Does Central-Bank Gold-Buying Signal The Top Is Near?

Saturday, July 14th, 2012

Submitted by Jeff Clark of Casey Research

Does Central-Bank Gold-Buying Signal The Top Is Near?

Doug Casey told me in January, “The only thing that scares me is that central banks are buying a lot of gold; they’re historically contrary indicators.” When it comes to buying gold, central banks have such a poor timing record that they’re frequently joked about as a contrary indicator.

Recently, they have been buying, quite literally, tonnes of it. Consider the following:

• Net central-bank purchases in 2011 exceeded 455 tonnes. This was only the second increase since 1988 (the first in 2010) and the largest since 1964.
• Turkey has added over 123 tonnes since last October, buying 29.7 tonnes in April alone.
• Mexico has purchased over 100 tonnes since February 2011.
• The Philippines added 32 tonnes in March, its second-largest monthly purchase ever. Largely under the radar is the fact that it’s buying some of its local production.
• Russia continues buying, adding 15.5 tonnes in May. Its total reserves now stand at 911.3 tonnes, the highest level since 1993.
• Thailand has raised its holdings by more than 80% since mid-2010.
• South Korea has bought 40 tonnes since May 2009, an increase of 180%.
• The World Gold Council (WGC) reported that central-bank purchases totaled 80.8 tonnes in Q1 2012, about 7% of global demand.
• Over the past 12 months, net purchases have averaged almost 20% of total annual supply.

Here’s the picture of what has transpired since the financial crisis hit in late 2008.

(Click on image to enlarge)

Central banks have added a net of 1,290 tonnes since the fourth quarter of 2008. This total excludes China and other nations that don’t regularly report their activity, as well as countries that have been surreptitiously buying their own production.

That’s a lot of gold buying. One has to wonder whether so much buying may in fact signal a top for gold. After all, a number of prominent analysts have claimed for some time that gold is in a bubble and that it’s all downhill from here.

Not so fast. Like many mainstream reports, looking at the short-term picture usually leads to erroneous conclusions. Let’s put central-bank purchases into historical perspective.

(Click on image to enlarge)

In spite of the recent activity, world central-bank holdings are far below what they were in 1980. Clearly, a few years of net buying does not a bubble make.

The difference is greater than you might realize. Consider that since 1980…

• The global population has grown 55%
• Worldwide gold supply has grown 120%
• Foreign-exchange holdings have increased 650% since 1995, and now total $10.4 trillion.

It seems rather obvious that a lot more “catch-up” buying is needed before we start talking about a top for gold on this basis.

Meanwhile, we think the trend of central-bank gold buying will continue. It’s not hard to see why: central bankers around the world know what it must ultimately mean to run the printing presses the way the US has since 2008, even if price inflation is not immediately obvious. It’s no surprise that they want to hedge their bets, moving more reserves into something with actual value… something that can’t be debased with a few keystrokes. The US dollar has been the world’s reserve currency since WWII, and that’s beginning to change – the movement into gold is just one facet of that change.

The entire world may indeed be beginning to understand that it’s operating on a fiat currency system backed by nothing. At the same time, the sovereign debt crisis in the Eurozone is intensifying, and some countries have succeeded in inflating their currencies faster than the Fed has inflated the USD. It doesn’t take Nostradamus to read this writing on the wall… and while the world’s central bankers can lie to the public, they themselves know how bad things are.

In fact, the WGC is so confident that central banks will continue to buy gold that it’s changed its reporting structure: it’s added “official sector purchases” as a new element of gold demand, while eliminating “official sector sales” as a negative supply factor.

Of course, gold will someday top, and Doug Casey believes a bubble in gold and related equities is highly likely at some point, courtesy of the trillions more currency units governments will create in a desperate (and ultimately unsuccessful) attempt to stave off the Greater Depression.

But we’re nowhere near that point. There’s a long way to go before we start legitimately using the “B word” (bubble) or “S word” (sell).

In the meantime, I suggest using the “B word” (buy) or “A word” (accumulate) to make your decisions about gold.

Tags: 911, Bank Gold, Bank Purchases, Buying A Lot, Buying Gold, Central Banks, Doug Casey, Financial Crisis, Fourth Quarter, Global Demand, Image Banks, Nbsp, Philippines, Q1, Radar, Russia, South Korea, Wgc, World Gold Council
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Emerging Markets Radar (April 9, 2012)

Sunday, April 8th, 2012

Emerging Markets Radar (April 9, 2012)

Strengths

• The Hungarian PMI surged above expectations in March to 56.8, the strongest reading in the last thirteen months, reflecting the positive impact of the opening of the brand new Daimler AG plant. The Czech manufacturing PMI has also improved.
• Brazil’s consumer prices rose 0.21 percent in March from February, the government’s statistics agency said in a report distributed in Rio de Janeiro today. Economists surveyed by Bloomberg had expected inflation of 0.37 percent, according to the median forecast of 50 analysts.
• Chilean consumer prices rose 0.2 percent in March from the previous month, less than analysts’ forecast, bringing annual inflation back within the central bank’s target range for the first time in four months.
• China official March PMI was 53.1 versus the estimate of 50.8, rising 2.1 from February; new orders were up 4.1 points at 55.1 percent. Nevertheless, due to seasonality, March’s PMI is usually 3 points better than February’s, therefore, the market is cautious about the better-than-expected PMI for last month. PMI above 50 indicates industrial activities are expanding.
• China’s March non-manufacturing PMI was 58 versus 48.4 in February, indicating consumer consumption may be resilient.
• Philippines inflation eased to 2.6 percent on a year-over-year basis in March from 2.7 percent in February. A base-year comparison suggests inflation in the country will remain subdued in April. However, inflation trends should turn up from mid-year driven by a resumed rise in oil and commodity prices and strengthening domestic demand.
• March housing transactions increased 40 percent in Beijing, and similar increases were also seen in other tier 1 and tier 2 cities. Some analysts say buyers are encouraged by the fact that the Chinese government had historically failed in curbing housing prices, but others say March sales volume is always the equivalent of combined sales of January and February in the year and March of this year didn’t see better volume than prior years.
• Indonesia’s parliament did not pass the fuel raise bill which was to remove the fuel subsidy and raise fuel prices by 33 percent.

Weaknesses

• The Russian central bank chairman said the liquidity deficit faced by the financial industry is the “new norm” this year. One of the reasons is a continued capital outflow. Russians spent $12 billion on foreign property last year, compared with $5.5 billion a year in 2007 and 2008, according to the chairman.
• Colombian policy makers meeting last month were divided over the need to raise interest rates further to keep inflation in check. Analyst Brian Lesmes, at Grupo Bancolombia in Bogota, said that though inflation and credit demand have eased, further tightening may be needed to cool household demand.
• Thailand inflation edged up to 3.4 percent year-over-year in March from 3.3 percent in February, but base-year comparison suggests inflation in the country will remain subdued in April.
• Indonesia is to discuss an export tax on coal and base metals, which is negative for local materials companies but good for global coal and base metal producers.
• Taiwan may implement a capital gains tax on stock trading profits.

Opportunities

• Citigroup Inc. raised South African equities to overweight, the equivalent of a buy, on expected strong earnings growth and companies’ expansion into Africa’s fast-growing frontier markets, the bank said.
• In the last decade, Indonesia has restored stable economic growth and, therefore, has improved its wealth. With opportunities to build vast infrastructures and industrial complex, foreign direct investments (FDI) now are returning to the country. The increasing FDI has driven up demand for industrial estate and building materials, such as cements.

Threats

• Brazil’s tax agency said on Wednesday that intra-company commodities exports and imports by multinational traders must be settled using international prices. The country’s Federal tax authority said the measures are aimed at ending “price manipulation” of inter-company imports and exports that allow multi-national companies to evade local taxes.
• Peru is renegotiating with Mexico to cut natural gas shipments after allocating gas reserves to its domestic industry, a Peruvian government official said. Approximately half of the shipments will be cut, the president of state oil contracting agency Perupetro said this week.
• The Chinese economy is still in the process of a soft landing, but the policy response may fall behind the curve. In 2012, corporate revenue growth is predicted to be much slower than 2011, with gross margins also expected to be lower due to weaker demand and a rise in input costs.

Tags: Beijing, Brazil, China, China Official, Chinese Government, Commodities, Commodity, Commodity Prices, Consumer Consumption, Daimler Ag, Economists, Emerging Markets, Four Months, inflation, Philippines, Pmi, Radar, Rio De Janeiro, Russia, Sales Volume, Seasonality, Statistics Agency, Target Range, Thirteen Months, Tier 2
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Global Stock Market Moving Averages: Tide Lifts Some Boats More than Others

Thursday, January 12th, 2012

I often use the 50-day moving average as an indicator of the secondary trend of a stock market, and the 200-day moving average as an indicator of the key primary trend. Specifically, one would like to see a stock market index trading above both these measure, but importantly above the longer-term 200 day line.

I have analyzed the numbers using yesterday’s closing levels, and the following are a few key observations:

• The global stock market rally since the third week of December has pushed most benchmark indices above their 50-day moving averages. Among the bigger markets, Japan and China are notable exceptions.
• Notwithstanding the rally, most markets are still trading below their 200-day averages.
• However, there are a few exceptions. Among mature markets, these include Ireland, U.S., U.K., Switzerland and Denmark.
• As far as emerging markets go, the ones trading above the 200-day averages are: the Philippines (that has just made an all-time high), Venezuela, South Africa, Mexico, Indonesia, Thailand and Brazil.
• Some of the worst performing mature markets, according to the 200-day lines, are debt-ridden countries such as Greece, Portugal and Spain, but Japan, New Zealand and Austria are also lagging.
• The emerging markets lagging the 200-day averages by most include Pakistan, Sri Lanka, Turkey, China, the Czech Republic and India.

The tables below show the detail, with stock markets ranked from those trading the furthest below their moving averages to the ones that are the furthest above the averages.

Developed markets: ranked according to 50-day moving average

Developed markets: ranked according to 200-day moving average

Emerging markets: ranked according to 50-day moving average

Emerging markets: ranked according to 200-day moving average

Tags: Boats, Czech Republic, Denmark, Emerging Markets, Exceptions, Global Stock Market, Greece, Index Trading, Indonesia, Market Rally, Mature Markets, Moving Average, Moving Averages, Pakistan, Philippines, South Africa, Stock Market Index, Stock Markets, Tide, Venezuela
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2010 Global Markets Performance

Thursday, November 4th, 2010

by Bespoke Investment Group

We last updated our chart of country stock market performance at the start of September, when markets were on the cusp of rallying for the next two months.  Below is an update of the year-to-date performance of the major stock market indices in 81 countries around the world.

At the moment, the average 2010 performance of the 81 countries listed is +12.19%.  As shown, Sri Lanka leads the way with a gain of 97.16%.  Bangladesh ranks 2nd at 74.88%, followed by Estonia (62.46%), Lithuania (49.56%), and the Philippines (43.54%).  Of the G-7 countries, Germany has done the best with a gain of 11.30%.  Canada ranks 2nd at 7.24%, and the US ranks third with a gain of 6.78%.  Japan has been the worst performing G-7 country with a decline of 13.15%.  Italy and France are both down still for the year as well.

Of the BRIC countries, India is leading the way with a gain of 17.18%.  Russia ranks 2nd at 11.08%, followed by Brazil (+4.84%) and then China (-7.51%).

Copyright (c) Bespoke Investment Group

Tags: Bangladesh, Bespoke Investment Group, Brazil, BRIC, Bric Countries, BRICs, Canada Ranks, Canadian Market, China, Countries Around The World, Country Stock, Cusp, Decline, Global Markets, India, Italy And France, Japan, Leading The Way, Philippines, Russia, Sri Lanka, Stock Market Indices, Stock Market Performance
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