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russia china dollarGold made a huge move this past week, ending up a massive $50 over the previous Friday and leaving the metal at a six-month high. Tensions and uncertainties over the situation in Ukraine are likely causing the flight to safety, but interestingly enough, demand for physical gold is relatively subdued. That seems odd at first blush, but it actually squares with what we’ve been saying for a while now: There is ample evidence that the price of gold has been manipulated, and it has been manipulated in ways that are necessarily short term. That’s because once that manipulation runs out of steam, it won’t take a surge of demand for the price to shoot up; it would simply be naturally adjusting to where it should be.

Barron’s points out here that gold watchers should not just keep an eye on the situation in Russia and Ukraine, but that the economic situation in China could give gold a “macro boost” in the not-so-distant future. We’ve alluded in the past to China’s debt problem, and the point remains that China’s economy has been so revved up for so long now that many experts say it is due for a major crash. Such a scenario would of course hit the yuan like a ton of bricks while sending gold prices through the roof. The reason China’s troubles will lift gold is the same reason Ukraine/Russia is lifting gold right now: a move to assets that are perceived to be “safe havens”.

Here in the United States, it’s unfortunately much of the same. Take, for example, that the Producer Price Index (PPI) is showing that businesses are having a hard time making ends meet. The PPI fell 0.1 percent in February, the index’s first drop since November. The numbers were pushed down by reduced markups by wholesalers and retailers. Some in the market have taken this as a sign that inflation is tame. But the reality, if you look closer, is that high unemployment and stagnant wages mean that businesses can’t charge more for goods and services. People can’t pay higher prices, so businesses would go under if they charged more!

Meanwhile profit margins have been falling steeply. Clothing and shoe stores margins fell a staggering 9.3%, as deep discounts ate up any profits. Core prices went up by the same 0.1 percent and wholesale food and energy prices went up. Put simply, businesses are paying more for inputs but making less profit on outputs. This is not good economic news, yet the “sound byte” version you’ll hear from Washington is simply that if we looked only at the main PPI number, inflation is not problematic!

What we’ve got here is a major confluence of significant events: The recovery in the United States is smoke and mirrors. China is on the verge of going off an economic cliff. And Russia is over there trying to start World War III. Do you know where your gold is? Do you have any gold? When you’re ready to move to one of the few assets that people have trusted for thousands of years – not for the last decade, not for the last century, but for thousands of years – give us a call or just click here and we’ll help you get started.

Precious metals on the move

London Fix PM price at week’s end, and change over previous Friday:

  • Gold: $1,385.00, up 3.7%
  • Silver: $21.36, down 0.1%
  • Platinum: $1,478.00, up 0.3%
  • Palladium: $780.00, up 0.5%

In the news

Here’s why gold and silver are the best protection against dollar collapse
“It has been my long held view that this mismanagement of the dollar can only go so far before the cumulative weight of bad decisions by politicians and central planners causes the dollar to collapse… Eventually there is a flight from every mismanaged currency. People lose faith in it and take those steps to protect their purchasing power, and there are several ways to do that… Some are doing that by buying collectibles and real estate as safe havens. But accumulating gold and silver through regular cost-averaging plans is my favorite method because they are so undervalued. The precious metals are also safe havens that enable everyone to protect their wealth by holding liquid assets – money – outside the banking system.” – James Turk (link)

Gold to $5,000 in a few years? This could be why
“I believed throughout 2013, with the price of gold coming down, the fundamentals were only getting better. During that time, the Chinese bought like mad and the Fed printed another trillion dollars through QE. Nonetheless, heavy selling took the gold price down. Today, the difference is that the sellers are exhausted, and physical demand is catching up. One of the numbers we are looking at is the quantity of registered inventories on the COMEX for gold. That’s the amount of physical gold that is available when someone asks for physical delivery instead of a cash settlement… We can see inventories of physical gold on the COMEX have declined dramatically, falling by around 30% in the past year.” – Charles Oliver (link)

More reason to believe in gold
“Gold’s upside has been helped by quite a lot of things happening at the same time, the U.S. and China and Ukraine. As for Ukraine, the impact on gold could fade quickly (once a diplomatic solution is found), whereas if structural changes happen in China the effect on gold could last longer. But we still view the U.S. labour market and the Fed policy as the predominant driver and … in the longer term that will reinstate the downside risk to gold.” – Michael Lewis (link)

The Chinese continue to make “major moves” into (even more) gold
“We know that with the slowdown in China and a pickup in inflation, this has created a move toward hedging. As we know, the Chinese have been buying gold as a perfect hedge. They are also awash in dollars, so that is yet another reason for them to be buying gold. The dilemma for the Chinese longer-term is that while they are the largest consumer of gold in the world, they are also the largest gold producer as well. But their consumption is about 1,100 tons of gold, and their production is about 440 tons. So the Chinese have to import a staggering amount of physical gold.” – John Ing (link)

Gold one of the few positive items out there
“I think what we’re having here is continued nervousness about… the EU (European Union) situation – where the fear of deflation is again taking hold – along with continued worries about the situation in Crimea and the Ukraine leading people into the gold market… Gold seems to be playing its alternative currency card here at the moment. We’re seeing most currencies generally steady to a little bit weaker. Gold is one of the few positive items we have out there.” – Sterling Smith, futures specialist with Citi Institutional Client Group (link)

Stocks down but gold isn’t; here’s why gold’s back in vogue
“In the beginning of 2011, what you started to see was the confluence of two major global macro factors that really paid gold bulls, which are dollar down and rates down. That was a clean cut signal that U.S. growth was slowing, and gold was looking like attractive safe haven. [Now in 2014, with gold outperforming most asset groups,] this is much like 2011… I do see gold making a series of higher lows and higher highs.” – Keith McCullough (link)

Chart of the week

It’s hard to bet against history…
To paraphrase Mark Twain: Maybe history won’t repeat itself here, but odds are high that it will at least rhyme.
reserve currency status does not last forever