Shanghai Gold Trading Jumps as US Gold Derivatives Shrink to 3-Year Low

247Bull.com Editor: If you imagine that the US government is a family and take away all the zeros, it earns $22,000 a year but it spends $38,000 a year. It therefore runs a deficit of $16,000 a year and as a result has an outstanding credit card balance of $143,000. However all the “spending cuts” and tax increases that the US Congress has passed in the past 12 months reduced the deficit by less than $100. The US government’s policy remains extend and pretend, delay and pray, and they remain on the road to financial ruin. In this environment gold has a place in every portfolio. 

Spot gold prices traded in a $10 range Monday morning, rising above last week’s finish at $1656 per ounce as European stock markets cut earlier losses.

Silver prices also whipped in a tight range, holding at $30.25 per ounce by lunchtime in London.

Major currencies and government bonds were also little changed, as were broader commodity prices.

Looking at the broader commodities sector, “In 2012 we had a lot of liquidating by hedge funds,” says Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle, “but there’s an incentive to reverse that because of growth in emerging markets and especially China.

“It’s going to be a good year for commodities.”

US data show speculators raising the size of their bullish commodity bets for the time since November last week.

Speculative betting on the gold price, known as the “net long” position of bullish minus bearish bets, rose 3.1% to the equivalent to 609 tonnes of gold by New Year’s Eve.

That was below the 2012 average of 633 tonnes however, and well below the 5-year average of 722 tonnes.

Overall, the total number of US gold futures and option contracts shrank last week to a 3-year low, dropping below 600,000 for the first time since September 2009.

With the Chinese New Year now 5 weeks away, in contrast, the Shanghai Gold Exchange today reported a sharp jump in physical gold trading, with volume breaking more than 22 tonnes.

“For 2013, an unreliable economy compels us to prefer supply-constrained commodities, especially the precious metals,” says investment bank Morgan Stanley, forecasting average gold prices of $1853 per ounce this year.

“With loose monetary policy and low real interest rates, we believe that gold and silver will likely continue to perform.”

But “I think America will sort itself out and the economy will start moving again positively,” reckons Rene Hochreiter, CEO of Allan Hochreiter Ltd. in Johannesberg and winner of the London Bullion Market Association’s 2012 price forecasting competition.

“As gold declines, as the world economy improves, so platinum, palladium and silver will start to pick up…Platinum may take another year or so before it beats gold and then it’s going to stay above gold for the next upward cycle which could be five or six years,” Hochreiter is quoted by Bloomberg News.

Gold prices will now average $1600 per ounce in 2013 believes Hochreiter, after averaging $1669 last year. His 2012 forecast was for $1650 per ounce.

The price of platinum has now been below the price of gold since September 2011, the longest such period in at least three decades.

Western policymakers meantime extended by 4 years today the deadline for new banking regulations, aimed at avoiding a repeat of the 2007-2009 credit crunch.

“The new liquidity standard will in no way hinder the ability of the global banking system to finance a global recovery,” said Mervyn King, the UK’s chief central banker and head of the Basel committee’s oversight group.

Requiring banks to meet just 60% of the new liquidity requirements by 2015, with the full deadline pushed back to 2019, “It’s a realistic approach,” King said.

Adrian Ash | BullionVault

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>