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12-Feb (Bloomberg) — With indexes such as the S&P 500 having one of their worst starts to a year ever, some investors have predictably turned to so-called safety plays, such as gold, Treasuries, and money markets. But what was a jog in that direction last month may be turning into a headlong run.
According to Bank of America Merrill Lynch’s most recent report on client flows, last week can be defined as a “gold rush” as precious metals saw the second-largest inflows in almost six years. This comes as gold in particular has been a standout in 2016, rallying to 12-month highs.
Bank of America Corp.’s report, from a team led by Chief Investment Strategist Michael Hartnett, also found that other safe havens saw large inflows. Some of the numbers include $24.3 billion into money markets, $3.6 billion into Treasuries and munis, and $1.6 billion into precious metals.
11-Feb (RT) — China’s gold imports have surged over 700 percent since 2010 and the country remained the world’s biggest consumer of the precious metal last year, according to the latest data from Hong Kong.
In 2015 the country imported almost 1,000 tons of gold, compared to about 100 tons five years ago. China was followed by India which imported 849 tons of gold in 2015.
Last year China’s demand for gold coins surged 25 percent in the fourth quarter from a year earlier. The rush followed Beijing’s devaluation of the yuan as consumers sought to protect their wealth.
China’s central bank has also accelerated gold purchases to diversify the country’s reserves away from the US dollar.
However, Beijing doesn’t explain the jump in gold demand, claiming the country’s gold reserves have grown only a little in recent years.
“China has a lot more gold than they declare,” John LaForge, head of Wells Fargo’s commodities team told CNN.
12-Feb (Reuters) — Gold took a breather on Friday after soaring 4 percent the previous day but was still set for its best week in four years after stock market turmoil sent investors into safe haven assets.
Gold has benefited along with bonds and the Japanese yen from a rush to safety as investors worry about the health of some banks and the risk of a possible global recession.
They have been unnerved since the Bank of Japan, followed by Sweden this week, introduced negative interest rates to try and stimulate growth and now worry that if economic conditions deteriorate sharply the U.S. Federal Reserve might have to cut rates rather than raise them.
Bullion surged to a one-year high on Thursday, its biggest single-day percentage rally since 2013, and analysts and traders see more gains ahead if the weakness in equities persists.
12-Feb (WSJ) — Gold is rallying from five-year lows and priced against one metric this metal is already at its most expensive since the Victorian age – against oil.
An ounce of gold will now set you back more than 40 barrels of oil.
The cost of gold relative to oil prices is one metric used by some investors as a signal of financial jitters.
Gold just broke through its previous record price relative to oil, which was set in 1892, according to Deutsche Bank analyst Jim Reid, whose data goes back 150 years.
The current divergence of these two high profile commodities says a lot about investor’s current appetite for risk amid a widespread market swoon.
U.S. import prices prices -1.1% in Jan, inside expectations of -1.5%, vs -1.1% in Dec. Export prices -0.8% on expectation of -0.6%.
U.S. retail sales +0.2% in Jan, above expectations of +0.1%, vs positive revised +0.1% in Dec; ex-auto +0.1% on expectations of unch.
Gold lower at 1233.70 (-6.61). Silver 15.64 (-0.043). Dollar higher. Euro lower. Stocks called higher. US 10yr 1.68% (+2 bps).
11-Geb (Bloomberg) — A top U.S. lawmaker questioned the Federal Reserve’s authority to cut interest rates below zero after Janet Yellen disclosed that the central bank was re-examining the tool as a policy option if the economy faltered.
The Fed chair was asked during two days of congressional testimony to clarify her views on pushing borrowing costs below zero in the U.S., which some investors see as increasingly likely amid a darkening outlook for global growth that has panicked financial markets.
“We had previously considered them and decided that they would not work well to foster accommodation back in 2010,” Yellen told the Senate Banking Committee Thursday. “In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.”
Yellen said that she wasn’t aware of any law that would prevent the Fed from imposing negative rates. Richard Shelby, a Republican from Alabama who chairs the Senate banking panel, had a different view.
11-Feb (USAGOLD) — Gold is up big today as stocks, oil and yields plummet. The phones here at USAGOLD have been quite busy this morning, which has prevented me from writing.
However, USAGOLD founder and President Mike Kosares wrote a great piece earlier today on the driving forces behind today’s rally. It makes an excellent DMR.
Here’s the direct link to Mike’s commentary: Why is gold up nearly $60 this morning?
11-Feb (CNBC) — Stocks fell sharply Thursday as investors digested a massive global sell-off and oil prices fell further.
“The Chinese H share index didn’t wait until the mainland opening on Monday and closed overnight with a near 5% drop to a level last seen in March 16th 2009,” Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.
Trading in mainland China is closed this week due to the Lunar New Year Holiday.
The pan-European STOXX 600 fell 2.6 percent as banks in the region plunged, with Deutsche Bank dropping 4.7 percent and UBS falling 2.6 percent. On Wednesday, European banks soared, momentarily halting a massive plunge.
European markets were also surprised by the Swedish central bank cutting rates further into negative territory.
“I’ll say this again, the arbitrary desire on the part of the Fed, ECB, BoJ, BoE, Riksbank, and SNB for 2% inflation has truly wrecked havoc on the global economy and has lit major financial instability,” Boockvar said.
The sell-off in global equities sent traditional havens surging.
Gold futures for April delivery gained $43.80 to trade at $1,238.50, while U.S. 10-year note yields traded at 1.63 percent. The benchmark note yield also went below 1.55 percent momentarily.
“The central banks have lost control of the situation,” said Peter Cardillo, chief market economist at First Standard Financial. “If this continues, there’s real trouble ahead.”
The Dow fell more than 300 points.
“‘I think people are so confused about this market. Nobody really understands what’s happening, including me. So, things that I thought made sense didn’t make sense and weren’t working…when traders don’t know what to do, they go where everybody is. And I thought that would be gold,’ Cuban told CNBC’s “Fast Money: Halftime Report” on Thursday.”
Minted 1866 – 1907
Actual Gold Content: .48375 troy ounce
When buying gold, most know the fractional rule of thumb: Anything smaller is almost always more expensive that its larger alternative. Take any grouping of modern bullion coins as an example. With historic U.S. coinage, its no different – perhaps exaggerated even. This is due in part to a lower total original mintage for the smaller units – in late 1800’s and early 1900’s about half as many $10 Liberties were produced as $20 Liberties – though the more significant contributing factor was the impact the 1933 recall had on the population of these more negotiable coins. The greater role of $2.5’s, $5’s and $10’s in active circulation at the time left them more readily exposed to the melting pot in 1933 than $20’s. This resulted in an environment today where surviving populations are comparatively even lower than original mintage figures might suggest.
So by and large, $10 Liberties trade at fairly significant premiums to their $20 counterparts month over month, and year over year. This time last year, for example, two $10’s were about $100 more than a single $20 gold piece. It is worth noting as well, that for the first time of tracking this anomaly, it coincides with an environment where the average premiums on historic US coins are simultaneously hovering near multi-year lows. To give you an idea, if you had purchased one of these coins the first time gold approached $1200/oz – in May of 2010 – you would have paid about $785/coin, a whopping $180/ounce or 15% more than you’d pay for the same coins today! Gold may have risen fairly quickly over the past few weeks, but in many ways, this is an opportunity that lets you turn back the clock.
PG View: We still have about 150 of these beautiful coins remaining. They are a great deal, even at the higher price of gold.
11-Feb (CNBC) — With the meltdown in stocks sending investors scurrying to safety in gold, JPMorgan Asset Management’s Robert Michele said Thursday it’s a matter of faith in the metal, or the lack thereof in other assets.
“Gold at $1,200 an ounce, what does that tell you?” he asked rhetorically in a CNBC “Squawk Box” interview. “It tells you that in a flight to quality and a safe haven, people have more confidence in gold than in bank deposits or paper money. I think things have gotten out of control.”
In early trading, gold prices surged nearly 4 percent to around $1,241 per ounce, its highest level in a year.
Gold was also supported by a lower dollar, which makes the metal cheaper for holders of other currencies. The dollar was under heavy pressured early Thursday against the Japanese yen, which rose to 15 month highs.
PG View: Gold has traded as high as 1263.37 today, a 13-month high.
by Michael J. Kosares
It has something to do with Yellen’s not dovish enough Congressional testimony. It has something to do with global financial system problems associated with low interest rates. It also has something to do with emerging countries at the doorstep of penury. And last but not least, it has something to do with disinflationary pressures that threaten the financial system and world economy as a whole. However, these things, albeit good reasons to own gold, would normally play out in the price over an extended period of time.
Let’s dig a little deeper – beneath the popular generalities being bandied about the past several days – to discover the reasons why gold would move so forcefully over such a short period of time.
I find three:
- In this quirky zirpy, nirpy world, gold offers a return, like cash, even if the price stays put. Gold looks the most rational choice in this lop-sided, anti-savings investment environment. As it is, gold, at this writing, is up 17.5% on the year – a bonanza in this economy and a magnet for smart money around the world.
- Knowing that gold would likely become a safe-haven getaway for weary, burnt out investment capital, the shorts decided that covering their positions might be in their best interest. As this is written, the proverbial mad dash for the exit has already begun.
- Capital flight. At the beginning of 2016, financial authorities in Europe signaled that investors could be called upon in the form of bail-ins to take losses in the event of bank failures, not just as stockholders, but as bondholders and depositors as well. Policy-makers, then, should not be surprised if such renderings cause a little
angstpanic among investors, and a general flight in the direction of gold.
I won’t paint the bigger picture on the immediate effects of these developments at this time with respect to gold, in the interest of getting some analysis out there for our clientele to consider. There are probably other factors driving gold at the moment, but I see the combination of those three as the chief determinant. They offer some explanation as to why gold has moved so quickly and with such determination since the beginning of the year.
Do I think gold is too high now? No. Owning gold has become a matter of practicality. We will get the standard pull-backs and we should consider those healthy events, but given the circumstances I do not expect the demand to abate. Gold began the year considerably oversold and, in my view, it still has some catching up to do. Let me put it this way: Given the current situation with the major currencies, do you think present prices will dissuade China (for example) from further adding to its reserves or put a damper on the various repatriation efforts underway?
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“Equities tumbling. Gold and silver gaining. Oil plummeting. ‘It’s hard to imagine an uglier morning,’ writes JPMorgan’s trading desk. There’s nothing hyperbolic about that statement.”
MK note: Beauty and, it follows, ugliness are in the eye of the beholder. The well-diversified see this morning as neither ‘beautiful’ or an ‘ugly,’ but just a morning. No need to get all worked up about it. The two things referenced in the headline are Riksbank cutting into even deeper negative territory on Swedish interest rates and SocGen’s revelations that it too might be in financial straits.
11-Feb (CityAM) — One thing’s for sure: the Riksbank doesn’t do things by halves. The Swedish central bank just took its benchmark interest rate even further into negative territory than economists were expecting.
The Riksbank announced this morning it would be cutting rates to minus 0.5 per cent, from the current minus 0.35 per cent.
This is a move even bolder than the minus 0.45 per cent rate cut the market was expecting – but then, the Riksbank does like to surprise.
The bank is working to weaken the Swedish krona to push the country’s inflation up, announcing in a statement this morning that inflation looks to be lower in 2016 than previously forecast, weakening their confidence in Sweden’s two per cent inflation target.
The lower rate has been set to “provide support for inflation so that it rises and stabilises around two per cent in 2017”.
PG View: Deeper into negative territory goes Sweden as the currency war continues. Others will likely follow, but many believe the Fed still has more hikes queued up for this year . . .
U.S. crude futures dropped 4% Thursday, driving prices below $27 for the second time in recent weeks. Before this year, oil prices hadn’t dipped below $27 since 2003.
The steady decline is creating a widespread headache for financial markets. It’s causing energy companies’ profits to plunge, raising worries about the prospect of bankruptcies in the oil sector and spooking investors about global growth. In total, crude oil has plunged an incredible 75% from its June 2014 peak of almost $108.
PG View: Spot crude reached an intraday low of 26.13.
11-Feb (Reuters — The dollar hit a 16-month low against the yen on Thursday and headed for its worst week since the Lehman crisis as investors scrambled for relative safety, buying up gold and top-rated bonds and dumping stocks.
Investors were spooked by worries over the direction of the global economy and by cautious comments from the head of the U.S. Federal Reserve that were taken to mean no near-term interest rate hikes.
…”What this shows is that the risk-off mode has come back very quickly and that the worst may still be to come in these markets,” said Rabobank European strategist Emile Cardon.
“What is different to previous times is that the bad news in now coming from everywhere, China, Portugal the U.S. the commodity sector the banking sector. It’s like several smaller crises could combine into one big crisis.”
11-Feb (Reuters, via CNBC) — U.S. Treasury security yields plunged on Thursday to levels not seen since 2012 in some cases as worries over global growth and the effectiveness of central bank policy sparked huge demand for safe-haven assets and global equity markets sold off hard.
The yield on the 10-year Treasury note held at 1.5717 percent, but briefly dropped below 1.55 percent to its lowest level since September 2012, while the 30-year bond yield hit its lowest level in a year below 2.4 percent.
The yield spread between 10-year and 2-year notes narrowed to its tightest level since November 2007, reflecting an outlook for weak economic growth and low inflation.
11-Feb (Telegraph) — The stock market plunge has triggered a gold buying spree with a popular fund that tracks the metal accepting the most cash on a single day since the financial crisis on Tuesday.
…James Butterfill, head of research, said investors had become more cautious and were buying gold to shelter from stock market volatility.
… The majority of global stock markets have had a nightmare start to 2016, with Britain’s blue-chip share index, the FTSE 100, shedding 12pc. Last month the index entered a bear market after registering a 20pc fall from its peak last April.
Concern over a slowdown in China, the world’s second largest economy, is one factor behind the falls.
This has led some investors to bag profits and seek shelter in the precious metal, the value of which tends not to move in line with other assets, such as shares or property.
“Investors are returning to gold as a core diversifier and safe haven investment. Given the increasingly challenging investment and economic environment, we expect this trend to continue,” Mr Butterfill said.
PG View: Physical demand has been robust as well. Buying a fund will capture the price movement of gold, but you miss out on the true safety of physical gold ownership. ETFs and the like carry counterparty risk.
U.S. initial jobless claims -16k to 269k for the week ended 06-Feb, below expectations of 279k, vs 285k in previous week.
Gold is sharply higher on the latest plunges in global shares and oil, reaching a 12-month high of 1242.16.
Gold higher at 1234.72 (+36.07). Silver 15.60 (+0.321). Dollar lower. Euro higher. Stocks called lower. US 10yr 1.53% (-14 bps).
10-Feb (WSJ) — After financial markets started the new year in turbulence, the Fed backed away from that assessment of risks to the outlook, saying in its January policy statement it couldn’t make a judgment in light of hard-to-discern global developments.
“The [Fed] is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook,” the Fed said last month.
The Fed’s assessment of the balance of risks is meaningful because officials won’t be inclined to raise short-term interest rates again if it sees growing risks to the outlook. Ms. Yellen’s testimony therefore underscores the market’s belief that a rate increase in March is highly unlikely, unless markets turnaround clearly in the weeks ahead and economic data show a firm growth and hiring backdrop.
In her testimony, Ms. Yellen made clear she saw an abundance of risks that could undermine growth and hiring and hold inflation down longer than hoped or expected.
PG View: I would argue that there were plenty of troubling signals late last year, but the Fed hiked anyway.
10-Feb (Guardian) — Britain’s industrial production fell by 1.1% in December after warm winter weather forced a sharp decline in energy output and the low oil price hit North Sea oil producers.
The manufacturing sector experienced a further fall from an already weak November, while mining and quarrying also dropped, fuelling concerns that the slowdown in the US and turmoil on global markets is undermining confidence across the UK’s major export industries.
One analyst described the last year as “dismal” after official figures showed that the recovery in Britain’s industrial sector during 2013 and 2014 came to an abrupt end in 2015.
PG View: The MPC of the BoE wisely chose to delay lift-off at their last meeting. Clearly, the collapse in the manufacturing sector is not just a U.S. phenomenon. The age of über-accommodative monetary policy appears far from over.
10-Feb (MalaysianInsider) — Industrial production in France, Europe’s second biggest economy, unexpectedly tumbled again in December, data showed today, a day after powerhouse Germany also reported a surprise drop in output.
France’s industrial output dipped by 1.6% in December after slipping 0.9% the previous month, the national statistics agency INSEE said.
The figure took analysts by surprise.
Jack Allen, of Capital Economics, said his team had pencilled in a slight rise in French industrial production for December but the result turned out to mark the biggest monthly drop in 19 months.
“French production was much weaker than expected,” he wrote in a note to investors.
“What’s more, the decline was broadbased across industrial sectors,” he added.
In December it was weighed down by the transport equipment, agriculture and food industry sectors. Manufacturing output also fell by 0.8%, after increasing by 0.6% in November, INSEE said in a statement.
Unusually mild weather hit electricity and gas production, while output in the auto sector decreased 3.7%, it added.
The gloomy picture were compounded by data showing a similar trend in the eurozone’s third-biggest economy, Italy.
Italian industrial production also disappointed in December, with a month-on-month 0.7% contraction, its national statistics institute, Istat reported.
PG View: This raises the likelihood that the ECB will have to offer further accommodations in March.
10-Feb (USAGOLD) — Gold continues to consolidate its recent gains, just below the $1200. A modest intraday pullback on the heels of Fed chair Yellen’s testimony was met with buying interest that pushed the yellow metal back to new highs for the day.
Ms. Yellen stressed that monetary policy “is by no means on a preset course,” but rather remains data dependent. This should come as no surprise to anyone. However, the Fed chair also noted that “financial conditions in the United States have recently become less supportive of growth.”
Of particular concern seems to be the strength of the dollar, which has “restrained net exports.” Yellen worries that persistent dollar strength “could weigh on the outlook for economic activity and the labor market.”
The Fed’s tightening cycle actually began in late 2013 when they began to taper asset purchases. The rise in the dollar accelerated mid-2014 as it looked increasingly like there would be a complete tapering of new asset purchases. That came to pass in October of that year. Dollar gains mounted as the Fed started talking about policy normalization and an eventual rate hike.
Of course the dollar goes up as policy tightens. That can be amplified if other global central banks are going in the opposite direction; easing policy.
If you’re a central banker and you’re worried about a strong currency, you cut rates. Once again, this suggests that the rate hike in December was a big mistake, but I suspect the Fed is loathe to admit such an error so quickly for fear that their already tenuous credibility will suffer.
The general tenor of Janet Yellen’s testimony today was dovish, as was the January FOMC statement. Will the Fed’s next move be a rate cut? Will rates eventually go negative? Investors are definitely starting to talk about those possibilities and yields, the dollar and gold have all reacted accordingly.
10-Feb (CNBC) — The precious metal has outperformed other major asset classes this year, rising 12 percent in 2016. Gold has become increasingly useful to investors as stocks around the world have fallen, said options trader Dennis Davitt of Harvest Volatility Advisors.
“If you’re worried about your equity portfolio going lower, you buy gold as a hedge. If you did that January 1st this year, it’s worked wonderfully,” he said Tuesday on CNBC’s “Power Lunch.”
The commodity is looking even more attractive in the face of negative interest rates, Davitt said, especially as Treasury yields tumble. On Tuesday, the Japanese 10-year bond yield fell into negative territory for the first time ever.
Under ultra-low or negative interest rates, holding cash in a bank should cost investors more money, Davitt noted. Despite the fact that gold also costs money to store, Davitt said it should still make a better investment than cash in these circumstances.
” … if you have to pay money to store your assets somewhere, I’d rather store a hard asset like gold than something like paper currency.”
PG View: Storing gold is not as expensive as people may think. The smallest safe deposit box is around $30 per year, and can hold hundreds-of-thousands of dollars worth of gold. A good quality home safe is a one-time cost, generally less than $1,000. Even if you opt to store at our exchange approved depository, the cost for fully allocated segregated storage can be as little as 1% per year.