Rough sledding for gold today


Gold encountered some rough sledding today, down $15 at $1329.60, pushed down mostly by a stronger dollar.  Silver also had a tough go of it today – off 21¢ at $16.47.  The precious metals traded lower despite cracks showing up in both the stock and bond markets. Though the front end of the Treasury’s auction (mentioned further down the page) went uneventfully and contributed to gold’s downside, the back-end longer-term yields the next two days could become problematic, if demand is off. “We have a barrage of U.S. debt being auctioned off,” Saxo Bank’s Ole Saxon told CNBC, “and if there is less than the required appetite for that mountain of debt, that could weaken the dollar and support gold.”

Quote of the Day
“Chinese demand for gold jewelry grew in 2017 despite higher prices for the precious metal as the spread of e-commerce extended retailers’ reach. . .Smartphone apps enabling people to shop from anywhere have also altered habits. Inland residents once had limited opportunities to buy from jewelry sellers concentrated in coastal urban areas. E-commerce has expanded the geographical range stores can draw customers from, making hinterland consumers ‘a new driver’ of the market, [World Gold Council’s Takahiro] Morita said.”

“There are two bubbles: We have a stock market bubble, and we have a bond market bubble. At the end of the day, the bond market bubble will eventually be the critical issue, but for the short term it’s not too bad. . . What’s behind the bubble? Well the fact, that, essentially, we’re beginning to run an ever-larger government deficit . . Debt has been rising very significantly and we’re just not paying enough attention to that.” – Alan Greenspan, on Bloomberg television recently.

The National Debt and Gold

Double bubble. Double trouble. Mr. Greenspan speaks briefly about the problem but the time constraints of a television interview keep him from telling how and why the national debt translates to major market risks. In The National Debt and Gold, one article in our six-part investor introductory information packet, we pick up where Alan Greenspan leaves off. If you enjoy a good historical tale with important implications in the here and now, we invite you to sign-up for our introductory packet.

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Gold bears play while Chinese away

Sharps Pixley/Lawrie Williams/2-19-2018

“Arguably Chinese gold demand, which remains high according to almost all accounts, tends to be a stabilising influence on the gold price with the twice-daily Shanghai fixes having their own impact is steadying price rises and falls. Thus when the nation goes on holiday for a week, as it is now for the Chinese (Lunar) New Year which was on the 16th, followed by a week-long holiday, it gives gold bulls and bears around the rest of the world a great opportunity to drive the market in their own preferred direction.”

MK note:  Lawrie Williams offers an interesting take on today’s gold market dynamics – one that emphasizes China’s important role as buyers in the contemporary gold market.  If Chinese banks are not available to hit a low bid on physical metal (which they are now capable of doing as members of the London fix), it provides license for gold bears to drive the price lower at least temporarily without being challenged.  If Williams is right, bargain hunters will see these paper trader induced drops as short-term buying opportunities.

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This week’s Treasury auction schedule

TheStreet/Martin Baccadex/2-19-2018

“A big measure of investor willingness to take down the quarter trillion in debt on offer will be be the market’s ability to hold 10-year yields under 3%, a figure that many analysts have suggested could start the flow of cash from equity funds into fixed income portfolios. While no 10-year notes are on offer this week, $92 billion in 2-year, 5-year and 7-year notes will be auctioned on Wednesday and Thursday after more than $151 billion in short-term Treasury bills are placed in the market on Tuesday.”

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Gold down marginally on mixed cues early, big week for bond market


Gold is down $4 this morning at $1341.50 on mixed cues from the bond and FOREX markets.  Silver is down 2¢ at $16.65.  The dollar is up.  Stocks and bonds are down. The big event this week will be the U.S. Treasury Department’s sale of an unprecedented $258 billion in U.S. sovereign debt.  It comes at a time when bond investors are already jittery about the bond market, as reflected in this morning’s mixed early market session.

“Bid farewell to the bond market bull run,” reported CNBC yesterday, “because the markets are entering a phase not seen in 72 years: A rising rates cycle.” As we move into the Chinese Year of the Dog, and the first stages of what market experts are calling a financial market “regime change,” this sale might be seen as a seminal event. . . .and its first major test. “Bond investors, who have been on edge over signs of growing inflation and a possibly more aggressive Federal Reserve,” reports Reuters, “will have their work cut out for them. . .”

By the way, if my assumptions are correct, by the time Treasury finishes this week’s sale, the national debt will be treading perilously near the $21 trillion mark. At the time of the budget standoff in Congress, the accumulated debt was $20.5 trillion – almost one half trillion will have been added in a little over 10 days. But who’s counting? Deficits don’t matter. . .right?

Chart of the Day

Chart notes:  “The Rounding Bottom,” says, “is a long-term reversal pattern that is best suited for weekly charts. It is also referred to as a saucer bottom, and represents a long consolidation period that turns from a bearish bias to a bullish bias.” Also – “Rounded bottoms—especially when they occur on daily and weekly charts, lasting several months or more—often signal a strong trend change. Trends may last for a long time. In stock and currency markets trends can last five years or more. Therefore, the rounded doesn’t have an accurate long-term price target. Rather, the pattern lets traders know a major new trend could be starting,” says Investopedia.  The rounded bottom on the weekly gold chart is unusually and almost perfectly symmetrical – a two and half year decline to the $1060 low and now a 26-month advance to current levels.  We should keep in mind that the rounding bottom, like any chart analysis, falls into the realm of opinion, not fact, and should be understood as such.
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America’s impending debt crisis: This won’t end well for stocks.

Seeking Alpha/Victor Dergunov/2-19-2018

“Stocks may have found a short-term bottom, but out there on the horizon the next crisis is lurking. Despite the short-term positive indicators surrounding stocks, it is important to keep an eye on the big picture. The U.S.’s enormous spending addiction has created a massive debt bubble that is going to lead the economy to its next financial crisis. Consumer, government, credit card, auto loan, mortgage, student loan and just about any other debt you can think of is at a new record – and it won’t end well.”

MK note:  Rising interest rates are unlikely to help matters.  Increasingly, we are seeing warnings of debt defaults, as with William White’s analysis further down the page.

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Powell seeks to bury era of Fed ‘barons’


“Spur-of-the-moment exchanges between the chair and junior staffers would have been largely unthinkable at the Fed a generation ago. Even in recent years, a request for information would often result in a carefully vetted formal presentation that might take weeks to prepare and an hour to deliver. Powell, who spent a dozen years in banking and private equity, has no patience for that, the two current insiders said. Nor does he want staff to over-invest their time in a complex production when all he needs is a substantive and frank discussion with just the right expert – but right now.”

MK note:  Jerome Powell, it seems, intends to run the central bank more like a business and less like the econ department at one of the major universities.  That might end up being a good thing. . .

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Here’s who really matters at the Bank of Japan

Bloomberg/Daniel Moss/2-18-2018

“That’s why the real attention should be on [Masayoshi] Amamiya. Behind the scenes, he’s spent decades at the bank, shaping and implementing policies based on guidance from above. No doubt he’s learned a trick or two and has a massive rolodex. As Toru Fujioka and three Bloomberg News colleagues wrote in an excellent 2016 profile, Amamiya has served governors who have taken very different approaches to economic cycles. Kuroda is but his latest patron. Pragmatism, rather than reflation or monetarism or anything else, has been his trademark.”

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Start preparing for the next financial crisis now

Financial Times/William White/2-18-2018

“Carrying on with current monetary policy brings with it the threat of inflation. And given economists’ lack of understanding of either the level of ‘potential’ or the inflationary process itself, it could easily get out of hand. However, inflation is not the only danger. First, debt ratios have been allowed to rise for decades, even after the crisis began. Moreover, whereas before the crisis this was primarily a problem of the advanced economies, it has since gone global. Second, tolerance of risk-taking threatens future financial stability, as does the narrowing of the profit margins for many traditional financial institutions. Third, the misallocation of real resources by banks and other financial institutions is encouraged by this monetary environment. With markets unable to allocate resources properly, due to the actions of central banks, the likelihood that rising debt commitments will not be honoured has risen sharply.”

MK note:   In other words, in polite terms White* warns that moral hazard and easy money have put both banks and countries in a precarious position. White sees the groundwork being laid for mass defaults rolling through the financial system and no plan in place to counter the problem if and when it occurs.  He goes so far as to say in this Financial Times opinion piece that Dodd-Frank would hinder the Federal Reserve’s ability to provide liquidity, though he skips the details. Whenever the words “financial default” or “rolling bankruptcies” come up, I think about the one asset that is not simultaneously someone else’s liability.

• William White is former chief economist for the Bank for International Settlements and now chairman of the Paris-based economic and development review committee at the Organisation for Economic Co-operation and Development.
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Regime change: Gold disconnects from real yields amid rising US downgrade risk

NASDAQ/Christopher Vecchio/2-16-2018

“Something changed in recent months, however: the historical relationship between Gold and real yields has broken down. Even as real yields are rising – an environment that one would expect to be poor for precious metals – Gold has been able to advance. This may be another piece of evidence of a regime change across asset classes. The National Bureau of Economic Research says that regime change is ‘the tendency of financial markets to often change their behavior abruptly and the phenomenon that the new behavior of financial variables often persists for several periods after such a change.’

In the case of the the separation between Gold and real yields , it’s rather apparent that behavior has changed abruptly – especially since the passage o f the tax reform bill in Q4’17. Thus explains the divergence and Gold’s appeal: given the trajectory of the US deficit and debt, another US rating’s downgrade this year seems very possible.”

MK note: This opinion piece makes the point that rapidly rising inflation can undermine the real rate of return on fixed income instruments and enhance the appeal of gold.

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Why a new Japanese emperor and the Tokyo Olympics mean a glittering Year of the Dog for gold

The possibility of further falls in stock prices, as well as uncertainty over the strength of the US dollar and over the Brexit process will also add to the lustre of gold this year

South China Morning Post/Enoch Yiu/2-18-2018

‘The Year of the Dog is shaping up to be another good one for investors in gold, who may enjoy price rises of 10 per cent to 15 per cent as Japan buys up the precious metal to commemorate its new emperor and the 2020 Tokyo Olympic Games.”

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India’s gold bar imports jump four-fold


Scrap Monster/Anil Matthews/2-19-2018

“As per GJEPC [Gems and Jewellery Promotion Council] data, the country imported Rs 2,905.03 crores (USD 456.48 Million) worth of gold bars in January 2018. The imports surged higher significantly when compared with those during the same month a year before. In rupee terms, the gold bar imports have recorded sharp growth of over 320% when matched with the previous year. The increase in dollar terms stood at nearly 350%. It must be noted that the country’s gold bar imports during January 2017 were valued at Rs 690.20 crores (USD 101.38 Million).”

MK note: India is the world’s second largest consumer of gold behind China.

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Olympic medal standings by country




Norway – 11
Germany – 10
Netherlands – 6
Canada – 6
United States – 5
France – 4
Sweden – 4
Austria – 4
Korea – 3
Japan – 2
Switzerland – 2
Italy – 2
Slovakia, Czech Republic, Belarus, UK, Poland, Ukraine – 1

Norway – 9
Germany – 6
Netherlands – 5
Canada – 5
Japan – 5
China – 5
Switzerland – 4
United States – 3
Sweden – 3
Russia – 3
Australia – 2
Austria – 2
Korea – 2
Slovakia – 2
France – 2
Czech Rep – 2
Italy, Belarus, Slovenia – 1

Total Gold, Silver & Bronze

Norway – 28
Germany – 20
Canada – 17
Netherlands – 13
Russia – 11
United States – 10
Japan – 10
France – 10
Austria – 10
Sweden – 7
China – 7
Czech Republic – 6
Italy – 6
UK – 4
Slovakia –3
Australia – 3
Finland – 3
Spain – 2
Latvia, Kazakhstan, Lichtenstein, Slovenia, Ukraine –1

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Goldman Sachs sees red ink everywhere, warns US spending could push up rates and debt levels

CNBC/Javier E. David/2-18-2018

“The U.S. economy won’t be able to count on the pump-priming from tax cuts for very long, Goldman Sachs said on Sunday. Federal spending, rising yields and surging debt needs are a growing worry, the firm said. Deficit spending is approaching ‘uncharted territory’, Goldman said.”

MK note:   Goldman Sachs is beginning to sound like USAGOLD.

Related:  The Federal Debt and Gold – Why the two have risen in tandem since the 1970s, part of our Safe Haven Introductory Information Packet for prospective clients.
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China vows to strike back as US talks tariffs on Chinese steel and aluminium


South China Post/Sidney Leng/2-17-2018

“China vowed on Saturday to retaliate after the US Department of Commerce proposed hefty tariffs on imports of Chinese aluminium and steel, with observers warning of further tit-for-tat trade action between the world’s two biggest economies. . . Observers said more confrontation loomed over trade between the two countries and Beijing could respond by limiting imports of American agricultural products.”

MK note:  No mention of selling U.S. Treasuries.

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Why Silicon Valley billionaires are prepping for the apocalypse in New Zealand

The Guardian/Mark O’Connell/2-15-2018

“In 2016, Sam Altman, one of Silicon Valley’s most influential entrepreneurs, revealed to the New Yorker that he had an arrangement with Thiel whereby in the eventuality of some kind of systemic collapse scenario – synthetic virus breakout, rampaging AI, resource war between nuclear-armed states, so forth – they both get on a private jet and fly to a property Thiel owns in New Zealand. . .”

“Everyone is always saying these days that it’s easier to imagine the end of the world than the end of capitalism. Everyone is always saying it, in my view, because it’s obviously true. The perception, paranoid or otherwise, that billionaires are preparing for a coming civilisational collapse seems a literal manifestation of this axiom. Those who are saved, in the end, will be those who can afford the premium of salvation. And New Zealand, the furthest place from anywhere, is in this narrative a kind of new Ararat: a place of shelter from the coming flood.”

MK note:  Although written with a sustained aura of disdain, this article tells why Peter Thiel and other like-minded Silicon Valley luminaries have chosen New Zealand as the ultimate “bug-out” destination. I read this article on the same day we learned Thiel had moved his business operations from San Francisco to Los Angeles “to escape the stifling political conformity of Silicon Valley,” as the Wall Street Journal tells it.  The New Zealand movement among new economy entrepeneurs evokes Galt’s Gulch, the Colorado escape to which the protagonists in Ayn Rand’s Atlas Shrugged ultimately fled. Given what Thiel believes possible, and his libertarian leanings, it would be difficult to exclude him from the ranks of gold owners.

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Doug Casey on why gold could go hyperbolic

Casey Research/2-18-2018

“Well, these things usually move in a hyperbolic curve. They start out slowly. Then, they accelerate. Same type of thing we saw with cryptocurrencies. I think gold will do the same, although not to the same extent. My prediction by the end of this year is that gold will hit $2,000. In 2019, $3,000. In 2020, $4,000. By the time this bull market peaks, gold could reach $10,000. But I hate to say things like that…because it sounds so outrageous. But look at the number of dollars in existence ($3.635 trillion in the M-1 money). Divide that by the 260 million ounces of gold the U.S. Government is supposed to own, and you get a gold price of $13,982/ounce.”

MK note:  Casey sees a major surge in the gold price coincident with rising commodities.

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The stock market’s new ‘wall of worry’ is built on inflation and rate fears

MarketWatch/Anora M. Gaudino/2-18-2018

“‘Seasoned investors will be watching for the retests of the lows. For now, we just added a new wall of worry to climb and that is inflation,’ said Krosby. . .Interestingly, fears of rising inflation and higher borrowing costs—whether rational or irrational—were blamed for triggering the stock market selloff in the first place. ‘We are no longer in the Goldilocks environment, when bad news was good news. Now, the good news is seen as bad news. The market is trying to figure out whether the growth in earnings will keep up with the pace of inflation,’ Krosby said.”

MK note:  ‘Toto, I’ve a feeling we’re not in Kansas anymore.’

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Alan Greenspan’s critical warning on the economy

NewsMax/Peter Reagan/2-8-2018

“Greenspan believes that the ever-increasing government deficit is behind the current bubbles facing the markets. Expressing his concerns about the national debt and budget deficit, he claimed the federal debt to GDP ratio is so unsustainable, it’s becoming even greater now than it was during World War II. He says this will result in inflation and a rise in interest rates, warning:  “We are dealing with a fiscally unstable long-term outlook in which inflation will take hold.”

Greenspan also revealed that he also doesn’t have much confidence in when this situation will be fixed, expressing surprise over many recent government proposals that don’t have any source of funding: ‘I think we’re getting to the point now where the breakout is going to be on the inflation upside. The only question is when.'”

MK note: I will remind everyone that two days before the stock and bond market breakdowns Greenspan was on Bloomberg television warning of two bubbles – one in stocks, the other in bonds. He sees the one in bonds as the more critical.  I doubt he would say today that somehow the danger has passed.  The Reagan article is about two weeks old, but I thought it a particularly good summation of Greenspan’s position and worth posting today – particularly for new visitors to USAGOLD.


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Gold: Another month, another test of key resistance, but this time with a difference

Seeking Alpha/John Rubino/2-18-2018

“Where in January, the speculators were ragingly bullish, this time around they’ve been chastened a bit by the subsequent smack-down and are now a little better balanced. The latest COT report, released on Friday afternoon, shows speculators actively cutting their net long positions while commercial traders – who are usually on the other side of speculators’ mood swings – are going less short. . .Add it all up and ‘risk-off’ has a reasonable shot at becoming the dominant theme of the next few years (at least), which is traditionally great for precious metals. So when and if gold finally breaks through $1,360, it will have serious wind at its back.”

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Slow day for gold but a decent week, and so far – a solid year


Gold had a difficult time mustering support today despite a run of news bolstering the inflation thesis. (Please scroll below for details.) It finished the day at $1347.00, off $6.30.  Silver had a similarly lackluster day losing 21¢ and finishing at $16.63.  Gold had a good week with a $31 gain.  Silver finished the week 30¢ higher.  The year thus far has been a mixed bag for the two primary investment precious metals:  Gold is up 3.4% and silver is down 1.7%.

Over in StockMarketLand, it was a see-saw day with the Dow Jones Industrial Average showing a gain of 267 at one point before finishing the day up only 19 – a less than convincing end to the week.  One analyst likened buying stocks in the current environment to picking up “dollars in front of a steamroller” – an appropriate mental image, we thought. Tonight’s Quote of the Day takes a similar tack and supports the notion the more things change, the more they stay the same.

To get the full flavor for the week just passed, we invite you to take a leisurely stroll through the posts immediately below.  Much happened. Much was said. Much still needs to be sorted out. . . . . .

Quote of the Day
“At the quarter-century mark of 1925, the great bull market was under way, and Graham*, then 31, developed what he later described as a ‘bad case of hubris.’ During an early-1929 conversation with business associate Bernard Baruch (about whom he disparagingly observed, ‘He had the vanity that attenuates the greatness of some men’), both agreed that the market had advanced to ‘inordinate heights, that the speculators had gone crazy, that respected investment bankers were indulging in inexcusable high jinks, and that the whole thing would have to end up one day in a major crash.’ Several years later he lamented, ‘What seems really strange now is that I could make a prediction of that kind in all seriousness, yet not have the sense to realize the dangers to which I continued to subject the Account’s4 capital.’ In mid1929, the equity in the ‘Account’ was a proud $2,500,000; by the end of 1932, it had shrunk to a mere $375,000.” –  Frank K. Martin, A Decade of Delusions

*  Benjamin Grahm, “The father of value investing”, 1894-1976, Security Analysis (1934) with David Dodd, and The Intelligent Investor (1949).

February, 2018 Edition
Gold and the Law of Attraction
Trade-currency wars likely to inspire major global gold demand
The other inflation hedge – Silver
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Gold continues to shine

NewsMax/Trevor Gerszt/2-16-2018

“Gains of 10-15% for the year wouldn’t be unexpected, but they could be even larger. Remember that while gold’s price increased nicely during the financial crisis, it didn’t break out until after the worst parts of the financial crisis were over and stock markets were slowly on the mend. It was the lackluster performance of the economy and of stock markets that sent gold prices skyward. That could happen again this time around if stock markets crash and take a while to recover.

That’s why it’s important to remember that investing in gold isn’t a get rich quick scheme, its a long-term multi-year plan to protect your assets from rising inflation and falling stock markets. Gold has been trusted as a store of value and hedge against inflation for centuries, and it continues to fill that role today.”

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Former SEC boss says we have become ‘a nation of day traders’

MarketWatch/Mark Decambre/2-16-2018

“Ex-chairman of the Securities and Exchange Commission Harvey Pitt had a withering take on the current state of the stock market, which has seen average speculators crushed by short-volatility products and speculators gripped by a fervor around blockchain-related assets. Pitt told CNBC during a Friday morning interview that the U.S. has ‘become a nation of day traders.’ The Brooklyn-born, 72-year old legal professional was the 26th SEC head from 2001-2003 during George W. Bush’s first term.”

MK note:   “The problem we have,” Pitt goes on to say, “is that most people investing in these companies are doing it because they want to partake of a craze and they don’t have any idea why they’re making their investments or what the companies do.”   JP Morgan estimates 10% of the trading in the stock market is done by thinking individuals and the other 90% by computer algorithms. So the day traders Mr. Pitt references are essentially silicone-based  and incapable of entertaining his complaint, no matter how well-considered it is.


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Gold price forecast: Stage set for a rally to $1,400

FXStreet/Omkar Godbole/2-16-2018

“The current narrative in the market is that yields are rising for all the wrong reasons – fiscal indiscipline, rising price pressures. And hence, the traditional inter market correlations have broken down. Rising bond yields are no longer USD positive and hence they are unlikely to have a negative impact on gold.

Meanwhile, investors fear that Fed could respond to rising inflation by unwinding stimulus at a faster rate. This is putting further pressure on bonds (leading to higher yields). Also, note that rising yields could weigh heavily over stocks as seen a week ago. Thus, it appears gold is best positioned to benefit from rising inflation and asset price deflation.”

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China’s currency policy may be facing a new chapter

Bloomberg/Yinan Zhao, Kana Nishizawa, and Justina Lee/2-15-2018

“In the fraught history of Chinese currency policy, a new chapter could be looming this year as authorities consider the consequences of a yuan that’s testing its strongest levels since mid-2015. After successfully shutting off potentially destabilizing capital outflows and putting a floor under the yuan, policy makers may now have the luxury of looking at relaxing some of the strictures on domestic money. But China watchers warn that any moves are likely to be gradual and calibrated, given the turmoil of 2015 — when a sliding yuan spooked global markets.”

MK note: The important takeaway here with respect to the gold market is that last sentence.  China’s approach to the yuan will be tempered and is unlikely to generate a major upheaval in the FOREX markets. Posted as something to keep in mind if down the road the pundits try to blow the potential consequences out of proportion. . . .

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“Gold makes sense, its just the world that’s confusing. . .”

Bloomberg /Axel Merk interview/2-16-2018

MK note:  Solid reasoning on why gold diversification works in this wacky investment environment from Axel Merk.

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Gold off marginally early, markets quiet on proposed tariffs and higher import prices


Gold is off marginally from yesterday’s close trading down $2 at $1351.50.  Overnight it had gotten as high as $1361 on major dollar weakness. Silver is also off marginally, down 10¢ at $16.78.  The dollar is staging a recovery from yesterday’s drop and that seems to be the primary influence on today’s pricing of the metals.

Two news items this morning are adding to the inflationary bias building in markets – sharply higher import prices and high tariffs proposed by the Trump administration. (Please see more detail, links below.) At the moment, the markets seem to be in a quandary over how to react to these developments which kind of snuck into the mix while attention was elsewhere.

Chart of the Day

Chart courtesy of
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Commerce Department suggests Trump impose steep tariffs or quotas on foreign steel and aluminum


CNBC/Kayla Tausche and Lori Ann LaRocco/2-16-2018

“The U.S. Commerce Department recommended heavy tariffs and quotas on steel and aluminum imports, sources say. The recommendations include a 24-percent global tariff on steel imports and a charge of at least 53 percent on steel from a dozen countries. Commerce recommended a 7.7-percent tariff on aluminum imports, with higher tariffs for China, Russia, Venezuela and Vietnam.”

MK note: The markets will have fun sorting out this one. . . .Bottom line:  It’s inflationary.  It threatens the market for U.S. Treasuries.  It ramps up the trade wars to a new level.

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Import prices soar 1% in January

MarketWatch/Jeffry Bartash/2-16-2018

“The import price index leaped 1% in January to add to a picture of rising inflation in the United States. Although the increase was driven by oil, prices rose for a variety of goods such as German cars, French cheese and Italian wine. Excluding fuel, import prices rose a sharp 0.4%, the government said. That’s the biggest increase in six years.”

MK note:  Rising import prices is a major deal for the U.S. economy in that so much of what we use on a daily basis is  imported from other countries.  It will be a major driver of inflation going forward, a drag on the bond market and a longer-term impetus to gold and silver, if the trend holds true over time.

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Bank of Japan’s Kuroda bags a tricky second term

Reuters/Quentin Webb/2-16-2018

“His nomination is a sign that Abe is broadly content with current policy. That involves large amounts of bond-buying, smaller stock purchases, negative short-term rates, and a goal of keeping 10-year government bond yields near zero. There now seems little chance that asset purchases will be reduced markedly anytime soon. Conversely, despite his previous boldness, Kuroda seems loath to experiment further. He has notably ruled out buying state debt directly and holding it forever.”

MK note:  The correlation between gold and the Japanese yen draws the interest of gold owners to the Bank of Japan and its chairman, Haruhiko Kuroda.  Kuroda to a large extent is a Japanese version of Ben Bernanke (think helicopter money).  Somehow, though, the net result of BoJ policy since early 2016 has been a rising yen against the dollar which in turn has accommodated gold’s bias to the upside.  We should add that Japan, as reported yesterday, has been a seller of U.S. Treasuries over the past year – a policy bearish for the dollar and U.S. Treasuries.  So, in short, it obviously remains up in the air, but oddly Kuroda has been good for gold in the evolving monetary mix.

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Blame the dollar on yields – Deutsche Bank

City Credit Capital/George Saravelos-DeutscheBank/2-16-2018

“How can it be that US yields are rising sharply, yet the dollar is so weak at the same time? The answer is simple: the dollar is not going down despite higher yields but because of them. Higher yields mean lower bond prices and US bonds are lower because investors don’t want to buy them. This is an entirely different regime to previous years.

Dollar weakness ultimately goes back to two major problems for the greenback this year. First, US asset valuations are extremely stretched. A combined measure of P/E ratios for equities and term premia for bonds is at its highest levels since the 1960s. Simply put, US bond and equity prices cannot continue going up at the same time. This correlation breakdown is structurally bearish for the dollar because it inhibits sustained inflows into US bond and equity markets.”

MK note:  As pointed out here yesterday, we are moving into a wholly different kind of financial market structure and, as a result, the old quid pro quos are out the window.

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