All posts by David Allen

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.

Looking at this, one can certainly conclude that following the trend would not always lead to the success, instead, follow that asset that has got some intrinsic values, as the demand for it would never subside! Such a valuable financial asset these days is the cryptocurrency that you can easily get hold of by investing in them using the Crypto Code, the automated crypto robot! Rest assured, Crypto Code is not a scam! Let’s get back to the Gold Bull!

So are we to believe that after more than 5,000 years as a store of value for humanity that gold has finally been replaced by the like of Apple shares?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.

But, if the cryptocurrency saga had already originated then, would tackling such a crisis would have been any problem, as there are no difficulties like printing the money? Not at all, right? That is why, at least now, everyone should start appreciating the cryptocurrency revolution, especially when effortless means like Crypto VIP Club software is available to secure these digital currencies! Ok, let’s get back to the China’s policies!

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?

Somebody big’s sitting on the gold price says Sharps Pixley CEO Ross Norman

Posted on 08 July 2015 with 5 comments from readers

Somebody big is sitting on the gold price and a relief rally when the Fed raises interest rates is ‘a distinct possibility’, Ross Norman, CEO of Sharps Pixley and London Bullion Market Association’s top forecaster of the past 15 years, told ArabianMoney today.

‘Gold is looking like the dog that just did not bark – but not uniquely so,’ he commented. ‘Most safe haven assets are looking distinctly lacklustre, including the VIX index.

Safe haven

‘Either 5,000 years of safe haven buying has just become bunk, or there is a desire to portray what it is evidently a financial and economic crisis as nothing to be concerned about.’

However, things look very different to eurozone gold holders whose currency has depreciated around 15 per cent against the US dollar.

‘European gold investors saw a 10 per cent gain last year and are up eight per cent year-to-date,’ pointed out Mr. Norman. ‘So again gold is doing what it should do, and that is to provide a means of hedging ones exposure to a currency crisis.’

Will an interest rate hike by the Federal Reserve really be bad for gold as Goldman Sachs predicts, if or when it happens?

Mr. Norman noted: ‘I think a rate hike must rate as the most telegraphed move in the history of financial markets and as such it must be fully factored into the price. When it does eventually come, say in Q1 2016, I could see a relief rally in gold as a distinct possibility.

‘Gold is looking rather like the late 1990’s when it became horribly price elastic – with selling on price strength and buy on dips with volatility falling dramatically as the market reverted to the mean.’

$1,450 an ounce?

In January Mr. Norman forecast a peak gold price of $1,450 an ounce for the year (click here). That’s looking a bit on the optimistic side with gold trapped in a trading range.

But if the Chinese stock market crash, or the Greek exit from the euro, overspills into global financial markets then all bets are off, and if past performance is any guide then gold will fulfill its historic role as a safe have when markets are really in serious distress.

Now, with the introduction of cryptocurrencies, a shift in the role of the safe haven is very likely to happen, as they can offer a more promising solution, which anyone can readily understand from their concept, during the times of an economic crisis! So, it is the perfect time for you to start investing in them using the uncomplicated and profitable means like the Crypto CFD Trader software!

Whatever, Gold is always the ultimate bubble in global financial cycles but we are not there yet.

Greek crisis will have to get worse to up gold prices says Edel Tully

Posted on 02 July 2015 with no comments from readers

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UBS metals analyst Edel Tully reckons markets have become bored with the Greek crisis and will have to be convinced it will get much worse before buying gold as a safe haven asset. A ‘no’ vote in the referendum on Sunday and Greek exit from the euro would be sufficient.

Gold has actually drifted down this week as the dollar has surged against the euro, though gold is up in euros. Financial markets had a Black Monday but have recovered since.

Greek disconnect

In a report this week Ms. Tully asked why gold seemed to be so disconnected from the Greek crisis, noting that ‘developments in Greece don’t seem to be impacting gold in any meaningful way,’ compared to ‘how the market has reacted in the past.’

She attributed this trend to ‘headline fatigue’ resulting from heavy coverage of the Greek drama, claiming that ‘the threshold for bad news is higher and it will probably take a lot more to trigger a significant wave of gold safe haven buying.’

Gold price volatility has been on the decline since the beginning of 2015. Ms. Tully only expects more significant movement in gold if there is a rapid deterioration of the situation in Greece over the coming weeks, such as ‘Grexit occurs and there is no credible policy response.’

UBS now projects a 40 per cent chance of Greece leaving the eurozone and a 40 per cent chance of other countries, like Spain and Italy, following suit.

However, it is still hard to rate financial markets anything other than extremely complacent in the face of this high risk of a disaster. At these odds it is almost the same as trusting your life to the flip of a coin.

Smart money holds

Traders may be correct in the short term in avoiding precious metals but the tide could turn very fast and for the average investor taking and holding a position still makes sense.

In fact, Ms. Tully and other analysts say one reason for the gold price’s recent stability is precisely because long-term investors are taking this approach.

Long-term trading is perhaps, the perfect way to ensure the market stability of any asset, and very recently, the popularly growing cryptocurrency! The cryptocurrencies, also being a nascent concept is facing too many fluctuations and therefore, to beat them going for the good-old long-term trading is the best solution! To do so, check this Bitcoin Trader review!

So while the gold price may look unaffected by the Greek crisis that could change at any moment.

Record low interest rates in China fail to halt stock market slump

Posted on 29 June 2015 with no comments from readers

Greece may just be a sideshow compared to what is happening now in Chinese financial markets. After the biggest two-week plunge in China’s stock market since 1996, PBOC Governor Zhou Xiaochuan cut interest rates to a record low.

So far this is not stopping the market’s fall. But this is the kind of stimulus that last brought us high oil and gold prices. Bloomberg’s Yvonne Mann and Stephen Engle report on ‘First Up’…

If the oil and gold prices soar high then, many would not be able to invest in it but, with a powerful option called the cryptocurrency, which we have now, who would anyway wish to invest in the less profitable assets like the gold or the oil? For long, people were interested in investing in the valuable assets like the Gold, Silver, or the oil in the idea of making some profitable returns! But, with the introduction of the cryptocurrencies, these are not considered anymore as the promising investment solutions, undoubtedly!

 

It is because the merits of the cryptocurrencies are need of the hour, the interest towards promoting them by investing in them more is seen everywhere, including the experts! Especially the Bitcoins, from where this saga originated, has gained more backings from the experts and is still going strong as the number one cryptocurrency in the world by market cap, which is highly impressive! According to few experts, the Bitcoin is said to reach $50,000 market price value by the end of 2018, which means it is high time to invest in them now, rather than worrying about the less-valuable gold or oil to ensure promising future!

 

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With such a system to your rescue, you can easily evade the bubble situation, any time, as your investment choices would always be perfect and profitable!

 

Peter Cooper: Why S&P might be wrong about a 20% fall in Dubai house prices

Posted on 25 June 2015 with no comments from readers

When a guy I know from the last property boom who managed to sell out and go home to Australia with $1 million wrote to me yesterday about the nice Ramadan deal he has just struck on a Dubai villa that means something.

I can’t help but think Standard & Poor’s is wrong in its latest prediction that house prices in Dubai are going to fall by 20 per cent. Sat in Paris the S&P economists are running their slide rules over Dubai and perhaps missing a few of the relevant facts in reaching such their conclusion.

Oversupply?

Property supply this year is running at twice recent annual averages. But then population growth of six per cent means demand for say 18,000 units while estimates for delivery are around 20,000. Not much of an oversupply there.

What about the Dubai economy hit by a halving of oil prices? Well prices are coming back and the UAE is running a deficit to make up the difference. Dubai salaries have been growing at a healthy pace this year.

Recently the property sale has faced an inflation in the real estate industry. Because, the population has increased much and so the sale also gets doubled. This makes the building constructors to earn more and more profit than what they expected. I really wonder people why not look here and worry about the population increase. The people should think about the economy of the country and their growth in the organization.

If anything the complaints I get are about rising inflation and how Dubai is becoming too expensive (click here). That’s not usually the sort of economy where house prices crash by 20 per cent.

There is also the worry about global interest rates being on the way up. But just how far will the Fed get in raising rates before it crashes global financial markets and has to put them down again?

House prices are starting to anticipate more expensive mortgages that may be longer in coming. Besides locking into today’s bargain mortgage rates makes perfectly good sense, and if you think they are going up why not do it now?

Then again there are still actions Dubai could take to keep its housing market afloat. For example, rent controls could be dropped like in Abu Dhabi. At the moment sitting tenants can keep their previous low rents running for years and investors just don’t like taking on that sort of risk.

Executive action?

The government could also ease back on the emergency measures it took in late 2013 to cap what looked like becoming a runaway boom after a 35 per cent surge in house prices.

Transaction fees might be cut from four back to two per cent. The cap on mortgage lending could be eased at the banks. Why not let them decide what risk the market should take in home loans? It is not rocket science.

Perhaps what S&P is saying is already in the price of a house in Dubai and you need to look further into the immediate future. Maybe the bargain hunters like my friend braving the heat of Ramadan, have the right idea again.

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

Chinese rushing into physical gold in huge volume as stocks crash

Posted on 23 June 2015 with no comments from readers

The first signs of a rush to convert financial assets into physical gold in China have emerged with a spike in physical gold payouts at the Shanghai gold exchanges.

Withdrawals of physical gold from the Shanghai Gold Exchange and Shanghai International Gold Exchange jumped 41 per cent in the trading week 8-12th June from the previous week, while year-to-date withdrawals are up 20 per cent to an incredible 1,061 tones.

Massive rotation

To put that figure into perspective, that is higher than China’s entire last officially declared gold reserve. It represents a massive conversion of paper assets into bars of the precious metal.

The 8-12th June gold rush came before the Shanghai Composite began to sell-off late last week, quickly entering a bear market with stocks down more than 20 per cent. How much paper gold trading has been converted into the physical stuff in this market collapse?

The shift into physical gold earlier this month looks like the smart money getting out ahead of the herd. But where else can Chinese investors park their cash in an emergency?

Their fear must surely be that another deluge of money printing will be the response of the authorities. Chinese inflation has already been epic since the global financial crisis and the money printing that followed, just go there and buy things to find out.

Bubble profits

Indeed the stock market bubble itself is a product of money printing. Investors wishing to protect themselves from the next blast of inflation, or actually to profit from it are buying gold.

How long before this begins to affect headline gold prices? Surely as the stock market tanks we will not have to wait until the next batch of figures confirm what was happening in early June.

Gold will be the next asset class to go into a bubble now that the Chinese equity bubble is bursting.

Credit-fuelled US stock market now ripe for a major crash

Posted on 14 June 2015 with no comments from readers

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The chart below traces the performance of the S&P 500 over the past couple of decades and compares it to NYSE investor credit. Even the most ardent bull ought to have a sharp intake of breath.

Not since 1929 has this Wall Street roadmap looked anything like so dangerous. It’s credit expansion that turbo charges stock markets to the upside but history suggests that it always runs out in the end.

Bond alert flashing red

The longer the party the bigger the hangover after that happens. Global bond warnings have been flashing red for the past few weeks and the professionals are alarmed although few retail investors really get the message.

Unstable bond markets are the canary in the coal mine singing its warning of poison gas coming the way of the stock market. So too is the smaller and smaller number of shares supporting the S&P 500 index at its current lofty levels.

S&P 500 index is usually maintained by large companies which have heavily priced shares and a change in the value of even a single share leads to a significant change in the index also. When the share values of a company at one of the highest positions go a step down in price, more than one share of a company at the lower positions might be required to gain in rice to off-set the reduction in the total index. In summary, the change in the index may be because of a few shares of the largest companies which are big in terms of their market value.

If shares of Bitcoin Code software alone takes the plunge, the shares of two emerging platforms with half the price, but double the number will off-set the balance. However, if the number of smaller shares if far less and there is no other gain in the market cap, the prospects of a recovery are gloomy. Drawing parallel conclusions to this, the present day index is held by smaller shares, more in number and lesser in price. There may be multiple shares of the same type and value and if there is a downfall in a single type, it is enough to burst the bubble of the index.

One small uptick in Fed rates or a Greek default as soon as tomorrow and this great bubble is over and what has gone up so far will have a long way to fall…

Posted on 14 June 2015Categories: Banking & Finance, Bond Markets, GCC Stock Markets, Global Economics, Hedge Funds, Investment Gurus, Investment Management, Personal Finance, Sovereign Wealth Funds, US Stocks

Why are the central banks buying so much gold unless they still fear inflation?

Posted on 10 June 2015 with 6 comments from readers

Why are global central banks buying so much gold unless they still fear inflation? The World Gold Council estimates that 120 tonnes of gold were added to global central bank reserves in the first quarter of this year and that’s a whole lot more than they used to buy.

In fact even since 2010 the central banks have increased their share of global gold demand from just two per cent to 14 per cent last year. It’s one reason why gold prices have held up recently despite a shift from retail investors to speculation in the final stages of the US and Chinese stock market bubbles.

Inflation hedge

For central banks gold is the classic hedge against monetary instability and against inflation, that is to say unwanted devaluation that puts up the price of goods in the shops. Gold will hold its value while paper money devalues and the nominal price of gold goes up and up.

Emerging markets, and we have to class China as an emerging this case albeit the world’s second largest economy, are playing catch up with the developed world in terms of gold reserves. They only hold around 10 per cent of foreign exchange reserves in gold by comparison to 70 per cent or more for countries like the US and Germany.

Monetary experts say around 15 per cent might be enough to maximize the benefits of gold holdings, and even the relatively new European Central Bank has 25 per cent of its reserves in Maynard Keynes’ ‘barbarous relic’.

The pressure to buy gold for reserves is becoming even more acute as the legacy of money printing is starting to turn into rampant global inflation, manifest first in equity and real estate prices. This is actually desirable because it is the only way to amortize the colossal debts of the world without bankrupting everybody.

But central banks know that if they are to manage another episode of inflation without it turning into a highly destructive hyperinflation then gold is the answer. Nowhere is this more evident that in the People’s Republic of China where official gold reserves of 1,054 tonnes are but a paltry one per cent of foreign reserves.

Chinese gold reserves

This figure has not been revised since 2009 and there is a lot of speculation about what it might be today. Could China now be closer to the US total of 8,000 tonnes in its vaults? It’s been an open secret for several years that China has been buying up any gold it can acquire.

Indeed an official announcement about the scale of its gold reserves is widely anticipated by gold bugs as a major inflection point for the price of gold, and that’s the main reason it has been kept secret of course. The Chinese wanted to buy their gold at low and not much higher prices.

Still the question remains: just how high will gold prices go when the precious metal becomes far more important again as a linchpin of the global economic system? $7,000 an ounce? $12,000? $24,000? Or $65,000 as one article suggested recently?