Physical Gold Flows to Asia as Financial Power Shifts

Announcer:

Welcome to Money Metals Exchange's weekly market wrap podcast. Helping precious metals investors during these treacherous times. Now, here's this week's market wrap with commentary and analysis from the fastest growing precious metals dealer in America, Money Metals Exchange.

Mike Gleason:

Welcome to this week's Market Wrap Podcast, I'm Mike Gleason.

Well, after struggling over the past couple weeks to hold key levels, gold and silver managed to break cleanly above them by mid week. Gold prices closed above $1,300 an ounce and silver above $20 an ounce. Metals rallied as the stock market fell sharply on Thursday, a day after the most recent Fed policy statement was released.

Minutes from the Federal Reserve's latest policy meeting presented a slightly more dovish posture than investors had been conditioned to expect after Janet Yellen's sloppy press conference last month. Fed policymakers now unanimously support abandoning the unemployment and core CPI thresholds they had previously said would cause them to tighten monetary policy. The Fed can now use any rationale it wishes to justify the perpetuation of ultra-loose money. Although it continues to telegraph an eventual return to a more normal stance, the nation's central bank gave investors few new clues about what might trigger it to begin raising its benchmark interest rate or when it might do so.

The release of the Fed minutes sparked volatility in the U.S. stock market – first to the upside, then to the downside. The high-flying momentum plays of 2013 – including the NASDAQ and the biotechnology sector – got hit the hardest. A major rotation appears to be underway out of the hyped-up growth stories and into the more counter-cyclical areas that tend to do better in a bad economy, such as precious metals.

For the year, the NASDAQ 100 index shows a loss of 3%, while gold is quietly up 10%. I say quietly, because virtually nobody in the mainstream media is giving the move off last year's lows any attention – yet.

Gold and silver remain underappreciated and under-owned by the public at large. And that means they remain very undervalued compared to where they will trade if individual investors, hedge funds, and pension plans start opting for small allocations of precious metals to round out their portfolios. If speculative interest in gold in the form of futures and exchange-traded fund buying returns just to the levels seen in 2011, prices could easily best their old highs based on above-ground supply scarcity in the West. Shortage fears or a panic out of the dollar or a combination of both could ultimately trigger the full-blown mania phase that many respected precious metals analysts including David Morgan continue to predict.

In the meantime, now remains a great time to be accumulating – especially in the case of silver, which is cheap on an absolute basis and cheap relative to gold. As of this Friday morning, gold trades at $1,318, up about 1.3% for the week. Silver comes in at $20.04, up less than 1% since last Friday's close.

The U.S. Dollar Index sold off this week and is now threatening to break down to new lows for the year. If it does so in the days ahead it could help fuel a big spring rally in the metals.

Now I want to make a very important point. Sometimes those who analyze precious metals markets from a United States perspective are guilty of assuming that everything revolves around the Fed and the prospects for the value of the dollar. And we certainly spotlight these things in our own commentary on the markets. But here is a trend that you cannot lose sight of – the market for physical gold and silver increasingly revolves around Asia. We saw record consumer buying in China last year, and Chinese gold imports from Hong Kong continue to come in at a rate that is many times of what it was just a few years ago.

Meanwhile, the world's top holder of gold is India. The outlook for Indian gold demand took a bit of a hit last year after the Indian government imposed import restrictions. But those restrictions didn't do much to dampen Indians' cultural appetite for gold. They quite predictably resulted in a black market for gold that saw the yellow metal command an abnormally high premium over spot prices. The regulations on gold imports also led to an explosion in India's silver purchases, as many buyers simply switched from one precious metals to another.

Government officials may be finally wising up about the futility of trying to curtail gold buying. They are beginning to relax import restrictions and have suggested that gold will be allowed to trade more freely as part of a package of economic reforms. In March, India's gold imports rose to their highest levels since the gold curbs were imposed last May.

Gold continues to flow from weak hands in the West to strong hands in the Far East and Middle East. Governments and other Asian financial powers will be able to use their gold wealth as leverage in the global economy, especially as nations increasingly move away from the dollar standard. Today, nearly 40 percent of the world's physical gold trade comes through Dubai.

Here's the bottom line: the price fix generated by traders in New York and London are becoming less and less relevant. Those who hold gold in physical form possess a truly global currency that stands to become increasingly valuable as the world's economic center of gravity continues to shift from West to East.

Well that will do it for this week's Market Wrap Podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for your depreciating dollar…with speed, with accuracy and with top notch service. Have a great weekend everybody.

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