Gold closes lackluster day and week, an unexpected spike in yield on the 10-year Treasury

LATE REPORT

Gold pretty much ended the day where it started trading at the $1336 level and down about $9 on the day – a lackluster finish for the day and the week.  Silver also weakened today finishing at $17.14 and down 10¢ on the day. Not receiving much attention today was the sudden spike in yields on U.S. Treasury paper.  Yield on the 10-year note hit 2.943% indicating heavy selling.   In the absence of any economic news of consequence, today’s performance is likely to renew speculation that China could be unloading U.S. debt as part of its response to U.S. tariffs.

Today’s unexpected spike in rates probably contributed to gold’s downside and the 200 point drop in the DJIA.  In gold’s case the negative effect is likely to remain short term.  As posted in Tuesday’s EARLY REPORT, gold has tracked steadily higher since the Fed began raising interest rates in late 2015.  It is up about 15% over the last 24 months.

Chart courtesy of MacroTrends.com

Quote of the Day
“Sir Isaac Newton was asked by the British Treasury officials and financiers of his day why the monetary pound had to be a fixed quantity of precious metal. Why, indeed, must it consist of precious metal, or have any objective reality? Since paper currency was already accepted, why could not notes be issued without ever being redeemed? The reason they put the question supplies the answer; the government was heavily in debt, and they hoped to find a safe way of being dishonest. But Newton was asked as a mathematician, not a moralist. He replied: ‘Gentlemen, in applied mathematics, you must describe your unit.’ Paper currency cannot be described mathematically as money.” – The God of the Machine, Isabel Paterson (1943)

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(March 29, 2018) – My experiences with USAGOLD have all been positive, informative, enjoyable and profitable. Their book on the basics of gold is literally a treasure. It sets your feet on the right path and on solid ground. USAGOLD has fulfilled every promise in a timely way and always with wonderful courtesy. I highly recommend this company in all respects. – Hugh D.

(March 31, 2018) – We were first time gold investors. In search for information we came across their web site, which is excellent. When we contacted them, Jonathan Kosares lead us through the process. He provided information, suggested gold coins, but did not direct how we invested. He is always available to answer questions. The service has been excellent. Their business practices have been outstanding. We have absolute faith the company. They are the best investment company we have ever dealt with. – John G.

Scorecard: 45 five star reviews. ( 7 last 30 days) Zero complaints.
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Triffin warned us

Real Investment Advice/Michael Lebowitz/4-18-2018

“In 1960, 11 years before Nixon’s suspension of gold convertibility and essentially the demise of the Bretton Woods Agreement, Robert Triffin foresaw this problem in his book Gold and the Dollar Crisis: The Future of Convertibility. According to his logic, the extreme privilege of becoming the world’s reserve currency would eventually carry a heavy penalty for the U.S. Although initially his thoughts were generally given little consideration, Triffin’s hypothesis was taken seriously enough for him to gain a seat at an obscure congressional hearing of the Joint Economic Committee in December the same year. What he described in the book, and his later testimony, became known as Triffin’s Paradox.”

MK note:  This excellent background piece on the trouble with being the world’s reserve currency starts with a quote from Interest Rate Observer‘s James Grant:  “We are addicted to our reserve currency privilege, which is in fact not a privilege but a curse.”

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‘Gradual’ pace of rate hikes likely to hold for years, Fed’s Williams says

CNBC/Jeff Cox/4-20-2018

“While [John] Williams did not give a specific forecast for rates ahead, he said the pace is likely to continue to be gradual. He spoke specifically about the so-called neutral rate, which is neither restrictive nor stimulative. ‘Any way you try to cut this, slice and dice the data, the neutral rate appears to be much lower today than it was 10 or 15 years ago,’ he said during a speech in his current home district. ‘If you would have asked me 20 years ago … what’s the neutral interest rate, I would have said 4.5 percent. … You ask my colleagues today, the answer today is 3 percent.'”

MK note:  Williams has one vote at the FOMC meetings, but as president of the New York Fed (once approval is made), it will be an important one.

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Turkey’s central bank transfers its gold reserves from US to Turkey

Trend News Agency/Rufiz Hafizoglu/4-19-2018

“Turkey’s Central Bank has transferred its gold reserves stored in the US Federal Reserve System to Turkey, Turkish media reported April 19, citing sources in the government. The total volume of the gold reserves of Turkey’s Central Bank stored in the US was 220 tons. Other Turkish banks, Ziraat and Vakifbank, have also started transferring a gold reserve of 95 tons from the US to Turkey.”

MK note:  Turkey joins Germany, Austria, Venezuela and Netherlands in the league of countries repatriating their gold reserves from the U.S. Federal Reserve storage facility under the New York Fed. At least, those are the one we know about.  There may be others.  Recently Turkey’s president Erdogan made an interesting statement about gold in the context of international loans and loans made by the International Monetary Fund: “Why do we make all loans in dollars? Let’s use another currency. I suggest that the loans should be made based on gold.  With the dollar the world is always under exchange rate pressure. We should save states and nations from this exchange rate pressure. Gold has never been a tool of oppression throughout history.”  Turkey paid off its loans with the IMF in 2013.

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IMF warns of threats to the global financial system

Bloomberg/Andrew Mayeda/4-18-2018

“Threats to the global financial system are rising, with the price of risky assets surging in a manner reminiscent of the years before the global financial crisis, the International Monetary Fund warned. Downside risks to world financial stability have increased ‘somewhat’ over the past six months, the IMF said Wednesday in the latest edition of its Global Financial Stability Report. ‘Financial vulnerabilities, which have accumulated during years of extremely low rates and volatility, could make the road ahead bumpy and could put growth at risk,” said the Washington-based fund.'”

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Gold tracking lower as we close out a lackluster week

EARLY REPORT

Gold is tracking lower again today in a continuation of yesterday’s trend – down almost $8 today at the $1336.50 level.  Silver is down 10¢ at $17.15.  Precious metals trading has been lackluster all week as investors await direction on a laundry list of economic and political issues.  Gold, though, is not the only market in a holding pattern.  Stocks and the dollar have also spent the week more or less tracking sideways.  In some respects no news is always good news.  On the other hand, quiet times in markets almost always illicit an unsettled feeling that something might be lurking in the shadows waiting to pounce.

Chart of the Day

Chart courtesy of MacroTrends.com

Chart note:  Commodities have been the bright spot in the investment arena this year – up almost 22% as measured by the Goldman Sachs Commodity Index shown in blue in the chart above.  Gold, at times, has led the index over the past two years, even out-performed it in a couple of instances.  Over the past year commodities have played catch-up.  Perhaps it is time for gold to jump out and take the lead again. . . . . . .

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Don’t wait too long to leave the party

Daily Reckoning/James Rickards/4-16-2018

“Investors are lulled into complacency by the illusion of liquidity in good times. Investors know that markets turn around, that bulls become bears and that the time may come when they want to take some chips off the table and move to the sidelines. Their mistake is believing that a willing buyer or bank lender will be there for them the moment they want to sell or finance a position. If an investor unwinds a position slowly enough and early enough, liquidity may be available. But investors who stay too long at the party discover that when they want to make a move to reduce position size, everyone else is doing the same thing and the crash has already started.”

MK note:  Rickards offers an important piece of advice.  It is better to be a minute early than a minute late especially under current market conditions when machine trading can overturn the markets in matter of seconds.

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Watchout for an explosive action in silver prices on long-term breakout

commoditytradematra.com/4-19-2018

“Yesterday’s surge in silver prices finally sprung the shiny white metal free from the congestion it was caught in for the past couple of months and suddenly brings to light the prospects of an important long-term breakout. There is still some work to be done, but a weekly close above 17.65 will have silver trading out in ‘open space’. The coiling price action over the past couple of years could lead to a strong move.”

 

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Capital markets are in a zombie-like state

Asset Servicing Times/Jenna Lomz/4-19-2018

“Modern capital markets are in a zombie-like state’, with low volatility and extreme valuations in all assets, according to Saxo Bank. . . . . Anders Nysteen, quantitative analyst at Hoist Finance, said: ‘It is important in this environment to have a portfolio not just with ‘soft’ assets but to be prepared for sudden market changes with a more diversified portfolio including some of the ‘hard’ assets such as commodities, real estate, and emerging market exposure.’”

 

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Sideways trading today, top analysts worry about inflation, stagflation

LATE REPORT

Gold finished the day pretty much where it started at $1345.50 and down $5 on the day.  Silver managed to keep its head above water finishing up 5¢ on the day at $17.27.

Two noteworthy bits of analysis came public today – one from San Francisco’s Weeden & Co. and the other from Deutschebank’s chief international economist.  Weeden’s Michael Purves says that the tariff and sanctions “dust-ups” along with  tight oil supplies are not only pushed commodities higher, they could send “Treasuries and equities on the run.”  Deutsche Bank’s Torsten Slok took inflation concerns to a another level today by calling it “the mother of all risks.”  Those comments came on a day when 10-year Treasury yields pushed toward the 3% mark.

“This is a key risk,” Purves said. “Higher rates and inflation without higher economic growth raises the discount rate for equity cash flows (lower P/E) but also raises stagflation risks for the economy and the stock market.” [Emphasis added.]

Recent Better Business Review

(March 29, 2018) – My experiences with USAGOLD have all been positive, informative, enjoyable and profitable. Their book on the basics of gold is literally a treasure. It sets your feet on the right path and on solid ground. USAGOLD has fulfilled every promise in a timely way and always with wonderful courtesy. I highly recommend this company in all respects. – Hugh D.

(March 31, 2018) – We were first time gold investors. In search for information we came across their web site, which is excellent. When we contacted them, Jonathan Kosares lead us through the process. He provided information, suggested gold coins, but did not direct how we invested. He is always available to answer questions. The service has been excellent. Their business practices have been outstanding. We have absolute faith the company. They are the best investment company we have ever dealt with. – John G.

Scorecard: 45 five star reviews. ( 7 last 30 days) Zero complaints.
A+ rating. Accredited since 1991.

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last posted 4-9-2018

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‘Throw Germany out of the euro!’

International Politics and Society/Hartmut Elsenhans/4-19-2018

“With its world-beating export economy, Germany isn’t the sick man of Europe – but it is making the eurozone sick. By way of a remedy, France’s president Emmanuel Macron recently unveiled far-reaching proposals about how a budget for the euro area could help harmonise its members’ economies. Berlin has made only the smallest of steps towards the French position. If Germany is not more forthcoming, its European neighbours might well start to lose patience – and it is not unthinkable that this will result in calls for the eurozone’s strongest economy to leave the single currency.”

MK note:  Whoever is advocating this notion, even as some sort of half-hearted negotiating tactic, might want to be careful.  Germany might decide to take them up on it.

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Survey finds 75 percent of the ultra-rich investors forecast a US recession in the next two years

Daily Mail/Staff/4-19-2018

“The J.P. Morgan Private Bank’s Spring Investment Barometer was released this week and 75 percent of ultra-high investors suspect a recession is imminent  Ultra-high net worth individuals (UHNWI) are those that have more than $30million in liquid financial assets Just 21 percent of respondents felt that 2019 would be the year of the economic downfall of the country. Another 50 percent expect 2020 to be the year of the recession  High short-term yield and increasing deficit are just some of the reasons investors cite for the recession evidence.”

 

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IMF warns world economy could be ‘torn apart’ by ongoing trade war

TRADE WARS

Professional Advisor/Tom Eckett/4-19-2018

“Maurice Obstfeld, economic counsellor at the IMF, said: ‘The first shots in a potential trade war have now been fired. The multilateral rules-based trade system that evolved after World War II, and that nurtured unprecedented growth in the world, economy needs strengthening. Instead, it is in danger of being torn apart.'”

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What’s behind the big commodities rally, and why it could be just getting started

CNBC/Jeff Cox/4-19-2018

“After years of languishing under low market volatility and weak global growth, commodities are on the move higher. One index is at a multi-year peak as prices rise in energy, gold and base metals. Traders in the space see the rally continuing in the face of a trade war threat and as the market gets more comfortable with the global economic growth theme.”

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Gold bucking market cross currents today

EARLY REPORT

Gold is bucking some market cross currents this morning at $1345 and down about $6.  Silver though is trading on the upside at $17.26 (+6¢).  The most damaging of those crosscurrent comes in the form of yield on the 10-year Treasury note approaching the psychologically important 3% mark. ‘We have easing of geopolitical tensions in the world, we have higher commodity prices, we’re in the ninth year of an economic expansion, and the Fed looks like it will raise rates in June,’ said Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management.”  Though, the items Pollack lists add up to a positive for gold, they also provide fuel for gold traders who see Fed interest rate policy as the prime mover in the gold market these days.  The market, as a result, is tracking to the downside.

Chart of the Day

Chart notes:  Often forgotten, or in some quarters deliberately ignored, gold performed extraordinarily well in the disinflationary aftermath of the 2007-2008 financial crisis appreciating from $650 per ounce in January, 2007 to over $1800 in August, 2011.  The consumer price index, on the other hand, was bumping along either side of zero and had the potential to evolve to a full deflationary spiral. Inflation, in short, was not an issue. Though gold is generally considered an historically-proven inflation hedge, it is also an historically-proven disinflation hedge as the post 2007-2008  example demonstrates.  Investors from 2007 on were interested in gold for its safe-haven characteristics and as a refuge from a potential full-out financial system breakdown. One of the great advantages of being a gold owner is that it is an investment for all seasons protecting its owners against inflation, disinflation, deflation or hyperinflation.
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Gold battling headwinds but prevailing

Seeking Alpha/Cliff Droke/4-19-2018

“Further bolstering gold’s safety appeal are increased concerns among investors over a flattening U.S. Treasury yield curve. The yield curve reached its flattest level in more than a decade on Monday after the White House said U.S. President Trump would nominate Richard Clarida as Federal Reserve vice chairman. Fed watchers expressed concern that Clarida’s addition would further increase the central bank’s hawkish policy bias. A flatter yield curve often serves to worry investors that the economy is vulnerable to slowing or even recession. This in turn can increase demand for gold.”

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Currency trading volumes hit record highs in first quarter

Reuters/Tommy Wilkes/4-19-2018

“Foreign exchange trading volumes rose to a record high in the first three months of the year, data showed on Thursday, as a rise in volatility from multi-year lows encouraged more buying and selling of currencies. . . . . Wall Street banks Goldman Sachs and Morgan Stanley this week reported a jump in first-quarter profits thanks to a surge in trading activity, although Morgan Stanley executives warned results through the rest of the year may not be quite as strong.”

MK note:  Gold volumes on the COMEX are also running at high levels.  More on this subject some other time.

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Is this the long-awaited silver short squeeze, the beginning of the next bull market, or both? or, sigh, neither?

DollarCollapse/John Rubino/4-18-2018

“Speculators – usually wrong at big turning points and almost always at least slightly net long silver – have suddenly gone net short. This is almost unprecedented, and implies that a short squeeze – in which speculators are forced to cover their short bets by buying silver futures, thus forcing the price sharply higher – is a real possibility.”

MK note:  Yesterday we reported on concern among traders that future sanctions might target Russian mining giants and, in turn, threaten silver supplies from the world’s fourth largest producer.  (Please see yesterday’s LATE REPORT.) If those sanctions become a reality, and the viability of Russian producers threatened, then we are likely to see short covering on futures’ exchanges that could, as Rubino suggests, inspire quick and strong price increases.

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Demand for gold projected to drive up prices from Q3

China.org/Wu Jin/4-19-2018

“The price of gold is expected to grow sustainably from the third quarter this year, a Chinese annual revealed recently. Jointly issued by the China Gold Association, the World Gold Council and British Metals Focus Ltd, the annual showed a positive outlook for the growth curve of gold prices, particularly starting in July, 2018. . . Song Xin, director of the China Gold Association, said, ‘With the growth of high-end consumption and the development in second- and third-tier cities, the Chinese market will show its substantial demand, mostly unexplored, for physical gold, as more and more people start to realize gold’s stored and retaining values in the long term.'”

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Gold’s early advance slowed, silver the big story on the day

LATE REPORT

After getting off to strong start, gold slowed its advance as the day progressed but still finished up almost $4 at $1351. The big story of the day though for the precious metals was silver. It finished up 41¢ at $17.22 moving in concert with the two other commodity-based precious metals – platinum and palladium. Traders are concerned that the next round of sanctions against Russia could include top palladium and platinum producer, Norilisk and other mining companies. Russia is the world’s top producer of palladium, the second largest producer of platinum and the fourth largest producer of silver. Platinum was up $6 on the day and palladium was up almost $25.

On another front, Citigroup economist Willem Buiter issued a rather blunt warning today that tariffs from the U.S. and China, would amount to “a serious trade war” and “the biggest self-inflicted wound [on the world economy] since the great financial crisis.”  Simultaneously, details from the Fed’s Beige Book on the economy revealed growing concern among U.S. manufacturers about rising import prices based on those tariffs including proactive purchases of materials to avoid higher costs down the road.  Sounds like the 1970s. . . . .

Quote of the Day
“Markets are still in a precarious position and volatility is high. Regardless of which direction markets go from here, we cannot escape the risks hidden linkages pose to modern capital markets. We’ve already had a correction this year. But the next correction could turn into a 30% or 40% crash. The conditions are in place. But you can’t wait for the shock to occur because by then it will be too late. You won’t be able to get your money out of the market in time because it’ll be a mad rush to the exits. I recommend you reduce your exposure to the stock market and move into cash, gold, Treasuries, land and fine art.” – James Rickards


Recent Better Business Review

(March 29, 2018) – My experiences with USAGOLD have all been positive, informative, enjoyable and profitable. Their book on the basics of gold is literally a treasure. It sets your feet on the right path and on solid ground. USAGOLD has fulfilled every promise in a timely way and always with wonderful courtesy. I highly recommend this company in all respects. – Hugh D.

(March 31, 2018) – We were first time gold investors. In search for information we came across their web site, which is excellent. When we contacted them, Jonathan Kosares lead us through the process. He provided information, suggested gold coins, but did not direct how we invested. He is always available to answer questions. The service has been excellent. Their business practices have been outstanding. We have absolute faith the company. They are the best investment company we have ever dealt with. – John G.

Scorecard: 45 five star reviews. ( 7 last 30 days) Zero complaints.
A+ rating. Accredited since 1991.

[Link]

To end right, start right.
Choose the right portfolio mix with the right firm at the right price.
Choose USAGOLD serving gold and silver investors since 1973

1-800-869-5115 Ext#100

last posted 4-9-2018

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Metals gripped by turmoil as Rusal’s sanctions fallout spreads

Bloomberg/Mark Burton/4-18-2018

“The U.S. sanctions against United Co. Rusal are setting off explosions across global metals markets. Consumers, manufacturers and traders are scrambling to secure supply cut off by Rusal, the largest aluminum producer outside China. Aluminum reached a six-year high and nickel jumped the most intraday since 2009. Alumina, a raw material needed to make aluminum, notched a fresh record. ‘It really is unprecedented in terms of the turmoil it’s unleashed,’ Robin Bhar, a metals analyst at Societe Generale SA, said by phone from London. ‘It’s amazing to watch.’”

MK note:  Silver gets the green flag on this news as it moves higher in concert with other commodity-based precious metals, i.e. palladium and platinum.  It is up 42¢ as this posted at $17.20.

 

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The so-called smart money has started to sell at the end of the trading day, a bad sign for this bull

CNBC/Fred Imbert/4-19-2018

“The so-called smart money has recently started to bail on the stock market at the end of the trading day, a leading indicator the bull run may be over.  Jack Ablin, chief investment officer at Cresset Wealth, explains: The Smart Money Index (SMI) takes the first half hour of trading, which is dominated by retail investors (‘dumb money’), reverses its sign and adds it to the last half hour of trading, which is typically dominated by institutional investors (‘smart money’).”

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Here is a classic pattern on the gold price chart

John Navin/Forbes/4-18-2018

“I’ve marked in red underneath the three spots that indicate where the upside-down head and shoulders has been traced out. From the standpoint of classic technical analysis – the kind that John J. Murphy elucidates in Technical Analysis of the Financial Markets – this indicates the potential for reversal.It does not guarantee a reversal – the pattern is more like a heads up that possible support levels have been established. Since this is the case, a decent technical analyst would check for other types of indications to look for confirmation or non-confirmation.”

MK note:  A balanced presentation of possibilities for gold from a technical point of view

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Gold making another strong push toward the $1360 barrier

EARLY REPORT

Gold is making another strong push toward the $1360 barrier this morning trading at $1353 and up $6.50 on the day.  Similarly, silver is displaying strength – up 31¢  and over the $17 barrier at $17.09.  Gold has made a number of attempts to break through the $1360 mark and it will be interesting to see whether or not this push will be the one that carries it through.  Gold and silver’s upside appears to be part of a larger move in the commodities complex this morning led by oil – up over a $1 at $72.70 as this written.  Some experts believe oil could push through the $100 per barrel level over the next several months the result of a supply-cutting deal among OPEC members led by Saudi Arabia.

Chart of the Day

Chart note 1: With the US dollar the centerpiece of interest the past few weeks, we thought it appropriate to post the long-term overlay chart of the gold price and the major-currency version of the US Dollar index. As you can see, the dollar has been in a secular, long-term decline against other major currencies since the early 1970s when the U.S. abandoned gold-backing for the currency and the world switched to free-floating gold and currency prices. Despite all the talk of a strong dollar and how Treasury secretaries historically back the concept, the reality is the opposite – a weak dollar when measured against its major competitors. In the end, unencumbered ownership of physical gold coins and bullion, as this chart amply illustrates, has proven to be a very effective defense in the on-going process.
Chart note 2: The declining tops and bottoms indicate long-term erosion in the value of the dollar and give credence to the argument in financial circles that we may be in the beginning stages of another major downturn similar to those launched in 1985 and 2002. The 2002 event corresponded with the launch of gold’s secular bull market.
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Commentary: The elephant in the Trump-Abe room

Reuters/Robert Boxwell/4-18-2018

“The U.S.-China trade war isn’t about trade anymore. It’s about whether the world in the coming decades will be dominated by a capitalist democratic system or by Beijing. Beijing started the ‘war’ in the 1990s with its mercantilism and serially unkept commitments on market access and intellectual property protection. Following China’s accession to the WTO in 2001, which was oversold to the U.S. public with promises that trade would lead to motherhood and apple pie in China, these problems only grew. Now loaded with cash, Beijing makes it clear that China is not interested in playing by the rules of Western institutions. ‘Negotiations’ won’t change this.”

MK note:  This opinion piece outlines the situation in East Asia and what’s at stake for Japan, the United States and China, the elephant that will not be in the room when Trump and Abe meet this week at Mar-a-Lago Club in Florida. Trade and defense will be the big issues on the table.

 

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Exclusive: OPEC’s new price hawk Saudi Arabia seeks oil as high as $100 – sources

Reuters/Rania El Gamal and Alex Lawler/4-18-2018

“Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to an OPEC supply-cutting deal even though the agreement’s original target is within sight. The Organization of the Petroleum Exporting Countries, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. They have extended the pact until December 2018 and meet in June to review policy.”

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Jewellers see 15% growth in Akshaya Tritiya sales despite higher gold prices

INDIA WATCH

The Economic Times/Apama Desikan/4-18-2018

“This Akshaya Tritiya, jewellers expect 10-15% growth in sales compared to last year, despite higher gold prices. Currently, 10 grams of 24-carat gold is priced at around Rs 31,000 — higher than last year’s rates, which hovered at Rs 29,000.”

MK note:  Akshaya Tritiya is the annual festival of spring in India – a time usually of strong jewelry sales.

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There’s still a lesson Jay Powell could learn from Greenspan

Financial Times/Robin Wigglesworth/4-13-2018

“The primary challenge of central banks in the coming years will be to raise interest rates to more normal levels to damp some of the market euphoria that easy monetary policy has induced, even as secular forces continue to keep a lid on inflation and the global economy still sorely needs some healthy growth. Move too aggressively, and the economic expansion will be derailed and deflation might threaten again, given that the ‘neutral’ level of interest rates has come down dramatically over the past decade. But timidity risks financial markets heating up further and inflating bubbles. The key point is that predictability may actually be a hindrance rather than a help in this new central banking paradigm.”

MK note:  Some good, old-fashioned Greenspan era “constructive ambiguity” is what this opinion piece recommends. “The era of central banks mollycoddling markets is probably over,” writes Wigglesworth.  All in all an interesting perspective worth digesting.

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Gold fights to nearly even on the day, ‘happy hour in America’ about to end

LATE REPORT

Gold fought its way back to nearly even on the day after briefly dipping below the $1340 level and finishing at $1348. Silver had a positive day closing up 10¢ at $16.80.

Lingering concerns about the stock market helped push gold higher. Morgan Stanley issued a report saying that “happy hour in America” was about to end.  Yesterday, famed analyst Mark Mobius told Financial News that a 30% drop in stock values was a possibility.  “The market looks to me to be waiting for a trigger,” he said.

He then put the spotlight on a lingering concern of our own.  “ETFs,” he said, “represent so much of the market that they would make matters worse once markets start to tumble. You have computers and algorithms working 24/7 and that would basically create a snowball effect. There is no safety valve to prevent further falls, and that fall could escalate very quickly.”  Most investors are aware of Charles Mackay’s writings about the madness of crowds.  One day we will be reading about the madness of machines.

All of which serves as an appropriate introduction to our . . . . .

Quote of the Day
“Reflect on what happens when a terrible winter blizzard strikes. You hear the weather warning but probably fail to act on it. The sky darkens. Then the storm hits with full fury, and the air is a howling whiteness. One by one, your links to the machine age break down. Electricity flickers out, cutting off the TV. Batteries fade, cutting off the radio. Phones go dead. Roads become impassible, and cars get stuck. Food supplies dwindle. Day to day vestiges of modern civilization – bank machines, mutual funds, mass retailers, computers, satellites, airplanes, governments – all recede into irrelevance.

Picture yourself and your loved ones in the midst of a howling blizzard that lasts several years. Think about what you would need, who could help you, and why your fate might matter to anybody other than yourself. That is how to plan for a saecular winter. Don’t think you can escape the Fourth Turning. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted.” – Strauss & Howe – The Fourth Turning (With thanks to James Quinn of The Burning Platform for the reminder.)


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How Libor’s surge will help pop the global bubble

Real Investment Advice/Jesse Colombo/4-16-2018

“What is particularly concerning is the fact that Libor rates have remained at record low levels for a record length of time, which I believe is helping to inflate a global bubble that is more extreme and potentially ruinous than humanity has ever experienced (I’ve named this bubble ‘The Everything Bubble’). Similar to the U.S. Fed Funds Rate, the Libor has been rising for the last several years as central banks raise interest rates. While rising interest rates haven’t popped the major global bubbles just yet, it’s just a matter of time before they start to bite.”

MK note:  The quiet crisis marches on without much comment or concern beyond the funds and institutions directly affected. . . . .and they would probably just as soon keep it that way.  With respect to the stock market, Colombo recommends keeping “a finger on the sell button.”

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Posted in MK Short & Sweet |