold may have just had its nemesis, the real problems are just starting for other asset classes.

Is gold’s 50% bull market fall the launchpad for $8,800 an ounce?

Posted on 22 July 2015 with 2 comments from readers

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Will the author of ‘Hot Commodities’ and the man who spotted the boom in the sector before anybody else, Jim Rogers now start buying gold?

He said earlier this year that he would when the bull market showed a 50 per cent retracement. That is to say the gold price had fallen to halfway between the $287 an ounce it was in 2000 to the $1,923 it reached in 2011.

Simple logic

Mr. Rogers astutely noted that he did not know a commodity market that had not corrected in this way before powering very much higher, and that has now happened. Perhaps he has already been out bargain hunting.

After all that’s how this ex-hedge fund manager made another fortune in the 2000s, ahead of everybody else. He parked his money in commodities and went off for a three-year holiday with his then girlfriend and now wife.

Mr. Rogers bought when nobody else was interested in commodities. And after the ‘flash crash’ of last weekend the financial columns are full of obituaries on gold.

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So are we to believe that after more than 5,000 years as a store of value for humanity that gold has finally been replaced by the like of Apple shares? Or has it just become horrendously oversold courtesy of the manipulation of paper derivatives?

In Mr. Rogers’ famous book his chapter on gold concludes that one-day gold will have a spectacular blow-off again as mankind loses control of its printing presses. Are we about to see that day?

1975-6 precedent

From 1975-6 gold under went a 50 per cent correction of the type Mr. Rogers has been waiting for and it subsequently rose in value by a factor of eight. That would give us a spike to $8,800 an ounce today.

What are the alternatives and how likely do they look? Does Wall Street not look a lot like Chinese stocks did a little over a month ago? The US dollar is far too high, and look what just happened in China where the currency is dollar-linked and so also overvalued.

And yet all the talk is of pushing the dollar higher with Fed interest rate cuts. Everybody knows what that does to stock market and bond markets and we have bubbles in both.

Surely at this point the sane money begins to dump stocks – as Goldman Sachs suggested this week, and moves into precious metals that offer outstanding value at current price levels. Markets do move in cycles and not straight lines.

Peter Cooper: Greece is going nowhere except staying with the euro and EU

Posted on 17 July 2015 with 3 comments from readers

The Greek debt crisis has brought forth some amazingly ill-informed comment from all over the world, particularly from the UK which still sees itself an an island-state basking in the glory of winning the Second World War now some 70 years ago, and also the US where most people fail to understand that the largest economic power in the world is actually the European Union.

Yes folks, the Old Continent’s $18.5 trillion GDP actually surpassed the United States’ $16.7 trillion last year. Nobody ever seems to point this out, so it is not so surprising that hardly anybody knows about this statistical fact.

EU super-power

But of course it makes a huge difference if you really want to understand the dynamics of global power and economics these days. You are ignoring the 500lb gorilla in your front room.

Greece is a member of this club. If you like see Greece as a pet-project of a large corporation that it just cannot let fail, whatever the cost. It’s a matter of political ego as much as economics, though when countries start to give up territory this is often the beginning of the end.

The EU is still expanding with smaller countries joining the euro. But it realizes that this expansion has caused some indigestion, and that brings us to Greece.

Sure Greece should never have joined some 30-odd years ago. They were trouble right from the start. Borrowed too much. Thought they could always talk rather than repay debts. Behaved very badly indeed.

Black-balled not blackmailed

So other club members have finally turned on them. Yes the bailout of four years ago was only done to save the global financial system and not really intended to solve the Greek debt crisis. Yes it made it worse by lending them even more.

But Greece will still get a much better deal now inside the club than outside. In their hearts all the Greeks know this. The idea of them forging an independent future as a dynamic nation with the drachma is a complete and utter nonsense.

The Greeks know themselves that they are a nation of corrupt bureaucrats and unionized labor with a lot of pensioners, not a European tiger nation led by entrepreneurs. Only with a great deal of help will they get back on their feet, and that help can only come from the EU, and as the IMF points out will have to include debt relief – although it will never be called that because the Germans could not admit this.

Personally this has been a drama tinged with nostalgia. I was at Oxford studying and playing politics with the now Greek finance minister Euclid Tsakalotos. I still remember how to spell his name from that time and how he argued around in endless circles as a communist trying and always failing to come to terms with the real world.

I was also an administrative trainee in the European Commission in Brussels so recall the Greek’s early days in the EU only too well. Even then they tested the system to destruction, always having to speak at least twice as long as everybody else and taking advantage of everything going with no thought of the future.

Good infrastructure

You might think the EU has been a complete disaster for Greece. But go there and you will find a country whose infrastructure has been transformed by EU loans. I remember what a mess it was when I toured Greece with my family before Greece joined the EU and had only just emerged from military dictatorship.

That’s why Greece does not want to leave the euro or the EU. They have got away with so much and gained a great deal. They want to do it again. But after 30 years the EU has more than got their measure and so it will be on different terms this time around. True unemployment is high after five years of austerity, but how much higher would it go as a bankrupt state?

Greece is going nowhere except staying with the euro and the EU. Actually the EU emerges stronger and more united from this crisis than it has been in decades, and once the Greek pill is swallowed the expansion will continue.

My UK readers just don’t get it. The EU is a major success, especially for the eastern countries whose conversion from communism has utterly transformed them. Greece is the bad boy now being brought into line.

Peter Cooper is the editor and publisher of ArabianMoney and a 20-year veteran of Dubai business journalism.

Peter Cooper: China’s policy response to its equity crash to be inflationary and boost gold

Posted on 08 July 2015 with 1 comment from readers

What do we know about how central banks respond to stock market crashes? Typically they lower interest rates and ease monetary conditions in liberal fashion and worry about the inflationary consequences later.

So now that China is seeing its own version of the 1929 Wall Street Crash should we not expect the same? In 2009 China greeted the global financial crisis with a stimulus package equivalent to half its GDP.

Policy response

It would be easy enough now to cut interest rates and devalue its currency to ease the pain to follow such a massive stock market event. This is the textbook response to the deflationary impact that such heart attacks have on an economy.

Credit is already seizing up in China and trade is being affected. Commodity prices are in free fall, from oil to iron ore, copper and nickel. Printing money and doing it quickly is the only way to slow this down.

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The danger is that pumping money into an economy causes bubbles. Indeed the stock market bubble in China that is bursting now is the direct effect of the policy response to the global economic crisis in 2009, six years ago.

Where will the money go this time? Likely the same place as last time: precious metals. Gold went on a tear from under $800 to $1,923 an ounce between 2009 and 2011, and that was the best performing asset class apart from silver, up from $8 to $49 an ounce.

Domestic inflation

China also created a great deal of domestic price inflation raising local price levels to the point that Western visitors no longer found anything cheap. We can expect more of the same again.

However, after a major stock market crash like the one now happening in China there are usually major aftershocks in the real economy, in the banking sector in particular.

Central banks know this and learnt from the 1929 Wall Street Crash the imperative of keeping the banks functioning. That said bad debts still have to be purged and businesses go bankrupt and people get ruined in the process.

This is called a recession, not something China has suffered for decades. It will mean a major slowdown in demand for everything China has been buying from the rest of the world: industrial commodities, German cars, luxury goods, and even tourism.

Fire sales will depress the price of some goods temporarily but a combination of a destruction of capacity and money printing will prove inflationary, and that is usually the only way to revive an economy from this sort of trauma.

Precious metals

Investors in gold and silver will get very rich – as prices will soar as Chinese inflation takes off – but it will be very hard for anybody else. In truth, over-inflated global stock markets will have to follow Chinese equities into a major downturn in a contagion like the 1930s.

How long this lasts and how deep the damage proves to be will depend on just how good global central banks are at managing macroeconomics. We are about to find out.

But forget about the Fed ever raising rates for years. The pressure will be in the reverse direction. How long to QE4?