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Showing posts with label confidence. Show all posts
Showing posts with label confidence. Show all posts

Monday, November 14, 2016

The dollar vs. gold dichotomy: As dollar strengthens it opens door for greater gold buying

As we have mentioned many times before here at The Daily Economist, you should not value gold simply in its relation to the dollar.  In fact, all one has to do is look at countries like Venezuela and now India to know that when a nation's currency loses confidence or value, gold soars to all-time highs in relation to their money.

Of course we in the U.S. quite often are only interested in what happens to things in relation to the dollar, and in many cases rightly so since it still holds the position as the global reserve currency.  But that in itself should not be a deterrent since the recent strength in the dollar has created an incredible buying opportunity for physical gold.

5 Day dollar chart:


One Week Gold Chart:


As you can see in the above charts, in the same period that the dollar climbed 400 bps to over 100 on the index, gold fell to $1216 and its lowest point vs. the dollar in some months.

But here is the catch many gold bugs fail to realize... when the dollar strengthens it means that your purchasing power in that currency is much greater, so you inevitably get more 'bang for your buck'.  It is only when the dollar is collapsing and gold prices are also falling that purchasing gold becomes a losing proposition.

A stronger dollar is bad news for foreign markets as seen by the historic drop in the Chinese Yuan as well as in the Euro and Yen.  And it also means that investors and traders there will be looking towards gold as a safe haven to protect against the devaluing of their currency, which will lead to even greater shortages in gold than we already have today.

Tuesday, August 30, 2016

As the new housing bubble gets ready to burst, gold will be the beneficiary as it was in 2007

The new housing bubble the Fed helped create through its policies of cheap money and stimulus is a bit different than the one that burst in 2007, but the consequences will be very similar.

From 2004-07, low interest rates and sub-prime lending fueled a housing bubble that engulfed buyers from nearly every level of the economic ladder.  From ninja loans (no income, no job) which helped families living below the poverty level to buy 'McMansions' costing over $600,000, to home builders racing to put up new communities by the thousands which didn't even have enough buyers to fill, the result was a complete collapse of the housing market, and spawned the Credit Crisis that nearly collapsed the global financial system.

However today's new housing bubble is quite different, but just as spectacular nonetheless.  Because instead of low income Americans being the buyers in the market like in 2004, today the majority of buyers are foreigners with billions of dollars to spend, and the willingness to purchase property no matter how overpriced it is.

And like in 2007, this bubble has suddenly hit the skids and is now bursting as areas such as the Hamptons, Aspen, Miami, Vancouver where even the rich are finding it impossible to sell in an environment of shrinking buyers.

Hamptons:
One month ago, we said that "it is not looking good for the US housing market", when in the latest red flag for the US luxury real estate market, we reported that sales in the Hamptons plunged by half and home prices fell sharply in the second quarter in the ultra-wealthy enclave, New York's favorite weekend haunt for the 1%-ers. 
Reuters blamed this on "stock market jitters earlier in the year" which  damped the appetite to buy, however one can also blame the halt of offshore money laundering, a slowing global economy, the collapse of the petrodollar, and the drastic drop in Wall Street bonuses. In short: a sudden loss of confidence that a greater fool may emerge just around the corner, which in turn has frozen buyer interest.
Aspen:
The statistics are stunning: single-family home sales in Aspen are down 62% in dollar volume through the first-half of the year. Sales of homes priced at $10 million or more — almost always paid for in cash — are down 60%. Last year, super-high-end transactions accounted for nearly a third of sales volume in Pitkin County. 
“The high-end buyer has disappeared,” said Tim Estin, an Aspen broker whose Estin Report analyzes the Aspen-Snowmass real estate market. 
"Aspen has never experienced such a sudden and precipitous drop in real estate sales," according to the post.
Miami:
Luxury condo sales in Miami have crashed 44%. 
According to the latest report by the Miami Association of Realtors, the local luxury housing market is just as bad, if not worse, than the Hamptons and Aspen. 
The latest figures out of Miami this week showed residential sales are down almost 21% from the same time last year. But as bad as this double-digit decline may seem, it pales in comparison to what’s happening at the high end of the market. 
A closer look at transactions for properties of $1 million or more in July shows just 73 single-family home sales, representing an annual decline of 31.8%, according to a new report by the Miami Association of Realtors. In the case of condos in the same price range, the number of closed sales fell by an even wider margin: 44.4%, to 45 transactions.
Vancouver, Canada:
Needless to say, while most Vancouverites had long been priced out of the domestic real etate bubble - and some say were hoping for the recent substantial pullback in prices, if not outright crash - the biggest losers from this sudden, dramatic collapse, were foreign buyers, mostly the Chinese, whose aggressive, "buy at any price" money laundering "purchase tactics" have been duly documented on this website for the past year. 
The result was swift: as Bloomberg reports, China’s top envoy in British Columbia slammed the Canadian province’s new 15% tax on foreign home buyers, questioning the justification behind the hastily imposed measure
"Why a 15 percent tax? Why now? Why this rate? What’s the purpose? Will it work?"
Liu Fei, China’s infuriated consul general in Vancouver, said in an interview with Bloomberg. "The issue is how to help young people afford housing," she added. "I’m not sure even a 50 percent tax would solve the problem."
Back in 2007, the beneficiary of the crashing housing bubble was of course gold and silver.  And the collapse of housing was the catalyst which sparked the crisis of confidence that took gold to its new all-time high in 2011.

Image result for gold price chart 2007 to 2011

2016 saw the year begin with a huge move in gold, only to use the summer months to consolidate in the $1320 - $1350 range.  And just as we saw the price begin its historic move upward in September and October of of 2007 when the housing bubble finally burst, so too will we see the metals follow the same course as confidence in the financial system will bring in even more buyers than a decade ago.


Monday, May 9, 2016

London gold market a ticking time bomb as they have zero gold to backstop $200 billion in daily traded contracts

When central banks embarked on their course of zero interest rates and quantitative easing programs five years ago, the biggest threat to their schemes was if the public ever lost confidence in their power to devalue their currencies.  And the one key financial element that would be the catalyst for destroying that confidence was the gold price.

So to ensure that central banks could perpetually continue a money printing ponzi scheme, they had to also embark on a program of gold price suppression.  And they did this with a two-fold process.

1.  Lease (sell) gold on the markets to help suppress prices.
2.  Naked short the futures market (which currently determines the daily price) with hundreds of thousands of contracts.

The result of course is that it created a lack of confidence in the gold markets, because buyers were less willing to invest in this commodity/money if they knew that prices would be manipulated downward in a concerted effort by the Comex, the bullion banks, the Fed, and the regulators.

But as with all ponzi schemes, it only takes one slip up to blow the whole thing wide open.  And with a growing understanding that the banks have little or no gold at all to backstop what is a $200 billion per day paper market, the clock is ticking on a massive time bomb that only needs a small push to blow the scheme wide open, and free gold to fair price discoveries once and for all.

Intuitively, we think that central banks might have lent/leased gold to maintain the status quo and mask what is technically a default. However, rather than being used to provide temporary liquidity, it is possible that loans/leases are being rolled. This is not sustainable and implies dual ownership claims.
Going forward, the market is vulnerable to several trends in physical gold trading patterns: 
  • Since 2009, central banks have switched from net sellers to net buyers ;
  • The extraordinary strength in Chinese gold demand as indicated by withdrawals of bul-lion on the Shanghai Gold Exchange, e.g. an astonishing 2,597 tonnes, or more than 80% of all of the gold mined worldwide, in 2015;
  • The rebound in gold held by London-based gold ETFs, which has been increasing since January 2016, as western investors dip their toes back into physical gold; and
  • Net gold exports by the UK - mainly to support strong Asian (especially Chinese) demand - which have been a feature of the market since 2013.
But the vulnerability is not confined to current trends in physical bullion.
If there is no gold float, there is nothing supporting more than US$200 Billion of trading every day in unallocated (paper) gold instruments which accounts for more than 95% of gold trading in London. 
The convention of trading unallocated gold has been based on a fractional reserve system. It works as long as gold buyers retain confidence that the banks could deliver physical gold if demanded, but our analysis suggests that they could not.For more than four years, selling of paper gold overwhelmed growing demand for physical gold from the likes of China and central banks (in aggregate). The “gold market” became a chimera as fundamentals were turned upside down. Banks added paper “gold supply” in almost elastic fashion on occasions when western investors increased net gold exposure via paper gold instruments. 
We’ve argued for many years that a breakdown and bifurcation in the gold market between physical and paper gold substitutes would be necessary for accurate price discovery of physical gold bullion. The lead article in the January 2016 edition of the LBMA’s quarterly magazine was titled “Wholesale Physical Markets are Broken”, which might be confirmation that this process is reaching an advanced stage. - Zerohedge

Wednesday, April 27, 2016

As gold replaces the dollar as the world's new safe haven, the U.S. currency's chances of collapse are skyrocketing

Since the beginning of the year there has been not just a reversal in market sentiment for gold and silver, but a complete sea change in what is the right safe haven to move one's assets into.  Prior to January of 2016, the U.S. dollar was by far the currency in which central banks and foreigners put their money to protect against their own monetary policies of devaluation.  But as gold broke through its five year Bear market technicals in January, the dichotomy between the rise of the precious metal and the decline of the dollar has become much more profound.

Gold Chart

Dollar Chart

And in an interview today with esteemed statistician John Williams, the creator of ShadowStats.com said that not only are foreigners dumping their dollars in increasing levels, but the direction of this trend has the potential to collapse the dollar as trillions in currency holdings are being sent back by nations who no longer have confidence in the global reserve.
We have started to see selling pressure on the dollar.  It has been inching lower.  It’s down year to year now. . . . The selling is going to intensify, not only with large central banks, but with corporations that will be beginning to dump their Treasury holdings. . . . Nobody wants to be the last one out the door when you have a panic like this.  It’s not a panic yet, but the potential certainly is there.” 
Williams also says, “The dollar will blow up, and when I say blow up, it will collapse. There will be panic selling of the dollar, and that will intensify the inflation.  The problem is they don’t have a way of avoiding it.  If they could somehow get the economy back on track, they would have some room to work, I think, but the economy has never recovered.  That’s being seen now in these revisions.  At the end of this week, we are going to see bench mark revisions to retail sales. . . . So, you are going to see some downside revisions to the retail sales.  You already have it with industrial production, and now you are going to have it with retail sales.  We are very close to turning negative with the first quarter GDP . . . We are in a recession now, and they would be inclined to call it that once they get a contracting GDP, and everything else is beginning to show that. . . . You are going to see a formal recession declaration not too far down the road.  It hasn’t happened yet, but it will.” - USA Watchdog

Friday, April 8, 2016

CFR President acknowledges that America’s massive debt will lead to the end of the dollar as global reserve currency

While only a small number of Americans actually understand that the Council on Foreign Relations is one of many institutions that act as the ‘power behind the throne’ for the U.S. and other Western governments, what is most important for the people who reside in these nations under their control is when they publicly disclose policies or agendas that will play an important role for their futures.  And on April 7, the current President of the CFR may have provided a glimpse into that future when he spoke to Congress and emphasized that the days of the dollar as the global reserve currency may be coming to an end due to the massive debt the U.S. has undertaken to try to sustain both the economy, and global hegemony over the world’s financial system.

dollar-whirlpool

Read more on this article here...

Tuesday, February 23, 2016

Gold versus silver ratio the highest since 2008 at 80 to 1

In a sense you could almost put gold and silver in this respect… buy gold for wealth protection and buy silver for investment speculation.  This is because the gold and silver ratio has hit their near all-time high of 80-1, which was last seen near this level seven years ago at the height of the Credit Crisis.
And in that period of time, the banksters have manipulated silver much more than gold to mask their inflationary schemes of quantitative easing, and protect the dollar when these monetary metals would have revealed the currency for what it now really is… near worthless.

Read more on this article here...

Friday, February 12, 2016

JP Morgan analyst admits people having more confidence in gold than in paper money

Feb. 11 was a watershed day for gold as the metal rose more than $60 at its peak to have its best single day in seven years, and the second highest single day move in history.  And according to many analysts, including one over at JP Morgan, this rise is not an anomaly, and is showing that people are finally losing confidence in paper currencies and rushing as fast as they can into gold.
There is a serious credit contraction underway, I think [Yellen] should acknowledge that. I think she has to look at the capital base being wiped off the banks in this downdraft and equities: that's not supposed to be happening right now. They're supposed to be bulletproof, and oh, by the way, gold at $1,200 an ounce, what does that tell you? It tells you that in a flight to quality, in a safe haven, people have more confidence in gold than in bank deposits or paper money. I think things have gotten out of control." - Zerohedge
This assessment is certainly true in both China and London where some bullion dealers experienced a rush into gold so great, people were lining out around the block just for the chance to purchase dwindling supplies.
London-based ATS Bullion added it had been inundated with orders for the past week. The firm has sold 4,000 gold bars and coins since February 1, a 40pc rise on the same period a year ago when it sold 1,500.  
"It's been crazy - it's been the best week since 2012. We've had people queuing round the block," said Michael Cooper of ATS Bullion, a family run firm that trades online and also from an outlet in the West End. - Telegraph


Monday, September 7, 2015

Paper based financial system losing its sole primary foundation… confidence

When America removed its currency from the gold standard back in 1971, the dollar become backed by a single concept… the full faith and credit of the United States.  And with the entire fiat paper financial system tied to this singular foundation of confidence by the people, and in the government, all that was necessary for the greatest empire in history to fail was for the world to lose confidence in that belief.
And now 44 years later, faith in not only the dollar but also in the United States is cracking, and accelerating towards a meltdown that will soon end dollar hegemony within the global financial system.  And because of this, the elite are left with few options available them to be able to hold onto their confiscated power.  And perhaps the most ironic and convoluted of their schemes is to accelerate the end of that confidence and eliminate the dollar in physical form all together.

Read more on this article here...

Thursday, September 29, 2011

Consumer belief in the economy reaches second weakest in history

When consumers are happy with their job situations and the economy, then consumer spending seems to go hand in hand with that happiness.  However, besides the fact that consumer confidence on jobs reached a low not seen since 1983, we now discover that consumer comfort is at a near record low as well.

As ES levitates 20-30pts off overnight lows on 'incredible' macro data and 'hope' in Europe, Bloomberg's Consumer Comfort Index just printed the second-lowest reading ever as 93% of those surveyed had a negative opinion of the economy. In almost every demographic, sentiment has fallen to near record lows (except we do note that in the last week those earnings 75k or more modestly improved their outlook though still drastically low). Perhaps the most critical sub-index, given the dependence on a consumer who is not paying his mortgage and living off food stamps, is the Buying Climate, which has only been lower during Q3 2008. We assume the congressional 'super-committee' is paying attention. - Zerohedge

(Chart courtesy of Bloomberg)

So tell us readers... what do you think this chart foretells for the Christmas season, which is just 3 months away?