Gold as Inflation hedge

[dancingshoes]

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


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?

Posted on 10 June 2015

http://www.arabianmoney.net/gold-si...o-much-gold-unless-they-still-fear-inflation/

 

[dancingshoes]

Time to buy gold and silver as central bank data finally shows inflation is coming


It is time to buy gold and silver again as new central bank data shows that the European Central Bank and Federal Reserve have finally been successful in creating inflation. Whether they will now be able to control it is completely another matter, and buying gold to hedge against the very real possibility that they lose control is going to be the next big thing.

Oxford Economics has assembled data that shows ‘narrow’ M1 money in the eurozone expanding at the phenomenal rate of an annualized 16.2 per cent for the past six months. The wider measure of the money supply M3 is growing by the fastest rate since 2008, up 8.4 per cent in the same period.

US money supply

The Federal Reserve has quadrupled its balance sheet since the global financial crisis, pulling and pulling on a piece of string that never seemed to break. Now the brick on the end of that string may be about to fly into its face as M3 growth has returned to post-war averages, up around eight per cent so far in 2015.

Inflation is coming, like the cavalry coming over the hill in battles of yesteryear. Only its appearance in the nick of time can save the world from its debt mountains and a downward deflationary debt spiral. Anybody might think the central banks have been planning this all along, and yes that’s the obvious truth, except that it just did not seem to be happening.

Thank Mario Draghi at the European Central Bank for leading the charge with quantitative easing in the eurozone that has finally put the cat among the pigeons. Inflation is now coming home to roost.

Not for the first time global financial markets have been wrong footed. The bond bubble has bust as markets adjust to the new inflationary forces now in their midst. Bond yields are surging back around the world and any bondholders who bought at the end of the bubble are now deep underwater.

Bond crash coming

The bond rout is not over yet. Chair Janet Yellen has yet to sing. When the Fed does actually raise its key discount rate then bond markets will sell-off again. If historical precedent is anything to go by then stocks will not escape either: equities generally dislike inflation as input costs rise faster than they can be passed on in higher prices, and so profits suffer.

The asset classes that do gain from inflation are usually commodities and precious metals. Remember how oil and gold prices surged in the 1970s as inflation took off. That’s good news for the oil rich Middle East and precious metal investors but not many others.

HSBC says it is going to fire up to 50,000 staff in the near future and that maybe nothing compared to the scythe that will cut through the bloated global financial sector as this unwinds. Those on Wall Street pumping up bank stocks on higher interest rates really have gotten the wrong end of the stick.

No the bond rout ought to be a reminder just how wrong consensus opinion can be in financial markets and how the contrarians usually win in the end.

Posted on 11 June 2015

http://www.arabianmoney.net/gold-si...-bank-data-finally-shows-inflation-is-coming/

 

[Runifyouhaveto]

Here's the irony
if Gold surge above 1800 again, it means recession (financial crisis).
if Gold crash below 1000, it means depression.

 

[dancingshoes]

do you think MERS in South Korea will cause gold price to go up. pm lee just said it's a matter of time singapore get hit by MERS.

Here's the irony
if Gold surge above 1800 again, it means recession (financial crisis).
if Gold crash below 1000, it means depression.

 

[Runifyouhaveto]

do you think MERS in South Korea will cause gold price to go up. pm lee just said it's a matter of time singapore get hit by MERS.

I cannot say for gold, but if it explodes, i think it affects airlines n hotels more.

 

[dancingshoes]

i always think that gold has some conspiracy theory behind. i suspect there are some outcasts who do not want to see gold price dip. if that happen, either war or terrorists or any kind of epidemic will strike. i noticed many time it is like that, last time, gold dip, NK start its nuclear test. this time, MERS and Ukraine start to fight when fed announced that it will hike its interest rate. besides this, looks to me that every country trying to devalue its currency except for US> so i am holding my gold spot position, btw, i have been following this arabian article, seems to me the writer has been trying to pep up gold price in his stories. the articles after his analyse seem very interesting to readers, at least to me.

I cannot say for gold, but if it explodes, i think it affects airlines n hotels more.

 

[dancingshoes]

Nouriel Roubini, a professor at NYU’s Stern School of Business and Chairman of Roubini Global Economics, was Senior Economist for International Affairs in the White House's Council of Economic Advisers during the Clinton Administration. He has worked for the International Monetary Fund, the US Federal Reserve, and the World Bank. The article below by him.


The Dollar Joins the Currency Wars

NEW YORK – In a world of weak domestic demand in many advanced economies and emerging markets, policymakers have been tempted to boost economic growth and employment by going for export led-growth. This requires a weak currency and conventional and unconventional monetary policies to bring about the required depreciation.
Since the beginning of the year, more than 20 central banks around the world have eased monetary policy, following the lead of the European Central Bank and the Bank of Japan. In the eurozone, countries on the periphery needed currency weakness to reduce their external deficits and jump-start growth. But the euro weakness triggered by quantitative easing has further boosted Germany’s current-account surplus, which was already‎ a whopping 8% of GDP last year. With external surpluses also rising in other countries of the eurozone core, the monetary union’s overall imbalance is large and growing.

In Japan, quantitative easing was the first “arrow” of “Abenomics,” Prime Minister Shinzo Abe’s reform program. Its launch has sharply weakened the yen and is now leading to rising trade surpluses.
The upward pressure on the US dollar from the embrace of quantitative easing by the ECB and the BOJ has been sharp. The dollar has also strengthened against the currencies of advanced-country commodity exporters, like Australia and Canada, and those of many emerging markets. For these countries, falling oil and commodity prices have triggered currency depreciations that are helping to shield growth and jobs from the effects of lower exports.
The dollar has also risen relative to currencies of emerging markets with economic and financial fragilities: twin fiscal and current-account deficits, rising inflation and slowing growth, large stocks of domestic and foreign debt, and political instability. Even China briefly allowed its currency to weaken against the dollar last year, and slowing output growth may tempt the government to let the renminbi weaken even more. Meanwhile, the trade surplus is rising again, in part because China is dumping its excess supply of goods – such as steel – in global markets.
Until recently, US policymakers were not overly concerned about the dollar’s strength, because America’s growth prospects were stronger than in Europe and Japan. Indeed, at the beginning of the year, there was hope that US domestic demand would be strong enough this year to support GDP growth of close to 3%, despite the stronger dollar. Lower oil prices and job creation, it was thought, would boost disposable income and consumption. Capital spending (outside the energy sector) and residential investment would strengthen as growth accelerated.
But things look different today, and US officials’ exchange-rate jitters are becoming increasingly pronounced. The dollar appreciated much faster than anyone expected; and, as data for the first quarter of 2015 suggest, the impact on net exports, inflation, and growth has been larger and more rapid than that implied by policymakers’ statistical models. Moreover, strong domestic demand has failed to materialize; consumption growth was weak in the first quarter, and capital spending and residential investment were even weaker.
As a result, the US has effectively joined the “currency war” to prevent further dollar appreciation. Fed officials have started to speak explicitly about the dollar as a factor that affects net exports, inflation, and growth.‎ And the US authorities have become increasingly critical of Germany and the eurozone for adopting policies that weaken the euro while avoiding those – for example, temporary fiscal stimulus and faster wage growth – that boost domestic demand.
Moreover, verbal intervention will be followed by policy action, because slower growth and low inflation – partly triggered by a strong dollar – will induce the Fed to exit zero policy rates later and more slowly than expected. That will reverse some of the dollar’s recent gains and shield growth and inflation from downside risks.
Currency frictions can lead eventually to trade frictions, and currency wars can lead to trade wars. And that could spell trouble for the US as it tries to conclude the mega-regional Trans-Pacific Partnership. Uncertainty about whether the Obama administration can marshal enough votes in Congress to ratify the TPP has now been compounded by proposed legislation that would impose tariff duties on countries that engage in “currency manipulation.” If such a link between trade and currency policy were forced into the TPP, the Asian participants would refuse to join.
The world would be better off if most governments pursued policies that boosted growth through domestic demand, rather than beggar-thy-neighbor export measures. But that would require them to rely less on monetary policy and more on appropriate fiscal policies (such as higher spending on productive infrastructure). Even income policies that lift wages, and hence labor income and consumption, are a better source of domestic growth than currency depreciations (which depress real wages).
The sum of all trade balances in the world is equal to zero, which means that not all countries can be net exporters – and that currency wars end up being zero-sum games. That is why America’s entry into the fray was only a matter of time.

Read more at http://www.project-syndicate.org/co...y-nouriel-roubini-2015-05#McCQUMDSYMZUgJVy.99

 

[Runifyouhaveto]

some outcasts who do not want to see gold price dip. [/img]

u meant, u shorting gold?

 

[dancingshoes]

i super long...what i meant is that main stories from bloomberg, reuters and some mainstream medias have been articulating that gold price will dip, the outcast, i am not so sure about others, i hope that gold stays at a level above 1200, the production and mining cost.

some outcasts who do not want to see gold price dip. [/img]

u meant, u shorting gold?

 

[Runifyouhaveto]

i super long...what i meant is that main stories from bloomberg, reuters and some mainstream medias have been articulating that gold price will dip, the outcast, i am not so sure about others, i hope that gold stays at a level above 1200, the production and mining cost.

If u super long gold, u gotta exit equities to avoid contradicting yourself.

 

[dancingshoes]

hedging .... haha...lol...

If u super long gold, u gotta exit equities to avoid contradicting yourself.

 

[Runifyouhaveto]

hedging .... haha...lol...

rich people is like that
hedging is for rich people

 

[frenchbriefs]

i think stocks are a better inflation hedge than gold.gold is useless and doesnt create value or dividends.companies makes products that increase in price as inflation goes up so they are effectively inflation proof.gold is only good for hedging against fear in equities.

 

[xpo2015]

Why Gold? You can't eat it or stay in it.

Some more not liquid.

Its only for speculation.

 

[zookeeper]

i think stocks are a better inflation hedge than gold.gold is useless and doesnt create value or dividends.companies makes products that increase in price as inflation goes up so they are effectively inflation proof.gold is only good for hedging against fear in equities.

Depends on whether you are price maker.
Else production cost goes up, profit goes down, share price goes down.

 

[frenchbriefs]

Depends on whether you are price maker.
Else production cost goes up, profit goes down, share price goes down.

thats why i only invest in monopolies like SMRT and Singtel.

 

[jw5]

You can now buy gold from vending machines in Singapore.

 

[Runifyouhaveto]

Why Gold? You can't eat it or stay in it.

Some more not liquid.

Its only for speculation.

a lot of things are relative.
Would you make/lose more money from Fixed Deposits (cash), China shares (equities) or Gold (commodities)?

Of course, there is nothing wrong with doing nothing (keeping cash)

 

[dancingshoes]

Fed rate rise to pop Chinese stock bubble boosting gold says HSBC


The Chinese stock market bubble has taken demand out of the gold market but the gold price is still holding up well. What happens when the Fed rate rise pops this bubble to gold prices? Will their be a rush to buy?

HSBC Securities Analyst James Steel discusses the gold demand in China and elsewhere with Alix Steel on ‘Bloomberg Markets’. Where have the goldbugs all gone at the moment? HSBC sees them coming back…

 

[Runifyouhaveto]

Proposed India Govt Paper-Gold Bond giving 2% yield
http://in.reuters.com/article/2015/06/19/india-gold-bonds-idINKBN0OZ09B20150619