Commodities | timiacono.com - Part 5

Forgive me for paying too much attention to the tonnes of gold that are now moving mostly into, rather than out of, the trust for the SPDR Gold Shares ETF (GLD), but this could be a very important story this year.

It certainly was last year as one analyst after another concluded that the price of the metal wouldn’t be able to find a bottom until U.S. investors stopped selling.

That’s about all U.S. investors did last year as more than 500 tonnes of gold exited the trust.

The gold price fell, more Westerners sold gold, this exacerbated the price decline causing even more shares of GLD to be sold and the holdings of the GLD trust fell further.

On several occasions last year, the gold price mounted a rally and, toward the end of the rally, some new buying interest emerged.

There were some rather large additions at around the same time that prices peaked, but, once the price reversed course, investors sold their GLD shares like they were hot potatoes.

Well, that’s not happening this year.

[To continue reading this article, please visit Seeking Alpha and to access precious metals commentary that Tim only shares with subscribers, join Iacono Research.]

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In these appearances at CNBC, Marc Faber and Art Cashin share some thoughts about how geopolitical events involving Russia and an economic slowdown/banking crisis involving China are dramatically changing the risk/reward setup for an aging stock bull market.

Faber notes, “”Just in the last six months, there has been a euphoria for U.S. equities. My view is that it’s not a good time to buy … I think going forward or for at least the next 12 to 24 months, investors should consider where will I lose the least money?” He also thinks the Chinese economy is growing at only only 4 percent, rather than the reported 7-8 percent.

Cashin talks about yesterday’s sell-off that is about to resume in trading today, stating the obvious in noting, “The next few days are critical“. One thing is certain, there’s a very strong safe have bid at the moment with Treasuries and gold soaring at the expense of equities.

The precipitous decline in the price of copper over the last three days has dramatically increased the “pucker factor” for global financial markets as an increasing number of traders are taking copper’s price plunge as a cue to sell other assets.

Recall that copper is the metal with a PhD in economics since its use is so widespread and, as a result, its price provides important signals not just about the supply and demand of copper but of the health of both local economies and the global economy. Right now, it’s not saying anything positive about China or the world.

This CNBC report says the plunging price may be “acting as a fire alarm for the global economy” and fire alarms going off are never good. Even if it’s a false alarm, it’s highly disruptive over the short-term and, right now, it’s keeping people from buying stocks.

Bloomberg says iron-ore prices are also tumbling and that steel companies are teetering.

The real problem here is not the metal or the economy – it’s credit – and both copper and iron-ore have been widely used as collateral for sometimes dodgy loans from China’s enormous shadow-banking system that also appears to be teetering.

None of this sounds good…

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Yesterday, for the third time in the last 8 weeks, the trust for the SPDR Gold Shares ETF (GLD) added 7.5 tonnes to its holdings. These are the biggest daily inflows the trust has seen since late-2012 and they signal renewed interest in the metal by U.S. investors, a key prerequisite for extending the current gold market rally.

Last month, for the first time since December 2012, GLD saw a net inflow and the additions have accelerated in the first days of trading in March.

This recent change from outflows to inflows is important because GLD is widely seen as a good gauge of investor sentiment toward gold in the West and, in the view of many analysts (including myself), the gold market needs buying in the West to support higher prices.

Note that this is in sharp contrast to Asia where buying increases as prices fall. Should the gold price rise another few hundred dollars from here, those responsible for the record gold buying in China last year (at much lower prices) are going to look awfully smart as investors and traders in the West chase prices higher.

As shown below using data from the SPDR website, Monday’s big increase in GLD holdings follows the same size increase less than a month ago on February 13th and this followed less than a month after the same size gain on January 17th.

[To continue reading this article, please visit Seeking Alpha and to access precious metals commentary that Tim only shares with subscribers, join Iacono Research.]

Last month, for the first time since December 2012, GLD saw a net inflow and the additions have accelerated in the first days of trading in March. This recent change from outflows to inflows is important because GLD is widely seen as a good gauge of investor sentiment toward gold in the West and, in the view of many analysts (including myself), the gold market needs buying in the West to support higher prices.

Note that this is in sharp contrast to Asia where buying increases as prices fall. Should the gold price rise another few hundred dollars from here, those responsible for the record gold buying in China last year (at much lower prices) are going to look awfully smart as investors and traders in the West chase prices higher.

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A Perfect Storm for Inflation?

It should be pretty interesting to see how everyone reacts if and when sharply higher inflation finally does show up here in the U.S. The economic statistic that, since 2008, has been like the boy who cried wolf will probably have many more doubters than believers right up until the point when it’s too late to do anything about it (that was pretty much the story with the boy and the wolf and, of course, the sheep).

Anyway, they talk about the possibility of a tightening labor market playing a role in higher inflation (a key factor to really get broad-based inflation going) in this clip from CNBC.

That surge in agricultural goods last week took a lot of people by surprise and it’s shown in table form below from a data set that is maintained for the investment website.

Like most commodities, there’s a lot of ground to make up from last year’s drubbing for such products as corn, wheat, and soybeans, but they’re off to a great start this year so far.

It might be a good idea to cut out that extra cup of Joe in the morning as coffee prices just reached a two-year high. Now this is interesting … according to my data, the coffee price surged 77 % in 2010 but then fell 6%, 37%, and 23% in 2011, 2012, and 2013, respectively. Now it’s up 78% so far in 2014.

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