Abenomics, European-Style

by Nouriel Roubini
31-Aug (ProSyn) – Two years ago, Shinzo Abe’s election as Japan’s prime minister led to the advent of “Abenomics,” a three-part plan to rescue the economy from a treadmill of stagnation and deflation. Abenomics’ three components – or “arrows” – comprise massive monetary stimulus in the form of quantitative and qualitative easing (QQE), including more credit for the private sector; a short-term fiscal stimulus, followed by consolidation to reduce deficits and make public debt sustainable; and structural reforms to strengthen the supply side and potential growth.

It now appears – based on European Central Bank President Mario Draghi’s recent Jackson Hole speech – that the ECB has a similar plan in store for the eurozone. The first element of “Draghinomics” is an acceleration of the structural reforms needed to boost the eurozone’s potential output growth. Progress on such vital reforms has been disappointing, with more effort made in some countries (Spain and Ireland, for example) and less in others (Italy and France, to cite just two).

But Draghi now recognizes that the eurozone’s slow, uneven, and anemic recovery reflects not only structural problems, but also cyclical factors that depend more on aggregate demand than on aggregate supply constraints. Thus, measures to increase demand are also necessary.

…Now Draghi has signaled that, with the eurozone one or two shocks away from deflation, the inflation outlook may soon justify quantitative easing (QE) like that conducted by the US Federal Reserve, the Bank of Japan, and the Bank of England: outright large-scale purchases of eurozone members’ sovereign bonds. Indeed, it is likely that QE will begin by early 2015.

[source]

PG View: I’m not sure why anyone would think Abenomics would work any better in Europe…

Posted in Central Banks, Monetary Policy, QE |

ECB Preview: Further Measures Will Be A Close Call

img src=”/pete/imagesnews&views/draghi.jpeg” width=”100″ align=”LEFT” style=”padding:6px”/>
02-Sep (The Wall Street Journal) — No pressure or anything, Mr. Draghi, but market expectations for action, or at least heavy hints at action from the European Central Bank this week are running high.

The euro has been trading lower ahead of the meeting, easing back to its weakest level against the dollar in almost a year. Some reckon this is overdone, and are bracing for disappointment.

[source]

Posted in Central Banks, Monetary Policy, QE |

The Morning After: What Happens When A Government Destroys Its Currency

02-Sep (ZeroHedge) — Imagine this scene:

“Everyone in the country was in shock. People’s net worth had devalued more than 53% overnight.”

“The value in savings accounts dropped in half and neither merchants nor consumers knew how to react because they had never been through something like it before…”

This is how an American business executive described living through Mexico’s devaluation of the peso exactly 38 years ago on September 1, 1976.

Looking back, it was so obvious.

Mexico had a mounting debt, destructive policies, and a woefully unsustainable fixed exchange rate with the US dollar. All the writing was on the wall.

But most people ignored the warning signs and kept their money in pesos.

Mexican President Luis Echevarria even went out on the radio to reassure people that the currency was safe.

Finally, under intense fiscal pressure, the government reached its breaking point. And on August 31, 1976, they made the decision to devalue the peso.

People woke up the next morning on September 1st to a 50%+ decline.

…Looking back, it’s all going to seem so obvious. If a major, global currency crisis hits within the next 12-months, people will think, “duh, how did I not see that coming?”

Unfortunately by then it will be too late.

It takes only a little foresight and planning to insulate yourself from an event that can have disastrous consequences.

If you knew the Mexican peso was at an unsustainable level, why would anyone continue to hold pesos?

Similarly, if all the objective data suggests that the dollar is in store for an epic decline… and that the entire world is on a path to shift away from the dollar, why in the world would any rational person base his entire life savings in dollars?

[source]

Posted in U.S. Dollar |

The Daily Market Report: Gold Slides as Dollar Rallies


02-Sep (USAGOLD) — Gold slid to an eleven-week low in overseas trading, after negating support marked by the 21-Aug low at 1272.75. Expectations of diverging monetary policies between the Fed and ECB have served to weaken the euro, pushing the dollar higher.

The EUR-USD rate has extended to the downside, establishing a fresh one-year low at 1.3107, as the Ukrainian crisis continues to escalate and the ECB considers additional measures to boost the moribund European economy. The ECB announces monetary policy, and Mario Draghi will hold a press conference on Thursday. Based on recent price action in the euro and European bonds, markets seem to be expecting some action from the central bank.

Meanwhile, speculation that the Fed will move in the opposite direction persists. This morning’s better than expected construction spending and manufacturing ISM prints lend credence to that scenario.

August jobs data comes out on Friday. Median expectations are +220k for nonfarm payrolls and the jobless rate is expected to tick lower to 6.1%. A beat on this front would likely put additional pressure on the Fed to tighten.

However, the dove-dominated Fed may be inclined to stall for a while longer; perhaps to see what steps the ECB takes (and BoJ too?) and if they are at all successful. I don’t think Yellen wants to be completely diverging from the ECB and BoJ and would probably prefer to hold-steady while the others ease further.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

US ISM manufacturing index climbed to 59.0 in Aug, above expectations of 57.3, vs 57.1 in Jul. Prices fall to 58.0, vs 59.5 in Jul.

Posted in Economic Data |

US construction spending +1.8% in Jul, above expectations of +0.7%, vs positive revised -0.9% in Jun.

Posted in Economic Data |

Baltic States Fear Putin Amid Escalation in Ukraine

02-Sep (NBC News) — In the latest chapter of the West’s confrontation with Russia, President Barack Obama will travel to Estonia on Wednesday to stress U.S. solidarity with the Baltic states, the former Soviet republics rattled by Russian President Vladimir Putin’s intervention in nearby Ukraine.

Estonia, Latvia and Lithuania — the trio of tiny nations nestled against the western flank of the Russian Federation — only regained their independence from Moscow in 1991 amid the collapse of the USSR. But as Putin appears to tighten his grip on swaths of Ukraine and the Crimean peninsula, the Baltics fear they may be prey for their former ruler, experts say.

“The turmoil in Ukraine has deeply unnerved the Baltics,” James Goldgeier, the dean of the School of International Service at American University, told NBC News. “They feel extraordinarily vulnerable to Putin and they’re seeking reassurance from the West.”

[source]

Posted in Geopolitical Risks |

NATO Unveils Rapid-Response Force to Counter Russian Troops in Ukraine

02-Sep (Time) — NATO Secretary-General Anders Fogh Rasmussen announced Monday that the organization was planning to assemble a “spearhead” force that would be able to “travel light but strike hard if needed” in the face of Russia’s increasingly aggressive behavior in eastern Ukraine.
More
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The new outfit would be manned by several thousand rotating allied troops who would be ready to respond by air or sea with the aid of special forces, explained Rasmussen.

“The Readiness Action Plan responds to Russia’s aggressive behavior,” he told reporters in Brussels. “It equips the alliance to respond to all security challenges, wherever they may arise.”

[source]

Posted in Geopolitical Risks |

Gold imports, premiums to jump on festive demand – top refiner

02-Sep (Reuters) – Indian gold imports and premiums are likely to surge during the rest of the year as buying picks up for the wedding and festival season, the head of the country’s biggest gold refiner said on Tuesday.

Premiums could jump to $10-$12 an ounce over the global benchmark from the current levels of $4-$5, said MMTC-PAMP Managing Director Rajesh Khosla.

Imports could climb to 60-70 tonnes per month for the rest of the year from about 40 tonnes in July, Khosla said, adding that August imports were probably around 63 tonnes.

…”Demand is expected to increase in the coming months as people start buying from September because of the festive season,” Khosla said.

India, the second biggest buyer of gold after China, will soon celebrate Dhanteras and Diwali festivals, when it is considered auspicious to buy gold.

[source]

Posted in Gold News, Gold Views |

Gold at 2-Month Low; Palladium Falls From 13-Year High

02-Sep (Bloomberg) — Gold fell to the lowest in more than two months in New York as a stronger dollar curbed demand for a protection of wealth. Palladium retreated from a 13-year high.

The dollar reached a seven-month high against 10 major currencies before data today that economists say will show U.S. manufacturing held last month near the highest since April 2011. The greenback has strengthened amid prospects for an improving economy that supports the case for the Federal Reserve to raise interest rates.

…Ukraine warned of an escalating conflict in its easternmost regions as U.S. President Barack Obama headed to eastern Europe to reassure NATO members. German Chancellor Angela Merkel said Europeans won’t accept Russia’s military incursion into Ukraine.

[source]

Posted in all posts, Gold News, Gold Views |

Gold lower at 1266.54 (-19.86). Silver 19.20 (-0.271). Dollar higher. Euro lower. Stocks called higher. US 10yr 2.39% (+5 bps).

Posted in all posts |

Why September Should Be Glowing for Gold

28-Aug (Bloomberg) — In today’s “Global Outlook,” Bloomberg’s John Dawson takes a look at gold prices on “On The Move Asia.” (Source: Bloomberg)

“Over the past 20-years, September has seen [gold's] best performance…”

[video]

Posted in Gold News, Gold Views |

ECB QE: will it happen and what next?

28-Aug (Financial Times) — Markets’ initial response to Mario Draghi’s Jackson Hole speech has been to inch up the probability that the European Central Bank will finally enact full-blown quantitative easing, or large-scale asset purchases, although the ECB president’s speech was sufficiently Delphic to cover a wide range of possibilities.

With valuations in some markets at record levels, particularly European government bonds, it is at least as important to consider how markets are likely to react if and when QE is announced, as it is to consider the likelihood of the announcement itself.

We were told at Jackson Hole that the ECB governing council would “acknowledge” that medium- and long-term market-implied inflation expectations are becoming unanchored; and Mr Draghi also expressed a new, softer stance on fiscal austerity.

But the governing council can hardly deny that markets are pricing in ever-lower inflation expectations. And rather than implying some sort of joint easing (fiscal stimulus matched with more monetary stimulus), the softer stance on austerity may be presented as a new additional reason for the ECB to hold off from full-blown QE.

[source]

Posted in Central Banks, Monetary Policy, QE |

The Daily Market Report: Don’t Think It Can’t Happen Again


28-Aug (USAGOLD) — Former Fed chairman Ben Bernanke is now saying that “September and October of 2008 was the worst financial crisis in global history, including the Great Depression.” This is a pretty significant paradigm shift, as most economists consider the financial crisis that began in 2007 as the worst financial crisis since the Great Depression.

Bernanke, prior to becoming the Fed chair, was a professor of economics and considered to be an expert on the Great Depression. His redefining of the severity of the financial crisis must be accorded due-credence. His words reveal just how close to the brink of economic catastrophe we came a few short-years ago.

Bernanke went on to point out that of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.” Had that happened, mayhem would have surely ensued, and not just in the United States, but around the globe.

So here we are seven-years later and we’re even more loaded to the gills with debt and the ‘too-big-to-fail’ financial institutions are now ‘too-bigger-to-fail’. Rather than pulling us back from the brink, policymakers like Bernanke left us on the brink and forced us up a very tall step-ladder.

In a recent interview, The Telegraph’s Ambrose Evans-Pritchard warned that we still have “all these structural issues. None of it’s resolved. And here we are back in the same position again, but worse, because the debt levels are higher.”

“The debt levels are now 275% in the rich countries and 175[%] in the emerging market countries. And that’s a record for both. So, we go into the next downturn even more stretched.” — Ambrose Evans-Pritchard

For some excellent insight on the historic linkage between debt and gold, be sure to read the latest Review & Outlook from our own Mike Kosares:

The interest rate trap. . . and what it means to the gold market

Be sure to sign up to receive Review and Outlook by email and never miss another issue.

As I’ve pointed out in recent commentary; cyclically speaking, we’re already overdue for the ‘next downturn’: Since the Great Depression, the U.S. has suffered thirteen recessions. The periods of economic growth between recessions have been as long as 120-months, and as short as 12-months. The average is just over 59-months.

The time elapsed since the Great Recession “officially” ended in June 2009 presently stands at 62-months. We’re due.

Despite some encouraging economic data from time-to-time — reminiscent of the “green-shoots” spring of 2009 and the “recovery-summer” of 2010 — Evans-Pritchard warns that “fundamentally the world is still stuck in this low-growth trap.” The CBO’s halving of its 2014 U.S. growth forecast, from 3.1% to 1.5%, is the most recent evidence of this.

The CBO says their renewed pessimism reflects “the surprising economic weakness in the first half of the year.” Apparently they see the 4.2% pace of growth in Q2 as somewhat of an anomaly. It doesn’t bode well for the second-half of the year.

After coming out of recession in Q2 of 2013, Europe may already be on the cusp of their next downturn. In Q2, Japan’s GDP plummeted to a -6.8% annualized pace. That’s a long way to come back in Q3 to avoid recession.

The real burning question is how will global policymakers react to the next crisis. The ECB is already under intense pressure to engage in BoJ/BoE/Fed-style quantitative easing, the legality of such measures be damned. Japan has already said it will escalate its asset purchases if need be.

Meanwhile, here’s the Fed, nearly done with tapering and trying to convince us that growth risks and labor market slack have been dealt with. The next step would be a rate hike, and there has been much speculation about when that might happen. Consensus seems to be running toward H1 2015. Yet even the Fed has adamantly proclaimed that their policy-path is data dependent.

A lot can happen between now and next summer. If the CBO’s growth expectations prove to be more accurate than the Fed’s, a rate hike would be difficult to justify with GDP below 2%. Also, if Europe and/or Japan go back into recession, there would likely be negative repercussions for the U.S. economy. This too may forestall ‘lift-off’ for an indeterminate period of time. Not to mention any number of possible geopolitical and black-swam events that might negatively impact global growth, or perhaps trigger the next crisis.

If anything, all the zero-rates, and trillions of dollars worth of liquidity operations and fiscal stimulus may have left us more vulnerable than we were before the last crisis. We’ve been pushed up that ladder on the precipice; a ladder than becomes increasingly unstable with every step up.

Don’t be lured into the belief that global policymakers have it all under control. Another financial crisis is indeed possible, and perhaps even probable given that core systemic issues that led to the last crisis have been ignored. That next crisis may well prove to be ‘the worst financial crisis in global history, including the Great Crisis of 2007-2008.’

Posted in Daily Market Report, Gold News, Gold Views |

U.S. Top Guns in Darwin Combat Drills as China Tensions Rise

28-Aug (Bloomberg) — In Australia’s remote top end U.S. fighter pilots are engaged in combat drills, while Marines sip beers at night in pubs in the tropical city of Darwin. Thousands of kilometers to the north, the U.S. finds itself in increasingly real standoffs with China’s air force.

…President Xi Jinping is restructuring the nation’s military, boosting the capacity of its air force and bolstering its naval presence, and the consequence for nations from the U.S. to its ally Japan is increased Cold War-style encounters.

China disputed the U.S. claims of the Aug. 19 incident which occurred off Hainan, saying its fighter pilot carried out a routine identification of two U.S. planes and kept a safe distance. The most serious encounter between a Chinese fighter and U.S. aircraft was an April 2001 collision with a Navy EP-3 surveillance plane that led to the death of a Chinese pilot and forced the U.S. aircraft to make an emergency landing on Hainan.

China was involved in close encounters with Japanese planes in disputed territory in the East China Sea in May and June, in two of their narrowest brushes since World War II, while Taiwan said two Chinese military planes entered its air defense identification zone on Aug. 25 and were intercepted by fighters.

[source]

Posted in Geopolitical Risks |

For Every Education Level, Real Wages Have Gone Down So Far This Year

27-Aug (Bloomberg) — Real hourly wages declined for almost every segment of the U.S. workforce in the first half of 2014, according to a briefing paper released Wednesday morning by the Economic Policy Institute, a liberal think tank.

“The last year has been a poor one for American workers’ wages,” economist Elise Gould, who directs EPI’s health policy research, writes in the report. Analyzing data from the government’s Current Population Survey, Gould found that workers at the 20th, 30th, 40th, 50th, 60th, 70th, 80th, 90th, and 95th percentiles all experienced declines (ranging from 0.5 percent to 2.0 percent) in their real wages in the first half of 2014 compared with the same period last year. Real wages declined among workers with no high school degree (0.6 percent), with just a high school degree (1.1 percent), with some college (1.0 percent), with a college degree (1.6 percent), and with an advanced degree, too (2.7 percent).

EPI contends that’s not a fluke: From the first half of 2007 to the first half of this year, real wages declined 4.9 percent for workers with a high school degree and 2.5 percent for workers with a college degree. Workers with advanced degrees registered an increase of only 0.2 percent over those seven years. “On the whole,” argues Gould, “the broad wage trends by education level over the last decade and a half make clear that wage inequality cannot be readily explained by stories about educational credentials and technology; wage inequality has increased steadily, yet even those with a college diploma or advanced degree have experienced lackluster wage growth.”

[source]

PG View: This is devastating news for an economy reliant on consumption and portends stagnant growth until the issue is meaningfully addressed.

Posted in Economy |

Safe-Haven Demand Boosts Gold as Russia-Ukraine Tensions Rising

28-Aug (Kitco News, via Forbes) – Gold prices are higher in early U.S. trading Thursday, on safe-haven buying interest, short covering and perceived bargain hunting. Geopolitics is back on the front burner of the market place as a three-day U.S. holiday weekend approaches. December Comex gold was last up $11.00 at $1,294.40 an ounce. Spot gold was last quoted up $10.90 at $1,294.00. December Comex silver last traded up $0.32 at $19.795 an ounce.

It’s a “risk-off” day in the market place Thursday following reports the Ukrainian president said the Russian military has invaded his country and is occupying eastern Ukraine towns and villages. There is reportedly ongoing fighting between the Russian and Ukraine armies. A Russian official denied that Russian troops are in eastern Ukraine.

[source]

Posted in Gold News, Gold Views |

Ukrainian President Says Russian Troops Have Crossed the Border

28-Aug (The New York Times) — Declaring that Russian troops had entered Ukraine, President Petro O. Poroshenko on Thursday canceled a planned visit to Turkey and convened a meeting of the national security council to focus on the “marked aggravation of the situation” in the southeast of his country.

The meeting of the national security council will focus on shaping a response, and Ukraine will also request a meeting of the United Nations Security Council.

Mr. Poroshenko made his comments as the leader of the main separatist group in southeastern Ukraine said that up to 4,000 Russians, including active-duty soldiers on leave, had been fighting against Ukrainian government forces, Russian television reported.

“There are active soldiers fighting among us who preferred to spend their vacation not on the beach, but with us, among their brothers, who are fighting for their freedom,” Aleksandr Zakharchenko, a rebel commander and the prime minister of the Donetsk People’s Republic, said in an interview on Russian state-run television.

[source]

Posted in Geopolitical Risks |

Gold up for 3rd day on softer dollar, Ukraine tensions

28-Aug (Reuters) – Gold rose for a third straight session on Thursday due to a softer dollar and equity markets as tensions between Ukraine and Russia ratcheted up, but the metal’s rebound could be short lived on prospects of a U.S. interest rate hike.

Gold gained 0.7 percent to $1,291.00 an ounce by 1001 GMT, holding above the 200-day moving average of $1,284 and heading for its first weekly gain in three. The metal has traded in a narrow range in the past few weeks with the spread between the month’s highs and lows at just under $50 an ounce, the smallest since August 2009.

“The metal rebounded today, testing the resistance around the $1,290 level because obviously the dollar is a bit softer and there has been some further skirmishes along the Ukraine-Russia border helping see some safe-haven buying,” Societe Generale analyst Robin Bhar said.

[source]

Posted in Gold News, Gold Views |

US initial jobless claims -1k to 298k in the week ended 23-Aug, below expectations of 300k, vs upward revised 299k in the previous week.

Posted in Economic Data |

US Q2 GDP (2nd report) revised up to +4.2%, above expectations of +3.9%, vs +4.0% initially and -2.1% in Q1.

Posted in Economic Data |

Gold higher at 1292.70 (+9.38). Silver 19.72 (+0.242). Dollar better. Euro lower. Stocks called lower. US 10yr 2.34% (-2 bps).

Posted in all posts |

The Daily Market Report: Gold Consolidates, Though Age of Easy-Money is Far From Over


27-Aug (USAGOLD) — Consolidative trading prevails in the gold market ahead of the long Labor Day weekend. The yellow metal remains contained within the recent range, just below $1300.

Despite evidence of a further decline in both business and consumer sentiment in Europe, which gives further credence to mounting speculation about ECB QE, the single currency is higher today. This has knocked the dollar index off another new 11-month high set overseas. Traders have noted the overbought nature of the greenback this week, suggesting a correction is past-due.

A sustained pullback in the dollar could offer further support for gold, which is modestly higher today. Yet another truce between Hamas and Israel and talks between Ukraine and Russia have perhaps eased geopolitical risks somewhat. However, there is little suggest either situation is close to being resolved.

The CBO has cut their 2014 U.S. GDP forecast in half, from the +3.1% they estimated in February, to just 1.5%. The CBO also noted that while the deficit will fall to $506 bln for the fiscal year ending in September, the total debt — currently at $17.7 trillion — continues to grow. The CBO predicts that the national debt will grow by an additional $7.2 trillion over the next ten-years, an increase of nearly 41%.

For great insight into what that ever-increasing debt load means for the gold market, be sure to read the latest Review & Outlook from our own Mike Kosares:

The interest rate trap. . . and what it means to the gold market

On top of weaker growth expectations, a recently released report suggests that the official unemployment rate “understates the extent of economic pain in the country today.”

A new academic paper suggests that the unemployment rate appears to have become less accurate over the last two decades, in part because of this rise in nonresponse. In particular, there seems to have been an increase in the number of people who once would have qualified as officially unemployed and today are considered out of the labor force, neither working nor looking for work. – The New York Times

Despite all the speculation about a U.S. economic recovery and the timing of that first interest rate hike, things may in actuality be far worse than we are being led to believe. ‘Lift-off’ may in fact still be years away and the return of QE may become a hot-topic of conversation even before the current QE regime is fully wound down in October.

There is no doubt that Europe is once again on the brink of recession. Additionally, Japan may need further stimulus to goose its sputtering economy. The age of über-accommodative monetary policy is probably far from being over. In such an environment, I just don’t see a significant push toward a divergent (tighter) policy by the Fed.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

2008 Meltdown Was Worse Than Great Depression, Bernanke Says


26-Aug (The Wall Street Journal) — Former Federal Reserve Chairman Ben Bernanke, a prominent student of the Great Depression, contends that the 2008 financial crisis was actually worse than its 1930s counterpart.

Mr. Bernanke is quoted making the statement in a document filed on Aug. 22 with the U.S. Court of Federal Claims as part of a lawsuit linked to the 2008 government bailout of insurance giant American International Group Inc.AIG +0.16%

September and October of 2008 was the worst financial crisis in global history, including the Great Depression,” Mr. Bernanke is quoted as saying in the document filed with the court. Of the 13 “most important financial institutions in the United States, 12 were at risk of failure within a period of a week or two.”

Former Treasury Secretary Timothy Geithner is quoted in the document offering a similarly apocalyptic assessment. From Sept. 6 through Sept. 22, the economy was essentially “in free fall,” he said.

[source]

PG View: The comments of Bernanke and Geithner reflect just how close we came to the brink 6-years ago. Knowing this, it could prove more difficult for policymakers to pull us back from the brink the next time it happens.

Get some gold.

Now.

Posted in Economy |

QE: New York Fed purchases $1.031 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

Japan’s growth outlook dims further, BOJ policy prospects unclear – Reuters Poll

27-Aug (Reuters) – Japan’s economic outlook has dimmed further and inflation is stalling but analysts in a Reuters poll were split on whether the central bank would ease policy this year or wait until 2015 to try and revive growth.

While a gradual recovery looks likely, an April sales-tax increase which pushed the economy in the second quarter into its deepest fall since the 2011 earthquake and tsunami had economists downgrading growth forecasts amid an anaemic rise in wages and lacklustre exports.

All the analysts in the monthly Reuters survey, taken in the past week, said the Bank of Japan would fail to hit its 2 percent inflation target before April and most said the BOJ would therefore ease further – although they were unsure on the timing.

[source]

Posted in Central Banks, Economy, Monetary Policy |

Gold edges higher as dollar retreats, equities steady

27-Aug (Reuters) – Gold prices rose towards $1,285 an ounce on Wednesday, recovering further from the previous week’s two-month low, as stocks took a breather after a 2-1/2 week rally and the dollar index retreated from 13-month highs.

Spot gold was up 0.3 percent at $1,284.90 an ounce at 1141 GMT, extending a recovery from last week’s low at $1,273.06, while U.S. gold futures for December delivery were up 70 cents an ounce at $1,285.90.

Soft German economic data and corporate results helped arrest a rally in stocks, which had climbed 6 percent since Aug. 8, while the dollar index eased 0.2 percent after hitting its highest in more than a year in earlier trade.

“The dollar looks strong, but very overbought,” Saxo Bank’s head of commodity research Ole Hansen said. “Short term, I think gold could build a bit further on the rejection at 1271, looking for a move back up towards 1296 or even 1302, but not higher.”

[source]

Posted in Gold News, Gold Views |

Gold higher at 1286.46 (+5.46). Silver 19.47 (+0.083). Dollar easier. Euro higher. Stocks called better. US 10yr 2.37% (-2 bps).

Posted in all posts |

The interest rate trap. . . .

. . . . and what it means to the gold market

by Michael J. Kosares

The September edition of Review & Outlook explores the impact of rising interest rates on the government’s fiscal position with some surprising, perhaps shocking, conclusions.

Review & Outlook, September 2014

“The continuing inability of the U.S. federal government to come to grips with its fiscal problems largely explains the enduring, some would say stubborn, presence of gold coins and bullion in millions of investment portfolios around the world – including those of central banks, hedge funds and sovereign wealth funds. Until such time as fiscal rectitude takes hold in the halls of Congress — an unlikely proposition any time soon – current gold owners are likely to hold tight and new gold owners are likely to continue joining their ranks.  In the end, contemporary gold owners by and large do not own gold to become wealthy, but to protect the wealth they already have.”

 

Posted in all posts |

The Daily Market Report: Gold Firms on Heightened Safe-Haven Demand


26-Aug (USAGOLD) — Gold rebounded within the range in overseas trading on Tuesday, amid heightened worries about the health of the European economy. The yellow metal was up more than 1% at one point intraday, before easing modestly after a round of generally positive U.S. data.

The ECB is under intense pressure to pay a little more than lip-service to growth risks and deflationary pressures when they meet next week. Mario Draghi hinted in Jackson Hole that more accommodations would likely be forthcoming. Moving incrementally toward the zero-bound on the refi rate and tinkering around the fringes of QE has not been effective thus far. The market seems to want — and indeed seems to be expecting — something big.

This is evidenced by the ridiculously low bond yields seen across the eurozone, relative to risks. Investors are buying bonds because Draghi pledged two-years ago to do “whatever it takes” to preserve the euro and has repeatedly said he stands ready to do more in the near-term.

Make no mistake, Draghi likes the current downward trajectory of the euro. He would surely like to continue nudging it lower to make European exports cheaper. With the single currency trading more than 10% above the ‘sovereign debt crisis’ low of 1.1876, there’s certainly room for movement.

The disturbing trend is in prices. At the time of the ‘whatever it takes’ pledge, eurozone inflation was running around 2.5%. Presently inflation is at a mere 0.4%. That trend is enough to unnerve any central banker, as they view deflation as the greatest threat of all.

The weak euro is providing buoyancy to the dollar. Things aren’t exactly rosy here on our side of the Pond, but we’re a far-sight better off than Europe at this point. While the relative strength of the dollar may be limiting the upside in gold, growing global economic uncertainty and expectations of further monetary accommodations from Europe (and quite possibly Japan as well) will likely heighten demand for safe-havens, the safest of which is gold.

Posted in all posts, Daily Market Report, Gold News, Gold Views |