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USAGOLD/Peter A. Grant/01-20-17
Gold has rebounded in the wake of the swearing-in of Donald Trump as the 45th President of the United States. Stocks are choppy, bonds are underpinned and the dollar has slipped. Everything is within the recent ranges as markets digest President Trump’s inaugural address.
The “Top Issues” that were immediately posted on the WhiteHouse.gov website are consistent with the “America First” theme of the speech. What this will look like in reality remains to be seen, but the website states unequivocally that the U.S. will withdraw from the TPP and look to renegotiate NAFTA. Globalists the world-over are understandably fretting as the trend toward nationalism seems to be gaining momentum.
This is going to lead to considerable uncertainty with regard to trade and foreign policy in the weeks and months ahead. Such uncertainty tends to favor safe-haven assets like gold.
Much of Mr. Trump’s agenda needs to make it through Congress and that’s going to take some time. Some things like the repeal of portions of Obamacare seem to have been teed-up in advance. However, he is also expected to take some executive actions today on a number of different fronts.
Steven Mnuchin, Trump’s nominee for Treasury Secretary, said during his confirmation hearing this week that the debt ceiling should be raised “sooner rather than later.” If the Trump administration is successful in both cutting taxes and increasing government spending on infrastructure, the U.S. is likely to need considerable clearance on the debt cap.
If the haven bid takes gold beyond the 8-week high set earlier in the week at 1218.90, attention shifts to the 100-day moving average (1234.11) and the halfway back point of the decline seen in the latter half of 2016 (1248.82).
Markets largely nonplussed by Trump speech.
Europe’s leaders lashed out at each other in Davos in an inflamed dispute over how to stop the EU collapsing, laying bare the festering divisions that will plague the European project long after British withdrawal.
“The whole idea of an ever-closer Europe has gone, it’s buried,” said Dutch premier Mark Rutte, dismissing calls for full political union as a dangerous romantic fantasy.
“The fastest way to dismantle the EU is to continue talking about a step-by-step move towards some sort of superstate,” he said at the World Economic Forum.
PG View: The elections this year in France and Germany, as well as a likely election in Italy, may push the EU further along the path to dissolution.
The biggest danger facing stock investors now is a severe bear market.
Yet you’d never know that from the World Economic Forum in Davos, Switzerland. In fact, the possibility of a financial crisis doesn’t even make its list of top 10 global risks, as outlined in the Forum’s Annual Risk Report.
…he U.S. stock market is overvalued by virtually any measure…
PG View: IF the stock market should collapse under the weight of these excessive valuations, a lot of capital exiting shares will undoubtedly find its way into gold.
Signs of overheating in the broader economy are “scarce” at the moment and risks are small that such conditions could suddenly emerge, said Federal Reserve Chairwoman Janet Yellen on Thursday, signaling she saw no reason to rapidly raise interest rates.
…But deciding when to move and by how much “will not be easy,” she said. There are uncertainties from fiscal policy and the outlook for the global economy, she added.
China’s economy grew a faster-than-expected 6.8 percent in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year.
But Beijing’s decision to prioritize its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt.
PG View: Amid ongoing capital outflows and considerable uncertainty with regard to future trade relations with the U.S., China seems likely to at least try to paper over these risks with debt and further weakening of the yuan.
USAGOLD/Peter A. Grant/01-20-17
Gold is narrowly confined right around the $1200 level, with attention squarely on the peaceful transition of power in Washington, DC today. Markets will be paying close attention to the tenor of Mr. Trump’s inaugural address. It is also anticipated that President Trump will sign a number of executive actions — perhaps associated with healthcare, immigration, climate policy and energy — on his first day in office.
The economic calendar is very light today. There will be FedSpeak from Patrick Harker and John Williams.
Gold steady at 1203.65 (-0.06). Silver 17.04 (+0.01). Dollar better. Euro lower. Stocks called higher. U.S. 10-year 2.48% (+1 bp).
Jim Rickards, the author of Currency Wars and The New Case for Gold, anticipates that Donald Trump will label China as a currency manipulator early in his new administration. His expectation is that China will respond with a massive devaluation of the yuan that will lead to extreme volatility in global markets.
Rickards suggests buying physical gold as a safe haven.
USAGOLD/Peter A. Grant/01-19-17
Gold is straddling the $1200 level as recent gains continue to get corrected/consolidated after an 8-week high was established earlier in the week at 1218.90. The yellow metal is being weighed by a firmer dollar, but safe-haven interest continues to limit the downside.
A round of solid U.S. economic data today lifted expectations that the Fed would raise rates multiple times this year. U.S. yields moved higher, pulling the dollar higher as well.
Speaking yesterday at the Commonwealth Club in San Francisco, Fed Chair Yellen reaffirmed that she expects to raise interest rates “a few” times this year. “Now it’s fair to say the economy is near maximum employment and inflation is moving toward our goal,” said Yellen.
Yellen did not touch on how the new administration might alter the Fed’s outlook, saying only that regulatory and fiscal policy can have an influence on the economy. We’ll have to wait and see what regulatory and fiscal policies might be implemented by the Trump administration, and then how those might in tern influence monetary policy.
Mario Draghi is taking a more cautious approach, citing downside risks and downplaying recent upticks in inflation. The ECB held steady on policy today and Draghi’s tenor was viewed as remaining quite dovish.
Stephen Poloz of the Bank of Canada struck a similar tone yesterday, saying that rate cuts remain on the table amid global uncertainty. Mr. Trump will be sworn in as the 45th President of the United States tomorrow and policymakers the world-over are anxiously waiting to see what policy decisions he makes.
At the World Economic Forum in Davos, Switzerland the concern among global elites is palpable. “So many people feel anxious. So many people feel that this is one of the most dangerous times,” said Ian Goldin, a professor of globalization and development at Oxford University. Whether he was talking about the common man or the elites in attendance at the forum was not so clear.
One thing is certain though: In dangerous times, global elites and the common man alike turn to gold as a safe-haven.
Federal Reserve Chair Janet Yellen has shown a knack for needlessly boxing herself into promises about the likely path of interest rates that have proven wildly incorrect in the past – and damaged the central bank’s credibility in the process.
…Yellen this week said the Fed would raise rates “a few times” over the next couple of years, creating unnecessary expectations in financial markets that will likely be disappointed.
USAGOLD/Peter A. Grant/01-19-17
Gold is under modest pressure again today following a round of encouraging economic data bolsters the case for multiple rate hikes by the Fed this year. Yields rose, as did the dollar.
U.S. initial jobless claims fell 15k to 234k last week, below expectations of 252k. The Philly Fed index beat expectations in January. Housing starts surged 11.3% in December, also besting expectations.
The dollar got an additional boost from a dovish Mario Draghi, which put the euro under pressure. The ECB held steady on policy, but Draghi said that growth risks remain “tilted to downside” and “there are no signs yet of a convincing upward trend in inflation.” He reported that tapering was not discussed.
“There are no signs yet of a convincing upward trend in inflation”, said the Italian, who added that “risks to euro area growth outlook tilted to downside due to global factors”.
Mr Draghi also said ECB policymakers had discussed details on how to buy government bonds below its -0.4 per cent deposit at its January meeting following a decision to drop the ceiling last month.
ECB holds steady on policy, in line with expectations. Easing bias maintained. Draghi presser underway.
Philly Fed index climbed to 23.6 in Jan, above expectations of 15.1, vs negative revised 19.7 in Dec (was 21.5).
Gold steady at 1203.53 (+0.31). Silver 16.94 (-0.112). Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 2.44% (+1 bps).
“Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road – either too much inflation, financial instability, or both,” Yellen said in remarks prepared for delivery to the Commonwealth Club of California in San Francisco.
“In that scenario, we could be forced to raise interest rates rapidly, which in turn could push the economy into a new recession.”
USAGOLD/Peter A. Grant/01-18-17
Gold is trading modestly lower on the day, but remains generally well bid within the uptrend that has emerged since gold bottomed late last year. The yellow metal is being weighed by a firmer dollar, but haven interest is limiting the downside.
Gold has risen for seven consecutive sessions. There’s still a lot of trading day left, so we could still see and eighth today.
CNBC reports that GLD has risen 13 out of the last 15 sessions through yesterday. That’s something that hasn’t happened since the summer of 2011.
After holding steady on policy today, Bank of Canada Governor Stephen Poloz warned that rate cuts were still on the table, citing “significant uncertainties.” Poloz specifically mentioned “material” risks to the Canadian economy if U.S. trade policies become more protectionist under President Trump.
Silver has gotten a lift this week as well, regaining the $17 level for the first time since mid-December and setting a 9-week high yesterday at 17.32. The technical picture for silver has improved markedly this week, with the 100-day moving average now within striking distance at 17.53.
FT/Sam Fleming and Shawn Donnan/01-17-17
Donald Trump has threatened to overturn two decades of US economic policy by questioning the strong value of the dollar, raising fears that his presidency could set off a new round of currency wars between the world’s major economies.
On Monday the president-elect appeared to break from the longstanding “strong dollar” policy of successive administrations, declaring that the currency was too high and that this was preventing US companies from competing with Chinese counterparts. “It’s killing us,” he said in an interview with the Wall Street Journal.
PG View: Let’s be honest, our so-called “strong dollar” policy has been a farce. The greenback is in long-term secular decline, like pretty much every other fiat currency. Only within the last several years has the dollar really appreciated; largely as a result of divergent monetary policy. Those gains are eroding the competitiveness of U.S. corporations, which will likely put trade policy high on the Trump administration’s agenda. Speaking in Davos, an advisor to the President-elect, suggest Mr. Trump is likely to tear-up the rulebook on trade.
Bullion has risen every day except one in 2017, evidence that investors are pricing in a rocky year ahead. U.K. Prime Minister Theresa May confirmed Tuesday that she’ll leave the European Union’s single market while seeking a new arrangement on the customs union. Donald Trump is just three days away from being sworn in as the next U.S. president.
“As the inauguration of Trump draws close, I think people are realizing that potentially this could be a very stormy presidency and gold may well benefit from that,” said David Govett, an analyst at Marex Spectron Group Ltd. in London. “There is new money at the beginning of each year looking for a home and a lot of this seems to find its way into gold.”
PG View: Gold is slightly lower this morning as recent gains are consolidated, we’ll have to wait and see where we close today.
BoC steady policy, in line with expectations. Poloz says rate cuts remain on the table amid global uncertainty.
U.S. NAHB housing market index fell to 67 in Jan, below expectations of 69, vs negative revised 69 in Dec.
U.S. industrial production + 0.8% in Dec, above expectations of +0.6%, vs negative revised -0.7% in Nov (was -0.4%); cap use rose to 75.5%.
Gold prices could extend their gains after Donald Trump’s inauguration if he continues to make statements as president that prompt investors to enter safe havens.
As president-elect, Trump has angered China, India and Mexico, some NATO countries and, just this long weekend, Germany (over its luxury cars), to name a few. Gold prices in New York trading have risen 11.9% since Nov. 8.
However, the assumption is that once Trump takes office, he will either be more restrained or advisers around him will dampen whatever he says. Based on Trump’s more than two dozen tweets since Saturday, there is a high probability that that assumption is wrong.
PG View: Whether you find President-elect Trump’s unvarnished candidness refreshing or troubling, now may be a good time to bolster your gold holdings.
USAGOLD/Peter A. Grant/01-18-17
Gold is generally consolidative at the high end of the recent range. The dollar is a little firmer today, which has the yellow metal trading slightly lower in the day.
December CPI was inline with expectation. Later this morning we have industrial production, NAHB housing market index, Beige Book, TIC data and FedSpeak from Yellen and Kashkari.
The Bank of Canada will also announce policy. Steady as she goes is widely expected.
Financier Anthony Scaramucci, an adviser to Donald Trump, has been speaking at the World Economic Forum in Davos, Switzerland.
He said President-elect Trump is likely to tear up the old rulebook of how trade deals are done and although he wants a strong relationship with countries like China, is seeking changes to what he called “asymmetrical deals” that have been struck in recent decades.
PG View: That ought to shake things up globally . . .