The Daily Market Report: Gold Rebounds From Earlier Losses

USAGOLD/Peter A. Grant/02-21-17

Gold has rebounded from earlier corrective losses after PMI data disappointed. The yellow metal is now trading higher on the day, more than $12 off its intraday low.

The recovery comes despite today’s firmness in the dollar, which in reality is more a function of euro weakness. The single currency has been hit pretty hard by reports that Marine Le Pen’s lead in presidential polls is growing, along with the attendant Frexit fears.

European Commissioner Pierre Moscovici acknowledged on CNBC today that if Le Pen is elected and follows-through on her pledge to take France out of the EU, it “would be the end of the European project.” While Moscovici doesn’t see any chance for Le Pen to win because she “never even ever won a regional election,” but that clearly is not a disqualifier anymore.

Keep in mind that Itexit and Grexit continue to simmer on the back-burner. The former could easily mark the end of the EU as well, but even the latter could be disruptive in the same way that Brexit has been.

A collapse in the euro amidst rising breakup risks would unquestionably send massive flows into the dollar, but gold would likely benefit as well. A further rise in the greenback would present a very serious conundrum for the Fed as well.

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

Higher dollar pressures gold, uncertainty offers support

Reuters/Pratima Desai/02-21-17

“Gold is capped by the likelihood that U.S. monetary policy will be tighter at some stage, potentially in March,” Societe Generale analyst Robin Bhar said.

“There is a lot of political uncertainty, there are safe-haven flows going into gold.”

PG View: These are opposing forces, but the latter seems to be winning out. The yellow metal has rebounded from earlier losses and is now slightly higher on the day, about $12 off the intraday low.

Posted in Gold News, Gold Views |

U.S. Market flash manufacturing PMI fell to 54.3 in Feb, below market expectations of 55.4, vs 55.0 in Jan.

Posted in Economic Data |

U.S. Market flash services PMI fell to 53.9 in Feb, below market expectations of 55.8, vs 55.6 in Jan.

Posted in Economic Data |

EU tax chief admits Le Pen winning would be the end of the European project

CNBC/Karen Gilchrist/02-21-17

A win for far-right presidential candidate Marine Le Pen would spell the end of the EU – but the French are not crazy enough to let that happen, insists European Commissioner Pierre Moscovici.

“I’m confident. I know my citizens and my compatriots well and know they are not going to elect a candidate who is proposing France exiting (Europe). That would be the end of the European project,” Moscovici, who is European Commissioner for Economic and Financial Affairs, told CNBC Monday.

…”I cannot imagine 50 percent of the French are crazy enough to vote for her,” he said.

PG View: Where have we heard wishful thinking like that before? Moscovici points out that Le Pen has “never even ever won a regional election.” Clearly that’s no long a prerequisite . . .

Posted in Europe |

Morning Snapshot: Gold retreats into the range

USAGOLD/Peter A. Grant/02-21-17

Gold has retreated into the range, weighed by higher yields and a stronger dollar. The greenback has been buoyed by revived rate hike expectations and a weaker euro that is sharply lower this morning on rising concerns over a possible Frexit (French exit of the EU).

Philly Fed President Harker said in an MNI interview this morning that he “would not take March off the table at this point.” Meanwhile, European Commissioner for Economic and Financial Affairs, Pierre Moscovici said that the election of Marine Le Pen “would be the end of the European project.”

Frexit would clearly be a much bigger deal than Brexit ever was and markets would be massively roiled. Moscovici went on to add that he “cannot imagine 50% of the French are crazy enough to vote for her.” It seems we’ve heard a number of such prophesies within the last year . . .

Markit manufacturing and services PMI for February is out later this morning. We also will see FedSpeak from Kashkari, Harker and Williams.

Posted in Gold News, Gold Views, Snapshot |

Gold lower at 1229.41 (-8.52). Silver 17.93 (-0.139). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.46% (+4 bps).

Posted in Markets |

Gold isn’t behaving in practice the way it should in theory

Bloomberg/Eddie Van Der Walt/2-19-2017

“The market worries more ahead of the event than after,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail. “Once the hike was out of the way, a more balanced picture emerged and that together with a reality check of the potential Trump impact did the rest.”

MK note:  Gold continues to climb this morning though in somewhat subdued fashion probably a result of the holiday in the United States.  Ole Hansen’s comments focus on the United States, but it seems that every area of the globe has its own unique concerns driving physical demand.  China has a currency problem, massive debt and capital flight to contend with.  In Europe, investors are worried about the rise of Marine LePen in France and her promise to take France out of the euro, possible debt default in Greece and teetering banks in Italy. In the United States, inflation expectations have begun to influence investment decisions across the boards.  Altogether these singular, localized dimensions form an imposing whole.

Posted in all posts, Author, MK |

Goldman Sachs is majorly bullish on commodities

ETF Daily News/2-16-2017

“Using its sentiment analysis tools, however, Goldman managed to come to these conclusions as early as November—which is the same month the investment bank turned bullish on commodities for the first time in four years. Goldman’s line of reasoning? When business optimism goes up, capital expenditure (capex) also goes up, and when capex goes up, commodities tend to follow. I should add that the bank has historically been neutral on commodities, recommending an overweight position only four times in the last 20 years. So when it does become bullish, investors should pay attention.”

MK note:  The expectation for rising commodity prices, needless to say, rolls into inflationary expectations and helps explain professional money’s big move into gold since the start of the year.  Gold is up over 8% in 2017 while stocks are up only a little over 4%.

Posted in all posts, Author, MK |

BlackRock backs gold to hedge market risk

Bloomberg/Susanne Barton/2-16-2017

“While the stock surge and below-average volatility show investors are more optimistic, markets are underpricing global political risks, said Russ Koesterich, who helps manage the $41 billion BlackRock Global Allocation Fund. He recommends gold as insurance. Looming elections in Europe and political uncertainty in the U.S. are among developments that could shift investor sentiment, Koesterich said. Adding to the threat is the potential impact of Britain’s exit from the European Union and a debt crisis in Greece. Such concerns have helped boost haven demand for gold, which has climbed almost 8 percent this year after posting the worst quarter since 2013.”

MK note:  All of a sudden Greece’s name keeps popping up in the litany of reasons to own gold, and with good reason.  Marine LePen’s, who has a plurality in the upcoming first round of French voting, says she will take France out of the euro, an event that would surely sink both the currency and the European Union.  That is an even bigger and more dangerous threat than what Greece brings to the table.  Given the growing populist mood across Europe, I would think that European money managers might be as interested in gold for portfolio insurance purposes as BlackRock is in the United States.

Posted in all posts, Author, MK |

Alan Greenspan renews gold advocacy, Part 2

“Do something. Help!”

Gold Investor/World Gold Council/2-16-2017

Alan Greenspan, as quoted in the World Gold Council’s interview linked above:

Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counter-party signature. Gold, however, has always been far more valuable per ounce than silver.

No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

(Pictured below. Lydia gold stater, King Croesus, 561-541 BC, electrum blend silver and gold, ‘heavy’ stater specimens bring upwards of $30,000 in top grades. This specimen is from the British Museum collection and reproduced here with permission.)

MK note:  Gold is not like other assets that depend upon another individual or institution’s performance for value.  It  stands alone and as Greenspan states without mincing words:  “No one questions it value.”  It is for those reasons that gold protects wealth no matter the economic malady visited upon the economy – inflation, hyperinflation, disinflation, stagflation, runaway stagflation and deflation.  It is the ultimate armchair investment – the one asset you can rely upon no matter what happens politically or economically.

Greenspan believes stagflation is in our collective futures and he has made that prediction publicly on several occasions over the past few months.  Here is what he said in the same interview linked above:

As productivity growth slows down, the whole economic system slows down. That has provoked despair and a consequent rise in economic populism from Brexit to Trump. Populism is not a philosophy or a concept, like socialism or capitalism, for example. Rather it is a cry of pain, where people are saying: Do something. Help!

At the same time, the risk of inflation is beginning to rise. In the United States, the unemployment rate is below 5%, which has put upward pressure on wages and unit costs generally. Demand is picking up, as manifested by the recent marked, broad increase in the money supply, which is stoking inflationary pressures. To date, wage increases have largely been absorbed by employers, but, if costs are moving up, prices ultimately have to follow suit. If you impose inflation on stagnation, you get stagflation.

Our mission at USAGOLD is not to take sides politically and, anyone who has frequented these pages over the years will attest to the fact that we tend to shy away from partisan politics. What we do concern ourselves with, however, is the manner in which the policies pursued by politicians and central bankers might affect the investment portfolio.  You might say that our business is the preservation of wealth. Alan Greenspan clearly sees gold and silver as  means to that end.  At the moment the political tide is running in the direction of inflation and inflationary expectations have taken hold of the investment markets, gold included.  The “inflation trade” has played large in gold’s price appreciation thus far this year, and as I mentioned in an earlier post, professional money managers are leading the charge through their purchases in gold ETFs.

Investors last tangled with stagflation in the the decade of the 1970s, and we all know how gold performed during that period.  For the record, here is a chart that shows how gold performed superimposed over the purchasing power of the dollar.  As you can see, while the dollar declined by 85%, gold rose by 17-times.  It tells at a glance the value of diversifying with gold and goes to the heart of the point Dr. Greenspan is making. (The Dow Jones Industrial Average over the same period gained only about 16%.)

Posted in all posts, Author, MK |

The Daily Market Report: Gold Remains Well Bid Near Highs for the Year

USAGOLD/Peter A. Grant/02-17-17

Gold is narrowly confined ahead of the long holiday weekend, just below the highs for the year that were set last week at 1244.71. Safe haven interest is still seen as being supportive to the yellow metal, while speculation about a possible rate hike in March may be limiting the upside.

Political uncertainty both in the U.S. and Europe continues to bolster haven interest. There has definitely been a lot more positive press coverage in recent weeks, centered both on the aforementioned political risks and rising concerns about inflation.

Both PPI and CPI for January doubled expectations, suggesting that the Fed’s massive efforts to stoke inflation may finally be baring fruit. It only took about a decade . . .

So, now what’s the Fed’s next move? Do they allow the “overshoot” that has been discussed in more recent years, or do they initiate additional tightening measures at the risk of choking-off the nascent growth prospects?

With growth “quite disappointing” even by Fed Chair Yellen’s estimation, I think they’ll hold in March and hope to see a pickup in GDP by midyear. If June and September start looking questionable, I think the central bank’s already dubious credibility could take another hit.

Additionally, President Trump will likely be moving to fill three vacancies on the Board of Governor within the next several months. I have speculated that given his agenda of tax cuts and debt fueled infrastructure spending, he might be looking to pack the Fed with doves. His recent statements about the dollar being too strong (or other currencies being too weak), plays into this as well.

Nothing would pull the plug faster on the 6-year dollar rally than a policy about-face by the Fed. Or even the message that we won’t tighten any further until the global economy gains momentum and other central banks start removing accommodations.

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

Trump’s border tax could trigger inflation, but don’t expect an immediate reaction from the Fed

BusinessInsider/Pedro Nicolaci da Costa/02-17-17

Economists are worried that Donald Trump’s plan to introduce a so-called border tax on imports could cause a spike in inflation, and rightly so.

The logic here is simple: Lots of goods consumed in the US are made overseas, from Mexico to China. Companies aren’t going to eat the tariffs Trump wants to slap on these — and so they’ll pass on the higher costs to consumers instead.

Posted in inflation |

U.S. leading indicators +0.6% in Jan, above expectations of +0.4%, vs +0.5% in Dec.

Posted in Economic Data |

This Country Wants Everyone to Have 100 Grams of Gold

Bloomberg/Evgenia Pismennaya & Anna Andrianova/02-15-17

A landlocked nation perched between China and Kazakhstan is embarking on an experiment with little parallel worldwide: shifting savings from cattle to gold.

…“Gold can be stored for a long time and, despite the price fluctuations on international markets, it doesn’t lose its value for the population as a means of savings,” he said in an interview. “I’ll try to turn the dream into reality faster.”

PG View: Savvy savers elsewhere are shifting their savings from colorful pieces of paper to gold.

Posted in Gold News, Gold Views |

Gold edges higher as global equities hesitate

Reuters, via CNBC/02-17-17

Gold crept higher on Friday as investors opted for the safe haven qualities of bullion due to uncertainty about U.S. and European politics as well as the direction of stock markets.

…”Gold is close to its recent multi-month high despite the strong dollar, due to an increase in volatility on the equity markets and more uneasiness on the political front, which is supporting the search for safe-haven assets,” said Eugen Weinberg, head of commodity research at Commerzbank.

Posted in Gold News, Gold Views |

Morning Snapshot: Gold keeps the pressure on the upside

USAGOLD/Peter A. Grant/02-17-17

Gold continues to pressure the upside, putting the high for the year at 1244.71 to the test. Lower stocks and yields this morning are seen as supportive. The dollar index is trading slightly higher, but within yesterday’s range.

The economic calendar is quiet ahead of the long holiday weekend, with just January LEI out at 10:00ET. Expectations are for a 0.4% rise.

U.S. markets will be closed on Monday in observance of President’s Day. Canadian markets will be closed as well for Family Day.

Posted in Gold News, Gold Views, Snapshot |

Gold higher at 1242.79 (+3.49). Silver 18.04 (-0.082). Dollar better. Euro lower. Stocks called lower. U.S. 10-year 2.40% (-4 bps).

Posted in Markets |

Whatever Happened to Inflation after All This Money Printing? It Has Arrived!

24hGold/Wolf Richter/02-16-17

Consumer prices surged 0.6% in January from December, double the consensus forecast of a 0.3% rise. The sharpest monthly increase since February 2013, according to the Bureau of Labor Statistics.

…So here is what inflation does to workers and consumers: it eats up the purchasing power of their wages. In that vein, the Bureau of Labor Statistics also reported today that real (inflation adjusted) average weekly earnings dropped 0.6% in January from a year ago, as nominal wage increases were more than wiped out by inflation.

Posted in inflation |

The Daily Market Report: Gold Keeps the Pressure on the Upside

USAGOLD/Peter A. Grant/02-16-17

Gold remains well bid, pressuring the highs for the year that were established last week. While the yellow metal has been unable to break-through to new highs as of this moment, the impetus remains to the upside, particularly with the dollar giving back recent gains.

Gold recovered nicely from yesterday’s intraday losses after Fed Chair Yellen acknowledged during testimony before the House Financial Services Committee that economic growth has been “quite disappointing.” That sort of flew in the face of her previous testimony, which centered on economic optimism, the achievement of Fed goals and the belief that it would be “unwise” to wait too long to raise rates.

“Economic growth has been quite disappointing.” — Janet Yellen

So, that begs the question: Why did we have to wait until she said the words, when the data clearly illustrate the reality. The last time we saw annual growth at 3% or greater was 2005. That’s 12-years ago! Growth last year was just 1.6%. Forecasts for Q1-17 have been revised lower in recent weeks, even as Yellen and her minions preach optimism and the need for multiple rate hikes this year.

While the Fed may be finally generated the inflation they have long sought, real yields out to the 10-year note remain negative. CPI rose to a 2.5% annual rate in January, while the 10-year note is yielding 2.45% today.

With our major creditors dumping Treasuries at an unprecedented rate, the Fed may in reality not need to do anything more to prompt rates higher. Supply is certainly not going to be a problem if fiscal stimulus commences, on top of the pig-through-a-python demographic reality as retiring baby boomers start drawing on already underfunded entitlements.

All of this goes a long way toward explaining why gold is defying widely held beliefs that it can’t rise when stocks are going up, yields are going up and the dollar is going up. In fact, this might be viewed as a signal; that now perhaps more than ever, gold is a critical component of a well diversified portfolio.

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

Alan Greenspan renews gold advocacy, Part 1

Gold Investor/World Gold Council/2-16-2017

MK note: Former Fed chairman Alan Greenspan is interviewed in the most recent issue of the World Gold Council’s Gold Investor magazine.  As most of you already know, Greenspan is a long-time advocate of private gold ownership as well as the gold standard.  Some see his chairmanship of the Fed and gold advocacy as contradictory, but in fact, Greenspan always saw the two as complementary.  Here is a very interesting quote taken from the interview:

“When I was Chair of the Federal Reserve I used to testify before US Congressman Ron Paul, who was a very strong advocate of gold. We had some interesting discussions. I told him that US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency. In that regard, I told him that even if we had gone back to the gold standard, policy would not have changed all that much.”

Many years ago, we catalogued those exchanges between then Texas congressman Paul and Greenspan.  I was among the small group at the time who appreciated the dialogue as friendly intellectual exchanges between two heavyweights and not as contentious arguments.  As I wrote in the preface to the transcripts several years ago, I think both enjoyed and relished the exchanges, and it is interesting that Greenspan would reference the banter between the two in such a telling way so many years later.  Here is what I wrote in that preface:

In putting this page together, I was struck with Dr. Paul’s ability to cut through the political gamesmanship that necessarily comes with being chairman of the Fed to Alan Greenspan, the man and political/economic philosopher. What emerges is a powerful figure conflicted between the practical manager charged with operating within the current fiat monetary system and the philosopher-academic with a “nostalgia,” as he puts it, for the days of the gold standard. Without Dr. Paul’s incisive questioning, I doubt that this aspect of the Greenspan character would have found its way to the public venue and the historical record. Though the relationship appears adversarial at first blush, one also detects a certain amount of mutual respect and interest. Says Dr. Paul of the exchanges: “My questions are always on the same subject. If I don’t bring up the issue of hard money vs. fiat money, Greenspan himself does.”

Let me include one final short story from that preface that I have always appreciated:

In closing, I would like to pass along an anecdote reported by SmartMoney’s Donald Luskin in a 2002 interview of Ron Paul. Paul told Luskin the story of his owning an original copy of “Gold and Economic Freedom,” and asking Greenspan to sign it. While doing so, Paul asked him if he still believed what he wrote in that essay some 40 years ago. That tract, written during Greenspan’s days as a devotee of Ayn Rand, is a strongly worded, no-holds-barred attack on fiat money and the central banks as an engine of the welfare state. It also endorses the gold standard as a deterrent to politicians’ penchant for running deficits and printing money. Greenspan — enigmatic as ever — responded that he “wouldn’t change a single word.”

Perhaps later today, I will be back to comment on one or two more quotes from the Greenspan interview.

From our Gold Classics Library:

Ron Paul-Alan Greenspan transcripts (1997-2005)

Gold and Economic Freedom / Alan Greenspan / 1967

Posted in all posts, Author, MK |

Trump’s vast power to reshape the Fed could lead to complete mayhem for markets

BusinessInsider/Pedro Nicolaci da Costa/02-14-17

President Donald Trump already had ample leeway to reshape the Federal Reserve, with Janet Yellen’s term as chair expiring early next year and two key slots on the central bank’s board left open after Republicans failed to bring President Barack Obama’s longstanding nominees to a vote.

Now, with the sudden resignation of Daniel Tarullo, Trump pretty much has free rein over the powerful US central bank.

PG View: If the plan is to cut taxes and unleash a massive infrastructure spending plan, it might behoove President Trump to pack the Fed with doves. Similarly, Trump’s concerns about dollar strength could easily be resolved by reversing expectations of further rate hikes.

Posted in Central Banks, Currency Wars, Monetary Policy |

It’s only a matter of time before China has the biggest gold pile in the world

MoneyWeek/Dominic Frisby/02-16-17

“Whoever has the gold makes the rules” runs the old saying.

So, where’s the gold?

…China is now the world’s largest gold producer. It has held this title since 2007 when it overtook South Africa and it shows no sign of handing back the mantle.

…Importing gold was something China began in earnest in 2011 – around about the time that gold peaked at $1,920 an ounce. The longer the bear market has gone on, the more China has bought. I’m not sure if that makes them canny buyers or the opposite, but something is going on and, when you consider the cumulative effects, it is something big.

Posted in Gold News, Gold Views |

Inflation Pickup Spurs Gold demand

Kitco News/Peter Hugg/02-16-17

Although Fed Chair Janet Yellen expressed a more hawkish bias, there is still skepticism that the Fed will move in March. With the uncertainty of upcoming European elections and until the administration provides a clear fiscal plan, it is likely the Fed may continue to hold off in March. Against that possibility, U.S. consumer prices rose to a four-year high, which gave bulls enough comfort to engage, on the assumption that the Fed is getting further behind the inflation curve. A close above the $1,237 level should usher in a test of the $1,255 area.

Posted in Gold News, Gold Views |

Gold investors smell a rat in this ‘animal spirits’ market

MarketWatch/Barbara Kollmeyer/02-16-17

The blogger maintains “gold is telling the world something” right now, and seems to be among those who don’t quite buy all the market enthusiasm right now. “I believe that gold is hinting that the market is very overvalued. As the market has inflated up, gold has also risen (a lot) and is up year to date in 17’ more than the SPX,” he said in follow-up comments via email.

…“As long as gold is above $1,200, it is a long. Over $1,300 starts a move to $1,600 gold. I think we see $1,450 this year, and I think gold can smell the BS in the market right now,” says the blogger.

Posted in Gold News, Gold Views |

Gold rises as dollar gives up gains; US rates in focus

Reuters, via CNBC/02-16-17

Gold rose on Thursday as the dollar weakened after a 10-day winning streak and investors took the opportunity to buy bullion as a hedge against political uncertainty in the United States and Europe.

…Concern over President Donald Trump’s policies and elections in the Netherlands, France, and Germany this year have fueled gold’s rise to a peak of $1,244.67 on Feb 8.

…”It’s a tug of war between a higher probability of U.S. rate hike in March and upcoming elections around Europe which are creating uncertainty and demand for safe assets,” said Jens Pedersen at Danske Bank.

Posted in Gold News, Gold Views |

Morning Snapshot: Gold approaches last week’s high as dollar weakens

USAGOLD/Peter A. Grant/02-16-17

Gold pushed higher to approach resistance marked by the 1244.71 peak from last week. A short term breach of this level would put the yellow metal at new 14-week highs.

This morning’s data had little impact on the market. Initial jobless claims rose modestly last week. Housing starts declined by 2.6% in January, but still came in higher than expected thanks to a positive revision to December. The Philly Fed index beat expectations by a wide margin.

The dollar has come under renewed pressure, despite recent upbeat data and heightened rate hike expectations. Even so, gold has fared quite well in the face of the 2-week rebound in the dollar index. If the dollar gives it all back, gold should continue its trend higher.

Posted in Gold News, Gold Views, Snapshot |

U.S. housing starts -2.6% to 1.246M in Jan, above expectations of 1.215M, vs positive revised 1.279M in Dec.

Posted in Economic Data |

U.S. Philly Fed index surged to 43.3 in Feb, well above expectations of 18.9, vs 23.6 in Jan.

Posted in Economic Data |

U.S. initial jobless claims +5k to 239k in the week ended 11-Feb, below expectations of 245k.

Posted in Economic Data |