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New highs for the year in gold would also constitute a definitive breach of the 200-day moving average.
Gold prices jumped to a one month high Monday as the precious metal extended its rally since the U.S. Federal Reserve rate hike earlier this month amid a collapse in the dollar and increased global market uncertainty.
Spot gold was marked $13.70, or 1.1% higher at $1258.50 per ounce in early European trading, the highest since Feb. 28 and 5.15% higher than it traded on March 15 when the Federal Reserve lifted its key interest rate by 0.25%.
Monday’s rally is likely directly linked to the failure of U.S. President Donald Trump to push through a health care reform bill last week following the last-minute cancellation of a Congressional vote by House Majority Leader Paul Ryan.
Gold futures jumped 0.7% in early Asian trading on Monday as the U.S. Dollar Index fell another 0.4%, leaving the gauge of the greenback’s strength hovering near a two-month low of 99.3.
The U.S. dollar has long enjoyed the status as the world’s reserve currency, but the greenback’s esteemed standing is increasingly being challenged as China and Russia show their eagerness to to diversify away from the U.S. dollar.
…The weakness in the U.S. dollar can be partly attributed to recent doubts about the reflation policies favored by U.S. President Donald Trump. Gold prices typically rise when the U.S. dollar falls.
Gold rallied more than 1 percent on Monday after U.S. President Donald Trump’s failure to push through a healthcare reform package on Friday raised questions over his ability to deliver promised tax cuts and spending plans.
That knocked the dollar to a four-month low versus a currency basket and drove a drop in stock markets, with European indices sliding nearly 1 percent in early trade and U.S. stock index futures hitting six-week lows.
…”Trump’s spectacular failure to get his health bill through Congress raises concerns about his ability to achieve his goals on other policies,” Saxo Bank’s head of commodity research Ole Hansen said.
“With stocks, the dollar and bond yields lower and geo-political risks on the rise, gold may stand out as the commodity of choice at such time.”
PG View: Gold is certainly standing out this morning. Silver is doing even better!
USAGOLD/Peter A. Grant/03-27-17
Gold is up sharply as Friday’s healthcare debacle threatens to delay and possibly delay President Trump’s entire agenda. The yellow metal jumped to within striking distance of the high for the year at 1263.87 from February.
Silver has reclaimed the $18 handle. With the gold/silver ratio back below 70, it may be time for silver to play a little catch-up.
The dollar came under pressure on the uncertain political backdrop and falling yields, as there is now considerable doubt as to whether the Fed will get the fiscal help they likely were anticipating. Additionally, Angela Merkel’s CDU party emerged victorious in regional elections, dispelling some concerns about her hold on power. The euro surged to 4-month highs, putting additional pressure on the greenback.
The U.S. calendar is light today with the March Dallas Fed Index and a $26 bln 2-year note auction. We also will hear FedSpeak from Evans, Praet and Kaplan.
Gold higher at 1258.88 (+15.30). Silver 18.07 (+0.281), Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 2.36% (-5 bps).
Why gold coins and bullion are the better option for most investors.
Editor’s Note: You decide that the time has come to include gold in your investment portfolio. You contact your investment advisor and he or she puts you into a gold ETF. Did you do the right thing? In this article, which originally appeared at Forbes magazine, Olivier Garret tells why gold coins and bullion owned outright are the better option.
Gold ETFs are rising in popularity due to their convenience. They’re easy to trade, there’s no need to store anything, and no one is going to break into your house to steal your GLD shares.
But there are a lot of hidden dangers inherent in the structure and operation of gold ETFs that few investors are aware of — and these risks are more pronounced than ever, as the threat of another financial crisis is always around the corner.
Considering the public’s waning trust in the banking system, many investors find themselves wondering how GLD stacks up to owning the real thing. When you look at both assets more closely, it’s clear that gold ETFs and gold bullion are very different investments.
Why GLD is not the same as gold
SPDR Gold Trust (GLD), the largest, most popular gold ETF, is an investment fund that holds physical gold to back its shares. The share price tracks the price of gold, and it trades like a stock, but the vast majority of investors don’t have a claim on the underlying gold.
The reason for this is that you can only request physical delivery of metal if you own a minimum of 100,000 GLD shares (most investors don’t: at $1,000 gold, 100,000 shares is more than a million dollars). Even if you do own enough shares, the GLD ETF reserves the right to settle your delivery request in cash.
So why is GLD appealing to investors if you never actually own any gold?
For one, the fund is both convenient and low cost. If you’re looking for an inexpensive way to invest in the direction of the gold price, GLD is ideal.
The other advantage is you can employ leverage with options, which can be risky, but it’s something you can’t do with gold bullion. If you’re an investor who doesn’t plan to take delivery and you’re comfortable with a higher degree of risk, GLD can be a good way to gain exposure to the price of gold.
Counterparty risk on all levels
While gold ETFs can be a fine investment, they come with a lot of counterparty risk inherent in their chain of custody. And this risk will only grow commensurately with systemic uncertainties.
Think about it: If you own GLD, you must rely on a counterparty to make good on your investment. If the fund’s management, structure, chain of custody, operational integrity, regulatory oversight, or delivery protocols break down, your investment is at risk.
It all raises too many questions. Can you be sure the bank doesn’t front-run its customers? How safe are the fund’s holdings? Is the fund protected by adequate insurance? Is the custodian bank trustworthy enough to safeguard the gold?
The best reason to own gold is as a hedge against risk. It can be your last line of defense in an economic crisis—a form of wealth insurance, if you will. But since gold ETFs are part of the very banking system you need protection from, you must ask yourself if they serve one of the primary purposes for owning gold.
In a period of financial crisis, the risks inherent in holding GLD would only rise. In fact, the frequency and severity of counterparty risks with gold ETFs are already rising.
When you consider how these ETFs function, the problem of counterparties quickly becomes apparent:
When you invest in GLD, you buy shares through an Authorized Participant, which is usually a large financial institution responsible for obtaining the underlying assets necessary to create ETF shares.
When it does so, it is buying shares in the fund’s trustee, the SPDR Gold Trust. The trustee then uses a custodian (HSBC) to source and store the gold for it.
Trust in the custodian is paramount: If you’re buying gold as a hedge against a failure in the financial system, you must be confident that the custodian would not be impaired if a crisis were to happen.
As HSBC is one of the world’s largest banks, you simply don’t have that assurance. If there’s a systemic disruption, your GLD shares would likely be negatively affected.
Custodians like HSBC can use sub-custodians, such as another bank, to source and store gold. So in addition to the risk you assume with the fund’s primary custodian, you’re now exposed to even more risk because it has added another counterparty.
There are no written contractual agreements between sub-custodians and the trustees or the custodians, which means if a sub-custodian drops the ball, the ability of the trustee or the custodian to take legal action is limited.
This leaves the trustee on the hook for any negligence. But trustees don’t insure the gold for gross negligence; they leave that to the custodian, who secures limited general insurance coverage for the contents of the vaults. The value of the gold in the vaults is likely to be much greater than this limited policy would cover.
What this all boils down to is that if anything happens to any of the counterparties, you’re the one who loses. And you have zero recourse.
This article originally appeared at GoldSeek and is reprinted at USAGOLD with permission.
Facing a growing rebellion within his own ranks, House Speaker Paul Ryan pulled the Republican Obamacare replacement plan from the House floor on Friday just before a scheduled vote.
The decision is a staggering defeat for Ryan and President Donald Trump in their first attempt to partner on major legislation and fulfill a seven-year Republican promise to repeal Obamacare. It comes a day after Trump issued an ultimatum to House Republicans to vote for the bill or live with Obamacare.
Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007.
Credit rating firms have begun downgrading states and municipalities whose pensions risk overwhelming their budgets. New Jersey and the cities of Chicago, Houston and Dallas are some of the issuers in the crosshairs. Morgan Stanley says municipal bond issuance is down this year in part because of borrowers are wary of running up new debts to effectively service pensions.
…It’s no coincidence that pensions’ flight from safety has coincided with the drop in interest rates. That said, unlike their private peers, public pensions discount their liabilities using the rate of returns they assume their overall portfolio will generate. In fiscal 2016, which ended June 30th, the average return for public pensions was somewhere in the neighborhood of 1.5 percent.
…So why not just flip the switch and require truth and honesty in public pension math? Too many cities and potentially states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if the prevailing yields on Treasuries were used. That would translate into much steeper funding requirements at a time when budgets are already severely constrained. Pockets of the country would face essential public service budgets being slashed to dangerous levels.
PG View: A 550% rise in unfunded pension obligations over the course of a decade is bad enough, but even that grossly understates the problem because of the pensions’ own pie-in-the-sky performance projections. They almost have to keep piling into stocks hoping against hope that they can do better than 1.5% returns. Thanks Fed! This is a train wreck just waiting to happen.
USAGOLD/Peter A. Grant/03-24-17
Gold is heading into the weekend trading slightly higher on the day and just off the three week high set yesterday at 1253.31. The yellow metal is presently up 1.8% on the week and appears poised for a second consecutive winning week.
Focus remains on Capitol Hill, where passage of the GOP’s healthcare bill remains very much in doubt. President Trump has reportedly asked for a vote today regardless, but I suspect Republican leadership is loath to risk such a defeat this early in the Trump administration.
However, even if they go back to the drawing-board to attempt more palatable legislation, it would suggest to markets — especially stocks — that the Trump agenda is probably way overbought. If stocks roll-over, gold will likely benefit from continued safe-haven flows.
If the reflation trade is suspended, one has to wonder how the Fed will react. FedSpeak today continues to be rather optimistic, but I suspect they were actually hoping for a little fiscal help this year. If those hopes are diminished on the healthcare reform flop, the central bank may have to take a more dovish stance to ward off a stock market collapse and possibly even recession.
The Atlanta Fed’s GDPNow model now projects 1.0% growth in Q1. While that’s slightly better than the 0.9% forecast from March 16, it is hardly reflective of the “good clip” referenced by NY Fed President Dudley today.
House GOP leaders aren’t confident they have enough votes to pass their embattled health-care bill, according to a senior congressional aide, and are already considering what to do if the measure is blocked before a do-or-die vote hours away.
House Speaker Paul Ryan arrived at the White House Friday to brief President Donald Trump ahead of the vote. Vice President Mike Pence canceled a trip to Arkansas to be in Washington for the vote, a White House official said.
The Trump administration is doubling down on its demand that House Republican leaders hold a vote Friday on their embattled health-care bill without any changes and with an influential GOP member saying he’s not sure they have the votes.
Gold was on track for a second weekly gain on Friday as concern about the ability of U.S. President Donald Trump to push legislation through Congress held the dollar near 7-week lows, making bullion cheaper for holders of other currencies.
Spot gold was up 0.1 percent at $1,245.53 an ounce at 1131 GMT. The metal has risen 1.4 percent this week and on Thursday touched $1,253.12, its highest since Feb. 28.
…Gold, seen as a safe haven asset, has benefited from falls in the dollar, U.S. bond yields and stocks as Trump’s difficulty in passing healthcare reform has undermined faith that he can deliver on promises of tax cuts and investment.
President Donald Trump’s ultimatum to Republicans to overturn the Democratic health care law they’ve been campaigning against for years heads to the House floor Friday for a momentous showdown that will test the GOP’s ability to govern.
And no one, not even the people in charge of counting the votes, can say what will happen.
USAGOLD/Peter A. Grant/03-24-17
Gold corrected modestly overseas before returning to unchanged on the day. The yellow metal appears poised to score a second consecutive higher weekly close on a weaker dollar and worries that healthcare reform may stall the broader Trump agenda.
GOP leadership opted not to put AHCA to a vote in the eleventh-hour yesterday because they didn’t seem to have the votes. They’ll try again today, but considerable doubts remain as to whether the votes are there.
The gold market seems nonplussed by the February durable goods orders. Later this morning we’ll see Flash Markit manufacturing and services PMI. FedSpeak is due from Evans, Bullard and Dudley today.
U.S. durable goods orders +1.7% in Feb, above expectations of +1.2%, vs positive revised +2.3% in Jan.
Gold steady at 1245.64 (-0.09). Silver 17.65 (+0.049). Dollar lower. Euro higher. Stocks called higher. U.S. 10-year 2.41% (unch).
Even as US rate-setters make tentative progress in the direction of more normal monetary policy, economists are warning that central banks are set to find themselves with official interest rates stuck back down at near-zero levels dispiritingly often in the future.
A study to be presented at the Brookings Papers conference this week by two Federal Reserve Board economists finds that rates could hit zero as much as 40 per cent of the time – far more often than predicted by other studies.
PG View: This could explain why the Fed is raising rates into economic weakness, just so they have some room above the zero-bound and don’t have to go negative.
President Donald Trump and conservative House Freedom Caucus members failed to strike a deal on the GOP Obamacare replacement Thursday, endangering the prospects of passage and all but assuring any immediate vote on the measure would fail.
Hours later, House leaders canceled a planned Thursday night vote on the legislation. There was no immediate word when a vote might occur.
PG View: Gold is recovering from intraday downticks, back higher on the day.
The investor love affair with gold is just about to get a reboot.
That’s according to Commerzbank analysts, who cited the precious metal’s revisit to the key $1,250-per-ounce level as one reason for renewed interest. Gold tapped intraday highs above that level on Wednesday and Thursday, but hasn’t managed to settle above $1,250-an-ounce—based on the most-active futures contracts—since March 1, according to FactSet.
“Although this psychologically important threshold appears to be posing something of a challenge in the short term, the chances of the price rising above it are good,” said a team of analysts led by Carsten Fritsch, in a note to clients Thursday.
…“There is ample upside potential . . .”
USAGOLD/Peter A. Grant/03-23-17
Gold remains generally well bid, although earlier tests above important resistance at 1250 have faltered. While continued weakness in the dollar should limit the downside in the yellow metal, a bit of a reprieve in the stock market is probably limiting the upside.
Everyone is keyed on the AHCA House vote today as a proxy for President Trump’s broader reflation agenda. The feeling being that as goes the AHCA vote, so goes deregulation, tax reform, trade deals and fiscal stimulus. Pretty much everything that had markets so excited in the wake of last November’s election results.
The best case is that the reflation trade gets delayed for some period of time as the GOP sorts out their differences on healthcare. The worst case would be a complete derailing of the Trump agenda.
The biggest casualty of such an outcome would probably be the stock market, which went from bubbly to positively frothy in recent months. We have already seen risk appetite dissipate this week, to the benefit of Treasuries and gold as safe haven buying ramped up. If AHCA fails to clear the house, those trends are likely to accelerate.
The most recent speculation suggest somewhere between 27 and 32 Republican representatives are either hard “no”, or leaning “no”. If accurate, AHCA will not pass. Rather than allowing that to happen, leadership would likely postpone the vote in the hope of building additional support.
However, that too would be seen as a negative outcome. Stocks would likely fall. Treasuries would rally, pushing yields lower. That would put additional pressure on the dollar. All of that would be positive for gold.
U.S. new home sales +6.1% to 592k in Feb, above expectations of 565k, vs positive revised 558k in Jan.
Gold prices are steadily climbing as equities retreat and concern deepens among investors that Donald Trump won’t deliver on pro-growth promises for the U.S. economy.
Bullion for immediate delivery has gained more than 4 percent in six days, heading for the biggest advance since the aftermath of the Brexit vote in late June.
Federal Reserve Chair Janet Yellen did not address monetary policy or the economic outlook in prepared remarks for a childhood education conference in Washington on Thursday.
The two-day conference which she was introducing is focused on how to educate children and young adults for future success in employment.
Yellen is not scheduled to take any audience questions, according to the conference agenda.
PG View: This will free markets to continue on their post-FOMC trajectories. Good for gold.
Gold has gained more than 2% since mid-March as economic fundamentals lined up to support a rally, and could be poised to gain again on Thursday if The Trump administrations reforms are rattled by a failure to push through plans to repeal and replace the Affordable Care Act.
Gold traded early in Europe’s session at €1,156.54 ($1247.30) in line with its Wednesday close and in relatively flat trading on Europe’s major markets. The metal is up 2.3% since March 14, the day before the Federal Reserve set up the rally by hiking interest rates but damped expectation of future increases by declaring that U.S. monetary policy will remain supportive for “some time.”
USAGOLD/Peter A. Grant/03-23-17
Gold continues to track higher, establishing new three-week highs in the wake of this morning’s bigger than expected jump in initial jobless claims. With the dollar still under pressure, focus now shifts to the February high in the yellow metal at 1263.87.
Also on the calendar today is February new home sales and FedSpeak from Janet Yellen. However, the day’s big event will be the initial House vote on the new healthcare bill.
Despite the solid GOP majority in the House, infighting among Republicans makes passage questionable at best. If the AHCA fails to clear the House on this vote, there are legitimate worries that the entire Trump agenda will stall.
Gold higher at 1249.38 (+3.16). Silver 17.02 (+0.105). Dollar soft. Euro lower. Stocks called higher. U.S. 10-year 2.41% (+1 bp).
USAGOLD/Peter A. Grant/03-22-17
Gold is edging higher, setting new three-week highs above 1250.00. U.S. yields are under pressure, which is dragging the dollar lower as well. Stocks remain defensive after dropping sharply on Tuesday.
As investors pare their optimism on the great Trump reflation, one must wonder what they were really wishing for in the first place. The Fed has been trying to reflate the economy via extraordinary measures for nearly a decade, largely with little to no impact. That may have been because the central bank was getting no help on the fiscal side of the equation.
The election of Donald Trump, along with GOP majorities in both houses of Congress, triggered expectations that the long awaited fiscal stimulus was on its way. Those expectations have been tempered recently as initial efforts by Republicans to amend healthcare legislation may not have the necessary votes to clear the House tomorrow. Gennadiy Goldberg of TD Securities argued that such an event would spark “a significant risk-off event.”
The concern is that if healthcare gets bogged down, the broader reflation agenda is going to be delayed as well. Gold typically fares quite well in a risk-off environment.
But even if the reflation is successful, what will be the cost? The U.S. is currently $20 trillion in debt; that’s more than twice the $9.2 trillion national debt of a decade ago. “There is practically no chance that debt will stabilize or decrease,” wrote Gary Christenson for Sprott Money. Christenson suggests that devaluation of the dollar is the only option. Historic precedent is certainly on his side.
That’s a good question. And he’s not just talking about America. Debt is on the rise the world over. It’s like we learned absolutely nothing from the financial crisis, which at its core was a debt crisis. In the subsequent years, governments just borrowed more to paper over the problems of the past. That can only go on so long.
Gold is the ideal hedge, whether we get the much anticipated inflation, or continued disinflation. Christenson thinks prices will bubble higher, “sooner rather than later.”
Britain’s House of Commons was suspended on Wednesday afternoon after a shooting incident at the entrance to Parliament, soon after a car mowed down a number of pedestrians on adjoining Westminster Bridge.
The UK police said they were treating it as a terrorist incident until they know otherwise.