Nervousness About Global Banking Giants Intensifies

08-Feb (NYT) — An unsettling trend has emerged from the heavy selling that sent global markets tumbling this year: Investors are getting nervous about the world’s biggest banks.

The concerns about the banks are clearly reflected in the stock markets, where shares in banking giants are plunging. But there are also ominous signs in markets that investors use to bet on the perceived creditworthiness of large financial firms.

A crucial benchmark for the banking sector, the KBW Nasdaq Bank Index, was down more than 3 percent on Monday and had lost nearly 20 percent of its value this year.

There were other signs of nervousness.

Investors are again rushing into benchmark government bonds. The yield on the 10-year Treasury note, which falls as its price rises, declined to 1.75 percent on Monday; it yielded 2.27 percent at the end of last year. The price of gold is rising. The Vix, which measures investors’ expectations of volatility and is known as Wall Street’s fear gauge, rose over 10 percent.

But the plunge in bank stocks seemed to stir up the most concern.

When investors sell bank shares or bet against the banks in credit markets, it can be a signal that a period of financial turbulence has entered a new, potentially more serious phase.

[source]

PG View: It would be wise to take some of your wealth out of the banking system and store it in gold.

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Posted in Economy, Markets |

Yield on 10-year Japan government bond falls below zero for first time

09-Feb (CNBC) — Yields on Japan’s benchmark 10-year government bond fell below zero for the first time, as investors clamored for safe-haven assets in the wake of a global market rout.

The yield on the 10-year Japan government bond (JGB) dropped as low as negative 0.007 percent. The fall came on the heels of a global stock market sell-off overnight that likely spurred safe haven flows back into Japan. Bond prices move inversely to yields.

The U.S. five-year Treasury yield also fell to around 1.1112 percent in Asia trading hours, its lowest since June 2013, when markets convulsed during the taper tantrum after the U.S. Federal Reserve first broached the idea that it would taper its quantitative easing program. The U.S. 10-year Treasury yield fell as low as levels around 1.6947 percent, a more than one-year low, on Tuesday.

[source]

PG View: A 10-year investment in a foundering economy with a massive debt overhang and the investor garners less than nothing in return. Talk about your mispriced risk . . .

Posted in Debt, Markets |

China Continues To Buy More Gold As it Sells Other Foreign Reserves

08-Feb (KitcoNews, via Forbes) — China’s central bank continues to see the value of diversifying into gold as it continues to purchase the precious metal on a monthly basis in the midst of falling total reserves.

According to media reports, the People’s Bank of China (PBOC) added 580,000 ounces of gold to its official reserves last month; the bank now hold a total of 57.18 million ounces of gold, an increase of 0.9% from December.

The news of China’s latest gold purchases follows more data from the PBOC, showing total foreign reserves fell $99.5 billion to $3.23 trillion in January, the lowest level since May 2012. It was also the second biggest decline in reserves, just behind December’s considerable $108 billion decline.

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According to some analysts and economists, China has been busy selling some of its foreign reserves and buying the yuan to prop up its weakening currency and fragile stock market.

[source]

Posted in Gold News, Gold Views |

IEA warns of ‘false dawn’ in oil prices with market ‘awash’

09-Feb (FT) — Oil stockpiles are forecast to keep swelling this year, meaning the recent uptick in prices could be a “false dawn”, the world’s leading energy body said on Tuesday.

In its monthly oil market report the International Energy Agency said the the surplus of supply over demand at the start of 2016 is “even greater” than initially expected, writes Anjli Raval.

“With the market already awash in oil, it is very hard to see how oil prices can rise significantly in the short term,” it said. “In these conditions the short term risk to the downside has increased.”

Despite the increase in Brent crude prices from last month’s low of $27.15 a barrel, the IEA said a series of bearish factors were still taking hold of the oil market.

Markets remain unconvinced by possible discussions between Opec producers — such as Venezuela — and those outside of the cartel to coordinate a global cut in production.

“Persistent speculation…appears to be just that: speculation,” said the IEA.

[source]

Posted in Markets |

Gold higher at 1196.30 (+5.23). Silver 15.33 (-0.024). Dollar lower. Euro higher. Stocks called lower. US 10yr 1.73% (-1 bp).

Posted in Markets |

America is turning into Japan

by John Mauldin
08-Feb (BusinessInsider) — I firmly believed that the Bank of Japan would augment its quantitative easing stance sometime this spring. Inflation has not come close to its target, and the country’s growth is dismal, to say the least. So the fact that the Bank of Japan “did something” was not a surprise.

I will, however, admit to being surprised—along with the rest of the world—that they chose to do it with negative interest rates. Especially given the fact that only a few days earlier, Kuroda-san had said he was not considering negative interest rates.

This development is significant for Japan. But I think it has broader implications for the world, and the more I think about it, the more nervous I get.

[source]

Posted in Economic Data, Monetary Policy, QE |

An unholy trinity of concerns pushing gold

A QUICK ASSESSMENT OF TODAY’S MARKET ACTIVITY:

As I suspected might be the case and posted here yesterday, it has been a big day so far in the markets – gold and silver included.  At this writing the DJIA is down nearly 400 points; the yield is down on the 10-yr a full basis point at 1.738%; gold is up $40 from Friday’s COMEX close at almost $1199/tr oz, silver is up almost 70¢.  This turmoil is being caused by three events in our opinion:

  1.  Iran’s demand for oil payments in euros, effective immediately
  2.  Continuing liquidity problems in what we used to call the third world (a now politically incorrect ID but still communicative), most glaringly in China
  3.  banking sector problems with a keen eye on what’s going on at Deutschebank (the next Lehman Brothers??)

An unholy trinity of concerns. . . . .

All of this is throwing off disinflationary, systemic risk sparks just about everywhere and that’s why you see stocks selling off everywhere and the run to safe havens, most notably gold and US treasuries.  Silver, absent for the most part last week, showed up today in keeping with our long-term assessment that silver has joined gold on the disinflationary hedge team.  That is not something the analysts have granted it.  It is something that investors are telling us with their very strong demand for over a year now, and in all kinds of weather.

There’s one more problem no one seems to be talking about playing a role.  The U.S. accumulated federal debt is approaching the $19 trillion mark.  An explosion of new debt has been thrown on the market since Congress lifted the moratorium on federal debt accumulation – almost $850 billion in new red ink since November 1.  Unbelievable. . . . . .It’s a good thing safe haven demand ramped or interest rates might be soaring instead of collapsing. . . . . . .

Strong investor interest at our offices.  Will report again as things develop.  What is driving the markets is neither feeble nor ambiguous. . . . .

Gold, by the way, is up almost 13% on the year.

MK

 

Posted in all posts, Author, MK |

The Daily Market Report: Gold Surges to Pressure $1200


08-Feb (USAGOLD) — Gold extended to the upside to start the week, approaching the $1200 level for the first time since June. Haven demand remains a driving force, with stocks and oil under renewed pressure, but a big part of this may be capitulation on the part of shorts in the gold market.

Today is also the beginning of the Lunar New Year, which tends to be a popular time of for Asian consumers to buy gold. “While the Chinese Lunar New Year is the high point for Chinese gold demand, it does not drop off significantly afterward as the steady current of growing middle classes continues to attract demand,” said Julian Phillips in a MarketWatch article today. “This is not just a one-off purchase when they become middle class—it signals the start of a continuous purchasing pattern,” Phillips added.

Phillips also noted that U.S. investors are playing role, “as physical demand overwhelms paper sales.” As mentioned above, I think those sellers in the paper market have begun to cover.

Up until the very last moment in December, I believed the Fed would realize they were tightening into weakness. I thought they would delay the rate hike, just like they had in September. And June before that. And March before that.

I was wrong, and the Fed pressed ahead with the first rate hike in nearly a decade, despite mounting evidence of a weakening economy. The chorus suggesting the Fed made a big mistake is growing.

While tightening into weakness may indeed prove to be one of the biggest policy errors in Fed history, there is also a growing body of evidence that suggests easier policy was a giant bust as well.

“Evidence is mounting that central banks’ easy money policies are having less ability to give their economies — and asset prices — a boost,” according to a weekend article from Bloomberg. John Mauldin says that American is turning into Japan. That would certainly be even more apparent if the Fed is forced to reverse course and cut rates again, perhaps even going negative.

So if über-accommodative policy has lost its efficacy, and global economies are too weak to withstand tighter policy, what are central banks to do? Almost assuredly they will err toward easier policy; and that goes for the Fed as well. However they may have to apply more pressure on governments to dial up the fiscal stimulus as well.

That of course is fraught with its own set of perils, particularly with regard to deficit spending and ever-growing debt/GDP ratios. With no good policy solutions apparent, the recent flight to safety makes a great deal of sense.

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

Lots of Liquidity Entered the Economy. Where Did It Go?

08-Feb (St. Louis Fed) — Despite significant amounts of liquidity injected into the economy, it seems like a large amount never made it to the people and entities that would find it most useful, according to an article in The Regional Economist.

…Martin explained that Treasury security holdings by foreigners have been increasing since the 1980s but accelerated starting in mid-2007, most likely due to a flight to quality. He wrote: “In other words, most of the liquidity expansion was acquired by a sector (the rest of the world) that was hungry for it—supply and demand moving together.”

He concluded: “In sum, although fiscal and monetary policies have been unprecedentedly expansionary, the liquid asset holdings of the users of liquidity have not increased dramatically. If anything, the response appears comparatively muted and consistent with pre-existing trends.”

[source]

PG View: This is a rather candid assessment by a Senior Economist at the Fed. What Martin seems to be saying is that the Fed’s policy has been a rather spectacular bust.

Posted in Central Banks, Monetary Policy, QE |

Dow falls 300 as oil falls; gold surges 3%

08-Feb (CNBC) — U.S. stocks fell sharply on Monday as falling oil prices, U.S. rate increase worries and a weak overseas backdrop weighed on investors.

Crude prices resumed their downward trajectory, with WTI falling 2.6 percent, or 80 cents, to $30.09 a barrel. Last week, U.S. oil fell about 6 percent.

“Like it or not, we use oil as a barometer for the global economy,” said Art Hogan, chief market strategist at Wunderlich Securities.

The Dow Jones industrial average fell more than 300 points in midmorning trading, with Goldman Sachs and Home Depot weighing the most on the index.

…Gold futures surged nearly 3.5 percent — or $40.30 — to trade at $1,198.50 an ounce, their highest level since last June.

“The gold trade is signaling a retreat in global inflation,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “In times of economic stress … gold acts as a store of value.”

[source]

Posted in Gold News, Gold Views, Markets |

Gold jumps to near-4-month high as investors turn to safety

08-Feb (MarketWatch) — Gold futures vaulted higher Monday and are eyeing their best closing level since mid-October as physical demand and concerns about sluggish economic growth spurred gains.

April gold GCJ6, +2.96% jumped $24.90, or 2.1%, in early trade to $1,182.60 an ounce and looked on track to register its best single-session point and percentage gain since December. The metal also was on pace to close at its highest settlement since Oct. 16, when gold closed at $1,183.10.

Global stock markets are facing sharp losses amid more signs that international growth is tapering, led by the world’s second-largest economy, China.

Market participants said this week’s start of the Lunar New Year—a holiday in China and many parts of Asia—is helping drive physical demand for gold.

“The rise in the gold price is U.S. investor driven as physical demand overwhelms paper sales. This tells us that institutional gold views have been changed by global considerations, despite reports indicating that the U.S. economy looks solid even though growth is weakening,” wrote Julian Phillips, founder and contributor to GoldForecaster.com.

[source]

Posted in Gold News, Gold Views |

The Magic Formula That Powered Japanese Stocks Is Falling Apart

07-Feb (Bloomberg) — For Japanese investors, it must have seemed the equivalent of turning lead into gold.

Unlike in the Middle Ages, the alchemy now relied on mixing central bank stimulus with a weakening yen to create rising profits and a stock market that soared to an eight-year high. But that was back in August, and the formula has since lost its potency.

By one measure, earnings in the world’s third-largest stock market are poised to retreat more than 20 percent this quarter, and for the first time since 2012 more Japanese companies are missing forecasts than beating them. Meanwhile, the yen just staged its biggest weekly rally since 2009 even though the Bank of Japan surprised the world by cutting interest rates to below zero.

“Whether it be quantitative easing or the weaker yen, the effect is getting smaller and smaller,” Ayako Sera, a Tokyo-based market strategist at Sumitomo Mitsui Trust Bank Ltd., which manages $453 billion. “The problem is that we’re not seeing excitement domestically. The fact that the global economy isn’t good is impacting Japanese earnings, too.”

In many ways, Japan isn’t alone. Evidence is mounting that central banks’ easy money policies are having less ability to give their economies — and asset prices — a boost. In the U.S., Standard & Poor’s 500 Index companies are about to report the third consecutive quarter of declining income. Bank stocks in Europe are near a 3 1/2 year low as measures of risk in credit markets reach the highest since 2013.

“We’ve entered a period of stagnation,” said Shinobu Yonezawa, a quantitative analyst at Mizuho Securities Research & Consulting Co. in Tokyo. “China has become an issue and oil prices tumbled at the end of last year, changing the landscape for corporate earnings.”

[source]

PG View: Bear in mind, that the Fed is for the most part following the BoJ’s playbook…

Posted in Central Banks, Monetary Policy, QE |

Confusion and turmoil helps gold to shine


08-Feb (CNBC) — Concerns over the global economy have added an extra shine to safe-haven assets such as gold, according to the chief executive of a top mining firm, who told CNBC that “solid” demand and future economic stress could lead to more price gains for the commodity.

“We’re in a very confused state as far as understanding the global economy with very mixed messages coming from different sectors around the world,” said RandGold Resources CEO Mark Bristow.

“It’s an interesting time and that’s always good for gold when people are unsure about the future.”

…”Due to prevailing risk aversion in financial markets and mounting global growth risks, a bearish outlook on gold is not warranted anymore,” Carsten Menke, a commodities research analyst at Julius Baer, said in a note Monday.

“We have turned neutral and believe that investors should use gold as insurance in their portfolios.”

[source]

Posted in Gold News, Gold Views |

Gold higher at 1180.50 (+7.45). Silver 14.99 (+0.008). Dollar higher. Euro lower. Stocks called lower. US 10yr 1.78% (-5 bps).

Posted in Markets |

Investors Buy ‘Crash’ Protection in Deutsche Bank

Wall Street Journal/Saumya Vaishampayan/2-3-2016

“Puts protecting against a 33% fall in U.S.-listed Deutsche Bank DBK.XE -0.41% shares by April were particularly popular Wednesday. Analysts at Susquehanna Financial Group characterized the trading in Deutsche Bank options as ‘crash put buying.'”

Also read:

Deutsche Bank’s troubles unmask bigger risks/ Financial Review/Phillip Baker/2-3-2016

“The bank posted a €6.8 billion loss in 2015, thanks to a €12 billion write-down linked to litigation charges and restructuring costs, and it set aside more to cover any potential litigation.At a time when it seems like a cottage industry has sprung up in predicting the next financial crisis, there’s talk that although this current period of turbulence might not be the next crisis, it will certainly do until that next crisis does arrive. At the heart of these latest concerns is that investors are losing faith in what central banks can do. But the performance of big global bank stocks like Deutsche Bank has also sparked the selling.”

MK note:  Shades of Lehman Brothers, 2008? “This has been brewing under everyone’s nose, because while people thought that the problem was periphery banks in Ireland or Spain, the actual problem is that Deutsche Bank, and the French banks with lots of toxic debt in commodities, are over-stretched, badly run, have no sense of risk management and are organs of state capitalism,” says Paul Schulte, SGI Research.

Posted in all posts, Author, MK |

China dumps $100 billion in reserves, adds $3.4 billion in gold

Reuters/2-6-2016

“Capital outflows have gained momentum since the yuan’s August devaluation, fanned by concerns about China’s economic slowdown and expectations of U.S. interest rate rises. ‘Monetary easing is highly needed amid economic slowdown, but the capital outflow will naturally tighten the monetary policy,’ Hao Zhou, senior emerging markets economist at Commerzbank in Singapore, said in a note after the data. ‘In the meantime, to prevent the currency from a fast depreciation, the PBOC (People’s Bank of China) will have to sell its FX reserves, which will tighten the liquidity.'”

MK note:  Meanwhile, on Saturday China announces another big dollar dump to defend the yuan and stanch capital outflows.  The global emerging market crisis ratchets up another notch. The Fed has had plenty to worry about over the weekend – as does Shanghai and Wall Street.  China continues to steadily add gold to its coffers.  Some might have thought it would put its gold acquisition plans on hold given the situation there, but tellingly it hasn’t.

 

Posted in all posts, Author, MK |

Iran wants euro payment for new, outstanding oil sales

Reuters/Nidhi Verma/2-5-2015

Iran wants to recover tens of billions of dollars it is owed by India and other buyers of its oil in euros and is billing new crude sales in euros, too, looking to reduce its dependence on the U.S. dollar following last month’s sanctions relief. A source at state-owned National Iranian Oil Co (NIOC) told Reuters that Iran will charge in euros for its recently signed oil contracts with firms including French oil and gas major Total, Spanish refiner Cepsa and Litasco, the trading arm of Russia’s Lukoil.

MK note:  This news report was released late Friday after the markets closed.  The effects could be immediate.  In fact the move on Friday in the gold market could very well have been based on this development.  The open later this afternoon could prove to be interesting.

Posted in all posts, Author, MK |

Week in Review (video) – February 5, 2016

Posted in all posts |

End-of-week top gold stories

Friday, 05-Feb-2016

Andrew Hecht (SeekingAlpha) Gold Strong Like Bull Gold was over 6.5% higher in this young year at last week’s highs. At the same time, many commodities are lower thus far in 2016, so gold continues to strengthen on a relative basis as well. This is a testament to the strength of gold, the fortitude of its value.

…if gold breaks above the $1200 per ounce level, it will turn the page on a new chapter in an ongoing war. Above that technical level, gold will break a vicious five-year cycle of lower lows and lower highs. Gold makes a statement about the value of all fiat currencies each day. In 2016, it will continue to make that statement. Gold is the ultimate arbiter by virtue of its longevity.

PG Note: Gold ended the week at 1173.69, +5% on the week and +10.6% ytd. While the page hasn’t turned yet in Hecht’s eyes, the reader is at least moistening his finger.

Jonathan Kosares (USAGOLD) The trouble with gold and silver checkbook IRAs A strategy that could sabotage the tax-deferred status of your retirement plan.

“While many believe that checkbook control IRAs are IRS-approved, nothing could be further from the truth. In fact, these accounts appear to be a major concern of the IRS, as evidenced by their repeated inclusion in the agency’s annual ‘Dirty Dozen’ list of tax scams.” – Equity Trust

JK Note: For our part, we at USAGOLD see the checkbook IRA as a risky, problematic approach to precious metals retirement planning and a bad choice for our clientele. The traditional self-directed IRA account placed with a solid trust company is still the safest avenue for the retirement investor and the one most likely to deliver the intended results.

Peter Grant (USAGOLD) Gold has a higher yield than a growing number of government bonds As the major central banks of the world continue to wrestle with sluggish growth and disinflationary pressures, their extraordinary measures are taking away a classic argument against gold: That it carries no yield.

PG Note: Gold carries no yield, because it carries no risk. The same can not be said for government bonds, which means risk is grossly mis-priced in that realm.

(Bloomberg) Chinese Seen Buying More Gold as Investors Seek Haven Assets China’s gold demand will keep expanding as investors seek safe assets and jewelry buying increases, the China Gold Association said.

…Stock market turmoil, a weakening currency and the lowest global prices in almost six years have helped boost bullion buying in China.

PG Note: China is already the biggest consumer of gold. As their citizens look to shelter from stock market volatility and a devaluing yuan, gold consumption could be further amplified.

(KtcoNews, via Forbes) Gold Hits 3.5-Month High; Bullish Momentum Building; Silver Bulls Also Come to Life Gold prices are higher and hit a 3.5-month high in early U.S. trading Thursday. Add the slumping U.S. dollar index to the list of bullish elements helping to drive gold and silver prices north recently.

PG Note: It was a good week indeed for both gold and silver!

Posted in all posts, Gold News, Gold Views |

Gold futures tally best weekly gain since August


05-Feb (MarketWatch) — Gold futures finished barely higher on Friday, but tallied their largest weekly gain since August as overall losses in the U.S. stock market and the dollar over the last five trading sessions drew investors to the perceived safety of the yellow metal.

…“One thing is for sure that interest rate hike by the Federal Reserve will be only in its June meeting or beyond,” said Chintan Karnani, chief market analyst at Insignia Consultants. “This will result in firmer gold prices and a weaker U.S. dollar.”

The metal has already gained more than 9% since the start of the year.

[source]

PG View: Gold continued to climb after the futures close, setting more new 14-week highs above $1174.00.

Posted in Gold News, Gold Views |

Gold surging in late trading, setting more 14-week highs above $1172.00. Silver flirts with $15.

Posted in Gold News, Silver News |

The Daily Market Report: Gold Poised To Post $40+ Gain This Week


05-Feb (USAGOLD) — Gold jumped to a new 14-week high of 1163.28 in the moments after today’s January jobs report, before retreating into the range. However, most of those intraday losses have already been retraced and the yellow metal is back positive on the day.

The headline payrolls number of +151k was a disappointment, coming in below expectations and well off the negative revised +262k figure from December. However, policy hawks were encouraged by another downtick in the jobless rate to an 8-year low of 4.9%, as well as the 0.5% rise in average hourly earnings.

That got some to thinking just maybe the Fed has room for another 25 bps rate hike after all. Others that had seen nice gains in their long gold and bond, and short dollar positions this week perhaps thought it prudent to book profits ahead of the weekend.

The yellow metal dipped to 1144.90 intraday, before mounting a comeback. Trading around 1157.00 presently, gold is up more than $40 (3.6%) on the week. If we get a close around these levels, that’s a pretty good week indeed!

Gold has benefited since the first of the year, in part from diminished expectations about follow-on rate hikes. The Fed raised rates off the zero-bound on December 16th with guidance suggesting there could be at least four additional 25 bps hikes in 2016. You might recall that many viewed this as a death knell for gold.

However, in the subsequent weeks, market expectations quickly eroded to maybe one additional hike in H2. Then some were talking about no more rate hike at all and now some believe the next move from the Fed will be a rate cut.

The bond market, meanwhile, sees no shades of grey in the data; it is shifting rapidly from pricing in one rate hike this year towards pricing in the possibility of the next move being a rate cut, all but ridiculing the Fed’s insistence that four rate hikes would come to pass in 2016. — Financial Times

When the Fed pulled the trigger back in December, raising rates for the first time in nearly a decade, Jim Rickards was quick to call it a “huge mistake” that “will be one of the great blunders in Fed history.” That sentiment has steadily gained traction — as a result of the weak economic (particularly manufacturing) data unveiled since the first of the year — and is now being echoed by the mainstream financial press.

December 16 2015 may go down as the date of one of the most monumental policy errors in history. — Financial Times

Wall Street Journal FedWatcher Jon Hilsenrath thinks today’s jobs data leaves the March decision in limbo. Rickards thinks there may be another rate hike still in the cards because the Fed is always the last to know that things in the real world aren’t as good as the central bank’s models suggest.

“Fed officials were expecting a slowdown. Payroll gains averaged 279,000 a month in the fourth quarter, too much for an economy that was barely growing,” said Hilsenrath. Barely growing? There you have it; further confirmation that the Fed tightened into economic weakness.

And not just weakness, but disinflationary pressures as well. Higher rates and expectations of higher rates tend to buoy the dollar, putting further weight on growth prospects and prices. In other words, classic central bank dogma suggests that is not the time to tighten policy. It may prove to be a mighty big blunder indeed.

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

Gold recovers much of the earlier intraday retreat, trading back higher on the day.

Posted in Gold News |

Traders boost bets on December 2016 Fed rate hike

fedfacade
05-Feb (Reuters) — The Federal Reserve is much more likely to raise interest rates this year, traders bet on Friday, after a government report showed a long-awaited surge in wages in January and an unemployment rate at an eight-year low.

U.S. short-term interest-rate futures contracts slipped on the sign of labor market strength, suggesting traders are now pricing in about a 45 percent chance that the U.S. central bank will next raise rates in December, up from 20 percent before the report.

They had earlier expected the Fed to wait until well into next year before raising rates, on worries that a global market selloff sparked by slowing growth in China could create headwinds to the U.S. recovery and push inflation even farther below the Fed’s 2-percent goal.

[source]

Posted in Central Banks, Monetary Policy |

Gold pulled-back and dollar rebounded post-NFP

05-Feb (USAGOLD) — Gold has come under moderate pressure after establishing a 14-week high at 1163.28 in the initial reaction to this morning’s jobs data. While the headline payrolls number of +151k was disappointing, the jobless rate ticked lower to an 8-year low of 4.9% and hourly earnings rose 0.5%.

In a week where Fed rate hike expectations eroded significantly, the hawks finally had something to grasp at. With hopes for another Fed rate hike somewhat revived, bond yields and the dollar rebounded, pushing gold lower in the process.

Some of this market movement may also be just profit taking ahead of the weekend. Gold in particular has had a great week. Even with today’s $8 drop, the yellow metal remains up about 2.6% on the week.

Posted in Gold News, Gold Views |

Venezuela central bank in talks with Deutsche Bank on gold swap

05-Feb (Reuters) — Venezuela’s central bank has begun negotiations with Deutsche Bank AG (DBKGn.DE) to carry out gold swaps to improve the liquidity of its foreign reserves as it faces heavy debt payments this year, according to two sources familiar with the talks.

Low oil prices and a decaying state-led economic model have weakened the OPEC nation’s currency reserves and spurred concerns that it could default on bonds as it struggles to pay $9.5 billion in debt service costs this year.

Around 64 percent of Venezuela’s $15.4 billion in foreign reserves are held in gold bars, which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.

In December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year, the sources said. The sources did not confirm the volume of the operation in discussion. Neither Deutsche nor the central bank responded to requests for comment.

Gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.

[source]

PG View: Choosing to swap gold — rather than just selling it outright to raise the cash they need — reflects Venezuela’s reluctance to completely give up this important reserve asset. They likely feel that if they sell it, they won’t be able to get it back. Certainly not anywhere near the current price level.

Posted in Gold News, Gold Views |

U.S. trade deficit widened to -$43.4 bln in Dec, outside expectations of -$42.9 bln, vs -$42.2 bln in Nov.

Posted in Economic Data |

U.S. nonfarm payrolls +151k in Jan, below expectations of +198k, vs negative revised +262k in Dec. Unemployment dips to 4.9%.

Posted in Economic Data |

The messy aftermath of the Fed’s mistake on the interest rate

03-Feb (FT) — December 16 2015 may go down as the date of one of the most monumental policy errors in history. The financial markets were nervously anticipating that the US Federal Reserve would raise the interest rate for the first time in nearly a decade — but few grasped the inadequacy of the data driving the decision.

The Fed had never before initiated a tightening cycle when the manufacturing sector was shrinking. Moreover, US corporate borrowers had begun reducing their debts, according to Morgan Stanley; in previous cycles, the Fed had tightened to cool credit cycles.

Of course, the Fed is not obliged to pursue any economic objectives beyond its two formal mandates of stable prices and maximum employment. In late 2012, when a third round of quantitative easing was launched, the unemployment rate was 7.8 per cent. It must have seemed a safe bet to undertake a commitment to stop easing when it fell to 6.5 per cent. Safe, that is, until the target was achieved sooner than the markets were willing to give up their stimulus.

…The bond market, meanwhile, sees no shades of grey in the data; it is shifting rapidly from pricing in one rate hike this year towards pricing in the possibility of the next move being a rate cut, all but ridiculing the Fed’s insistence that four rate hikes would come to pass in 2016.

[source]

Posted in Central Banks, Monetary Policy |

Gold higher at 1159.36 (+3.85). Silver 14.91 (+0.048). Dollar soft. Euro higher. Stocks called better. US 10yr 1.84% (unch).

Posted in Markets |