January 2012 - Gold, Silver, Currency and Asset Performance Review

Published in Market Updates  Precious Metals Update  on 1 February 2012

By Michael O’Brien


Gold’s London AM fix this morning was USD 1,744, GBP 1,106.74, and EUR 1,327.65 per ounce.

Yesterday's AM fix was USD 1,738.00, GBP 1,102.23, and EUR 1,317.27 per ounce.

Gold consolidated on yesterdays gain in Asia overnight and then rose in early European trading from below $1,735/oz to $1,748.60/oz. A break above resistance at $1,750/oz could see gold quickly challenge $1,800/oz. However, there is also the possibility of a correction after the large gains seen in January.

January 2012 - Gold, Silver, Currency and Asset Performance Review

GOLD

Gold was again one of the top performing assets and currencies in January. Its 11% gain in January surpassed the 10% gains seen in all of 2010. 

US Dollar Versus G10 Currencies and Gold

It was gold’s best start to the year since the start of the bull market in 2000. There are conflicting media reports as to whether this is the best January performance since 1980, 1983 or 1999.

Gold rose 11% in US dollar terms, 8.6% in GBP terms and 9.8% euro terms or more correctly these fiat currencies fell by this amount against immutable gold (*see various currency tables).

The strongest of major currencies in January were the Brazilian real and Mexican peso both of which only fell 3.9% against gold.

Next came the New Zealand dollar with a 4.5% fall and then the Australian dollar which fell 6.5% against gold.

The weakest currency in the month of January was the US dollar which fell 11.5% against gold.

Other major currencies performance versus gold were – the Australian dollar (-6.5% versus gold), British pound (-8.6%), Canadian dollar (-8.7%), Swiss franc (-9%), Japanese yen (-9.3%), euro (-9.8%).

The US dollar index was down just 1.1% for the month to 79.304 showing once again what a poor and misleading foreign exchange bench mark it is. 

Euro Versus G10 Currencies and Gold

SILVER

Gold’s performance was matched and surpassed by silver which again surprised many by rising 20% in value with growing concerns of diminished silver stockpiles. The quasi monetary metal silver thus became the best performing commodity and currency in January (see below). 

PGMs

The PGMs also rose in value with platinum gaining 13.5% and palladium nearly 5%. 

EQUITIES

Global equity markets saw gains with the MSCI World index rising nearly 5% - its best January since 1984.

US benchmark indices rose with the S&P up 4.36% - its best January performance since 1997. The DJIA was up 3.2% and the Nasdaq 100 saw strong gains of 8.5%.

While the DJIA rose 415 points in January, just five stocks accounted for 322 of those points or 78% of the rally. They were Caterpillar ($CAT), E.I. du Pont de Nemours & Company ($DD), United Technologies Corporation ($UTX), 3M ($MMM) and IBM ($IBM).

These gains were nominal and adjusted for the sharp fall in the dollar, non US investors were not compensated for the risk of holding US equities in January.

US Dollar Versus Major Currencies

There is also the concern that the rally is due to the continuing negative real interest rates, the massive injection of central bank liquidity and hopes of QE3 and continuing dollar debasement.

The FTSE’s gains were more muted than the US gains with just a 1.96% gain and interestingly the FTSE ended at the same level that it was on after the strong gains of the first day of 2012.

Given the FTSE is a better indicator of global economic growth due to the high level of natural resource and mining companies this is likely a sign that increasing pressure on the global economy.

The Stoxx Europe 600 Index, European benchmark gauge rallied 4%, the biggest January gain since 1998.

In Germany the DAX surged 9.5% - the best January on record for the benchmark. The CAC in France rose 4.4%.

In Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan was up 10 percent on the month, in its first gain in three months.

Japan's Nikkei logged its best January performance in 13 years gaining 4.1% in January, much better than its average of 1.37% for the month between 1972 and 2011.

The Hang Seng index put in its best January since 1996 and was up 10.6%.

Singapore's benchmark Straits Times Index rose 9.7% in January, its best monthly performance in more than two years and the second best in Southeast Asia after Vietnam gained 10.4% on the month.

Singapore was Southeast Asia's second-worst performer in 2011, after Vietnam, the worst.

The Shanghai Composite Index rose 3.3% and India’s Sensex rose 11%.

BONDS

Government debt was bought in January resulting in higher prices and lower yields for most longer term sovereign debt.

Treasuries returned 0.3% in January and Treasury Inflation Protected Securities gained 1.9%.

A measure of government bonds around the world advanced 0.6 percent in January, while global corporate bonds returned 2.2 percent according to the indexes.

Yields on 10 year debt fell marginally in the UK, Japan, France and Germany and remain near record low levels.

Yields on periphery debt also fell with Italian 10 year yields plummeting from over 7% to 5.7%.

Portugal was the exception and 10 year yields surged from 13.4% to over 16%.

Portugal looks set to become the new Greece and a new contagion risk to the Eurozone.

Continuing debt monetization is likely a primary factor for some of the gains seen in bond markets.

COMMODITIES AND BALTIC DRY INDEX

NYMEX (WTI) crude fell 0.5% while Brent crude rose 4% narrowing the gap between the two global benchmarks.

Natural gas fell 16.9% while gasoline and heating oil rose 8.6% and 5.2% respectively.

Copper (US) rose 10.4% and LME copper rose 12%, while aluminum (LME 3 month) rose 13%.

Corn fell 1% while wheat rose 2.3%.

Soybeans were down 0.6% while sugar rose 1.46%.

Cotton was up 1.78%. Rough rice fell 5.8%.

The Baltic Dry Index plummeted a shocking 61% in January which does not bode well for the global economy in 2012.

CONCLUSION

January 2012 again showed the vital importance of being globally diversified with global equities, global sovereign and corporate bonds (high credit, low duration) and of course allocations to gold and silver bullion.

This real diversification will protect against the heightened degree of geopolitical, macroeconomic, monetary (currency) and systemic risk in 2012.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

NEWS

(Reuters)
Gold steady; U.S., Europe data eyed

(MarketWatch)
Gold ends higher, up 11% on month

(BusinessWeek)
Gold Climbs to Seven-Week High in Best Start to Year Since 1983‎

(Reuters)
Gold on track for biggest gain since August

COMMENTARY

(ZeroHedge)
Gold, Silver Winning 2012 Asset Return Race With 11 Months Left

(SeekingAlpha)
Central Banks Shifting To Gold

(SeekingAlpha)
Silver Could Rise Dramatically In 2012

(KingWorldNews)
Leeb - Silver to Break $100 This Year & Gold Bull on the Move

(KingWorldNews)
Caesar Bryan - Tidal Wave of Gold Buying as Confidence Lost

(MaxKeiser)
Video: Silver Market and Inflation 


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