Still maintain my view, that the broader averages are moving down because some of the "smart" money is worried that 4thQ and perhaps 1st Q GDP slowdown will hurt sales and earnings. Also, the Euro has been strong because there is a little liquidity squeeze, in the Euro-zone, as their 3-mo Euribor rate is at 15-mo highs. Hot money is chasing that higher yield and has to buy Euros to do so. Other concerns are coming out of China that GDP growth will have to come down to 7% vs the 7.5% consensus for 2014.
Take all three and the "surprise" has a growing % chance that macro-econ softness will translate into S&P 500 sales and earnings misses. Any negative "event" would have the S&P 500 accelerate its recent declines. However, if the FED doesn't taper, it maybe off to the races again. Still slower GDP is already in the cards for the 4th Q and 1st Q.
To complete the thought on gold's physical demand. 2013's demand, 1st 3 Qs, is up 25% or about 600 tons vs 2012's 1st 3 Qs. 90% of that increase is from Asia and the Middle East. Implications; as long as oil does not collapse and China does not go into a hard landing, then demand from those two areas should remain steady. Again, adding any ETF net demand and net increased "Western" county demand should have gold moving higher.
As far as supply, 2014 production should be close to the production of the last several years since 2011-around 2700-2800 tons. From several articles, lower prices will start curtailing supply starting in late 2014 and for the next several years after that. So, with gold, despite all the daily noise, the supply demand situation should turn decidedly bullish by the end of 2014. Of course it could happen earlier, depending upon net ETF action and Central bank actions.
Several followers of the gold market suggest, gold needs a final selling climax to make a bottom. I'm inclined to partially agree, but then again many markets "turn" quietly as sellers get exhausted and volume dries up. Still, technical watchers will want higher volume on moves higher to confirm an uptrend. I suppose the easy way to follow would be to watch volume for GLD.
According to the World Gold Council, demand for physical gold (bars, coins, jewellery) was approx 2900 tonnes through the 1st 3 Qs this year. Take that pace through the end of the year and physical demand will be approx. 3860 tonnes. World production will be about 2750, the net difference will come out of ETF net selling which has been 800+ billion for the 1st 3Qs or an annual pace of about 1100 tonnes.
Once we get out of Dec (tax-loss selling), if ETFs are no longer net sellers and physical demand remains steady, that suggests gold will grind higher. Should ETFs become net buyers, then gold moves up more quickly. Currently, I continue to read articles that gold will get down to $1050-$1085, however given the underlying physical demand, I considerate less likely as each day of Dec goes by. My one big concern is if China had a hard landing sometime in 2014-since they are a huge buyer. If that should happen, all commodities would go down along with the S&P 500. Coming out the other end would be massive stimulus by central banks, which would be very bullish for gold.
LNG export will start the end of 2015. So, starting no later than early 2016, the spread between world prices 3-4X NA prices and NA prices will narrow. The ultimate question is to what extent. If the world econ sees continued growth, with China increasing its use of NG vs coal, then $6+ NA price should be easy-perhaps $8-9. When Marcellas production roles over, that will be worth $.50 higher price in of itself-some in the industry are predicting the 2ndH of 2014 for that to happen.
My biggest concern for all markets is if China has a hard landing sometime between now and 2 years from now.
$15-$17 for KTCC before results of the Dec Q . If a buyer waits for the March Q results, then may have to pay more, $17-$19, as I expect guidance for June Q to be up sequentually from the March Q-which should be up from the Dec Q. Magnitude of the sequential increases will determine whether the buyout price is at the low or high end. After June Q results, it will take $20.
Should Gold survive next week's taper and hold $1210, upside resistance, according to my research will be at:
Ultimately, I'm looking for $2500-which equals the inflation adjusted high of 1980.
With NG in the $4.20s, it is at 6 month highs-2013 high was around $4.45 in late April/Early May. Monthly production for Sept came out last week at 73.91 down from the all-time high of 74.49 in Aug. With the Sept numbers were downward revisions for just about all months in 2013. I would consider the data slightly bullish.
With last week's big draw down we are now about a 2.8% deficit vs the 5 year average. With the next 4 weeks draw estimated to be larger than the 5 yr averages, the deficit will continue to get larger. Should the colder than average weather continue into Jan/Feb-which many long term forecasters were predicting late last summer-NG prices will make new 52-week highs. With the extreme cold, production problems are curtailing production in some areas around the country, so production may drop further (Dec) vs the Aug all-time high. That data will come out the end of Feb.
Therefore sometime in March, I am calling for NG to get above $5.00. I'm not taking any profits on NG positions (trading shares) until then. Producers will not ramp up NG capX until $5.00+ is sustainable-that will come when Marcellas production growth roles over perhaps the 2ndH of 2014.
So why is gold moving today, up $30+ above a technically resistant area of $1260, so far. A few ideas come to mind.
1)The $, as measured by the DXY, has been weak
2)Gold had been falling on the same "news" for weeks-the notion of a taper by the FED in Dec. Last week, towards the end of the week, gold stopped falling on that "news"
3)Italian finance minister today offered the "proposal" that if the Italian government came to the rescue of its banks, it would have to follow a "bail-in" of bondholders of 8% first. Well, there are dozens of banks in the Euro-zone that need help in just about all the 17 countries. I wouldn't be surprised if some of those bondholders are buying a little gold today.
1)The Euro hit another 5yr high vs the Yen
2)The Euro continues to advance vs the $ nearing its high for the year
Implications for both, the ECB by choice or being "forced" by the markets, is going to have to ease significantly in 2014 to get the Euro down. Currency "war" is great for gold.
Going out on a limb. Technical indicator MACD has been negative but turning neutral in recent days for GLD, GSOL and HL. That along with double bottom last week of $1210, has me calling the bottom in gold, IF gold holds $1210 after next week's taper-which I expect.
In addition to HL and SLW, recent insider buying in CDE has me buying CDE in recent days.
In pat posts, I have written about "credit engines". Western economies need credit to be extended for their to be GDP growth. The US's credit engine is doing OK as mortgages become more available, net mortgages outstanding were $87+ billion in the 3rd Q, the first net quarterly increase since the 1stQ 2008. Auto loans are quite abundant with 26% of them being non-prime. Corporations (large) have had no trouble selling bonds and/or letters of credit as debt outstanding grew 7.5% Y/Y in the 3rd Q. Small business is probably still having trouble, but less so vs earlier in the year as measured by the Thomson Reuters/Paynet index which hit a 6-yr high in Oct.
Contrast that with Italy. For Oct loans to corporations were down y/y 4.9% the worst reading in 2013 and loans to the whole private sector was down 3.5% the worst reading in 2013. Clearly the credit engine in Italy is in reverse. Top that off with the Euro hitting a 5yr high vs the Yen. Bottom line, the ECB will have to "ease" in 2014-perhaps substancially. France is in deep do-do as well as their PMI's have been consistently below 50 all year.
Over time, whether it be the US or the Euro-zone, higher levels of inflation will be needed to get "credit engines" expanding and being able to service past debt.
Chinese currency, Yuan, hit an all-time High vs the dollar overnight in Asian trading-further inducing mfging to move back to NA. In addition, China has massive pollution problems which made lead to power problems as the government force power plants to burn less/cleaner coal and/or rejig power plants to burn NG.
CLS and PLXS only have one plant in Mexico each. I still expect one of them or a Chinese EMS company, looking for a NA footprint, to buy KTCC before the end of 2014.
Another little "contra-indicator" w/r to gold. Net long positions (hedge funds), as of 12/3, were 26,774 a low since 6/2007.
Also, the Yuan, hit an all-time high in Asia on 12/9-lowers the cost of gold for them to buy and further induces some mfging to move back to NA-which is good for KTCC. CLS and PLXS, both only have one plant in Mexico. I expect one of them or an EMS company out of China to buy KTCC before the end of 2014.
Greece y/y CPI was negative 2.9%, so along with several other euro zone countries (5-7) indicate deflation. Sovereign and other debt much harder to pay back in a deflationary environment. ECB, sometime in 2014 will have to "engineer" inflation throughout the Euro-zone so debt, both public and private, are easier to service. Bullish for gold.
Also weak data out of Japan and Germany suggest continuing and/or increasing "easing" by their respective central banks.
After 5 weeks of declines, my net inflation indicators were up this week. Contributing were higher oil prices, higher CRB, lower $ (DXY) and growth in the M2 money supply. One week is not a trend, but it is better than another down week.
Other than PCTI, KTCC and CCRN, I don't look. YHOO changes have made the boards less friendly for meaningful discussion.
Picked up some more GFI, HL and IAG today. Gold made a double bottom this week at $1210, on 12/4 and 12/6-which is mildly encouraging. In any case, world physical demand is strong-countries such as China and Turkey are huge buyers. India will be down this year due to an increase in import taxes, but better trade numbers and stronger currency may just induce import tax reductions next year. Just those three countries, if the buy next year what they bought this year, would buy all new production. Gold will have to go up if net ETF selling subsides.