Precious Metals | timiacono.com

Me Again

The subject of yesterday’s World Gold Council report on gold demand in China and the misleading take on that subject at Reuters was the primary topic of discussion yesterday when I chatted with Cory Fleck and Al Korelin over at the Korelin Economics Report.

The World Gold Council report can be found here, the Reuters story here, and my take on the wide gap between the two at Seeking Alpha here in a report that provided all the detail behind some of the things that were covered during the interview.

The .mp3 file is again available here at the blog – just click on the image to the right – or you can go directly to this page over at KER.

It wasn’t much fun for gold investors yesterday as, on the one-year anniversary of last year’s tax day smack down (as detailed in this item over at Mining.com), the gold market was hit a gain with the familiar combination of bearish calls by U.S. investment banks and heavy selling that seemed designed to trigger stop loss orders and exacerbate the decline that the heavy selling prompted.

It looks like precious metals have been able to hold firm at their lower levels in overnight trading, however, what we see today is anyone’s guess.

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More evidence that the mainstream financial media often gets it wrong when reporting on precious metals in general and gold in particular when it comes to reporting on anything other than its price comes via this story at Reuters on Tuesday.

It seized on a few comments at the tail end of a World Gold Council report to craft the sensationally bearish China may have 1,000 tonnes of gold tied in financing – WGC which was not only misleading, but violated some very important rules about context.

Author A. Ananthalakshmi, who according to her page at Reuters has recently dealt exclusively with the mundane, day-to-day reporting on the gold market until this offering, exorcises all of the grey area out of the following paragraph found on page 56 of the World Gold Council’s 57 page report:

The use of gold for purely financial operations is a form of demand that represents a small part of the much wider growth in shadow banking, which while entirely legal, is considered a grey area. Not surprisingly, there is little hard data on the shadow banking sector but J.P. Morgan recently estimated it at RMB46tn (US$1.7tn), equal to about 84% of China’s GDP. No statistics are available on the outstanding amount of gold tied up in financial operations linked to shadow banking but Precious Metals Insights believes it is feasible that by the end of 2013 this could have reached a cumulative 1,000t, equal to a nominal value of nearly $40bn.

It is then offered up as simply this at Reuters:

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This World Gold Council report about demand for the precious metal in China was blamed for much of today’s sell-off, a move lower that brought back memories of  what happened exactly one year ago, on April 15th, 2013, when the gold price plunged more than $150 an ounce, this following a free-fall of almost $100 the Friday before.

Of course, the Reuters report China may have 1,000 tonnes of gold tied in financing – WGC and the Wall Street Journal’s China Is Losing Its Taste for Gold didn’t help matters.

Also, like a year ago, it didn’t help that Goldman Sachs analysts were out with what seems to be a weekly reiteration of their very bearish forecast for metal prices.

Recall that, a year ago, Goldman loudly expressed their negative view on where prices were headed – taking the unusual step of recommending that clients short the metal – and it didn’t take long for twitchy futures traders to act upon that advice.

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Renewed tensions in Ukraine, a weaker U.S. dollar, and a faltering domestic stock market combined to support precious metals prices last week as most risk assets declined. Dollar weakness appears to be the biggest short-term driver for gold while steady demand in China and India continues to be one of the most important long-term factors and recent news from Asia has been encouraging during what is a seasonally weak time of the year.

GoldWhile some gold market analysts are again bullish after recent gains, big investment banks are still mostly bearish, while U.S. investors remain largely uninterested in precious metals, neither buying nor selling. That could soon change, however, as surging U.S. import/export and wholesale prices have suddenly rekindled inflation concerns with more data available this week when the Labor Department releases the March consumer price index.

The technical picture for precious metals has seen a major improvement in recent weeks but, according to this Bloomberg report, big investment banks such as Goldman Sachs and Morgan Stanley remain very bearish. Better looking charts were a key reason why respondents to Kitco’s weekly gold survey were surprisingly positive with nearly two-thirds of those surveyed seeing higher prices in the week ahead as shown below.

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