Turning Paper Into Metal? Fat Chance!

BNP Paribas is forecasting an average of $1,125 an ounce for palladium in 2013 it expects it to out-perform its rivals in the precious metals space .BNP Paribas is also optimistic on the price outlook for platinum this year as well as next, owing to supply side constraints in South Africa and Zimbabwe which are going to continue to be market-supportive. BNP analysts anticipate that platinum could average $1,840 per ounce this year and rise to an average of $2,320 an ounce next year.   

Some of the above projections will, at least  in part , depend on what happens with the Chinese economy and the Chinese consumer as we move forward. The Chinese automotive market can certainly no longer be ignored owing to the size and scope it has reached (it is vying with the US one). At least one China-watcher, Mr. Jim Walker (Founder of Asianomics) flat-out warns that “China’s consumption boom is drawing to a close, [an event] which calls for no growth or even a contraction in the Chinese economy and the advent of an era of deflation and weaker spending.”

Mr. Walker therefore projects that ”investments leveraged to the rise of the Chinese consumer, ranging from Australian miners to luxury-handbag makers and even iPhones are due for a reality check.” Speaking of things in need of a reality check, the idea that a good portion of current Chinese gold investment is not flavored by a heavy dose of speculation and greed needs to be given a thorough check-up. There is a dark side to the obsession with easy money to be made in gold. This story should be sobering.

Anyway, before you summarily dismiss Mr. Walker as just another China doomsayer, do note that the gentleman is an adherent to the controversial school of Austrian economics (one which gold bugs love to embrace). Mr. Walker opines that believes that China’s low interest rates “have helped stoke mal-investment on a scale never seen before, and that another government stimulus package appears unlikely, given a glut of overbuilding, including transportation projects such as airports.” Mr. Walker admits that his view that a deflationary fallout that lies ahead for China “will come as a surprise to people who don’t believe that the Chinese economy can have a cycle.”  

US unemployment claims filings reported yesterday fell to their lowest level in four years. The Labor Department reported a drop of 6,000 claims to 357,000 for the week ended on March 31st. American employers appear to have taken on more than 700,000 new workers during the first trimester of this year. That kind of growth is not only a far cry from the dire picture still being depicted in various scare-mongering hard money newsletters but is actually the best pace of job creation since 2006. Evidently, America has decided to…postpone its “final decline into oblivion” that we have been assured  of, over and over again.

In connection with such fear-mongering, the NY Times’ Nobel-laureate columnist, economist Paul Krugman, reminds us that “for at least three years, right-wing economists, pundits and politicians have been warning that runaway inflation is just around the corner, and they keep being wrong. Do you remember the tirades about “debasing the dollar” around this time last year? Do you remember the scorn heaped on Mr. Bernanke last spring when he argued that the bulge in inflation taking place at the time was just a temporary blip caused by gasoline prices and would soon recede? Well, he was right. At this point, inflation is once again running a bit below the Fed’s self-declared target of 2%.”

By the way, the US dollar is about to be euthanized, if certain Senators have their way. The US dollar bill, that is. Go tell the American public that coins are a better way to go when it comes to the one dollar currency unit. Ninety-seven percent of them say “No way!” to that idea. Try and tell the public that a switch to metallic currency (no, not the gold standard) would save them like…$4.4 billion over a thirty-year period. Nah!  See Canada? Nah! This is somewhat of an irony as precisely those who decry the evils of paper money want to save…paper money in the worst way. As usual, there are heavily vested interests on both sides of this heated debate to turn paper into metal. They involve…greeting card companies and copper miners.

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