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Thursday, 19 May 2016

Gold Prices May Have "Odd Job" Ahead

Is the Gold Rally Doomed?

I have some really bad news to tell you. You know those big investment banks … the ones that just can’t wrap their heads around gold?
It turns out that they don’t hate it so much anymore. In fact, a few of them even lovebullion now.
Imagine turning on CNBC last week and seeing a top strategist at JP Morgan expounding on the wonders of gold — “$1,400 an ounce is a cinch for 2016.”
But, wait a minute, why is this bad news?
Because it means that the great, glorious gold bull-market blastoff — the biggest such rally in 25 years — will soon take a well-deserved (though temporary) rest…

So let's commit the first sin in valuation: we talk about expectations, but then look at current rates, since those are more readily available. When it comes to real interest rates, such a fool's game is exacerbated by the fact that many question the inflation metrics used. We show those metrics anyway, because not only do we need some sort of starting point for an analysis, but there's one good thing about these inflation metrics, even if one doesn't agree with them: they are well defined. Indeed, I have talked to some of the economists that create these numbers; they take great pride in them and try to be meticulous in creating them. To the cynic, this makes such metrics precisely wrong. To derive the real interest rate, one can use a short-term measure of nominal rates (e.g. the 3 month T-Bill, yielding 0.26% as of this writing), then deducting the rate of inflation below:

Expect: More currency devaluations, higher prices for commodities, volatile markets, increasing central bank desperation as shown by craziness such as negative interest rates, more QE, and continued zero-interest rate policy. Central banks do NOT have your back – unless you are a member of the political and financial elite.

In order to gain additional traction for the proposed listing, the Saudis will continue their aggressive stance in OPEC, and keep all the oil producers on the hook, a glimpse of which was given by the new Saudi Aramco Chief executive Amin Nasser.
“Whatever the call on Saudi Aramco, we will meet it,” Mr. Nasser said. “There will always be a need for additional production. Production will increase upward in 2016,” reports The Financial Times. 

Are The Saudis Facing A Full-Blown Liquidity Crisis?  

Riyadh Saudi Arabia Previously we documented that as a result of the still low oil prices, largely a result of Saudi Arabian strategy to put high cost producers out of business and to remove excess supply, none other than Saudi Arabia has been substantially impacted, with the result being dramatic state budget, a sharp economic slowdown and mass worker layoffs. Just three weeks ago we reported that the biggest construction conglomerate in the middle east, the Saudi Binladin Group had announced it would layoff 50,000 workers, or a quarter of its workforce, slammed by the weak economy. Now, Saudi Arabia has admitted that in addition to acute economic problems, which will manifest themselves most directly in a soaring Saudi debt load… Related: European Natural Gas Prices Collapse … and rising default risk… (Click to enlarge) … Saudi Arabia can also add liquidity worries which just spilled out into the […] 

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