Monday, March 2, 2015

Heraeus NY Market Report

Gold ended the shortest month of the year looking for renewed direction last week, following recent sideways moves and losses in the early weeks of February. Technically gold has tried to build some upside momentum: market psychology may be helped in that prices managed to advance over past the week, the first advance in over a month. For market bulls though, patience is still a pre-requisite as the timing of a rise in US interest rates, the performance of the dollar and the euro and the drag of oil prices on commodities as an asset class present a serious uphill challenge. There is no unanimity in sentiment and new highs in several key equity indices suggest that attentions are largely elsewhere for the time being. Economic data also lends little to establishing any form of consistently strong directional view. A more appropriate evaluation of risk will emerge but timing is everything. At the start of the week gold was testing $1200 on the downside but found some support as China returned from New Year’s festivities. The reality is though that many jewellery factories in Hong Kong only opened towards the end of the week and in the mainland many will only re-start on March 2. A rise in Euro gold prices encouraged some buying among European investors’ midweek but rallies tend to also trigger some metal returns. In Europe, after the strong investor interest of January, buying in February was more in line with year-ago levels. There will be keen interest to see how India’s budget and any tariff changes around gold will impact demand in this key consumer: January imports had already jumped to 57.2t, up 55% year-on-year.

Before jumping higher Friday afternoon silver had been heading for a pretty much flat performance over the course of the week. Looking for direction, like gold, silver needs a close above $16.60 to build to the upside. The price is though still well under both the 100 and 30-day moving average and there is a risk of renewed weakness, especially compared to gold where the ratio hovers around 73 still. That said, ETF silver holdings have reached a year-to-date high despite the relative attraction of strong equity markets. US dollar strength continues to undermine silver and that looks unlikely to reverse for a while although. The yield on Portuguese debt fell below the US equivalent this past week raising some interesting questions about risk valuations. In the coming week markets will undoubtedly be watching the ECB closely on Thursday and paying attention to economic data from China early in the week for any further signs of a slowdown.

Monday, February 23, 2015

Heraeus NY Market Report

For a fourth week in succession Gold had to put up with losses and fell to a 6-week Low at a price of 1,197 $/oz. The results of the FED meeting in January showed that the US is more hesitant than expected with regard to an interest increase. While this put pressure on the USD interest-free Gold benefitted in this environment. Due to the tension between Greece and the EU Gold received further support. The metal shone within the context of the difficult discussions and the respective possibility of a Grexit as a currency of crisis.  The agreement of the finance ministers to extend financial aid for Greece for another four months has relaxed the matters for the time being and put pressure on the Eurogold after an increase to 1,075 €/oz. It fell by 20 €/oz to 1,053 €/oz. It is expected that this has not been the last word. In the long term Gold will benefit from the decision of the Reserve Bank of India to loosen up import as well as lease agreements. The top trading companies are now allowed to import metals without the final application having to be pre-determined. The Indian trade balance however remains the guide for such relaxations or tightenings. Beginning the middle of the week China returns to the market after new year’s celebrations bringing back some purchasing power. Up until now the threshold of 1,200 $/oz has been defended and continues to be the first support, followed by 1,170 $/oz. Janet Yellen’s speech in front of the Senate Banking Committee will be informative with regard to the US economy. We see very good demand for small bars as well as increased output of refined Gold.

After a strong beginning of the year Silver has been moving in a downward trend since middle of January. Thus the last week was also disappointing with a performance of -6.3%. The support from the trend-channel results at 15.80 $/oz. ETF investors in turn use the low price levels for entries so that stocks are back on annual highs. The FOMC minutes have been perceived rather in a surprised manner as the interest increase seems to be occurring later than expected and which in turn has disinflationary risks.  As the market however does not really expect an interest increase in the middle of the year (June/July) the effect on metal prices as well as currencies was rather limited. As the issues around Greece have again been postponed to a later date it is exactly those interest expectations and US government bond yields which will primarily determine the Silver and the Gold price within the next months. Important data in this week are inter alia from the US like Consumer Confidence on Tuesday as well as Inflation, Jobless Claims and Durable Goods on Thursday. From China we expect the Purchasing Manager Index (PMI) on Wednesday.

Also in the past week Platinum could not recover – on the contrary: the metal continued to lose in value after it opened the reporting period at 1,205 $/oz. At the end of the week the metal only traded at 1,162 $/oz. Right at the beginning of the past week Platinum thus fell to a Low of 1,164 $/oz. It became clear once more that there is a high correlation between the Platinum and Gold price. Thereby Platinum mainly moved in Gold’s rough waters which had been affected by the rather dovish FOMC minutes with a big sell-off. The investment side also looks dimmed currently as investors are reducing their ETF stocks (-0,60 %). Additionally Chinese demand for Platinum has also been decreasing recently. At the Shanghai Gold Exchange an average of around 130 KG per day is seen in volumes which is 30% less than the average daily volumes seen between 2010 and 2014. In favor of Platinum the Automobile industry in turn recorded positive figures again in January. Thus sales figures in January have increased by 6.4% in comparison to the same month a year ago. It is especially countries like France, Germany, Italy, Spain and Great Britain that are recording growth.

Wednesday, February 11, 2015

Bail-In vs CIPF vs SIPC vs FSCS

Dear readers,

Lately I have been answering many questions from clients in the USA and UK on the "Bail-In" legislation as it relates to your investment accounts.  And there seems to be a misunderstanding between the insurance (CIPF, SIPC, FSCS) that protects investors from a dealer going bankrupt and the protection from the Bail-In process. The Bank of England released their BRRD in July 2014 and said that starting January 2015 the Bail-In policy will take affect. The BIS has stated that the bail-in rules will be implemented in all qualifying countries.

So lets clarify a few points:

  1. Investor protection funds like CIPF in Canada, SIPC in America and FSCS in the UK only protect your account from the "dealer" going bankrupt. They do NOT isolate you from any government legislation which allows banks or brokers to put restrictions on your account or convert the qualifying cash in your account to bank stock as they did in Cyprus.
  2. This is the whole point of the Bail-In policy, to ensure the financial system remains solvent, and they are going to do it with YOUR money. No bank or dealer will go bankrupt so the insurance on these accounts is irrelevant because the bank will be allowed to convert your cash and securities into bank stock to ensure that the bank and financial institution remains solvent.
  3. Many people assume that by having multiple accounts to stay under the Bail-Inable qualifications that you will be protected. Again this is not true because the banks and dealers will not be allowed to go bankrupt.
  4. A simple way to understand this is to look at your bank statement and notice which column your balance is located, DEBIT side or CREDIT side? All banks give you CREDIT once you deposit your funds. Therefore you are an "unsecured creditor" of the bank. This means that the bank has borrowed your money and gives you a CREDIT balance on your account. 
For more information and white papers on these subjects please visit our Archives tab and read carefully the links to these topics.

Anyone interested in designing a "Bail-In Proof" strategy please contact us and we'd be happy to assist you.


Bosko Kacarevic