Former Fed Governor Admits “Fed Is Not Data Dependent; It Is Propping Up Asset Markets”

22-Jul (ZeroHedge) — Earlier this year, Peter Schiff picked up on something few reported on when a former Federal Reserve president admitted the central bank created a phony wealth effect by pumping up stocks and other asset markets through its monetary policy. Several months later, analysis proved this was true, showing that 93% of the entire stock market move since 2008 was caused by Federal Reserve policy.

Today, the Fed continues to focus on propping up asset markets. Even a former Federal Reserve governor admits this is the case. Kevin Warsh appeared CNBC’s Squawk Box on Thursday and said the Fed isn’t really “data dependent” in the sense that it is looking at the overall economy. It is really market dependent.

“They look to me asset price dependent more than they look data dependent. When the stock market falls like it did in the beginning of this year, they say, ‘Oh, we better not do anything.’ Stock markets are now at career highs. I suspect when they meet over the course of the next 10 days they will suggest, ‘Oh, now they look like they can be somewhat more responsible.’ I don’t like changing policy meeting to meeting based on data, or even with what the S&P 500 is doing. I like making it based on what’s happening on the real side of the economy, and that has not been very convenient over the last six to nine months.”

[source]

PG View: Um, inflating asset prices to generate a wealth effect is not part of the Fed’s mandate . . .

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Posted in Central Banks, Monetary Policy |

Week in Review (Video) – July 22, 2016

Posted in USAGOLD TV |

The Daily Market Report: Gold Dips Back Within Range Ahead of Weekend


22-Jul (USAGOLD) — Gold is back on the defensive within the recent range, weighed by further dollar gains. The dollar index extended to new 4-month highs, amid ongoing speculation about the prospects of a September rate hike.

Manufacturing PMI for July came in better than expected at 52.9, a nine-month high. While this may goose rate hike speculation, the CME’s FedWatch tool puts the probability at 19.5%, up less than 1% from yesterday. The market remains less than convinced that the Fed is going to hike any time soon. The odds don’t even approach 50/50 going all the way out to June of next year.

The reality is that the trend for sovereign rates is still very much in the other direction. David Fickling of Bloomberg calls the $9.2 trillion in negative yielding sovereign debt a “tailwind” for gold. Do note the trend, and the acceleration of that trend in July!

Frickling asks us to “reflect how weird this state of affairs has become.”

…stocks are now all about income, and bonds about capital growth. It’s the precise opposite of the usual situation.

But if investors are buying zero and negative yielding bonds for capital appreciation, there must be an expectation that rates are headed lower yet! This is the “greater fool theory” in action. And I think investors have the central banks (I’m looking at you ECB!) pegged as the next greater fool.

There once was a time when investors flocked to bonds in times of uncertainty. Now they are a frothy spec trade.

If you really feel the need for a safe-haven component in your portfolio (and you should!), physical gold is the answer.

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

U.S. Markit flash PMI rose to 52.9 in Jul, above expectations of 51.5, vs 51.3 in Jun.

Posted in Economic Data |

Gold’s $9.2 Trillion Tailwind

By David Fickling

22-Jul (Bloomberg) — One of the biggest challenges for gold as an investment is that, like cash, it doesn’t really generate income.

When there are bonds and stocks out there that offer interest and dividend yields to offset the risk of any fall in capital values, why choose a shiny metal that’s a pure punt on price movements?

Well, about those yields:

With negative interest rates increasingly becoming the norm in developed countries, one of the key factors counting against gold as an investment is weakening.

About $9.2 trillion of sovereign bonds are trading with negative yields, according to data compiled by Bloomberg, and some blue-chip companies are even getting in on the act.

…t’s worth stopping for a moment to reflect how weird this state of affairs has become. Bonds aren’t so much fixed-income assets now as fixed-outgoings ones, with investors buying them for their capital appreciation rather than their coupon payments.

…In other words, stocks are now all about income, and bonds about capital growth. It’s the precise opposite of the usual situation.

[source]

Posted in Gold News, Gold Views |

Gold eases as slight nerves set in on Fed policy outlook

22-Jul (Reuters) — Gold prices eased on Friday, reflecting tension between an easier global interest rate backdrop and the chance of U.S. monetary policy being tightened before the end of 2016.

Spot gold shed 0.5 percent to stand at $1,324.66 an ounce at 1011 GMT, on course for a decline of around 1 percent for the week.

Bullion has benefited significantly – hitting its highest in two years earlier this month – as central banks from Europe to Japan opt to keep policy looser for longer, because that neutralizes the opportunity cost of holding an asset with no interest rate.

But the dollar has gained ground recently on strong readings on the U.S. labor market and inflation, which have boosted bets the Fed will raise U.S. interest rates by year-end. [FRX/}

“People think the international situation is enough to keep the Federal Reserve on hold, but there’s some slight nervousness,” Macquarie analyst Matthew Turner said.

“The assumption that the Fed is more cautious now is surely correct as it didn’t manage to do the hiking cycle it wanted, but being more cautious does not mean completely paralyzed. There’s a slight down cycle for gold at the moment as there has been a string of good U.S. data,” he added.

[source]

Posted in Gold News, Gold Views |

Gold lower at 1323.72 (-9.01). Silver 19.69 (-0.167). Dollar higher. Euro lower. Stocks called lower. U.S. 10-year 1.59% (+3 bps).

Posted in Markets |

The Daily Market Report: Gold Rebounds Amid Talk of Bailouts and Helicopter Money


21-Jul (USAGOLD) — Gold has recouped most of yesterday’s corrective losses, returning to the narrow consolidation band that had developed going back to the middle of last week. The yellow metal is up more than $15 on the day and is up nearly $20 from the intraday low of $1310.00.

The ECB held steady on policy today, as was widely expected, but there were hints that further accommodations could be in the offing. “If warranted to achieve its objective, the Governing Council will act by using all instruments available within its mandate,” said Mario Draghi. He want on to stress the central bank’s “readiness, willingness, ability, to do so.”

Of particular concern was Mario Draghi’s acknowledgement that a “public backstop” for the eurozone financial system may be needed. European bank shares surged on the prospect of ridding their balance sheets of distressed assets at the public’s expense. Nobody loves a bailout like a banker!

With the possibility of bailouts on the horizon, movement into gold should come as no surprise. One need look no further than gold’s reaction to the bailout of the U.S. financial system that came in October of 2008. That marked the bottom of the deleveraging correction in gold at $681. Over the next three-years, the price of gold darn-near tripled.

On the other side of the world, there is ongoing speculation over what the BoJ’s next move might be. The BBC released an interview with BoJ governor Haruhiko Kuroda, who said there was “No need and no possibility for helicopter money.”

However, it turned out the interview was recorded more than a month ago. Central bankers very rarely explicitly rule out the use of anything in their toolbox, that they may need at some point down the road. So, either that comment was a slip, or Kuroda was hoping to tamp-down speculation ahead of such a move.

Additionally, that comment was made well before Kuroda’s private meeting last week with (Helicopter) Ben Bernanke. Are the choppers spooling up? We’ll have to wait and see, but if they are, you most certainly want to own gold as the last throws of the central bank death spiral is test driven in Japan.

The other idea that is being floated is that all of those JGBs on the BoJ’s balance sheet get swapped for a perpetual zero-coupon bond! It’s essentially a cancellation of that debt. From that point, the country can start running up debt again in the same manner that netted them perpetually weak growth and disinflationary pressures. Or, they can just spool up the choppers anyway and drop all those yen on the public . . .

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

Gold is up more than $15 on the day, and nearly $20 off the intraday low of $1310.00, buoyed by technical buying.

21-Jul (USAGOLD) — Gold caught a bid in the wake of the Mario Draghi press conference. While the ECB held steady on policy, as was widely expected, hints of a public backstop for European banks has raised the level of concern once again.

Posted in Gold News, Gold Views |

U.S. existing home sales +1.1% to 5.57M in Jun, above expectations of 5.47M. vs negative revised 5.51M in May.

Posted in Economic Data |

U.S. leading indicators +0.3% in Jun, above expectations of +0.2%, vs -0.2% in May.

Posted in Economic Data |

The Case for Adding Precious Metals to Your Portfolio

Chris Gaffney, EverBank World Markets president, explains why you might want to add precious metals to your investment portfolio. He speaks with Bloomberg’s Matt Miller and Scarlet Fu on “Bloomberg Markets.”

“Gold and silver is seen as a good storage of wealth…”
“Demand for coins and bars — physical demand — has been extremely high.”
“In fact, most of the people we deal with prefer to have the physical metal…they prefer to have that insurance if you will, of actually holding the metal and knowing that it’s there in case of…a catastrophy.”

[video]

PG View: EverBank clients sound a lot like our clients.

Posted in Gold News, Gold Views |

Draghi: ‘Public backstop’ may be needed for bank rescues

21-Jul (FT) — European Central Bank president Mario Draghi has raised the prospect of a “public backstop” to support banks in “exceptional circumstances” causing bank stocks across Europe to rise.

His suggestion comes as Italian banks in particular are still weighed down by vast bad – or non-performing – loan books.

The Euro Stoxx bank index rose following his words, extending gains to climb by 1.1 per cent at publication time.

Mr Draghi said the problem of NPLs “needs to be addressed” using a “consistent supervisory approach”, the development of a “fully functioning” NPL market and government action to pass reforms.

But the ECB president also raised the possibility of having “a public backstop in times of exceptional circumstances” – for example when the NPL market is not functioning.

“We want to avoid firesales,” he said.

[source]

PG View: Maybe the ECB should just buy bank shares…

Posted in Central Banks, Monetary Policy |

U.S. FHFA home prices +0.2% in May, below expectations of +0.4%, vs +0.3% in Apr; +5.6% y/y.

Posted in Economic Data |

Gold Higher Ahead of ECB Meeting

21-Jul (WSJ) — Gold edged higher Thursday, bouncing off a three-week low, as traders awaited a European Central Bank meeting that could herald an expansion of the bank’s stimulus program.

Spot gold gained 0.6% to $1,322.18 a troy ounce in late-morning London trade. The precious metal shed around 1.5% to around $1.313 on Wednesday, the lowest level seen this month. The WSJ dollar index, which tracks the dollar against a basket of currencies, was down 0.32%.

“We’ve got the ECB press conference today so people will be looking out for any clues about any extension of the quantitative easing program,” said Nitesh Shah, a commodities strategist at ETF Securities.

“That could move gold prices from the angle of central banks expanding balance sheets and being currency debasing, which is supportive for gold,” Mr. Shah said.

[source]

PG View: Gold remains higher on the day after the ECB rate announcement, which was widely expected, but has come off the intraday highs as Draghi speaks.

Posted in Gold News, Gold Views |

ECB holds refi rate steady at record low 0.0%, in line with expectations. Draghi presser underway.

Posted in Central Banks, Monetary Policy |

U.S. Chicago Fed national activity index rose to 0.16 in Jun, vs negative revised -0.56 in May.

Posted in Economic Data |

U.S. Philly Fed index fell to -2.9 in Jul, below expectations of 4.7, vs 4.7 in Jun.

Posted in Economic Data |

U.S. initial jobless claims -1k to 253k in the week ended 16-Jul, below expectations of 262k.

Posted in Economic Data |

Gold higher at 1320.67 (+7.59). Silver 19.51 (+0.117). Dollar lower. Euro higher. Stocks called mixed. U.S. 10-year 1.60% (+2 bps).

Posted in all posts |

Why gold’s bond with the dollar has broken


20-Jul (MarketWatch) — Think of it as the breakup. Gold’s historical relationship with the U.S. dollar has been going through a bit of a separation.

The precious yellow metal often trades inversely with the ICE U.S. Dollar Index a gauge of the dollar’s strength against a basket of six rival currencies, as moves in the U.S. unit can influence the attractiveness of gold to holders of other currencies. In other words, gold tends to rise when the dollar weakens.

However, that normally tight relationship has been under some serious stress, lately.

Some market participants point to global central-bank monetary policies and the U.K.’s decision to exit the European Union for the shift in the relationship, which has seen gold, at times, swing higher or lower, despite moves in the buck.

“You can trace the shift to positive correlation between gold and the [dollar] back to the Brexit vote,” Paul Wong, senior portfolio manager at Sprott Asset Management, told MarketWatch.

…“Since the Brexit result, the correlation has been rising to [new] multiyear highs,” said Wong. “Historically the negative correlation between gold and USD was very pronounced—the only time positive correlation occurred was during times of extreme financial stress when both assets were considered to be safe havens.”

That was the case during the financial crisis of 2008, when gold and U.S. dollar traded “hand in hand,” said Nico Pantelis, head of research at Secular Investor.

“Today, the U.S. dollar is trading relatively high, but gold is getting a [bid] as investors are buying gold again in large amounts,” he said. “So today, the price of gold is trading as a function of demand, like it normally should.”

[source]

PG View: Today the old inverse correlation seems to have returned. We’ll see if it lasts . . .

Posted in Gold News, Gold Views, U.S. Dollar |

Citigroup’s Willem Buiter Says ‘Would Hold Gold’

17-Jul (EpochTimes) — In the books of most gold lovers, Citigroup’s chief economist Willem Buiter is noted down as the man who thinks gold is a “6,000 year bubble.”

However, in a recent interview with Epoch Times, he presented a much more nuanced position and said he would even own gold as part of a diversified portfolio of currencies.

“It competes with other fiat currencies, the dollar, the yen, the euro. And if these currencies now yield negative interest rates or are at risk of negative yields in the U.K. and the United States, then the currency that at least has a zero interest rate, looks better.”

…“I will never argue with a six thousand-year-old bubble. So gold, in times of uncertainty and especially in days of uncertainty laced with negative rates looks pretty good,” he said.

[source]

PG View: The “six thousand-year-old bubble” comment is just silly, but the rest of Butler’s assessment is accurate.

Posted in Gold News, Gold Views, Negative interest rates |

ECB to extend timeframe, loosen restrictions on bond purchases: Reuters Poll

20-Jul (Reuters) — The European Central Bank, faced with a further slowdown in euro zone growth after Britain’s vote to leave the European Union, will soon be forced to extend and expand the scope of its asset purchase program, a Reuters poll of economists showed.

Apart from purchasing 80 billion euros a month of bonds beyond March 2017, economists said the ECB is likely to abandon an earlier self-imposed restriction and begin buying bonds with negative yields below the ECB’s -0.40 percent deposit rate.

It could also raise the limit on how much it can buy of each bond issue that is not protected by collective action clauses, according to the poll, which foresees no further interest rate cuts or increases to monthly asset purchases.

The ECB is not expected to make any changes to policy at its meeting on Thursday.

[source]

Posted in Central Banks, Monetary Policy |

The Daily Market Report: Gold Retreats as Rising Rate Hike Expectations Lift Dollar


20-Jul (USAGOLD) — Gold came under further corrective pressure on Wednesday, slipping to a new 3-week low. The yellow metal was weighed by a firmer dollar, as rate hike expectations continue to edge higher.

The CME’s FedWatch tool now puts the probability of a 25 bps rate hike in September at 24.6%. Of course we’ve seen this pattern repeated time and time again in recent years; and only once — last December — did a rate hike actually occur.

Investors might consider waiting for the next jobs report to see which anomaly — the huge downside miss in May (+11k) or the huge upside miss in June (+287k) — is actually closer to reality. The advance Q2 GDP report out on July 29 is also going to be important. Median expectations are +1.9%, which would be a far-cry from a robust economy warranting a tightening of monetary policy.

The manufacturing sector is already pretty clearly in a recession. The new 4-month highs in the dollar index is not going to help that cause at all. So, if the Fed really wants to push the knife in to the hilt and give it a twist, they should certainly raise rates . . .

Much like late last year, the Fed will also likely see policy divergence even if they do nothing at all. The ECB, BoE and BoJ are all expected to ease further in the months ahead. That should keep the dollar underpinned. With the global policy bias still clearly toward easing, gold should remain underpinned as well.

The growth and price risks that are prompting the other major central banks to offer further accommodations also provide incentives for the Fed to hold pat. If things continue to deteriorate overseas, there are risks for detrimental knock-on effects here.

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

British slide into recession to force BoE’s hand next month: Reuters Poll

20-Jul (Reuters) — Britain’s economy will slide back into recession in the coming year, forcing the Bank of England next month to cut interest rates and start purchasing bonds again to support growth, according to a Reuters poll of economists.

Britain’s June 23 vote to quit the European Union sent shockwaves through global financial markets and economists participating in the Reuters poll taken in the past week slashed growth forecasts across the board.

In several Reuters polls taken before the vote, economists were united in saying Brexit would hurt the economy and in Wednesday’s poll they gave a median 60 percent likelihood of a recession in the coming year.

“There is a good chance that we will see two consecutive quarters of negative growth,” said Peter Dixon at Commerzbank. “That said, any recession is likely to be very shallow.”

[source]

PG View: Respondents expect a 25 bps cut in August and an £80 bln expansion of the QE program.

Posted in Central Banks, Monetary Policy |

Gold hits 3-week low on firmer equities, dollar

20-Jul (Reuters) — Gold fell to its lowest in three weeks on Wednesday on higher equities and as the dollar hit a four-month high following strong U.S. economic data, which raised expectations that the Federal Reserve may raise rates before the end of the year.

Spot gold fell as much as 1 percent to $1,317.86 an ounce earlier and by 1209 GMT was down 0.9 percent at $1,318.40.

The dollar was up 0.1 percent against a basket of six currencies, after hitting its highest for four months on data showing U.S. housing starts surged more than expected in June,
underpinning a theme of strength in the U.S. economy.

“The probability of a U.S. Federal rate hike has increased as of today. Some expectations of a rate hike have come back,” said OCBC Bank analyst Barnabas Gan.

[source]

PG View: Expectations have been back many times in the past 7-months…and nothing ever happens.

Posted in Gold News, Gold Views |

Gold lower at 1318.32 (-14.55) Silver 19.552 (-0.357). Dollar firm. Euro easier. Stocks called higher. U.S. 10-year 1.57% (+2 bps).

Posted in Markets |

ECB Fast Exhausting German Bonds for QE Buying as Yields Tumble

19-Jul (Bloomberg) — The European Central Bank’s bond-buying program will be scrounging for German debt within months, according to two of the region’s banks.

The securities that yield less than the ECB’s minus 0.4 deposit rate have grown to more than 60 percent, based on a $1.13 trillion Bloomberg German bond index. That means they’re ineligible for the purchases. Analysts from UBS Group AG and SEB AB are estimating the central bank may run out of German targets within six months, and as soon as August, unless the rules are broadened.

Reaching the precipice would affect a broad range of investors, because a decision by the ECB to open up new groups of bonds for its quantitative-easing program may support their prices even more, helping extend this year’s rally. It’s also significant because German debt is Europe’s benchmark, and it must be bought in a greater proportion than securities from the other euro nations included in the QE program, under current rules.

Euro-area debt has earned more than 5 percent this year, and yields were driven to record lows across the region in recent weeks by investors seeking the safest assets after the U.K. voted on June 23 to break away from the European Union. That sparked market turmoil and renewed concern about the outlook of the global growth.

[source]

PG View: As quality bonds become unavailable, the ECB will pickup the slack by loading up on more junk…

Posted in Central Banks, Monetary Policy, Negative interest rates, QE |

The Daily Market Report: Gold Consolidates in Face of Firmer Dollar


19-Jul (USAGOLD) — Gold is maintaining a consolidative tone, despite a firmer greenback. The dollar index jumped to a 4-month high, driven by a softer euro, better than expected housing starts and WSJ Fedwatcher Jon Hilsenrath’s suggestion that a rate hike may be seen as soon as September.

As for the latter, the market remains skeptical: Fed funds futures show the probability of 25 bps rate hike in September has risen this week, it’s still only 18%. There also remains some doubt that the Fed will hike ahead of the election in November. Odds of a December hike remain below 40%.

While some are viewing markets as having stabilized post-Brexit vote, German and eurozone economic sentiment plummeted in July.

The immediate Brexit shock is passing, for now, but Europe is still a minefield. – John Mauldin

German ZEW economic sentiment plunged to -6.8, a 4-year low. That was well below expectations of 10.0, versus 19.2 in June. The current situation index fell to 49.8, also well below expectations.

Economic sentiment in the broader eurozone saw the biggest monthly drop ever recorded, falling from 20.2 in June, to -14.7 in July. That doesn’t feel very stabilized to me.

There is an expectation that the ECB will maintain a very dovish tone when they announce policy later this week. Bloomberg is reporting that the central bank will be “scrounging” for German debt to buy within months. While there may be some effort to broaden the scope of QE operations in the months ahead as the quality asset pool dries up, steady policy is likely on Thursday.

Additionally, the IMF once again cut its global growth forecast, citing Brexit specifically. The global economy is now expected to expand at a 3.1% rate this year and 3.4% in 2017. The IMF projections have been ratcheting lower since last year.

All in all, one might argue that the U.S. remains the best looking horse at the glue factory, but we are still at the glue factory. Continue to view setbacks in the gold market as buying opportunities.

Save

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

IMF slashes world growth forecasts AGAIN on Brexit curveball

19-Jul (CNBC) — The U.K’s vote to leave the European Union (EU) has pushed the International Monetary Fund (IMF) to cut its world growth forecast for this year and next.

In its World Economic Outlook, published on Tuesday, the IMF forecast global growth at 3.1 percent in 2016 — 0.1 percentage points down on its April forecast, 0.3 percentage points lower than its January estimate, 0.5 percentage points below its estimate from October 2015 and 0.6 percentage points down on its forecast from July 2015.

The IMF also cut its forecast for 2017 growth to 3.4 percent — having predicted expansion of 3.5 percent back in April and 3.6 percent in January.

Just one day before the Brexit vote, the IMF was planning to raise the growth outlook, it said in the opening statement of its latest quarterly World Economic Outlook report.

[source]

Posted in Economy |