Gold ETF outflows bring metal nearly to $1,300

This morning’s US GDP data revealed that the US economy was following the general course that Treasury Secretary Geithner had already described in broad terms in a Davos speech earlier this morning, and more specifically, to talk-show host Charlie Rose: “We now have a sustainable expansion, not a boom.” The American economy did record a more robust rate of growth in Q4 of 2010, at 3.2%, a number that was 0.6% higher than that noted in Q3. However, economists (eternal optimists?) had factored in a 3.5% pace for said growth rate, and were heard grumbling a tad over the news.

There was nothing much to grumble about when the economic data was looked at, in more detail, however. The “take-home” bullet point within the data set was the pickup in consumer spending. That component showed a 4.4% annualized rate of expansion and it was the best showing since early 2006. Well, at least one can now more reliably count on the American wallet to do its share in the recovery battle.

Also notable is the fact that 2010’s cumulative GDP growth rate was 2.9% – a number that followed a 2.6% contraction recorded in 2009 – the best US growth rate in half a decade. Recall that perceptions that the US (and global) economy are on the mend have also been factors cited in the recent sell-off in so-called “safe-haven” assets. Today’s figures reinforce such views among investors, even if they do not make for a case of (too) early euphoria.

In the category of “news that we never thought we’d hear again” was the report that Japan is (gasp!) slowly climbing out of deflation and that its unemployment level has unexpectedly dropped to 4.9%. Ironically, the news that deflation is easing to the lowest level since 2009 came at the same time as S&P lowered the country’s credit rating to AA- on account of what the agency called ‘persistent deflation.’ The Land of the Rising Sun could soon see a rise in its GDP back into positive territory, along with a (much welcome) rise in consumer prices. Unlike in the States however, the consumer remains reluctant to do battle at the local shopping centre for now. December retail sales slipped 2%. Bad Santa.

Friday’s roundup continues with news that 45% of polled-by-Bloomberg-respondents believe that China will come to experience a financial crisis, and do so inside of the next five years. The remainder? Well, another 40% of the 1,000 respondents expect such a crisis…after the five-year window of time. In other words, most people see a China that will be unable to navigate a course that keeps it away from the outcome that is normally the consequence of credit-driven bubbles.

The outcome is familiar to many in the West. We just saw that movie. Given China’s stature in the global economy, its trade valuation, and the size of its reserves, this might fast turn not into a case of ‘too big to fail’ but more like ‘too big to even think about a crisis.’ How the unfolding of such events might be prevented might soon turn into the attraction du jour/week/month/year. The Rabbit is nervous, in any case.

More assorted “future-talk.” Or, futures-talk, as may be the case. Guess where the “hedgies” are next aiming to throw their vast sums of money? Down the drain. Or, in the tub, if you like. The new, ultra-cool and compelling trade to come is….drum roll…water. You think gold is precious? Try H2O for just a minute. Try going without it, for starters. When the topic grabs enough attention to become a hot agenda item at the Davos summit, you know that the hedge fund guys cannot be far behind. April water futures, anyone? A “liquid” ETF? You know it’s coming. Want a preview? Look no further than the current gain in global food prices (one that is sparking riots all over the place) as being the direct result – at least in part – of scarce water supplies. The other part, well it’s called speculative greed. Drink up.

Finally, John Paulson is now looking into a place where drinking water is not exactly in ample supplies, but the potential for mega-profit, is: the Sonoran Desert in the Southwest. The man who bet against real estate (before he bet on gold partially) is not looking to bet…on real estate. In the hardest-hit quadrant of the US real estate map, to boot. Last fall, Mr. Paulson spent $42 million on 8277 residential lots and 22 empty model homes in Arizona, Colorado, and Nevada.

Jon Nadler is a Senior Analyst at Kitco Metals Inco. North America

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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