3 Events Worth Watching

SOURCE: [Frank Holmes-US Global Investors]

Indian Gold Demand Picks Up

The love for gold has been reignited in India, according to the World Gold Council (WGC) in its Gold Demand Trends for the third quarter of 2012. India regained its title as the strongest performing market, overtaking the greater China area, as the country experienced a bounceback in demand due to improved sentiment during the festival season.

Compared to the third quarter of last year, Indian gold jewelry demand grew by 7 percent while gold bar and coin demand rose 12 percent. Total consumer demand was 223 tons, compared to 205 tons this time last year. The second largest market was Greater China, which consumed 185 tons in the third quarter of 2012. This was less than the 201 tons consumed in the third quarter of last year.

Together these markets in the east made up 55 percent of the world’s jewelry and investment demand, according to the WGC.

Although India experienced a setback earlier this year when gold shops boycotted a proposed tax on the yellow metal, imports recovered by July “as inventory levels were bolstered (aided by a well-timed dip in the local price) and the market adjusted to the customs duty,” says the WGC.

The third quarter has historically been a strong seasonal time for the Love Trade to come alive in the east. Monsoon rains and the festival season in the fall are generally associated with the buying and giving of gold. Still, for the year, don’t expect the Love Trade in India to be as strong as it was in 2011, as gold demand remains subdued with the ongoing weakness of the rupee.

The WGC has a wealth of information about the gold market in the third quarter. I encourage all serious gold investors to download its reports at www.gold.org.

FHA in Need of Taxpayer Bailout Keeping Fear Trade Alive

This week, the Federal Housing Administration reported that it has exhausted its reserves, possibly requiring a bailout from U.S. taxpayers for the first time ever in its nearly 80-year history.

The agency prides itself on being “the only government agency that operates entirely from its self-generated income and costs the taxpayers nothing.” Meanwhile, delinquent loans have been steadily climbing for the last few years. According to data from the FHA, the Wall Street Journal reported that the number of single-family loans insured by the FHA that are 90 days or more past due climbed to roughly 739,000 in September. “That represents about 9.6 percent of its $1.08 trillion in mortgages guaranteed,” says the WSJ.

Now its capital reserves have dropped to a negative $16.3 billion. This is considerably below the required 2 percent capital cushion. Based on its $1.1 trillion portfolio, it should be reserving about $22 billion.

To keep the FHA solvent and meet its requirement, approximately $38 billion of cash would need to be injected.

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3 Events Worth Watching