Monday, February 23, 2015

Heraeus NY Market Report

For a fourth week in succession Gold had to put up with losses and fell to a 6-week Low at a price of 1,197 $/oz. The results of the FED meeting in January showed that the US is more hesitant than expected with regard to an interest increase. While this put pressure on the USD interest-free Gold benefitted in this environment. Due to the tension between Greece and the EU Gold received further support. The metal shone within the context of the difficult discussions and the respective possibility of a Grexit as a currency of crisis.  The agreement of the finance ministers to extend financial aid for Greece for another four months has relaxed the matters for the time being and put pressure on the Eurogold after an increase to 1,075 €/oz. It fell by 20 €/oz to 1,053 €/oz. It is expected that this has not been the last word. In the long term Gold will benefit from the decision of the Reserve Bank of India to loosen up import as well as lease agreements. The top trading companies are now allowed to import metals without the final application having to be pre-determined. The Indian trade balance however remains the guide for such relaxations or tightenings. Beginning the middle of the week China returns to the market after new year’s celebrations bringing back some purchasing power. Up until now the threshold of 1,200 $/oz has been defended and continues to be the first support, followed by 1,170 $/oz. Janet Yellen’s speech in front of the Senate Banking Committee will be informative with regard to the US economy. We see very good demand for small bars as well as increased output of refined Gold.

After a strong beginning of the year Silver has been moving in a downward trend since middle of January. Thus the last week was also disappointing with a performance of -6.3%. The support from the trend-channel results at 15.80 $/oz. ETF investors in turn use the low price levels for entries so that stocks are back on annual highs. The FOMC minutes have been perceived rather in a surprised manner as the interest increase seems to be occurring later than expected and which in turn has disinflationary risks.  As the market however does not really expect an interest increase in the middle of the year (June/July) the effect on metal prices as well as currencies was rather limited. As the issues around Greece have again been postponed to a later date it is exactly those interest expectations and US government bond yields which will primarily determine the Silver and the Gold price within the next months. Important data in this week are inter alia from the US like Consumer Confidence on Tuesday as well as Inflation, Jobless Claims and Durable Goods on Thursday. From China we expect the Purchasing Manager Index (PMI) on Wednesday.

Also in the past week Platinum could not recover – on the contrary: the metal continued to lose in value after it opened the reporting period at 1,205 $/oz. At the end of the week the metal only traded at 1,162 $/oz. Right at the beginning of the past week Platinum thus fell to a Low of 1,164 $/oz. It became clear once more that there is a high correlation between the Platinum and Gold price. Thereby Platinum mainly moved in Gold’s rough waters which had been affected by the rather dovish FOMC minutes with a big sell-off. The investment side also looks dimmed currently as investors are reducing their ETF stocks (-0,60 %). Additionally Chinese demand for Platinum has also been decreasing recently. At the Shanghai Gold Exchange an average of around 130 KG per day is seen in volumes which is 30% less than the average daily volumes seen between 2010 and 2014. In favor of Platinum the Automobile industry in turn recorded positive figures again in January. Thus sales figures in January have increased by 6.4% in comparison to the same month a year ago. It is especially countries like France, Germany, Italy, Spain and Great Britain that are recording growth.

Wednesday, February 11, 2015

Bail-In vs CIPF vs SIPC vs FSCS

Dear readers,

Lately I have been answering many questions from clients in the USA and UK on the "Bail-In" legislation as it relates to your investment accounts.  And there seems to be a misunderstanding between the insurance (CIPF, SIPC, FSCS) that protects investors from a dealer going bankrupt and the protection from the Bail-In process. The Bank of England released their BRRD in July 2014 and said that starting January 2015 the Bail-In policy will take affect. The BIS has stated that the bail-in rules will be implemented in all qualifying countries.

So lets clarify a few points:

  1. Investor protection funds like CIPF in Canada, SIPC in America and FSCS in the UK only protect your account from the "dealer" going bankrupt. They do NOT isolate you from any government legislation which allows banks or brokers to put restrictions on your account or convert the qualifying cash in your account to bank stock as they did in Cyprus.
  2. This is the whole point of the Bail-In policy, to ensure the financial system remains solvent, and they are going to do it with YOUR money. No bank or dealer will go bankrupt so the insurance on these accounts is irrelevant because the bank will be allowed to convert your cash and securities into bank stock to ensure that the bank and financial institution remains solvent.
  3. Many people assume that by having multiple accounts to stay under the Bail-Inable qualifications that you will be protected. Again this is not true because the banks and dealers will not be allowed to go bankrupt.
  4. A simple way to understand this is to look at your bank statement and notice which column your balance is located, DEBIT side or CREDIT side? All banks give you CREDIT once you deposit your funds. Therefore you are an "unsecured creditor" of the bank. This means that the bank has borrowed your money and gives you a CREDIT balance on your account. 
For more information and white papers on these subjects please visit our Archives tab and read carefully the links to these topics.

Anyone interested in designing a "Bail-In Proof" strategy please contact us and we'd be happy to assist you.


Bosko Kacarevic

Monday, February 9, 2015

Heraeus Market Report

Monday Feb 9, 2015

After the positive development of the Gold price in January (+8%) Gold had to put up with losses again last week. The market could realize gains due to the high price level and thus Gold had to at least partially lose its profits again. Meanwhile Gold had started promisingly into the new month and the 1,260 $/oz level was defended successfully again. It was US non-farm payrolls that had Gold break down from the then existing tight range. Consequently to the positive data from the US on Friday afternoon Gold fell by 2.5% to 1,229 $/oz. This reaction illustrates once more how much Gold depends on fiscal decisions in the US. With good economic development the planned interest increase comes to the forefront. Thus the latter is hanging over the market like a Sword of Damocles and lets Gold move into one or the other direction depending on the data situation and respective probability of a forthcoming implementation. Investors also withdrew support for the metal last week and ETF stocks reduced accordingly. Demand for small bars has also come back to normal levels. This morning Gold is trading at 1,240 $/oz. Despite of the slight recovery in the short-term downward trend we see support at the Low of last week for the metal. Resistance is at 1,250 $/oz and the market is now waiting for impulses for further developments. The comparatively high Euro-Gold level is continuously used in order to sell the metal.

After an initially quite stable week Silver got under pressure after the publication of the positive US non-farm payrolls on Friday afternoon. Also concerns about deflationary tendencies were resolved by higher than expected wage increases. Besides the Fed’s interest increase by the middle of the year which has become more probable by now mediation efforts in the Ukraine crisis as well as the willingness to compromise in Greece lead to a smaller need to hedge price risks in Silver and Gold. Silver is currently trading around the 100 day average at 16.70 $/oz. Next significant support should be at 16.00 $/oz while we see upside resistance at 17.48 $/oz.

Neither Platinum nor Palladium have been impacted by the Gold price development and gained in value in the course of the reporting period. Platinum opened at 1,241 $/oz and moved towards 1,257 $/oz at the end of the week. Platinum will continue to be strongly supported by the Automobile industry. It is amongst others announcements like the ones about the US auto sales in the past week which benefit Platinum’s outlook. Furthermore, the government in Zimbabwe announced that it may impose an export tax on unrefined Platinum. In the reporting period it was announced in turn that Zimbabwe’s government would revoke the Platinum export tax if the mines in Zimbabwe invest in its own refinery facilities in order to promote local refining. To what extent the idea of such an export tax will actually be implemented as well as be geographically spread and impact the Platinum price needs to be awaited. On the charts resistance is at 1,245 $, support at 1,242 $.