A Melman Minute
| By | Leonard Melman |
|---|
NOTE: It has been a distinct honour to have received an invitation to address the Financial Conference at the giant PDAC convention, the world's largest annual mining gathering, scheduled for March 2-5 in Toronto. My time slot is set for 9:30 AM, Sunday, March 2. We certainly invite all convention attendees or other readers residing in the Greater Toronto Area (GTA) to attend.
The latest job creation figures were released early this morning in Canada and the USA with the northern nation coming out the winner in relative comparisons. According to government figures, the Canadian economy generated a better-than-expected 29,000 jobs during January while the American economy remained in an under-par mode with only 113,000 new jobs, far below expectations of about 200,000.
Markets initially reacted unfavourably, but then speculation rose that because of the low USA number, the Fed might reconsider their recent plans to cut back on their QE program and the markets then headed higher, with both indexes (Dow Industrials and TSX) standing near 'unchanged' after the first hour of trading.
GOLD DEMAND HEADED HIGHER???
For the past few weeks, gold trading has been confined to a relatively narrow trading range of roughly $1,230 to $1,280 with the great question being in which direction the eventual breakout will occur.
While we do put some faith in technical considerations, it is also important to review market fundamentals from time to time, and according to a recent study authored by Asian commentator Dhara Ranasinghe, demand for physical gold is on the rise and that force could propel gold quotes toward the upside.
The article quotes Jim Walker, founder and CEO of "Asianomics" as observing that, "...Physical gold is disappearing off the market at a terrible rate. As soon as that really starts to hit, I think gold will go through the roof." His own trading firm is optimistic on gold with Walker noting, "...That's one of our biggest longs for the year."
Several national mints were interviewed for the article and many of them observed that physical demand for their coins was on the rise, as Ranasinghe cites, "...Mints from Austria to the US and UK have reported huge demand for gold coins in recent months as a slump in gold prices last year spurred buying of physical metal...The Perth Mint, which runs Australia's only gold refinery, said that sales of gold coins and minted bars rose 10% to 64,818 ounces of gold in January in the latest sign of firm demand for gold bars and coins."
When asked why gold has failed to break out strongly to the upside so far one observer, Barry Dawes, head of research of Paradigm Securities, a Sydney-based security advisory business, opined that prices had been basically level because, "...I think we probably still have people in gold Exchange Traded Funds (ETFs) releasing some of their gold." However, he then added, "I can't see that lasting very much longer at all and that real supply-demand numbers for gold will push to a higher gold price." The article then told us that Dawes is anticipating that, "...gold is moving steadily into the next stage of a bull market."
From a technical point of view, another observer, Sean Hyman of the Ultimate Wealth Report echoed a "The Melman Report" position by stating, "As long as gold holds above $1,175-80 it's good, I am positive." He also pointed to recent securities market instability as a growing positive force for gold.
After so much doom-and-gloom, it is nice to hear some positive input into our metals markets. However, we are told there are still important observers who believe gold will head lower, including major financial house Goldman Sachs who informs their followers that they expect, "...another bad year for gold, which fell 28% in 2013, amid scaling back of the US Federal Reserve's asset-purchase program."
WHITHER THE WORLD'S ECONOMIES?
This morning's job numbers, particularly in the US, raise the question of whether the world's economies in general are truly on the verge of a version of "boom times." One prominent economist who openly questions that thesis is Jay Pelosky, principal of J2Z Advisory LLC, a global asset-allocation and portfolio strategy consultancy.
In an Op-Ed piece published in today's Wall Street Journal, Pelosky raises some very interesting points which support the idea that, as Pelosky puts things, "...a combination of factors suggests that something ominous may be afoot." First, he lists some of the reasons many remain optimistic:
"Some observers continue to predict a synchronized global recovery in 2014. The US economy is accelerating, the story goes; Europe has bottomed out and will return to growth; while Japan has turned the corner on deflation. China is stable at 7.0% growth, and the rest of the emerging world is stronger than in prior crises, such as the one in 1998."
He counters those arguments by declaring:
"The counterargument suggests that the US economy is ready to cool; that Europe faces a serious risk of deflation; and that Japan needs to do much more to insure that growth and gradual inflation are entrenched. China is trying to deflate a credit bubble while the remainder of the emerging markets are divided among the mismanaged, the overly indebted and the unbalanced."
An underlying reason for raising serious questions is that, "...the world economy has yet to find and implement new growth models to replace those broken in the past decade." He specifically notes that the US and Chinese credit expansions have now run into serious obstacles and the plans for economic recovery among the emerging nations has run into genuine and not easy to solve obstacles. He notes that these influences are being reflected in securities markets (see S&P 500 chart) which are teetering between, "...a growth scare on one side and a worst-case scenario of the Fed tapering its monthly QE bond purchases in a weakening economy on the other."
Another consideration that underlies everything else is the possibility of an interest-rate rise which could severely handicap any economic expansion.
All in all, his comments raise considerable questions, particularly in a year when the American political balance is so particularly vulnerable going into the fall elections.
As of 9:00 AM PST, financial markets have once again turned higher in both Canada and the USA with the Dow Industrials ahead by about 100 points while the TSX Index has gained 25. In precious metals trading gold has moved $5 higher to $1,263 and silver is virtually unchanged at $19.96. Base metals are moderately higher on balance and mining share indexes have gained about 2% so far today.
In other markets, the US Dollar Index is down 17 basis points to 80.83; Crude Oil is up 57 cents to $98.41 and the TYX Index of rates on US Treasury 30-year bonds is down 17 basis points to 3.658%.
All quotes US$ unless otherwise indicated.
Next Melman Minute scheduled for Monday, February 10, 2014