Gold News Monitor originally sent to subscribers on June 24, 2015, 8:28 AM.
In the Gold News Monitor, we have focused recently on news from the U.S. and the Eurozone. However, interesting things are happening all over the world. What are the recent global developments and what are their implications for the gold market?
Let’s start with Canada, which is struggling with the oil shock. In the first quarter, GDP declined 0.6 percent on an annual basis, the first quarterly drop since 2011. On June 12, the Bank of Canada released its Financial System Review, and pointed out that household indebtedness and the housing bubble were the top two vulnerabilities that threatened Canada’s financial stability. Indeed, the household-debt-to-disposable-income ratio dropped in the first quarter for the first time in four quarters, from its all-time high, to 163.3 percent. Suppressed borrowing could threaten the housing market, which is 30-63 percent overvalued.
Australia is struggling with similar problems. Australian household debt has tripled in 25 years, and Australian households are one of the most indebted in the world. Private sector debt-to-income is currently at an all-time high of 206 percent, up from a pre-global financial crisis level of 191 percent. The OECD has warned recently this country that its housing market could collapse, and said that if commodity prices continued to fall, it would affect overall revenue and the cutbacks in production could become “substantial”.
In China the story is a bit more complicated, however, a growing number of analysts say that the recent stock market bubble is going to burst, as China’s market capitalization has tripled in the past year to $9.8 trillion, and valuations almost doubled from levels seen at the peak of China’s last equity boom in 2007. According to the old Wall Street saying, when even the farmers are giving stock tips, then it’s a bubble and it’s time to sell.
Summing up, the global financial markets are definitely not stable. Since 2007, global debt has grown by $57 trillion, raising the ratio of debt to GDP by 17 percentage points. Canadian and Australian households are among the most indebted in the world, which makes these countries vulnerable in the event of another global financial shock. The only reason we have not already seen major disruptions is the stabilization of commodity prices. However, the commodity indices are projected to decline this year, according to the World Bank. Then we will recall the current but suspended crisis, which should support the gold prices.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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