Week in Review (Video) – June 24, 2016

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Gold fulfils its classic safe haven role

24-Jun (WGC) — With Britain voting to exit the European Union, we expect to see strong and sustained inflows into the gold market driven by the staggering level of protracted uncertainty that investors now face.

The gold price surged to US$1,313.85/oz this morning, on the AM LBMA Gold Price, up from US$1,265.75/oz the day before, and the highest level since 2014, providing investors with a much-needed safe haven. Sterling is trading at a 31-year low and world equity markets have plummeted.

The Bank of England has said that it stands ready to take whatever action is necessary, a mantra that is likely to be repeated by other central banks. In practice, this could mean interest rates move further into negative territory in parts of the world, another positive for gold. Central bank action has already capped the gain in other safe haven assets, with the Swiss National Bank intervening early this morning.


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The Daily Market Report

24-Jun (USAGOLD) — Risk off!

As the voting results from the UK started coming in last night, there was a massive flight to quality. Gold, Treasuries, Bunds, the yen and the dollar all surged. The British Pound, euro and global stocks all tanked.

Gold hit a two-year+ high of 1358.80 last night before retreating back into the range. This may be attributed to deleveraging as investors sell profitable positions to cover margin calls elsewhere in their portfolios. However, the underlying bias toward safe-havens remains; and likely now will remain for some time.

When the European Commission released a statement about the Brexit win today, the introduction to the statement crystallized in my mind a major reason why the UK voted to leave:

Joint Statement by Martin Schulz, President of the European Parliament, Donald Tusk, President of the European Council, Mark Rutte, Holder of the Presidency of the Council of the EU, Jean-Claude Juncker, President of the European Commission

There are not one, not two, not three, but four Presidents on this statement. The EU is a massive, cumbersome bureaucracy. There are 170,000 pages in the EU’s “acquis communautaire,” the rules, directives and regulations of the union. It is a weight on the potential prosperity of every member nation.

“It is obvious that the economies of EU member states are falling behind those of other high-income countries, falling behind consistently, and by a significant amount. Too much regulation must be the main explanation,” said Tim Congdon, a prominent British economist and businessman, in a recent Forbes article.

Alan Greenspan said this morning that the Brexit vote “is just the tip of the iceberg.” There are rumblings elsewhere already . . .

Scotland voted resoundingly to stay in the EU, but obviously the broader UK vote means they will leave with the rest of the Kingdom. Unless of course they vote once again on their own independence, which they will now most assuredly do.

The FT reports that eurosceptics from the Netherlands to France are calling on their own governments to hold similar stay/exit referendums. The EU was already frayed at the edges in the wake of the European debt crisis of several years ago. Now it may well be failing. It’s worth noting that everytime

The Fed had the following to say:

The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union. The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.

One thing they most likely will not be doing it raising rates. Rate hike expectations plummeted in the wake of the Brexit vote and the resulting market volatility. The über-accommodative policy stances of the world’s major central banks will continue to offer an underpinning to the gold market. The broad uncertainty that springs from the vote should continue to generate strong haven demand.

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

Alan Greenspan says British break from EU ‘is just the tip of the iceberg’

Greenspan Says Spending Less Effective Than Expected
24-Jun (CNBC) — Former Federal Reserve Chair Alan Greenspan told CNBC’s “Squawk on the Street” on Friday that the U.K. voting to leave the European Union “is just the tip of the iceberg.”

Britons voted by 51.9 percent to quit the 28-country union, shocking markets that had priced in a win for “remain.”

“This is the worst period, I recall, since I’ve been in public service. There’s nothing like it, including the crisis… This has a corrosive effect, which is not easy [to make] go away,” Greenspan said.

The former Fed chair said that the root of the “British problem is far more widespread.” The former Fed chair explained that the result of the referendum will “almost surely” lead to the Scottish National Party trying to “resurrect Scottish Independence.”

Greenspan went even further and said that the “euro currency is the immediate problem.” While the euro and the eurozone were major steps in a movement towards European political integration, “it’s failing,” he said.


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Fed Statement

24-Jun (Federal Reserve) — The Federal Reserve is carefully monitoring developments in global financial markets, in cooperation with other central banks, following the results of the U.K. referendum on membership in the European Union. The Federal Reserve is prepared to provide dollar liquidity through its existing swap lines with central banks, as necessary, to address pressures in global funding markets, which could have adverse implications for the U.S. economy.


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University of Michigan sentiment (final) revised down to 93.5 in Jun, below expectations of 94.0, vs 94.3 prelim and 94.7 in May.

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U.S. durable goods orders -2.2% in May, well below expectations of -0.8%, vs negative revised +3.3% in Apr.

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Welcome to the world after Brexit: Here’s what happens next

24-Jun (CNBC) — A majority of British voters decided that the United Kingdom should leave the European Union, and Prime Minister David Cameron announced his resignation. Global markets are moving wildly, and currencies are making big moves, but the actual political process will be much, much slower.

First — technically speaking — the referendum is not legally binding. In theory, Cameron, who plans to leave by October, could ignore the will of a slight majority of voters, and not make any moves to exit the political and economic bloc.

But Cameron, who led the campaign to remain in the EU, is likely to invoke Article 50 of the Lisbon Treaty, which begins the legal process for leaving the bloc.

…In the more immediate term, markets are going to react in a big way. The Brexit has no historic precedent. No precedent means volatility in markets, probably on a global scale.


PG View: Volatility = uncertainty. Uncertainty leads to demand for safe-haven assets. This is likely not just one-off repricing of risk. The UK will have to work its way through the process. During that process, other countries within the EU may launch their own referendums. Scotland for example voted to stay with the EU, so they will almost assuredly launch another referendum to leave the UK.

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Brexit: David Cameron to quit after UK votes to leave EU

24-Jun (BBC) — Prime Minister David Cameron is to step down by October after the UK voted to leave the European Union.

Speaking outside 10 Downing Street, he said “fresh leadership” was needed.

The PM had urged the country to vote Remain but was defeated by 52% to 48% despite London, Scotland and Northern Ireland backing staying in.

UKIP leader Nigel Farage hailed it as the UK’s “independence day”, while Boris Johnson said the result would not mean “pulling up the drawbridge”.

Scottish First Minister Nicola Sturgeon said she was “absolutely determined” to keep Scotland in the EU so a second Scottish independence referendum was now “highly likely”.


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Gold higher at 1323.80 (+55.61). Silver 17.97 (+0.554). Dollar higher. Euro sharply lower. Stocks called sharply lower. U.S. 10-year 1.52% (-23 bps).

Posted in Markets |

UK votes to leave European Union, Cameron to resign, gold rockets higher

Remain: 48.1%
Leave: 51.9%

Gold up $43 at $1311.  Was as high as $1358 (+$90).  Silver up 37¢ at $17.76.  Was as high as $18.33 (+94¢). Pound plummets. DAX (Germany stocks) off 673 (-6.56%) FTSE (UK stocks) off 333 (-5.25%) DJIA off 472 (2.63%) Nikkei off 1286 (7.92%). Volatility Index rockets higher. 10-year UST yield dives to 1.52%.


“At [UK-based] Sharps Pixley we have already seen our busiest day ever with online sales draining our stocks of our larger bullion bars and prompting us to call on emergency reserves of kilobars from Germany. Our stocks of many coins have also been sold out with only limited availability today.” – Ross Norman

USAGOLD note:  We have good inventory at present and will be monitoring sources for premium adjustments.  We could get significant tightening in supply and pricing as the day progresses and we go into the weekend.  If you wish to place an order, we recommend calling as early in the day as possible.

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Gold hits highest since ’14 in dash to safety

23-Jun (FT) — Gold prices rallied to the highest level since July 2014 as investors ditched risky assets and raced into the shelter of havens as it looked increasingly likely that the UK had voted to leave the EU.

Gold jumped as much as 5.5 per cent to $1,326.32 a troy ounce, its highest mark on an intraday level since July 2014, according to Bloomberg data.

Investors bid-up the yellow metal, seen as a haven, after it looked increasing likely that the UK would exit the EU in a move that was widely predicted to cause ructions in the financial markets and deal a powerful economic blow to Europe.


Posted in Gold News, Gold Views |

Gold hits new 2-year high against dollar at $1326.

Posted in Gold News |

Gold surges against euro as well, trading €1188; a level last seen in April 2013.

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Gold surges against GBP to more than 3-year high above £967, back above $1300 versus the dollar.

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23-Jun (BusinessInsider) — The British pound is getting destroyed.

The currency dropped by over 9.4% to a low as 1.3485 against the dollar around 11:03 p.m. ET (4:03 a.m. BST) after having ripped higher to hit 1.5000 earlier this evening.

That’s a 30-year low.

The huge drop in the pound followed early results in the UK’s EU referendum, which suggested the ‘Leave’ camp was performing much stronger than expected.

“The usual caveats exist about liquidity but these moves are concerning and bring back pretty painful memories of 2008,” Jeremy Cook, chief economist at the international payments company, World First, said in an emailed statement to Business Insider.


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Gold up, but off highs as early results show tight UK referendum

23-Jun (Reuters) — Gold rose more than 1 percent on Friday, but was off session highs in volatile trade after early official results from a British referendum showed a tight race between campaigns to remain or leave the European Union.

The safe-haven precious metal rose as much as 2.4 percent at one point after early returns showed the leave campaign ahead, but curbed gains to trade less than 1 percent higher as the remain camp pulled ahead.

With results in from 75 of 382 voting districts plus partial BBC Northern Irish figures, those in favor of ending Britain’s 43-year EU membership were on 48.7 percent of the vote, while those wanting to stay were on 51.3 percent, based on Reuters calculation.

Spot gold was up 1.2 percent at $1,270.20 an ounce by 0135 GMT GMT, after rising as high as $1,285.11 earlier.

…”Investors are not going to buy into gold unless they are more certain of an exit,” said Daniel Hynes, commodity strategist at ANZ.

“Smart money is still being on the sidelines till there is any clear direction.”


Posted in Gold News, Gold Views |

Brexit: the pound is plunging on fears of a British exit from the EU

23-Jun (Vox) — If the UK votes to leave the European Union, it’s expected to cause economic turmoil that should reduce the value of the British pound. So the pound rises when the market thinks a Brexit (British exit) is less likely, and it falls if it thinks a Brexit is becoming more likely.

A couple of hours ago, the value of the pound reached $1.50 (that is, 1 British pound equaled $1.50 US), the highest level in weeks, as conventional wisdom at that point held that “Remain” would win a decisive victory of around 54 percent.

But then the first vote results started coming in, and the pound plunged.


PG View: Gold had held mostly steady through much of the initial sterling volatility, but is now up more than $9.

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Britain’s financial industry on edge as referendum result nears

23-Jun (Reuters) — Traders are at their desks for the night, corporate lawyers are staffing a “rapid response” centre and the Bank of England is on high alert; Britain’s financial sector is as ready as it can be for a referendum that may change the industry forever.

An industry that employs 2.2 million people and earns the nation huge sums is divided over Thursday’s vote, in which Britons have been deciding whether their country should remain in the European Union or leave.

Those who want Britain to stay believe a vote for “Brexit” will have consequences for London’s financial centre that overshadow sterling’s ejection from the forerunner of the euro in 1992 and even the onset of the global crisis in 2008.

“This is the biggest vote in my lifetime. Black Wednesday and the impact of Lehman Brothers collapsing – these other big events don’t even compare in magnitude to this,” said Mark Boleat, Chairman of the City of London’s Policy and Resources Committee.

“We are just beginning to think through what will have to happen legally and it is massive, absolutely massive,” he told Reuters.


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Gold Falls as Investors Await Brexit Results

23-Jun (WSJ) — Gold prices fell to a two-week low Thursday as investors awaited results from the U.K. referendum, largely expecting for Britain to remain in the European Union.

Gold for August delivery settled down 0.5% at $1,263.10 a troy ounce on the Comex division of the New York Mercantile Exchange, marking its fifth straight day of losses.

The precious metal has suffered in the past week as sentiment has shifted to favor a “remain” vote over a potential British exit, or “Brexit,” and investors have sold safe haven gold for riskier assets. On Thursday morning, trading remained muted as the market geared up for the decision to be released overnight.

“There’s actually very little happening at the moment,” said David Govett, head of precious metals at Marex Spectron. [It is] the calm before the possible storm.”

A vote to remain will likely spur little change in the market aside from a knee-jerk reaction, traders and analysts noted. But if Britain votes to leave, gold could surge substantially on broader economic turmoil.


Posted in Gold News, Gold Views |

The gold owner in a time when everything is up in the air

Wall Street Journal/Holman Jenkins/6-21-2016

“George Soros is buying gold. Donald Trump is talking about reneging on a portion of U.S. debt, which some of his rationalizers interpret to mean unleashing inflation to drive down its value. Bill Gross talks about a bond-market supernova getting ready to blow. Peter Thiel speaks of an unsustainable government debt bubble. Today’s ultra-low, even negative, interest rates and apparently low inflation are taken for granted by the secular stagnation theorists, who believe the status quo will persist for years and years. It’s a view that seems implausible in light of the industrial world’s debts. The path may be crooked, but the way ahead seems clear: Governments will increasingly pay their bills and expand their spending not with the fruits of the productive labor of taxpayers but by printing money. Inflation is inevitable.”

MK note:  I’m not certain if Holman Jenkins has it right or wrong with respect to inflation’s inevitability. In the end, it comes down to whether or not you as an investor/saver have taken the steps to protect yourself.  If you have, the whole debate on where we might end up as a result of the current economic quandary becomes an academic matter – more something to occupy the mind like a challenging puzzle, than something required as matter of financial survival.  Soros owns the ETF so he obviously believes the price is going to rise.  What we do not know is whether or not he owns gold in the form of coins and bullion stored safely away in some depository somewhere as a defensive holding. My guess is that he probably does given the litany of concerns he addressed in another Wall Street Journal article published earlier this month. (For an overview, go here.)  Betting on the price simply is not enough when you come to this kind of world view.

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U.S. new home sales -6.0% to 551k in May, below expectations of 563k, vs negative revised 586k (was 619k).

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U.S. leading indicators -0.2% in May, below expectations of +0.2%, vs +0.6% in Apr.

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The Daily Market Report: Gold Defensive as Results of Brexit Vote Awaited

23-Jun (USAGOLD) — Gold remains defensive as markets await the outcome of today’s Brexit vote. The yellow metal dipped to a new two-week low in early New York trading, with an assist from an unexpected drop in initial jobless claims last week.

Claims fell 18k to 259k, below expectations of 270k. However, a weak Chicago Fed National Activity Index tempered any optimism associated with the claims number. CFNAI fell to -0.51, vs 0.05. After a brief flurry of activity, the market switched right back to Brexit-watch mode.

If Brits vote to leave the EU, it is likely to reignite a haven bid in gold. There will be substantial uncertainty regarding the implications of such an outcome. The yellow metal set a nearly 2-year high at 1315.61 last week when the ‘Leave’ campaign was gaining momentum. That would be the first level of resistance to watch.

If UK voters opt to stay in the EU, I suspect the downside for gold will be limited. This week’s retreat in gold is the result of a rebound in ‘Stay’ expectations. A vote to stay is a vote for the status quo, so market focus will shift back to the myriad of risks that have pushed gold up more than 19% so far this year.

Slow growth, low or nonexistent inflation, massive debt, and the resulting low/negative interest rate environment is where investors should be focused. If you haven’t done so already, I encourage you to read Ben Hunt’s latest Epsilon Theory newsletter, snippets of which I posted yesterday.

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

U.S. Chicago Fed national activity index sank to -0.51 in May from 0.05 in Apr.

Posted in Economic Data |

U.S. initial jobless -18k to 259k in the week ended 18-Jun, below expectations of 270k.

Posted in Economic Data |

Gold Stuck Near Two-Week Low as U.K. Vote Puts Market ‘On Edge’

23-Jun (Bloomberg) — Gold fluctuated near a two-week low as the U.K. voted on its membership of the European Union, a decision that will shape the future of the country’s economy and the EU.

Past opinion polls indicated today’s referendum was too close to call. Gold prices, little changed today, should become more volatile whether Britain stays or leaves, according to Societe Generale SA. Markets are currently “on edge,” said Justin Smirk, senior economist at Westpac Banking Corp. in Sydney.

“The next 24 hours are going to be very interesting, we’re expecting volatility,” said Bernard Sin, head of precious metals trading at MKS (Switzerland) SA in Geneva. “Gold could move rather rapidly on any news, and even now, prices are looking a bit erratic and irrational.”


Posted in Gold News, Gold Views |

United Kingdom votes in historic ‘Brexit’ referendum

23-Jun (USAToday) — The United Kingdom voted in a historic referendum Thursday on whether to remain in the European Union, a decision sure to have global repercussions.

Ahead of the vote, a new Ipsos Mori poll completed Wednesday night showed the “remain” supporters with a narrow lead – 52% to 48%. But the polling firm’s chief executive, Ben Page, said 13% of those polled said they still might change their minds.

Polls opened at 7 a.m. ET (2 a.m. ET) and close at 10 p.m. (10 p.m. ET). The U.K. Electoral Commission said it will announce the results on Friday.


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Gold steady at 1264.30 (+1.41). Silver 17.34 (+0.059). Dollar lower. Euro higher. Stocks called higher. U.S. 10-year 1.73% (+5 bps).

Posted in Markets |

Cat’s Cradle

PG Note: The Epsilon Theory newsletter, written by W. Ben Hunt, Ph.D., Chief Risk Officer at Salient Partners is one of my favorite reads. The most recent installment is a must read for all investors. There are a lot of arguments in his writing that should excite the gold owner. In his summation of the Epsilon Theory of investment strategy Hunt warns that “We’re in a policy-driven market” and that “A policy-controlled market is next”. His suggestion is that you “look to real assets”.

Here are several key snippets:

…when governments undertake emergency actions and extraordinary policies, they obliterate the focal points that make our cooperative games of investing and market making possible.

Specifically, extraordinary monetary policy has obliterated the focal points of price discovery.

I’m often asked if I think that negative rates will ever come to the U.S. My answer: they’re already here by proxy (U.S. Treasury rates are so low today because German Bunds are negative out to 10 years duration), and negative rates will hit the U.S. in earnest and in practice early next year.
…just wait until your money market fund starts charging you interest for the privilege of investing your cash in short-term government obligations. Just wait until Nestle floats a negative interest rate bond. Just wait until borrowing money, not lending money, becomes a profit center. Just wait until the entire notion of compounding — without exaggeration the most important force in human economic history — is turned on its head and becomes a wealth destroyer.
You know, I’ve written a lot of Epsilon Theory notes over the past three years. As I figure it, about three novels’ worth and just over the halfway mark of War and Peace. But in all that time and across all those notes I’ve never felt so … resigned … to the fact we are ALL well and truly stuck. The Fed is stuck. The ECB and the BOJ are stuck. The banks are stuck. Corporations are stuck. Asset managers are stuck. Financial advisors are stuck. Investors are stuck. Republicans are stuck. Democrats are stuck. We are all stuck in a very powerful political equilibrium where the costs of changing our current bleak course of ineffective monetary policy and counter-productive regulatory policy are so astronomical that The Powers That Be have no alternative but to continue with what they know full well isn’t working.
My god, you think I’m a downer? This is the President of the St. Louis Fed, saying that everything the FOMC has been doing for the past four years is just a bad joke!
So, Bullard says, let’s stop this charade of dot plots and just admit the truth: rates are not going up, maybe not EVER, until something beyond the Fed’s control shocks the world into some other macroeconomic regime.

Read the entire piece here.

Posted in Central Banks, Debt, Economy, Monetary Policy |