China’s central bank decided to allow the country’s currency to trade in a wider band against the US dollar starting today. The PBOC’s move was greeted with positive comments by IMF head Christine Lagarde, as well as by US Treasury officials; however they also noted that China must still make further efforts to allow the yuan to appreciate and thus further reduce global trade imbalances.
Some observers have construed the permission to expand the trading range of the Chinese currency as a sign that the country’s leadership believes that the economy can indeed pull off a soft-landing. Others see the gesture as merely another one of China’s familiar and strategically-timed concessions that normally occur prior to important international summits.
Gold prices lost nearly $17 on Friday and they basically erased Thursday’s Fed-oriented, optimism-based move. The yellow metal finished the week at $1,658.50 the ounce. Silver lost nearly 90 cents on Friday it closed at $ 31.50 per ounce, at an important support shelf. On Sunday evening, spot gold bullion commenced trading overseas with a loss of $8 per ounce while silver declined 20 cents. The US dollar advanced 0.11% to rise to 80.14 on the trade-weighted index.
As Reuters puts it, “heady [gold] forecasts of $2,000 per an ounce are receding fast as the [US] economy stabilises.” The news agency’s most recent price poll shows only one forecaster in 33 still expecting gold to average the $2K level this year. Previously, 5 out of 45 price prognosticators had projected such a price average for the yellow metal in 2012.
The median Reuters’ poll gold number came in at $1,750.00 the ounce for the year and at $1,700 for Q2. Speaking of things “heady” and of things “receding fast,” at least one $2K gold predictor lost more than just a bet on the call that gold would be trading at that magic number this very morning. Such is the risk of playing Nostradamus with the market…
Meanwhile, the Wall Street Journal’s Liam Pleven reports that gold’s twelve-year rally is “under threat” as since “late February, hedge funds, pension funds and other money managers have slashed by 39% their futures-market wagers that gold will rise. In the same period, they increased by 87% their bets that prices will fall.” One of the money managers which have cut their gold positions (while at the same time not declaring gold as being in a ‘bubble’) is Schroders Private Banking. The institution did not declare gold to be in a bubble, and it did opt to maintain a portion of its clients’ monies in bullion, even as others offer differing takes on gold’s worth and on that of mining shares by contrast.
Schroders got started in 1800 and became known for its private banking activities in the 1960s. Today, the firm manages nearly a third of a trillion dollars on behalf of institutional and well-to-do retail investors the world over. The private bank noted that it would be virtually impossible for UK inflation to average five times what it is today in order for gold to show a buying power that it exhibited over the 300 years from 1630 to 1930. The head of Schroders’ asset allocation team, Robert Farago, remarked that gold’s relative pricing power recently hit a record high above 500 (when computed on against a base of 100 in 1930) and that the achievement suggest that “gold is expensive and that it is therefore likely to fall in price.”
The Journal’s Mr. Pleven ascribes some of the diminished shine of gold to the aforementioned [by Reuters] economic stabilization but to other factors as well. Among such agents of sentiment change are India, whose gold imports face serious headwinds by a government that is apparently fed up with its swelling current account deficit, and even the hitherto thought to be gold-supportive central bank sector.
The WSJ article quotes the research firm GFMS as cautioning in its report issued last week, that, as regards the CBs, it is "improbable [that] they will top their 2011 purchases by much if at all, and, as such, the vast bulk of fresh bullion demand will have to come from investors." GFMS noted last week that such demand by investors must top $10 to $12 billion each month, or, about 2,450 tonnes per year, in order for the yellow metal to be able to just tread water at, or near, current price levels. If in fact such large-scale demand by retail investors were to materialize, one Seeking Alpha contributor cautions that perhaps those who would participate should take a look at at least two incorrect reasons for investing in the metal; inflation-hedging and safe-haven-seeking.