Gold broke out above a major resistance line this morning, a goal it has been working toward all week with steady gains. Silver and the platinum group metals are following suit. Even the ETFs are getting in on the action, buying up gold.
With so much in the news recently, we decided to have a little poll. What do you believe is the major factor in the gold rally this week? Here are a few possibilities:
Chinese physical demand: The Chinese usually buy tons of gold (literally) leading up to the Lunar New Year, and demand traditionally slacks off immediately after. This month, we have seen Chinese demand continue at higher than normal levels. One reason may be worries over a “Chinese Lehman moment” in the shadow banking system. Distressed companies that could not get a bank loan borrowed from companies specializing in high-risk, high-yield “shadow loans.” Investors bought into these “financial instruments” looking for high yield investments, but as the borrowing companies go bankrupt, the trust investors lose all their money
Major gold miners cutting production: Several of the biggest names in global gold mining announced losses this week, while also announcing asset write-downs and cuts to production amid rising costs.
Civil unrest and market crash in emerging nations: There is literal blood in the streets in Ukraine, Thailand, Venezuela, and Turkey. Stock markets and currencies from South Africa to South Korea have taken huge losses. It is thought that if the Fed announces it will not roll back the taper of bond buying, these markets will see another sell-off.
Financial investigations closing in on TBTF banks: Today, the financial regulator for the Group of 20 nations announced it was launching its own investigation into currency manipulation by many megabanks. This is just the latest in a number of investigations launched by regulators in the US, UK, Germany, and EU. The top German financial regulator has expanded his investigation to include gold and silver manipulation, and the others may follow suit. He called forex manipulation “probably bigger than LIBOR.”
Flight from stocks ahead of taper-induced correction: A growing number of traders have been looking for a correction of a stock market high on “free money” from the Federal Reserve. As tapering of QE seems to be going ahead according to schedule, stocks are seeing outflows.