Gold's a slam-hunk buy in China as monthly imports top 100 tonnes again - Wealth Managers

IMF warns U.S. default would "seriously damage" global economy

Gold held near one-week highs Tuesday as no solution to the Washington gridlock seemed imminent, with prices near $1,320 in the late afternoon. Silver, meanwhile, rose as high as $22.476 before easing back with dip just 0.13%.

However, the International Monetary Fund warned that a U.S. default would "seriously damage" the global economy. "A longer shutdown could have sizable adverse growth implications," the IMF said. "A failure to promptly raise the debt ceiling could also adversely affect financial markets and economic activity, with spillovers to the rest of the world."

It also lowered its growth forecasts, predicting average U.S. GDP growth of 1.6% for 2013 versus 1.7% prior, and 2014 at 2.6% versus 2.8% prior.

The shutdown continues to take a slow-burn toll on the U.S. economy. The shutdown cost $1.6 billion last week in lost economic output, according to IHS Inc. It's draining an average of $160 million each workday from the $15.7 trillion economy. 
Japan sees "huge impact" from default
Meanwhile, Japan -- whose holdings of U.S. Treasury bonds are second only to China's -- joined Beijing in issuing a warning on the debt ceiling, with Finance Minister Taro Asosaying the U.S. must consider the impact of any default on its bond holdings.

"If a default on U.S. debt occurs, there will be a huge impact on markets," said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. "In the long run, some nations could review the allocation of their foreign reserves and shift to a better-balanced portfolio."
 Gold holds $1,300 as stocks stumble again
Gold continues to find support in the D.C. standoff. "As there is still no sign of the dispute being resolved, market players will remain unsettled and interest in gold as a safe haven and crisis currency should increase. Moreover, the Fed will probably postpone its retreat from quantitative easing, which could also help to push prices up," Commerzbank AGanalysts said. 

Bullion likely is staying above $1,300 given the "appeal of a non-reproducible safe haven" during these times of U.S. political uncertainty, said Jason Rotman, president of Lido Isle Advisors. "We believe $1,336 is the next resistance level, and would not be surprised to see gold go for that level if the political uncertainties continue."

And on the equities front, U.S. stocks fell again Tuesday. TheDow Jones dropped 109.43 points, or 0.7%, to 14,826.81, while the S&P 500 dipped 15.41 points, or 0.9%, to 1,660.78, extending prior-day losses that pushed the index to a four-week low.
 T-bill yields are "canary in the coal mine"
And a real shocker occurred on the bond front: "Interest rates on one-month U.S. government debt hit their highest levels in five years on Tuesday," Reuters reported. "Yields on short-dated bills maturing in the next few weeks rose sharply, and the Treasury sold $30 billion in four-week bills at 0.35 percent, the highest yield since October 2008. Demand was at its weakest in four-and-a-half years, as investors have become concerned about the potential for a missed payment if the Treasury's borrowing authority is not extended with an increase in the debt limit."

"This is the canary in the coal mine," said Eric Green at TD Securities. "You could see this seep into other markets. The next shoe to drop is for stocks to drop further. That's why you want the safety of gold and longer-dated Treasuries."
Bullish signs for gold in China, India
China continues to find safety in gold. Its net gold imports from Hong Kong fell just 5% in August from the previous month, but were still above 100 tonnes for a fourth straight month.

"These are very strong numbers again. Gold demand from China remains brisk, offsetting weak demand in the West and confirming the shift in gold demand from West to East," saidCommerzbank's Carsten Fritsch, who added that China's consumption could stay above the 100 tonne mark in the coming months.

China is the No. 2 gold consumer in the world. What about the No. 1 buyer, India? Gold demand there could rise as much as 15% this quarter to 300 tonnes as pent-up demand following a good monsoon keeps the country on track for yearly demand estimated at 1,000 tonnes.

More "auspicious" days, when people buy gold, is seen helping to boost demand. "There are 20% more auspicious days and also there is pent-up demand from last quarter. Monsoon has also been good, so all indications are demand will be robust," said Somasundaram PR of the World Gold Council. "As we see population growth, as we see more people get out of the poverty line ... demand will grow."
Goldman's bear call "a little too cocky"
In the West, though, where gold ETFs have been sold off amid the rising stock market, some big Wall Street firms remain bearish on gold. Goldman Sachs' Jeffrey Currie even saidgold is a "slam dunk sell" for next year because the U.S. economy will extend its recovery after lawmakers resolve stalemates over the nation's budget and debt ceiling.

Given that Goldman quietly bought a huge stake in a gold ETF while it was telling the public to sell, take its forecast with a grain of salt. Billions of Chinese, Indian, and other Asian investors are. So is CNBC contributor and trader Jim Iuorio. Though he himself is bearish gold in the short term, he saidthis of Goldman's call: "When (Currie) says a slam-dunk sell, to me he seems like -- it lacks humility. It's a little too cocky. You can always be wrong, particularly if we push taper further away or we reaffirm (monetary dove Janet) Yellen is going to become the (Fed) chair."
Confidence falling into major funk across the board
Indeed, if Goldman is basing its bearish call on an economic recovery, the latest data suggest the firm has awhile to wait for the U.S. economy to pick up steam. Economic confidence plunged more in the past week than in any week since the collapse of Lehman Bros. in September 2008, according toGallup's Economic Confidence Index. fell 12 points to -34 last week thanks to the government shutdown.

Another gauge of consumer confidence — as measured by theInvestor's Business Daily/TIPP Economic Optimism Index — is "off in October by a magnitude comparable to the aftermath of Hurricane Katrina in 2005," MarketWatchreported. "The IBD/TIPP measure — which historically foreshadows confidence measures released later in the month by The Conference Board and the University of Michigan— was off by 16.5% compared to September, moving from a few points shy of positive territory into a deep funk. That kind of move, released by IBD on Tuesday, typically occurs only after a massive natural disaster or unsettling international political conflict."

The same mood was found among small businesses. Confidence in that sector fell in September to the lowest level in three months as more companies grew pessimistic about the economic outlook. The National Federation of Independent Business' optimism index decreased to 93.9 last month from 94.1.

"Consumers and small-business owners are pessimistic, not expecting a 'crash' in the economy, just accepting the notion that growth is going to be sub-par and that their government is likely to continue in dysfunctional mode," said William Dunkelberg, the group's chief economist.

So if Goldman's bearish take on gold is based on predictions of an ongoing economic recovery, perhaps the jury is still out in that department. With the U.S. potentially just days away from an unprecedented default on Oct. 17, gold remains a necessary component in every truly diversified portfolio.

More information can be found online at http://www.goldbullionadvisors.com