Shanghai Gold Exchange Sees 65.7 Tonnes of Gold Withdrawn into China In Latest Week

02-Oct (Jessé’s Café Américain) — Week in, and week out.

Physical gold bullion is flowing from West to East.

Lars Schall interviews German banker Folker Hellmeyer “The Physical Markets of the East Will Prevail”


Posted in Gold News, Gold Views |

Obama warns Congress to not mess with the debt ceiling

02-Oct (Politico) — President Barack Obama lectured Congress on Friday, providing lawmakers with a basic economic lesson when it comes to the debt ceiling, which the U.S. is fast approaching.

He said the ceiling was not about spending more, but rather paying bills we’ve already incurred.

He said raising the ceiling is “a way for the U.S. to maintain its good credibility.”

“If it gets messed with, it would have profound impact for the global economy and put our financial system in tailspin,” Obama said during a press conference on Friday.


PG View: Let’s not forget we’re about a month away from hitting the debt ceiling . . . again.

There has never been a debt a ceiling that wasn’t eventually surpassed. We really need to get spending under control.

Posted in Debt |

The Pain Trade: How Slumping Commerce Threatens Global Growth

02-Oct (Bloomberg) — The world’s biggest economies are finding it increasingly hard to trade their way out of trouble.

Once the grease of global growth, international commerce failed to rebound completely from the 2009 recession and now is slowing anew. Chinese exports tumbled 5.5 percent in August from a year earlier, while those of the U.S. fell 3.5 percent. South Korea and Singapore witnessed double digit declines.
Reflecting such weakness, the World Trade Organization this week cut its forecast for trade this year to 2.8 percent from 3.3 percent. It acknowledged its new prediction may be “over optimistic.”

Such rates fall short of the 5 percent average of the past two decades. Also gone are the 1990s and early 2000s when trade grew twice as fast as economic growth — 2015 is set to be the fourth consecutive year in which the two expand around the same speed.

…if trade does fail to pick up Adam Slater, an economist at Oxford Economics Ltd., predicts continued downward pressure on bond yields and renewed efforts by countries to devalue their way to prosperity.

“The temptation to try to grab a bigger slice of a given trade pie is likely to increase,” said Slater.

Just what that would achieve is in in doubt. The IMF this week suggested a 10 percent cheaper currency can boost exports by an average of 1.5 percent of GDP. By contrast, the World Bank recently estimated that falling currencies were only half as effective in increasing exports between 2004 and 2012 as they were in the prior eight years.

With emerging markets increasingly trading with each other it may be “the case that rather than the net outcome being a zero, the overall impact of currency depreciation may actually be a negative-sum game,” HSBC Holdings Plc economists Janet Henry and James Pomeroy said in a report this week.


Posted in Currency Wars |

How Inflation Could Be Caused in 15 Minutes

by James G. Rickards
01-Oct (DailyReckoning) — One of the conundrums of monetary policy over the past eight years is the Federal Reserve’s failure to cause inflation. This sounds strange to most. People associate inflation with misguided monetary policy by central banks, especially the Fed.

So-called “money printing” is seen as a certain path to inflation. The Fed has printed almost $4 trillion since 2008. Yet inflation (at least as measured by official statistics) is barely noticeable. With so much money around, where’s the inflation?

This conundrum has several answers. The first is that the Fed has been printing money, but few are lending it or spending it. The banks don’t want to make loans, and consumers don’t want to borrow.

In fact, the private sector on the whole has been deleveraging — selling off assets and paying off debt — even as public debt expands. The speed at which consumers spend money (technically called velocity) has been sinking like a stone.

…These deflationary tendencies create a major policy problem for the Fed. Governments need to cause inflation in order to reduce the real value of government debt. Inflation also increases nominal (if not real) incomes. These nominal increases can be taxed.

Persistent deflation will increase the value of debt and decrease tax revenues in ways that can cause governments to go bankrupt. Governments are therefore champions of inflation and rely on central banks to cause it.

…A central bank’s worst nightmare is when they want inflation and can’t get it. The Fed’s tricks have all failed. Is there another rabbit in the hat?

Actually, yes. The Fed can cause massive inflation in 15 minutes. They can call a board meeting, vote on a new policy, walk outside and announce to the world that effective immediately, the price of gold is $5,000 per ounce.

…Of course, the point of $5,000 gold is not to reward gold investors. The point is to cause a generalized increase in the price level. A rise in the price of gold from $1,000 per ounce to $5,000 per ounce is really an 80% devaluation of the dollar when measured in the quantity of gold that one dollar can buy.

This 80% devaluation of the dollar against gold will cause all other dollar prices to rise also. Oil would be $400 per barrel, gas would be $10.00 per gallon at the pump and so on. There it is — massive inflation in 15 minutes: the time it takes to vote on the new policy.

Don’t think this is possible? It has happened in the U.S. twice in the past 80 years. You may even know some people who lived through both episodes.

…This makes gold the ultimate “all weather” asset class. Gold goes up in extreme inflation and extreme deflation. Very few asset classes work well in both states of the world. Since both inflation and deflation are possibilities today, gold belongs in every portfolio as protection against these extremes.


PG View: I agree with Jim, the Fed will eventually get the inflation they so desperately desire. To what extent they will go to achieve that end remains to be seen. However, when it happens, you’re going to want to be prepared. The best way to preserve the wealth you’ve already accumulated is to dedicate at least a portion of your savings to physical gold.

Posted in Deflation, Gold News, Gold Views, inflation |

The Daily Market Report: Gold Surges on Weak Jobs Data and Factory Orders

02-Oct (USAGOLD) — Now can we please put to rest the talk about a 2015 rate hike?

Gold rebounded sharply on Friday, buoyed by crashing rate hike expectations after some rather bleak U.S. economic data. The yellow metal is trading more than $20 higher on the day and more than $30 off the intraday low.

September nonfarm payrolls came in at +142,000, well below expectations of +200,000. The soft +173,000 print for August was revised lower to +136,000. The unemployment rate held steady at 5.1%, largely because the labor force participation rate fell to a 38-year low of 62.4%.

Americans not in the labor force surged by 579,000, to a record 94.6 million. The participation rate hasn’t been this low since 1977.

Those were the good ol’ days. These? Not so much . . .

Factory orders for August missed expectations as well, coming in at -1.7%. Expectations were for a 1.3% drop.

We’ve been saying it for some time now: The data simply do not support tighter monetary policy. In fact, I suspect we’re now going to start seeing more speculation about recession risks and Fed easing in the financial press.

The yield on the 10-year note tumbled below 2.00% to threaten the 1.9050% low from August 24. The dollar retreated and stocks initially tumbled.

While stocks have regained their footing, the initial reaction is interesting. Gone seemingly are the ‘bad news is good news’ days, where stocks would celebrate the prospect of indefinite easy money. Investors seem to be worried that the underlying economy is not as healthy as they’ve been led to believe; and with rates still at zero, the Fed is likely to be slow to offer-up easier policy.

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

U.S. factory orders -1.7% in Aug, below expectations of -1.3%, vs negative revised +0.2% in Jul; inventories -0.3%.

Posted in Economic Data |


02-Oct (BusinessInsider) — Gold is spiking.

After the disappointing September jobs report, markets were seeing a decidedly “risk off” trade, with stocks getting crushed, bonds rallying, and gold spiking.

Following the report, gold futures were up nearly 2% in New York to trade at around $1,135 an ounce.

Meanwhile Dow futures were down more than 200 points and the US 10-year Treasury note was back below 2% for the first time since August.

In September, the US economy added 142,000 jobs, less than expected, while wages disappointed and the labor force participation rate fell to a fresh 38-year low.


Posted in Gold News, Gold Views |

Labor force participation sinks to a 38-year low

02-Oct (BusinessInsider) — The September jobs report was broadly disappointing, with very few points of optimism.

Along with non-farm payrolls and wage growth missing expectations, the civilian labor force participation rate — the percentage of the US population that is either working or looking for a job — fell by 0.2 percentage points to 62.4%.

This is the lowest reading since October 1977.

“Last time the participation rate was this low Rod Stewart’s “Tonight’s the Night” led the charts, “Hotel California” was in the top 20,” tweeted Bloomberg chief economist Michael McDonough.


Posted in Economic Data, Economy |

Buy, buy, buy… gold

02-Oct (FT) — Buy gold.

That’s been the market’s reaction to the ugliest US non-farm payrolls report in many months, which some commentators say lowers the likelihood of any Federal Reserve interest rate hike in 2015, reports David Sheppard, deputy commodities editor.

The precious metal, which moves inversely to the dollar and sometimes gets a lift from bad economic news, rose 1.6 per cent to $1,133 an ounce in London. It recovered post the disappointing NFP data after earlier threatening to dip below the $1,100 level for the first time since Sept. 9.

Gold remains down 13 per cent so far in 2015, but has stabilised since threatening to crash towards $1,000 an ounce back in August.


PG View: That last sentence is patently false. Gold ended 2014 at 1183.81 and is presently trading 1134.00, so gold is only down 4% so far in 2015. Fairing better than stocks I might add . . .

Posted in Gold News, Gold Views |

U.S. hourly earnings unch in Sep, below expectations of +0.2%, vs positive revised +0.4% in Aug.

Posted in Economic Data |

U.S. job growth cools in last two months, raising doubts on economy

02-Oct (Reuters) — U.S. employers slammed the brakes on hiring over the last two months and wages fell in September, raising new doubts the economy is strong enough for the Federal Reserve to raise interest rates by the end of this year.

Payrolls outside of farming rose by 142,000 last month and August figures were revised sharply lower to show only 136,000 jobs added in August, the Labor Department said on Friday.

That marked the smallest two-month gain in employment in over a year and could fuel fears that the China-led global economic slowdown is sapping America’s strength.

U.S. factories are feeling the global chill and shed 9,000 jobs in September after losing 18,000 in August, according to the Labor Department’s survey of employers.


Posted in Economic Data, Economy |

Gold up more than $10 on the day, more than $20 off the overseas low on #NFP miss.

Posted in Gold News |

U.S. nonfarm payrolls +142k in Sep, well below expectations of +200k, vs negative revised 136k in Aug (was +173k); unemployment 5.1%.

Now can we please put the 2015 rate hike talk to rest?

Posted in Economic Data |

‘Incredibly fearful’ Fed braces for jobs report

01-Oct (CNBC) — Data-dependent Federal Reserve officials suddenly are finding the data turning against them.

A year that was supposed to provide the Fed with plenty of ammunition to justify a rate increase has fallen considerably short. Economic growth remains mired, inflation increasingly has become a bygone remnant of years past and industrial activity is nearing contraction levels.

Moreover, the stock market is tumbling, investors’ nerves are frayed and a government shutdown, narrowly averted for October, looks increasingly probable in December, right around the time the U.S. central bank gets its final opportunity to start normalizing interest rates.

…This is the environment into which the Fed is looking to raise rates.

Market participants are growing increasingly skeptical that a hike is coming anytime soon.

“What’s really convinced me the Fed is going to stay lower for longer is the evidence would have to be overwhelmingly clear in one direction,” said Michael Arone, chief investment strategist for State Street Global Advisors’ U.S. intermediary business. “In this environment, the Fed is incredibly fearful of making a policy mistake, moving too soon and undermining economic growth.”


Posted in Central Banks, Economy, Monetary Policy |

Rate Hikes Not ‘Defining Factor’ For Gold, Metal At An Inflection Point – World Gold Council

01-Dec (KitcoNews) — Despite gold’s weakness as markets kick off the fourth quarter, the World Gold Council (WGC) says there is still a case to hold the yellow metal and investors shouldn’t be so focused on the potential of U.S. interest rate hikes. According to Will Rhind, CEO of World Gold Trust Services, a wholly-owned subsidiary of WGC, rate hikes are not a ‘defining factor’ for gold prices ‘mainly for the simple reason that the majority of gold demand doesn’t come from the U.S. or U.S. investors, it comes from China and India.’ ‘It is certainly a factor in the overall pricing construct of the gold market but it is not the defining factor,’ he added. Rhind noted that the market is actually at a critical point and investors should still consider the metal for portfolio diversification. ‘We’re at an inflection point where gold prices are down year-to-date but they’re down less than the S&P500 YTD,’ he said. ‘Therefore, gold has outperformed on a relative basis the U.S. equities market.’ December Comex gold futures were last quoted down 0.2% at $1,113 an ounce. Rhind also said more market volatility lies ahead and investors should think about ‘increasing a position in gold.’ He argued that the yellow metal is different from the majority of other commodities, which have been in a downtrend since last year when oil prices tumbled. ‘The amount of demand for gold is not just focused from investors, it’s focused from consumers around the world,’ he said. ‘So, over a longer term, gold is actually correlated with economic growth and while that may be counterintuitive to some who look at it purely from an investment lens, it’s actually straightforward from the global demand perspective,’ he explained. Kitco News, October 1, 2015.


Posted in Gold News, Gold Views |

What the heck is the Fed doing?

If you’ve ever found yourself wondering what the heck the Fed is doing, Salient Partners’ Ben Hunt sums it up succinctly in these paragraphs from his latest Epsilon Theory newsletter.

by W. Ben Hunt, Ph.D.
…Central Bankers have intentionally sown confusion in our ranks. Like the barkers on CNBC and the sell-side, the Fed and the ECB and the BOJ and the PBOC are determined to force us into riskier investment decisions than we would otherwise choose to make. This is the entire point of extraordinary monetary policy over the past 6 years! All of it. All of the LSAPs, all of the TLTROs, all of the exercises in “Communication Policy” … all of it has been designed with one single purpose in mind: to punish investors who choose to sit on their hands and reward investors who make a bet, all for the laudable goal of preventing a deflationary equilibrium. And as a result we have the most mistrusted bull market in history, a bull market where traditional investment discipline was punished rather than rewarded, and where any investor who hasn’t been totally hornswoggled by Fed communication policy is now rightly worried about having the policy rug pulled out from underneath his feet.

Or to make this point from a slightly different perspective, while there is confusion between the concepts of investing and allocation in the best of times, there is an intentional conflation of the two notions here in the Golden Age of the Central Banker. The Fed wants to turn investors into allocators, and they’ve largely succeeded. That is, the Fed doesn’t care about your picking one stock over another stock or one sector over another sector or one company over another company. They just want to push you out on the risk curve, which for the vast majority of investors just means buying stocks. Any stock. All stocks.


PG View: Spending is good too. Buy a car. Buy some electronics. But heaven forbid you should simply save some of your money. In fact, the Fed has conveniently driven interest rates to near-0% to make your decision making process easier.

Posted in Central Banks, Markets, Monetary Policy |

The Daily Market Report: Gold Edges Higher on Soft Economic Data

01-Oct (USAGOLD) — Gold has edged higher within the range amid more downbeat economic data that has caused Fed rate hike expectations to ebb once again. The yield on the 10-year note has fallen back to 2.02%, threatening the August low at 2.00%.

BusinessInsider acknowledges that based on recent data, the U.S. manufacturing sector is in recession. Hardly an environment where the Fed would realistically be talking about a rate hike. Nonetheless, Richmond Fed President Jeffrey Lacker dutifully went out today and said that an October rate hike is possible.

The Atlanta Fed’s GDPNow model saw the Q3 GDP forecast halved to just 0.9%, versus 1.8% on September 28. Slowing growth . . . again, not exactly something that typically would warrant a rate hike.

Maybe the Fed just doesn’t see it coming. “It is a known fact that the Fed has never forecasted a recession (in spite of employing hundreds of nerd economists whose job it is to do precisely that),” said Jared Dillian of Mauldin Economics.

Maybe the Fed needs to deny the reality until the eleventh-hour because all of their policy tools have been expended. Of course that’s not really true. They could still cut to negative rates, or reinstitute QE.

However, I suspect they are loathe to do so because of the severe hit their credibility will take. That’s going to put the Fed behind the curve yet again, worsening the impact of any potential recession lurking just over the horizon.

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

American manufacturing is in recession

01-Oct (BusinessInsider) — Here’s a bad thing: American manufacturing is in a recession.

On Wednesday, we got the latest data on manufacturing activity in the Midwest from the Chicago purchasing manager’s index reading, which unexpectedly showed that activity contracted in September. The Institute for Supply Management’s Milwaukee report on business also indicated a contraction in activity.

And Thursday’s data didn’t exactly help, with ISM’s national manufacturing index coming in at 50.2, still indicating expansion but the lowest reading for this measure since May 2013. Additionally, Markit’s manufacturing PMI remained near August’s 22-month low.

So, overall discouraging data.

But these were merely the latest in a series of indications that, broadly, the US manufacturing sector stinks right now.


PG View: Again, not exactly the ideal timing for a rate hike . . .

Posted in Economy |

Gold up as dollar weakens after spare of economic data

01-Oct (MarketWatch) — Gold futures headed higher on Thursday, after settling at a more than two week low a day earlier, finding some modest support as the U.S. dollar weakened in the wake of the latest economic data.

Gold for December delivery tacked on $1.50, or 0.1%, to $1,116.70 an ounce on Comex. Gold lost 1.5% of its value in September, and nearly 5% in the third quarter. December silver meanwhile, added 12.7 cents, or 0.9%, to trade at $14.645 an ounce.

Gold prices had wavered between losses and gains early in the session, with the key economic report of the week—the jobs report—due Friday.


Posted in Gold News, Gold Views |

U.S. manufacturing ISM fell to 50.2 in Sep, below expectations of 50.7, vs 51.1 in Aug; prices fall to 38.0, vs 39.00 in Aug.

Posted in Economic Data |

U.S. construction spending + 0.7% in Aug, above expectations of +0.5%, vs negative revised +0.4% in Jul.

Posted in Economic Data |

U.S. Markit PMI (final) revised a tick higher to 53.1 in Sep, vs 53.0 prelim and 53.0 in Aug.

Posted in Economic Data |

U.S. initial jobless claims+10k to 277k for the week ended 26-Sep, above expectations of 270k, vs 267k in previous week.

Posted in Economic Data |

Gold steady at 1114.78 (-0.46). Silver 14.52 (-0.016). Dollar and euro consolidate. Stocks called higher. US 10yr 2.04% (unch).

Posted in Markets |

The Daily Market Report: Gold Retreats Further Within Range, Awaits Jobs Data

30-Sep (USAGOLD) — Gold has retreated further into the range after last week’s gains stalled shy of the important 1156.66 resistance level. Support at 1103.60 remains well protected at this point, as the market looks ahead to Friday’s release of September jobs data.

The ADP employment survey came in at +200k, which was above expectations of +190k. Nonetheless, in the wake of recent drops in producer and consumer sentiment there is perceived to be some downside risk.

Just today, Chicago PMI for September unexpectedly fell to 48.7, well below expectations of 53.4. Indications from U.S. industry have been presaging recession; not exactly an environment where any central bank — and particularly not one that is historically dovishly biased to begin with — would be considering a rate hike.

In a recent blog post entitled Yellen Stumbles (sign-up required), Westshore’s Jim Rickards takes Fed chair Janet Yellen to task for her intellectual dishonesty with regard to inflation expectations versus inflation reality.

Yellen contends that inflation expectations remain anchored around 2% and any deviation from those expectations are presumed, at least by her and the Fed to be “transitory.” Rickards on the other hand says, “it seems as likely that expectations will converge to reality rather than reality converging to expectations.”

One hardly knows where to begin in describing the flaws in Yellen’s analysis. Her model is entirely theoretical with no substantial empirical proof. The “forecasts” she relies on have been erroneous by orders of magnitude for years. — Jim Rickards

Fed forecasts do indeed seem to be based more on hope than reality: We’ll put rates at zero for nearly a decade and expand our balance sheet by $4 trillion and hope that garners at least 2% inflation. So far, not so good.

Given the Fed’s persistent failure on the inflation front, I’m inclined to concur with Rickards when he says, “The Fed will be no closer to raising interest rates in October or December than they were in September.” I believe that to be true regardless of what the jobs data say at the end of the week. However, if the data miss expectations it is certainly likely to sway many more investors to start thinking the same.

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

Gold Stays Low Despite China Buying

29-Sep (Wall Street Journal) — China’s stock-market turmoil this summer has prompted a rush of gold buying by the world’s No.1 consumer of the shiny metal, but prices are still hovering near five-year lows because investors worry the commodity, denominated in dollars, will become more expensive when the U.S. Federal Reserve raises rates.

Withdrawals of gold from the Shanghai Gold Exchange—a barometer of Chinese investment and retail demand—have reached 1,891.9 tons so far this year, 560.9 tons more than during the same period last year and 281 tons more than the comparative period in 2013.

Chinese consumers, seeking a safe haven as stocks tanked, have ramped up gold buying earlier than normal.

Typically, most Chinese gold buying takes place between the Golden Week holidays in October and Chinese New Year in February, because of festival buying and gifting of jewelry.

This time, however, China imported a net 53.9 tons of gold from Hong Kong in August, more than double the imported quantity in the same month last year, according to a Commerzbank report.

“This strong rebound surprises us. Normally the summer-season demand is slow,” says Helen Lau, analyst with Hong Kong-based Argonaut Securities. “But investors are liquidating their stock positions and investing in gold.”

…“We have seen a devaluation in the Chinese currency, which has likely contributed to increased demand in China. We are also probably reaching the point where seasonal buying is returning in the Chinese market,” says Ryan Case, Hong Kong-based head of institutional sales at Bullion Capital, a gold exchange.


PG View: Investors believe gold will “become more expensive when the U.S. Federal Reserve raises rates”? Really? Because I thought everyone was expecting gold to fall in value when the Fed raises rates because the opportunity cost of owning gold . . . blah blah blah . . . gold doesn’t pay any yield . . . blah blah blah.

Apparently analysts are now thinking we need to put that first rate hike behind us “will remove the uncertainty on gold’s outlook.” What’s interesting is that gold did actually rise quite substantially (82%!) during the last Fed tightening cycle. Not that anyone is expecting a “tightening cycle” per se, in fact once the Fed pulls the trigger they may be one-and-done.

Nonetheless, the more salient part of this article has to do with ongoing robust Chinese demand. See yesterday’s DMR for some further enlightenment on both the demand piece and perhaps more importantly on where the supply is coming from.

Posted in Gold News, Gold Views |

U.S. Chicago PMI fell to 48.7 in Sep, below expectations of 53.4, vs 54.4 in Aug.

Posted in Economic Data |

Canada GDP +0.3% in Jul, above expectations of +0.1%, vs negative revised +0.4% in Jun.

Posted in Economic Data |

U.S. ADP employment survey +200k in Sep, above expectations of +190k, vs negative revised +186k in Aug.

Posted in Economic Data |

Gold lower at 1121.00 (-4.83). Silver 14.60 (unch). Dollar higher. Euro lower. Stocks called higher. US 10yr 2.09% (+4 bps).

Posted in Markets |