India And ETF Demand Down

The Bull market run in Gold prices seems defused for the moment (at least), with holdings in Gold ETFs fast deteriorating and Gold prices down by around 30% since the lifetime high of $1921 in Sep 2011. While central banks worldwide have not stopped to printing more money yet, the US Fed has hinted at tapering its QE program (subject to the US Economy) continuing recovery and may end the program mid 2014. The problem is no one but the Fed sees better U.S. Economic growth. The Fed by no means implicitly said they were putting their foot on the brakes, just that they may be taking it off the accelerator, but surly knew of the after effects of the hinting. The massive quantitative easing programs initiated by the Fed right since 2008 had triggered panic regarding high inflation based on the mega money printing undertaken, which lead to the huge rally in Gold prices till Sep 2011.

Gold prices plunged 6.3% in a single session last week after U.S. Federal Reserve Chairman Ben Bernanke said the U.S. central bank could start winding down its $85-billion-a-month bond-buying program later this year. Inflation is yet seen (at least by the Fed) far below any panic levels, though the Unemployment rate remains a worrisome factor. When inflation is falling and the stock markets are performing well, precious metals can tumble sharply. Economic slowdown and a potential credit collapse in China while extensive Government imposed curbs on gold imports in India can also have a forceful impact on the future gold demand which will surely have an inverse effect on gold prices. India also plans to ban Gold sales by bullion and jewelry dealers to keep demand for gold in the near future under tight control. This can have serious repercussions on gold prices globally as India is by far yet the world’s largest consumer of Gold. Furthermore, a major technical breakdown in gold prices has intensified the bear market.

Weaker Forecast for Gold Prices keeping buyers away:
Goldman Sachs has again reduced its outlook on gold prices for 2013 and 2014 after US economic outlook brightened. The Investment bank said it now expects gold prices to end this year at $1,300 a troy ounce, down 9.4% on its previous forecast. It sees gold prices ending 2014 at $1,050 an ounce, down 17.3% on its earlier outlook.

Physical short supply may also supply bottom to falling Gold Prices:
Lower gold prices should prompt producers to scale back production of the metal. Barrick Gold, the world’s largest gold miner, has decided to temporarily close its operations in Western Australia as gold prices continue to fall. The Canada based gold mining company said falling gold prices continue to weigh on the sector as the prices have fallen steadily this year from around $1700 to below $1300 an ounce. Barrick Gold has already trimmed its WA staff by 60 people this month but will not comment on speculation that it will announce the loss of up to 100 jobs later this week, but concedes it is operations are facing cost pressures and it needs to make savings where possible. Gold prices should therefore find longer-term support at lower levels.

What WILL act as a Catalyst for Gold Prices to form a sustainable bottom?
Gold is a speculative asset that is prone to big price declines even in a secular bull market. One needs to remember that Gold is traditionally viewed as a safe store of value at times of weakness in the wider market, and is sought as a hedge against inflation and currency debasement at times of loose central bank monetary policy. Also that Gold, a non-yield bearing asset and a traditional inflation hedge, tends to be particularly sensitive to interest rate changes compared with other riskier assets such as equities. A lot of analysts & economists believe that fundamental long-term force driving the gold prices, is not mine supply nor bullion or jewelry demand from India and China, but the real interest rates by major economies.

China will have to take serious and huge monetary action anytime soon to prevent a full blown credit collapse and deflationary spiral. Also the ECB has been talking about pursuing unconventional measures and Mark Carney, the new head at the BOE, would like to take more monetary action. This very action has been the driver of higher Gold prices, at least since 2008.

Moreover, the U.S. Stock and Bond market bubble created by the non-stop monetary easing is bound to meet its day of reckoning and collapse soon. Stock market declines will push money out of equities and into Gold markets again while the dollar currency debasement will play its due part in raising gold prices. The good news is that the storm is only just beginning to brew at this point. The bad news is it could be a perfect storm for some more time to come. All asset classes are being whacked today. Rising bond yields (lower bond prices) are leading the way down. Stocks are following bonds. As prices fall and margin calls get sent out, investors have to take the hit or provide more money. The United States will become more and more financially isolated from the rest of the world. Those still in power will do everything they can to maintain it. In the process, they will destroy the economy (whatever is left of it), civil liberties, and the means of earning an honest living. It will get ugly, especially for those less prepared, like those who chose not to buy gold or silver at any price when they could. I have repeatedly been writing and warning on the looming devaluation of the US Dollar in a BIG way. This one could catch a lot of people off guard. Most Americans think it only happens in poor or debt-ridden countries. Wake up! How low could the dollar fall? No one knows, but odds are heavily in favor of a massive devaluation.

As also mentioned earlier – Government Bail-ins, and/or confiscation of a different kind could be one more reason that tilts the scales in the favor of Gold. Nothing, absolutely nothing happens in the banking world that has not been sanctioned, not by just the central banks, but by the controller of ALL central banks, the Bank of International Settlement, [BIS]. This is where the head of the illuminati rule, unseen, unaccounted for, but they measure every “dollar” they deem you should be “earning” for your slave labor. The BIS is the Rothschild formula in action. Lend out fiat, demand actual assets in return payment. Another potential form of government confiscation will be forcing public pensions, for sure, and eventually all forms of retirement accounts to buy [worthless] government bonds. Civil war, [government induced], social upheaval, revolution. These are the more extreme forms of what can happen that will impact the [worthless] “value” of fiat currencies.

Beware – Inflation and Gold Prices are playing “Wolf, Wolf”:
For years, investors have pumped in money into Gold on the fear that Inflation will hit the roof due to the huge money printing undertaken by global central banks and more especially, by the US Federal Reserve. Gold prices rose but Inflation was never seen (as per data compiled and assured by the Fed) and now that the Fed has hinted on its intentions on tapering the QE program which helped gold prices zoom to a lifetime high of $1921 in Sep 2011 from below $400 in 2005, gold investors are feeling the jitters.

As all bad things occur when least expected, so will Inflation, right then, when the hedge is down. Remember, China is on the verge of facing a a full blown credit collapse and deflationary spiral. Commodity producers around the globe are wondering who they could sell their products to if China is in trouble and cannot get out. The Chinese central Bank will have to take serious and huge monetary action anytime soon. This surely has the potential to lead to higher raw commodity prices. Remember the last time when China had launched the “Mother of all QE’s? All commodities will enter a bull market and headline inflation will take quantum leaps. China and other emerging markets that have been the only real engine of growth globally are in economic trouble and face a slowdown while the developed world is over leveraged, sitting on huge deficits, and suffering economic slippage.

How can logically sound arguments, supportive of QE Tapering, exist in such a global financial mess? – Think again. The Fed will not be able to taper the QE program so soon – let alone end it.

Conclusion
Meanwhile investors who have had burnt their fingers in Gold investments on sharp declines in gold prices (doing the buy paper gold on all dips with upside expectations) will have turned full time bears and will then sell on all rises to again lose whatever little capital they may have been left with after the downside carnage. Most investors may already not have enough left with to invest in physical gold after the recent bloodbath and the one earlier in April and may again opt for the leveraged paper gold. The wise ones may though buy Silver or swap their gold for silver investment which has taken a huge hit of over 65% since its high of around $50 in April 2011. My personal disclaimer being – I have done the same, that is invest in silver, as I am invested in Rupee rates (which may rise against the US$ when the dollar collapses) and also swapped most of my Gold for Silver, though I yet do hold quite some gold. None the less, Silver and Gold prices in Dollar rates are bound northward – just have some patience.