LONDON: Buying by central banks as well as Chinese investors seeking protection from a weakening currency helped lift demand for gold in the final quarter of last year and the trend looks set to continue, the World Gold Council said on Thursday (Feb 11).
China remained the world's biggest consumer of gold last year, ahead of India, with economic headwinds influencing purchasing, the WGC said in its annual "Gold Demand Trends" report. The WGC's members include the world's leading gold mining companies.
Chinese demand for gold coins surged 25 per cent in the fourth quarter from a year earlier as consumers sought to protect their wealth after Beijing devalued the yuan currency. But stock market turmoil and a slowing economy knocked consumer sentiment and Chinese demand for gold for jewellery fell 3 percent from a year earlier, WGC said.
Jewellery is the biggest source of demand for gold globally and a slight dip in such demand meant overall demand for gold was virtually flat in 2015 at 4,212 tonnes.
Central banks have been buying gold to diversify their reserves away from the U.S. dollar and their purchases edged up to 588.4 tonnes last year, second only to a record high 625.5 tonnes in 2013, the report showed.
Central bank buying accelerated sharply in the second half of last year and jumped 25 per cent in the fourth quarter, from a year earlier, as the need to diversify was reinforced by falling oil prices and reduced confidence in the global economy, WGC said.
Alistair Hewitt, WGC's head of market intelligence, was optimistic about the outlook for gold demand given a rally in gold prices since the start of 2016 as investors sought a safe haven from stock market turmoil and warnings of a possible global recession.
Investment demand for gold is improving and flows into exchange-traded funds turned positive this year.
"Looking ahead, physical demand will continue to be supported by strong central bank purchases, and continued buying of jewellery, bars and coins by households across the world, led by India and China," said Hewitt. "If we just look at the year to date, the investment case for gold is as strong as ever. While stock markets have wobbled, gold has performed well."
Chinese demand for gold totalled 985 tonnes last year, followed by India on 849 tonnes. They accounted for nearly 45 per cent of total global demand, with consumer demand up 2 per cent and 1 percent respectively in those countries.
Indian jewellery demand reached its third highest level on record in 2015 at 654.3 tonnes.
Global supply of gold fell 4 per cent last year to 4,258 tonnes, partly because of slower mine production. Mining companies have scaled back since 2013 in a bid to slash costs and mine production shrank in the fourth quarter of 2015, the first quarterly contraction since 2008, WGC said.
SINGAPORE (BLOOMBERG) - Gold jumped to the highest level in eight months on Thursday (Feb 11) after Federal Reserve chair Janet Yellen signalled that the US central bank may delay further interest-rate increases should the turmoil in global markets continue.
Bullion for immediate delivery rallied as much as 1.5 per cent to US$1,214.64 an ounce, the highest since May 22, according to Bloomberg generic generic pricing. The metal, which traded at US$1,208.62 at 9.54am in Singapore, is set for a ninth gain in 10 days and is the year's best performing commodity.
Gold has surged 14 per cent this year as the turmoil sweeping across financial markets stoked demand for haven assets. Ms Yellen said on Wednesday the turbulence had tightened financial conditions by pushing down stock prices, supporting the US dollar and raising some borrowing costs.
Futures traders, who at the end of last year predicted a more than 50 per cent chance of a rate rise in March, now see less than 30 per cent odds that borrowing costs will increase this year.
Yellen acknowledges that the recent market volatility has tightened the financial conditions in the US," Mr Bernard Aw, a strategist at IG Asia Pte in Singapore, said by phone. Haven demand and a weaker US dollar "are the main things pushing up gold prices now", he said on Thursday.
Higher interest rates also tend to hurt gold as the metal doesn't pay interest like assets such as bonds.
ETP Holdings Investors have poured funds into gold-backed exchange-traded products this year as the outlook for the higher US rates has shifted, and as concerns have increased about the potential for further turmoil in emerging markets, especially weakness in the yuan.
Mr Kyle Bass, the hedge fund manager who successfully bet against mortgages during the subprime crisis, said there's scope for a significant devaluation of the Chinese currency.
Holdings in ETPs rose 0.5 per cent to 1,571.3 metric tonnes on Wednesday, the highest level since July, according to data compiled by Bloomberg. Since the start of 2016, the assets have expanded 7.5 per cent following three straight years of losses.
One of America's top money managers predicts gold prices will soon spike.
Gold will shoot up to $1,400 an ounce, according to Jeff Gundlach, the CEO of big bond house DoubleLine Capital. That would be a gain of about 30% from gold's current price of $1,090.
Gundlach thinks gold recently hit a bottom. It's been rallying since the beginning of the year as investors look for safe havens in the stock market sell-off.
Lately, his predictions have been spot on. He was one of the first to predict the sharp oil price crash in the fall of 2014 and then the junk bond turbulence of 2015. He has been dubbed the "new bond king."
Gundlach likes gold -- but not much else this year.
Too many problems around the world
"2016 isn't looking all that great," Gundlach said as he outlined the many problems around the globe.
Here's a recap on how he sees the world:
Global growth keeps getting downgraded.
China is going to cause more havoc because it will almost certainly have to devalue it currency again.
The United States is in a "stealth bear market" where many stocks are actually down 20% from their peaks. Stealth bear markets are usually followed by "full-on bear markets," he said.
Japan isn't just in a lost decade, it's in a "lost generation." He wouldn't put money there.
Emerging markets -- even outside of China -- aren't a good bet either, Gundlach argued because they are so closely tied to commodities.
All of these problems will probably cause gold to rally, although he predicted the gold price spike last year and it didn't happen as gold tumbled to a six-year low in December. Investors in the emerging world are especially likely to stock up on the shiny metal.
There could be a buying opportunity if U.S. stocks do enter a bear market, he said. Right now he thinks the best option for investors is "to try to protect your capital and play another day."
Gundlach is also no fan of the Federal Reserve. He believes Fed officials are out of touch with reality and far too rosy in their forecasts of how much the U.S. and world will grow in 2016.
"I'm thinking of buying T-shirts that say 'In Fed we trust' for anybody who thinks [the Fed's predictions] have any credibility to them," he joked.
CNNMoney (New York)
First published January 13, 2016: 1:45 PM ET
Credit-Default Swaps Are Back as Investor Fear Grows
As markets plunge globally, investors are seeking refuge in an all-but-forgotten place.
Trading volumes in the credit-default swaps market -- where banks and fund managers go to hedge against losses on corporate and government debt -- have surged. Transactions tied to individual entities doubled in the four weeks ended Feb. 5 to a daily average of $12 billion, according to a JPMorgan Chase & Co. analysis of trade repository data. The volume of contracts on benchmark indexes in the market increased two-fold during that period to an average of $87 billion a day.
The growth could represent a shift. The credit derivatives market has contracted for almost a decade, after loose monetary policies triggered a big rally in assets including corporate bonds, which made investors less eager to protect against the worst. Regulators have also urged banks to curb their risk taking, reducing the appetite for at least some dealers to trade the instruments. Now, stock markets are selling off and junk bond prices are plunging, increasing investor demand for protection.
“The surge we’ve seen in trading is likely to stay with us for the foreseeable future,” said Geraud Charpin, a portfolio manager at BlueBay Asset Management in London, which oversees $58 billion and has traded more credit-default swaps on individual credits in the past three months. “The credit cycle has turned, so there’s more appetite to go short and buy protection.”
Risk measures fell on Friday after soaring this week to the highest levels since at least 2012 in the U.S., and 2013 in Europe. The cost of insuring Deutsche Bank AG’s subordinated debt dropped from a record after the German lender said it planned to buy back about $5.4 billion of bonds to allay investor concerns about its finances. The bank’s shares have lost about a third of their value this year.
Deutsche Bank stock began sinking over summer, but concerns about default just recently surfaced
The price of Deutsche Bank stock, once above $30 per share early in the summer, has been on a steady decline since. Real concerns about bank solvency started to appear January 20, when the bank announced its 4th quarter quarterly loss – amid a 4 year string of less than profitable earnings reports. Never ending litigation cost, legal settlements with regulators and increased capital costs weigh on the bank, only boosting investor skittishness during volatile market periods.
Source: Fiscal Times
While Deutsche Bank was proclaiming its version of a fortress balance sheet was unbreakable, those with knowledge of the derivatives that underlie the financial system questioned in muted tones. There was talk the bank might miss its CoCo bond payments, but such an action might trigger panic. The CoCo bonds were designed to force investors to take a haircut on any losses as opposed to turning to the government for a bailout.
[bN. Korean Mobile Ballistic Missile Called Top Threat by U.S.][/b]
North Korea continues to develop a mobile intercontinental ballistic missile that “would likely be capable of reaching much of the continental United States,” the Pentagon said in a new report to Congress on the secretive regime’s military capabilities.
The KN-08 missile would have an estimated range of more than 3,400 miles (5,500 kilometers), and North Korea already has six “road-mobile” launchers for it, according to the annual report delivered to congressional committees Friday and obtained by Bloomberg News. A mobile missile can be harder to track than a silo-based weapon, although the threat from the KN-08 depends on whether it’s “successfully designed and developed,” the Defense Department cautioned.
The new report, reaffirming a judgment about the KN-08 made by the Pentagon in 2013, arrives amid rising tensions after North Korea conducted a nuclear test on Jan. 6 and launched a long-range rocket on Feb. 7. South Korea and the U.S. have said they will begin talks about deploying an American ballistic missile interceptor system known as Thaad on the Korean peninsula.
