Gold & Silver Show Mixed Signals While Bitcoin Shows Relative Strength

Uncertainty is in the air as Europe continues to head towards a recession, the IMF cuts global growth projections and the Federal Reserve expresses concern about these global conditions slowing its interest rate tightening agenda even though indicators are showing forward progress. Gold and bitcoin had a positive week while silver declined slightly, and the correlation between bitcoin and gold has started to weaken.

Macroeconomic Snapshot

Jobless Claims: This indicator made moves this week. Claims declined 23,000 to a total of 264,000 jobless claims, the lowest amount since April 2000. These numbers further indicate that the US economy continues to recover and create new jobs.

Housing Starts: New construction of homes progressed upward. After a drop of 12.8% in August, starts are up 6.3% for September. Multi-family home construction led the rise with a 16.7% growth, while single-family home construction brought down the average with only 1.1% growth. This data suggests that Americans are willing to invest in building new homes, something that will increase demand for construction related goods and services, boosting the economy.

Retail Sales: Sales figures disappointed this week as they fell a third of percent from last month, to a total spending of $442.7B. However, a longer term view shows that retail sales is 4.3% ahead of September 2013. An observation from this data is that food services and drinking places gained 0.6%: This is a discretionary spending area and suggests United States consumers are spending..

On Wednesday, October 22nd the consumer price index, or inflation, data will be released. This metric may further help to confirm insights into the growth narrative of the American economy and may guide the Fed’s tightening schedule.

The state of the Eurozone and the global economy should be monitored by smart investors because Federal Reserve Vice Chairman Stanley Fischer in a speech last week commented:

“The state of the U.S. economy is significantly affected by the state of the world economy. A wide range of foreign shocks affect U.S. domestic spending, production, prices, and financial conditions…Because these international effects in turn spillback on the evolution of the U.S. economy, we cannot make sensible monetary policy choices without taking them into account.” Source: Federal Reserve Speech Transcript.

The global macroeconomic picture shows the IMF taking a negative view. They cut their projections for global growth by 0.3%, that is led by Europe’s stagnating economy that now has a risk of entering a recession in the next six months of 38%. The ECB has not clearly outlined exactly what kinds of of securities and exactly how much they will be buying in their ABS buyback plan.

Historical views of the debt-to-GDP ratios in the Eurozone shows ongoing issues. Greece, Italy, Portugal, and Ireland all have ratios over 100% and are growing that ratio at least 5% a year. This issue now becomes a bigger risk since the Eurozone’s probability of entering a deflationary recession has grown. Debt and deflation do not mix well: Debt becomes more difficult to pay off and could lead to a possible default on payments.

Inflation growth is threatened by a strengthening dollar and falling oil prices. A weakening global economy may also push the dollar’s value higher. Furthermore, the 10-year TIPS, a note offered by the US Treasury that is used as a tool to gauge inflation expectations, has also been in steady decline since April from 0.6 to 0.3 today , suggesting that investors do not predict high inflation growth. So far the activity in Europe has not clearly leaked into the American economy because the Boston Fed president says that they expect to stay on their current timeline for adjusting rates. He mentions, however, not to rule out the possibility of a shift in plans.

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The signals are currently mixed for precious metals. On one hand, driving factors like a healthy US Economy and strengthening USD are creating conditions for gold and silver to continue its decline. What could change the direction for precious metals is how the global economy affects the US economy: if it leaks in and slows the Fed’s tightening, we could expect to see precious metals rise. If the US remains unhampered by the global economy and the dollar continues to strengthen, gold could continue on Goldman Sachs forecasted path of $1050/oz to end the 2014.

Bitcoin’s correlation with gold has started to reverse, moving to +0.76 from a high last week of +0.88. This makes forecasting future bitcoin price movements more difficult if it is beginning to act less like gold, who’s behavior has become well-understood in relation to the US economic narrative of growth and Federal Reserve tightening. Right now, the bitcoin market remains very stochastic and open to market manipulation. There are no clear demand-side factors that we can rely on for sustained demand of the currency.

Bitcoin and Precious Metals Reads

:: Richard Brown has the right line of thinking about Bitcoin.  In a recent post, he discusses the use cases for Bitcoin in the future, and he focuses on the blockchain aspect that can enable other technologies and ideas previously impossible.

:: A look back into history provides a case for gold during deflationary periods.  The author uses the great depression as an example as to why gold could be a good hedge.  For people in countries in risk of inflation, this is an important read.

:: China is among the largest gold consumers in the world.  Here, the Chairman of the Shanghai Gold Exchange delivers a speech that will you provide you insight into their gold market.  He provides figures about their volumes, gold demand, and forecasts for the future gold market of China.

:: Machine learning algorithms can be used to tell what bitcoin address are associated with a private key on the blockchain. Doing so can provide extra information about the bitcoin ecosystem, like knowing where bitcoins have come and gone, or what kinds of transactions your business competitor is conducting.

Gold

Beginning late Sunday night on the international markets at $1223/oz, gold exhibited volatility that resulted in a higher ending position by the end of the Friday. Traders saw a $22 per ounce or or 0.7% rally on Wednesday over a six hour window that brought prices from $1222/oz to $1244/oz. This rally was timed with the Fed’s statement that the global economic slowdown could possibly delay the interest rate increase. Since, it has met resistance at $1245/oz and centered around $1240/oz but now settles at $1238/oz for the end of the week.

Silver

Silver’s position for the week only declined about half a percent between Monday and Friday, starting at $17.40/oz and ending at $17.27/oz. Its movements somewhat tracked gold’s, but it did have the same reaction to the Fed’s statement Wednesday where it made a $0.50 gain. Since that rally it declined $0.25/oz.

Bitcoin

The digital currency had an overall upward trend for the week that included a large $50 rally through Tuesday and Wednesday. Starting the week at a low of $355/BTC, it remained relatively flat until Tuesday night where it started its %12 gain that peaked out at $408/BTC. The gains were not totally preserved as it ends the week now at $382/BTC.

 

Written by Michael Mansour from DigitalTangible which is is a brand new marketplace where users can list their gold bullion confidently and buyers, anywhere in the world, can find premium gold deals at lower prices for immediate purchase and delivery.  As of today, DigitalTangible is offering silver bullion and coins on their platform.  They allow rapid purchase and liquidation on their Peer-to-Peer marketplace and their cryptocurrency based partner exchange, so customers can change their position in under 24 hours with bitcoin.

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