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Gold, U.S. House Foreclosures, and U.S. Stimulus - StockReserchPortal.com
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January 14, 2010
Gold, U.S. House Foreclosures, and U.S. Stimulus
Gold
Yesterday Phillip Klapwijk, Chairman of London based GFMS spoke
in Toronto. He is reported as saying (click here to read article):
· gold could 'even' reach U.S.$1,300 in 2010 if global economic
recovery is sufficiently sluggish and new capital participates in the gold market;
· world investment demand doubled year/year in 2009 (to 1,820
tonnes) leaving in his view the gold price vulnerable to a major correction if investors
- who have turned to gold as a safe haven, a hedge against inflation, and an expectation
the gold price will continue to rise - look elsewhere'. Klapwijk apparently
believes a market reliance on investment inflows is 'somewhat worrying' in the 'longer
term', and that a halt or reduction in the flow of money into gold will have a big
(presumably negative) impact on the gold price;
· gold mine production rose 6% in 2009 (to 2,553 tonnes), following
3 years of decline, but production likely will decline after 2010. In 2009
China, Australia and South Africa (in that order) were the top largest producers;
· gold scrap supply increased by about 27% in 2009, a new all-time
high;
· jewellery fabrication demand fell by 23% (to 1,687 tonnes, a
21 year low). Other gold fabrication dropped 8% (to 639 tonnes);
· an increased flow of new money into the gold market from institutions
and sovereign wealth funds is likely in circumstances where GFMS has forecast an
average gold price of $1,175 (a trading range of $990 - $1,230) per ounce in the
first half of 2010, and possible prices above $1,300 in the second half if that
flow of new money comes into the market. However, Klapwijk also said GFMS
thinks there is a possibility for a significant correction in the next six months;
and,
· GFMS believes the likelihood of a slow road to economic recovery
is high, with the potential for a "double dip" this year in the US, Europe in Japan.
It strikes me that Klapwijk has 'covered most of the possible gold price outcomes'.
What I find particularly intriguing about his comments (as they are reported) is
that he apparently said "the biggest threat to the gold price will obviously be
the eventual shift to business
as usual (emphasis added) in the world's economies". If he takes
'business as usual' to mean a reversion to pre-2008 economics, aside from what I
assume to be valid statistical data developed by GFMS (along with
CPM Group of New York one of two significant 'minerals statistics accumulator'
consultancies), I question much of what Klapwijk is reported as saying - simply
because I don't believe the world (or U.S.) economy will revert to the pre-2008
economic condition anytime soon - if ever.
U.S. House Foreclosures
Returning to 'Main Street U.S.A.' an article today titled (U.S. House) 'Foreclosures: An Increase of 21% in 2009 and Climbing'
says RealtyTrac (Irvine, California) has reported that 2.8 million
U.S. homes were foreclosed in 2009, up 21% over 2008 and up 120% over 2007 - and
that 2010 may not be 'much better'. This increase was attributed (I suspect
only in part) to adjustable rate mortgages beginning to reset in 2009. The
article goes on to say that the U.S. Government's 'Home Affordable Modification
Program' will help less than 50% of foreclosed homeowners. The states most
affected were Arizona, California, Florida, and Illinois - which together accounted
for about 50% of all foreclosures.
This strikes me as very bad news as I think it has to negatively impact U.S. consumer
spending, U.S. GDP, and U.S. Government revenues (perhaps particularly at local
and state levels).
U.S. Economic Stimulus
A third article today reports that according
to the White House the U.S. Government's $787 billion economic stimulus package
has created or saved between 1.7 and 2.0 million jobs, but that its impact on the
(U.S.) economy ebbed slightly in Q4 2009 compared with prior months.
Tying the previous foreclosure statistics together with this White House statement,
I am at a loss to see how the U.S. Federal Government can continue to subsidize
what seems to be to continuing 'U.S.A. Main Street' economic deterioration without
resorting to a dramatic alteration in its taxation policies at both the Corporate
and Personal levels. I am not at all sure even that would result in near-term
'Main Street Economic Relief' given mounting U.S. net trade deficits and continued
increasing U.S. unemployment. As I see it, even if U.S. unemployment numbers
turn positive in the very near-term, U.S. Main Street is in for a long and dismal
economic ride, while at the same time the U.S. National Debt continues to rise at
avalanche, not molasses, speed.
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