Gold & Silver Digest: 2/7/13
The Gold & Silver Digest contains headlines of stories that members of this group deem relevant and/or interesting to precious metals enthusiasts.
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2/7/13 6:17 PM EST US close metals price quotes from Finviz
NEW YORK, Feb 7 (Reuters) – Gold fell in a volatile session on Thursday after comments by European Central Bank (ECB) President Mario Draghi ignited renewed economic fears over the euro zone.
The metal fell in tandem with U.S. equities and industrial commodities on recession worries after Draghi's comments triggered a nearly 1 percent drop in the euro against the dollar.
Draghi said that economic activity in the euro area should gradually recover later in 2013 but there are more negative risks than positive ones.
More than one year ago, I published my first column on Marketwatch.com named Dead Yen Walking . In that column, I advocated what I believed to be the best investment opportunity for the next few years, going long USDJPY (long the U.S. dollar vs. the Japanese yen), long CADJPY (long the Canadian dollar vs. the yen) and long XAUJPY (long gold vs. the yen).
The foundation for my recommendations was simple; the Japanese economy is a basket case. Japan's debt-to-GDP ratio is rapidly approaching 230% (by far the worst in the world), their trade surplus is morphing into a trade deficit, and their population is aging as well as shrinking. It is simply impossible for Japan to repay its debts.
U.S. officials are concerned that Turkey's gold sales, which allow Iran to export natural gas, provides a financial lifeline to Tehran, which is largely frozen out of the global banking system by Western sanctions imposed over its nuclear programme.
These days there is much debate about the future direction of gold. Fundamentals of gold are muddled. On one hand central banks continue to print lots of money, but on the other, inflation seems to be under control.
Under such circumstances when the fundamentals are in flux, one can gain greater insight by turning to technical analysis for guidance.
While the DOW flirts with 14,000, now just 1.2% below its all-time closing high of 14,164.53, the DOW:Gold ratio remains near 20-year lows.
As of the February 6, 2013 close of 8.33, the Dow-Gold Ratio is up 45.9% from its 21-year low of 5.71 set on August 22, 2011. The Dow-Gold Ratio is a measure of inflation and stock market sentiment. It shows how many ounces of gold it takes to buy the 30-stock Dow Jones Industrial Average.
China produced the most gold in world last year, making it the largest producer for the sixth straight year even as it remained the second largest consumer of the yellow metal after India. China's gold output increased 11. 66% from a year earlier to hit a record high oftonnes in 2012, China Gold Association said.
The output was almost 100 times that of 1949, when the country produced just 4.07 tonnes, state run Xinhua news agency quoted the association as saying.
It attributed the increase to favourable government polices, which have put the industry on a fast track and made it a pillar industry in many of the country's gold producing areas.
When you turn to the East and look at Japan, we are now almost at a record high gold price as measured in Japanese yen. I think that tells you all you have to know about where the whole world is going in terms of the gold price. The Japanese are being so overt about their intent to debase the yen that it’s being reflected in the gold price over there.That’s coming to America, Europe, and the rest of the world, where we see the same type of debasement going on… – John Embry, King World News
There's been a lot of media misdirection and appallingly invalid commentary about the relative strength of the economy and the outlook for the precious metals. I've addressed the first issue in some previous posts, most notably my recent post on housing.
One of the compelling (and lately, reassuring) things about the silver investment thesis is that it works pretty much no matter what happens. If the financial system spins out of control capital will flow into precious metals as the last form of stable money. And if "normal" growth resumes, then tight silver supplies will run into growing industrial demand, sending the price way up.
Meanwhile, new uses for the metal keep popping up. It's a crucial part of silicon-based solar cells, for instance, so as solar panels cover the world's rooftops more and more silver is taken out of circulation.
If the US dollar collapses, it will have a dramatic impact on the world economy because the dollar is the standard unit of currency for commodity markets, especially gold and oil. The U.S. dollar is still the world’s reserve currency, but the reality is that it can lead the world into an economic depression.
Nations with large external debts will not be able to trade sufficiently to earn the needed income to service their debts. They will slide into bankruptcy. However, countries such as Russia and China are taking necessary steps to avoid an economic tsunami caused by a collapse of the US dollar by announcing in 2010 that they will use their own currencies which is the Russian Ruble and the Chinese Yuan for bilateral trade.
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