Economists Believe a Recession Is Likely Within Next Four Years

26-Oct (WSJ) — The U.S. must face one of two scenarios: Either the next president will face a recession in office, or the U.S. will have the longest economic expansion in its history.

Odds are that the recession is more likely. Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.

That is not an assessment that the next U.S. president will cause a downturn. Rather, it is a recognition that throughout its history the American economy has never grown for more than a decade without a recession. Over the course of the next four years, something—whether exhaustion of the economy’s cyclical momentum, a policy mistake from the Federal Reserve or some outside shock—could knock the economy off course.


Posted in Economy |

Gold Investor, October 2016

25-Oct (World Gold Council) — Welcome to the autumn edition of Gold Investor, where the World Gold Council and some of the world’s most influential investors and market commentators assess the role of gold in a world dominated by macroeconomic and political uncertainty.

Gold and the new normal

Mohamed El-Erian is chief economist at global insurer Allianz and former CEO of PIMCO, the world’s most influential bond investment firm. He assesses the challenges faced by the global investment community and the contribution that gold can make within investment portfolios.

“A growing number of investors are recognizing the potential of gold to increase returns and improve risk-mitigation attributes of well-diversified portfolios.”

Where next for gold?

Simona Gambarini, commodities economist at leading research consultancy Capital Economics, suggests there is further upside to the gold price even if US interest rates begin to rise.

“Going forward, lingering global risks should ensure that demand for gold as a safe haven asset remains elevated even in light of Fed tightening.”

Japan and the allure of gold

Osamu Hoshi, Executive Officer, General Manager Frontier Strategy Planning and Support Division at leading Japanese trust bank Mitsubishi UFJ Trust and Banking Corporation analyses the appeal of gold to Japanese institutions.

“The perception of gold is changing among Japanese investors, driven by a growing appreciation of gold’s contribution to portfolio diversification, wealth protection and risk management.”


PG View: Several good articles in the latest WGC Gold Investor newsletter.

Posted in Gold News, Gold Views |

The Daily Market Report: Gold Firmer, Despite Strong Dollar and Home Price Gains

25-Oct (USAGOLD) — Gold is trading modestly higher within the recent range amid mixed economic data and persistent dollar strength. The yellow metal set new highs for the week, despite growing expectations that the Fed is going to pull the trigger on another December 25 bps rate hike.

I like to joke that at 25 bps per year, it will only take rates about 12-years to “normalize”. At his pace, it will be 2027 before Fed funds get back to 3%!

I would argue that despite the now 70% probability of a tightening, it’s still far from being a sure thing. When the Fed first began talking about a gradual tightening bias, who knew it would be THIS gradual?

Today’s home price data was encouraging, with a 0.7% rise in the FHFA home price index and a +0.4% gain in the Case-Shiller 20-city price index, both in August. However, consumer confidence fell to 98.6 in October, below expectations of 101.4, versus a negative revised 103.5 in September (was 104.1). It was the biggest drop in 11-months; not something you want to see as we head into the all-important holiday shopping season.

We’ll get the Q3 advance GDP number on Friday. Consensus is +2.5%, but a miss could severely erode the recent hawkishness going into next week’s FOMC meeting. A beat on the other hand would seal the deal in many people’s minds.

That being said, remember that last December’s rate hike pretty much marked the low in gold. A near 30% rally ensued. If this is the way things unfold, the yellow metal will be starting more than $200 higher.

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

Dollar Reaches Highest Since March as Fed Rate-Hike Wagers Climb

25-Oct (Bloomberg) — The dollar rose to a seven-month high as traders ratcheted up bets on a Federal Reserve interest-rate increase by year-end.

The greenback appreciated against its major counterparts for the fourth straight day and extended its October gains. The probability of a Fed interest-rate increase by December rose to 74 percent, the highest since June, futures data compiled by Bloomberg show.

The advance suggests that currency traders have yet to fully price in the prospect of higher U.S. rates in coming months, signaling that the dollar may have room to extend gains that began in August amid evidence of faster economic growth and accelerating inflation. Chicago Fed President Charles Evans said Monday that if the economy continues to grow in line with his forecast, it may be appropriate to raise rates three times by the end of 2017.

“It’s a fairly straightforward Fed-expectations move,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London.


Posted in Central Banks, Monetary Policy, U.S. Dollar |

How I Became a Gold-Bug

by Hugo Salinas Price
24-Oct (Plata) — My father was Hugo Salinas Rocha -“Salinas” was his father’s surname, and “Rocha” was his mother’s surname; the custom of using both parents’ surnames is universal in Latin America. Father was a successful merchant in Mexico City, and in the 1930’s he ran a store in downtown Mexico City. The store belonged to a company founded by his father, Benjamin Salinas Westrup and to the partner he took into the business, his brother-in-law, Joel Rocha Barocio; the company name used their initials: “SyR” (the “y” means “and” in Spanish).

I was born in 1932. As a little boy, I loved to play in my father’s store after school hours, and one afternoon when I was perhaps eight years’ old, one of the salesmen took two gold coins out of his vest pockets (men wore vests in those days). They were the large, 1.2 ounce gold “Centenarios” that had been minted to celebrate the 100th Anniversary of Mexican Independence from Spain in 1810. The salesman balanced the two coins on his forefingers, and placing them near my ear, he gently touched one against the other. The sound was the delightfully pure ringing of gold!


PG View: What a great story!

Posted in Gold News, Gold Views |

As Yuan Sinks, Goldman Flags Scope for Gold Demand in China

24-Oct (Bloomberg) — Further weakness in China’s currency and investors’ concerns over the outlook for the nation’s property market may spur gold demand in Asia’s top economy, according to Goldman Sachs Group Inc., which made the forecast as the offshore yuan sank to a record.

“The potential drivers of increased Chinese physical buying include purchasing gold as a way to hedge for potential currency depreciation in the face of capital controls,” analysts including Jeffrey Currie and Max Layton, wrote in a report dated Oct. 24. Bullion consumption in China may also rise “as a way of diversifying away from the property market,” they said.

The potential for stronger demand may help prop up prices that are headed for a monthly loss as the Federal Reserve prepares the ground for higher U.S. interest rates. The offshore yuan dropped this week as Chinese policy makers signaled they are willing to allow greater currency flexibility amid a slump in exports and rise in the greenback. China’s government has also moved to rein in excessive speculation in real estate after a run-up in prices.

Chinese physical gold exchange-traded funds holdings “have increased further, and appear correlated with recent yuan depreciation,” the analysts said. “Should the recent decline in property prices in October and yuan depreciation continue we may see Chinese gold investment demand respond.”


PG View: With the yuan falling to new 6-year lows today — and the dollar index at 8-month highs — Chinese interest would indeed explain the buoyancy of gold.

Posted in Gold News, Gold Views |

India and China’s love affair with gold turns financial

24-Oct (FT) — For Surender Kumar Jindal, one of the biggest sellers of gold and silver bars in India, this year has not been good for business.

Gold may have rallied 20 per cent in US dollar terms, putting it on course for its first annual rise in four years. For the Indian market, though, that has contributed to a fall in demand for the physical metal.

Gold’s status in India, from its role in weddings to use in rural savings, has helped make the country the biggest buyer of bullion globally, so any slowdown in appetite is a worry for the industry.

“People aren’t buying because they know it’s not giving a return,” Mr Jindal says. “It is the price that decides; people are very price sensitive.”

Lacklustre demand in India marks a fundamental change for the physical gold market. After prices dropped in 2013, hefty buying from India and China saw hundreds of tonnes of metal flow eastward from vaults in London.

However, analysts say this does not mean the world’s two largest consumers of the metal have lost their love for bullion, rather that the way people buy gold there is changing.

In China, gold is becoming an increasingly popular investment product through platforms run by the country’s state-owned banks that allow investments on the Shanghai Gold Exchange via smartphones and online. New financial investment products such as gold exchange traded funds have also started to see inflows.

“You can see that China’s investment demand has the potential to be astonishing,” said Yang Qing, deputy general manager in the global market department of Bank of China, this month at the London Bullion Market Association conference in Singapore. “The proportion of gold in ordinary people’s asset allocation will increase.”

Posted in Gold News, Gold Views |

U.S. consumer confidence fell to 98.6 in Oct, below expectations of 101.4, vs negative revised 103.5 in Sep (was 104.1).

Posted in Economic Data |

Richmond Fed index rose to -4 in Oct, in line with expectations, vs -8 in Sep.

Posted in Economic Data |

U.S. FHFA home price index +0.7% to 237.9 in Aug, vs revised 236.2 in Jul.

Posted in Economic Data |

Case-Shiller home price index for 20-cities (nsa) +0.4% to 191.7 in Aug, vs 190.9; +5.1% y/y.

Posted in Economic Data |

Morning Snapshot: Gold firms, despite persistent dollar strength

25-Oct (USAGOLD) — Gold has trading back above 1270.00, up more than $7 on the day, despite ongoing firmness in the dollar. While this leaves the yellow metal well contained within the recent range, as I noted yesterday, the resilience in the face of dollar strength is encouraging.

The dollar index eked out another new 8-month high in overseas trading amid rising expectations that the Fed is going to try and get some additional clearance above the zero-bound, regardless of persistent lackluster economic data. The need for more clearance makes a lot more sense than arguing that the economy is doing just fine, but I remain a skeptic.

Chinese yuan weakness is buoying the greenback as well. The USD-CNY rate set 6-year highs and the offshore yuan set a record lows.

Posted in Gold News, Gold Views, Snapshot |

Gold higher at 1270.67 (+7.25). Silver 17.73 (+0.157). Dollar firm. Euro steady. Stocks called better. U.S. 10-year 1.77% (+1 bp).

Posted in Markets |

The Daily Market Report: Gold Starts the Week in Familiar Territory

24-Oct (USAGOLD) — Gold begins the week in familiar territory; well within the narrow range that has dominated for the past two-weeks. I apparently picked a good time to go on vacation . . .

The bid seen in early New York trading fizzled and the yellow metal is now down a couple dollars on the day. As noted in this morning’s Snapshot, gold is actually displaying some resilience in the face of a recent dollar strength.

The greenback is being buoyed by heightened expectations that the Fed will raise rates in December. The dollar index is trading at levels last seen in February. At that time, gold was trading around 1240.00.

Fed Funds futures put the probability of a December hike at 63%. While it’s been a while since the expectations have been this high, we most certainly have been here before.

Even if you subscribed to the notion that the Fed is going to hike into weakness again in December, it would likely be another case of one-and-done for a while. St. Louis Fed President James Bullard suggested as much today, saying that while a 25 bps hike is likely (while refraining from any mention of timing), he expects the low rate environment to persist for several more years.

MarketWatch categorizes Bullard as an “outlier,” because of his forecast that has rates at 0.68% through 2019. Taking the rest of the “dots” into consideration, the median forecast suggest “rates will rise gradually to 2.6% over that same period.”

We all know how terrible Fed forecasting has been for years, always tending to be way overly optimistic. Like I said, we’ve been here before: Either the data will remain anemic and the Fed will hold, or they’ll hike another 25 bps and the subsequent data will suffer just as it did after the last hike.

Either way, I think it will be good for gold. The yellow metal retreated into last December’s rate hike on the expectations and then commenced to rally once it happened. This time — at least thus far — the yellow metal is hanging on to most of the gains it has already notched this year.

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

Economists never imagined negative interest rates — now they’re rewriting textbooks

24-Oct (BusinessInsider) — If you’re a bank, the idea sounds crazy. Why pay someone to hold your cash?

In 1983, when Frederic Mishkin started writing “The Economics of Money, Banking and Financial Markets,” his seminal textbook on macroeconomics, he never thought he’d devote much space to the idea of negative interest rates.

“A million years no,” Mishkin told Business Insider.

Negative rates were seen as a bizarre thought exercise by academic economists, not something any of us would see in the real world.

It was “absolutely unthinkable when I started writing this book,” Mishkin, a former Federal Reserve governor and professor at Columbia Business School, said.

In fact, it took just about 30 years. And as Mishkin finishes the 12th edition of his textbook, he’s devoting a whole lot of space to negative interest rates.

There’s something very shocking about this,” Mishkin said. “I have to talk about how negative rates are something that can be very prevalent.”


Posted in all posts, Central Banks, Monetary Policy, Negative interest rates |

Morning Snapshot: Gold resilient in the face of dollar strength

24-Oct (USAGOLD) — Gold starts the week in familiar territory, well within the recent range. However, the yellow metal has caught a bit of a bid in early New York trading after the Chicago Fed’s national activity index remained in negative territory in September, after a negative revision to the August read.

While gold has been narrowly confined for the past several weeks, it is actually showing good resilience in the face of recent dollar gains. In fact, the dollar index set a new 8-month high overseas.

Posted in all posts, Gold News, Gold Views, Snapshot |

Chicago Fed National Activity index rose to -0.14 in Sep on expectations of -0.13, vs negative revised -0.72 in Aug (was -0.55).

Posted in Economic Data |

Gold steady at 1265.23 (-0.78). Silver 17.66 (+0.091). Dollar firm. Euro better. Stocks called higher. U.S. 10-year 1.74% (unch).

Posted in Markets |

Ignoring the debt problem

New York Times/Paul A. Volcker and Peter G. Peterson/10-21-2016

“Take some advice from two observers who have been around for awhile:  The long term gets here before you know it.”

“Instead, we’d be dependent on foreign investors’ acquiring most of our debt — making the government dependent on the ‘kindness of strangers’ who may not be so kind as the I.O.U.s mount up. We can’t let that happen — not if we want an America that is able to provide growth and stability at home while maintaining global leadership. We would risk returning with a vengeance to stagflation — the ugly combination of inflation and economic stagnation that we tasted in the 1970s.”

MK note:  Volcker and Peterson highlight the same problem we noted last week, i.e., the U.S. relying upon the good graces of overseas investors for financing its national debt.  The graph accompanying that post is worth posting again.  The ‘kindness of strangers’ is already drying up.

The other major stress with the national debt is interest payments.  At current rates, that bill runs in the neighborhood of $450 billion per year. Military expenditures by comparison run about $600 billion per year.  Even if a growing economy allowed for interest rate increases, the Fed would need to be careful. A return to the historical norm of 6.63%, as we pointed out this past June, would put interest payments at $1.277 billion – nearly 40% of revenue and double what the United States spends on the military.  The average now runs roughly 2.3%, according to the Treasury Department.


Posted in all posts |

Mobius says gold will gain in 2017 as Fed goes slow on hikes

Bloomberg/Swansy Alfonso/10-23-2016

“Gold is set to advance by as much as 15 percent before the end of next year as the Federal Reserve goes slow on increasing interest rates and the dollar remains subdued, buoying bullion demand, according to Templeton Emerging Markets Group.” . . . . .

“Mobius’s forecast for a higher gold price in 2017 even as the Fed proceeds to raise rates is similar to the outlook from participants at last week’s London Bullion Market Association conference in Singapore. Bullion will trade at $1,347.40 in a year’s time, according to a survey of people at the gathering.”

Posted in all posts |

Week in Review (Video) – October 21, 2016

Posted in USAGOLD TV |

The great physical gold supply and demand illusion

Bullion Star/Koos Jansen/10-19-2016


MK note:  Koos Jansen has done considerable ground-breaking research over the years, in particular with respect to Chinese gold demand.  In this article, he establishes by inference that there is considerably more demand for physical gold than what the mainstream statistical services are reporting to us. Second, he goes on to establish a direct correlation between physical gold bullion net flows in and out of the United Kingdom and the price of gold.  The chart above shows that correlation, and it is an interesting one.  He also says that a similar correlation exists between private investor demand for gold coins and bullion and the price, but not jewelry which comprises the largest segment of demand according to the mainstream services.

It all makes sense, and I would recommend spending some time with the analysis posted above to anyone looking to gain a clearer and deeper understanding of how the gold market operates in the here and now.  We are often asked why the price of gold does not respond to surges in demand.  Well, apparently it does if you know where to look to find the correlation. Jansen states that the supply and demand reporting services are leaving out the most important part of the gold pricing mechanism – the ebb and flow of gold metal through London and the London Bullion Marketing Association.

Posted in all posts |

Gold doesn’t care who wins the election

by Michael J. Kosares
Founder, USAGOLD and author of The ABCs of Gold Investing – How to Protect and Build Your Wealth with Gold

“Gold prices have enjoyed a hefty climb so far this year as the market continues to guess the pace and timing of the next U.S. interest-rate hike, but the battle for the U.S. presidency is set to take center stage as Election Day nears. And it doesn’t matter if Republican Party nominee Donald Trump or Democratic Party nominee Hillary Clinton moves on to be the next president of the United States—gold is likely to come out a winner, George Milling-Stanley, head of gold investment strategy at State Street Global Advisors.” –– Myra Saefong/MarketWatch/10-19-2016

Gold is not just an inert metal, it is also an indifferent metal. It doesn’t care who wins the election. It is apolitical – one might even call it politically agnostic. In the end, it will respond to the macro-economic situation globally as it unfolds no matter who sits behind the desk in the Oval Office. It will assume, as it has in the past, that presidents can only do so much no matter what political agenda he or she intends. Washington, it says, is not Mount Olympus where the gods dwell, but the place where a mere mortal will take the stage January 20, 2017 – for better or worse.

Yesterday, Bloomberg posted a somewhat unbelievable headline for those of us who still adhere to a more or less classical view of economics:

Central bankers rejoice:  There are signs that inflation is actually arriving

A decade ago, the posting of such a sentiment would have been full-proof that economic policy makers had finally gone collectively mad.  Now it is greeted with enthusiasm amongst the mainstream media and Wall Street as well as apparently (if Bloomberg is right) within the Federal Reserve and the rest of Washington.  This might fall under the category of being careful what one should wish for, or it might be just another piece of hopeful propaganda.  And then again, the hoped for incipient inflation might simply turn out to be another in a long line of non-starters.

In the end, the same intractable demographic problems outlined here at length over the past several weeks will greet the next president day one of his or her presidency. The baby boomers will continue to eschew spending and attempt to save for retirement. The succeeding generations will continue to be mired in student debt and low-paying jobs that make it difficult to own a home and thereby pump up general demand.  And Congress and Washington D.C. are likely to slip into the same institutional tension that has gridlocked the nation politically and economically for more years than any of us care to count.

The combined effect will be continuing weak demand, disinflation and the accompanying systemic risks. Secular stagnation, as some have come to call it, will remain a steep hill to climb for the next president. Should we hit another rut in the road as we did in 2007-2008, gold will be there to help its owners pick up the pieces. It doesn’t care who wins the election and it is indifferent as to which presidential candidate’s name will be attached to the next economic crisis.  We might get a bump in one direction or the other after November 8th, but thereafter gold will likely settle into a pattern driven by the big, overarching themes dominating all the financial markets, and the same inducements that have driven its pricing since its secular bull market began in the early 2000s.

One man’s opinion. . .and all I care to say publicly about the upcoming election.

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Posted in all posts, USAGOLD |

Investors’ cash at levels not seen since 9/11

Bloomberg/Sid Lerma and Luke Kawa/10-18-2016

“Investors are running back to cash as they worry about a strong bout of volatility ahead, according to the latest Bank of America Merrill Lynch fund manager survey.”

MK note:  Cash in greenbacks is good under the circumstances, but ultimate cash in gold and silver coins is even better – offers some upside potential.

Posted in all posts, Author, MK |

Gold SPDR second largest holding among hedge funds

Notable. . . .

According to Insider Monkey, a service that tracks where hedge funds are putting their money, SPDR, the largest gold ETF, is the second largest single holding among hedge funds.  The largest ETF commitment unsruprisingly is with SPY, a fund that tracks the S&P 500 Index.  At the end of June, 94 funds had invested $24.89 billion in SPY and 72 funds had invested $8.9 billion in the SPDR.

What I find fascinating about those numbers is that so many in the mainstream financial press like to speak of gold as an investment pariah appealing only to America’s fringe elements.  NOTHING COULD BE FURTHER FROM THE TRUTH.  As we have pointed out consistently at this page, gold has gone mainstream and the strong hedge fund involvement in SPDR is just more proof of the trend.

Gold owners are a group of people I have come to know very well in my 40+ years in the gold business. Contrary to the less than flattering picture sometimes painted by the mainstream press, the people we have helped become gold owners are among those we rely upon most in our daily lives — our physicians and dentists, nurses and teachers, plumbers, carpenters and building contractors, business owners, attorneys, engineers and university professors (to name a few.)

In other words, gold ownership is pretty much a Main Street endeavor. A  Gallup poll taken a few years back found that 34% of American investors rated gold the best investment “regardless of gender, age, income or party ID. . .”  In that survey, gold was rated higher than stocks, bonds, real estate and bank savings.  Also, according to a recently published Bankrate survey, one in six investors chose gold as the best place to park money they wouldn’t need for more than ten years – the same number that chose stocks.

The strong commitment from hedge funds in the SPDR shows that Wall Street and Main Street are on the same page when it comes to gold.  These are times where its presence in the portfolio has become an essential ingredient for financial health (not to overlook one’s psychological well-being as well).  MK

Posted in all posts, Author, MK |

Wells Fargo’s LaForge says gold is going back to $1050 Allan McCrae/10-14-2016

“Traditionally those long bear markets for commodities average about 20 years—and that is using data back to 1800—and we are only in year five.”

MK note:

The more things change, the more they stay the same

It should be noted that Wells Fargo’s John LaForge saw $660 per ounce as “in the cards” in October, 2014.  At the time, gold was trading in the $1200 range.  Since then it got as low as $1060 in December, 2015, but no lower.  In January, gold’s turnaround began and it hit an interim high of $1366 this past July.  So, at best, LaForge on his earlier prediction was off the mark by $400 at its low and $706 at its high.

Now, with gold trading in $1250 range he is back with a new prediction. He has adjusted his downside target to $1050 – $390 higher than his last target to the downside.  One wonders what happened to force the upward adjustment from his original $660 target. [??]

LaForge thinks gold is caught up in a commodities bear market that began five years ago and that is why it is headed for $1050 per ounce.  There are a couple of flaws in this analysis as I see it:

— First, if there is one area of significant disagreement among analysts, it is on the nature of cycles – when they begin, when they end, how long they last, where we are at present in any particular cycle, and whether or not current cycles under a fiat money system can even be compared to cycles when we were on the gold standard. And that covers just the high points. In short, with so many moving parts at play, LaForge could be right in his assessment, or he could be absolutely wrong.

— Second, and more importantly, one can put gold in the same container with the rest of the commodities if one so chooses, but is that a valid, or better put, workable classification given gold’s other prominent function as a safe-haven asset?  In the disinflationary years from 2008 until present, for example, gold went from $680 to $1800 at the top and trades at $1250 now.  In the same period, the Bloomberg Commodity Index (Click the “10y” tab) went from 233 to 85.  Commodities collapsed while gold went significantly higher – a clear indication that gold and commodities should probably not be thrown in the same hopper.

I am reminded of an old Murray Rothbard quote that I first encountered when I entered the gold business in the early 1970s. He included it in the intriguingly titled pamphlet, What Has Government Done to Our Money:

“All pro-paper economists, from Keynesians to Friedmanites, were now confident that gold would disappear from the international monetary system; cut off from its ‘support’ by the dollar, these economists all confidently predicted, the free-market gold price would soon fall below $35 an ounce, and even down to the estimated ‘industrial’ nonmonetary gold price of $10 an ounce. Instead, the free price of gold, never $35, had been steadily above $35, and by early 1973 had climbed to around $125 an ounce, a figure that no pro-paper economist would have thought possible as recently as a year earlier.”

As you can see, even when gold was trading at $35, its adversaries were predicting lower prices ($10 per ounce), and even then under the flimsiest of arguments.  Its ‘industrial” nonmonetary price?  How is that different from its monetary price?  Ultimately in that first leg of gold’s long term bull market, it went well over  $800 per ounce – a far (very far) cry from $10!

The lesson in all this?  The more things change, the more they stay the same.  Gold’s critics have not changed their tactics over the years, and they are not likely to anytime soon.  Make your own assessment on gold and develop a strategy that makes sense for you.  The worst thing you can do if you don’t own gold, or don’t own enough, is to allow yourself to be sidelined by predictions that may or may not be based on a realistic assessment of the markets, gold and the economy.


By the way, for those with an interest, you can still access What Has Government Done to Our Money at the Mises Institute.

Posted in all posts, MK |

Dalio sees end of long-term debt cycle, prefers gold

Bloomberg Markets/Katia Porzecanski/10-10-2016

“Dalio has warned for some time that the economy is at the end of a long-term debt cycle, characterized by a lack of spending despite interest rates near zero or even negative. He said at a seminar last week at the Federal Reserve Bank of New York that while central banks around the world will probably extend bond-buying programs, making higher-yielding assets seem attractive relative to bonds and cash, those investments are still expensive relative to their inherent risk. I[f] that persists, betting on gold could prove preferable, he said.

‘Investment returns will be very low going forward,’ he said, according to a copy of his remarks.”

MK note:  The factors that drove gold higher from the beginning of the year, in other words, remain in place.  It is interesting that Dalio foresees central bank’s going back to quantitative easing (bond-buying programs).  One big factor that might drive the United States back to quantitative easing is the lack of demand for Treasury paper from overseas investors and central banks as summarized in this chart:


Lindsay Group’s Peter Boockvar recently pointed out in a CNBC interview that foreigners have not only refrained from buying U.S. Treasury paper, they are net sellers to the tune of $156 billion thus far in 2016 – an unprecedented level. “Foreign flows were a big part of Treasury bond buying. Take that away and central banks take away the stimulus that was affecting long-term interest rates. Deficits are expected to head higher. This is a process that takes time to see these things play out,” he told CNBC.

As long as domestic demand fills the gap left by the departure of former debt buying stalwarts China and Japan, QE can remain on the back burner.  Should that demand dry up. . . . . . . . . .Meanwhile, the United States federal government added $1.422 trillion to the national debt in fiscal year 2016 just ended in September – the fourth largest such addition in history.

Posted in all posts, MK |

Five factors drive outlook for gold

Financial Times/Henry Sanderson/10-9-2016

“One notable fact about last Tuesday’s sell-off was that it was not because of liquidation in ETFs, holdings of which have remained steady, and even rose slightly last week. ‘The drivers of strong physical ETF and bar demand for gold during 2016 are likely to remain intact, including continued strong physical demand for gold as a strategic hedge, limiting any downside,’ Goldman Sachs says.”

MK note:  Sanderson verifies physical liquidations not reason for gold’s sell-off last week.  Last week’s drop was a paper bomb dropped on the market probably for the reasons we outlined last week, i.e., ancillary margin-driven bank and fund dumping in association with the collapse of pound sterling. Goldman Sachs calls “the retreat in gold a buying opportunity.” 

Posted in all posts, MK |

RED ALERT — Get ready for a ‘severe fall’ in the stock market, HSBC says

Business Insider – Bob Bryan – October 12

In a note to clients released Wednesday, Murray Gunn, the head of technical analysis for HSBC, said he had become on “RED ALERT” for an imminent sell-off in stocks given the price action over the past few weeks.

Gunn uses a type of technical analysis called the Elliott Wave Principle, which tracks alternating patterns in the stock market to discern investors’ behavior and possible next moves.

In late September, Gunn said the stock market’s moves looked eerily similar to those just before the 1987 stock market crash. Citi’s Tom Fitzpatrick also highlighted the market’s similarities to the 1987 crash just a few days ago. On September 30, Gunn said stocks were under an “orange alert,” as they looked to him as if they had topped out.

And now, given the 200-point decline for the Dow on Tuesday, Gunn thinks the drop is here.

“With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT,” Gunn said in the note. “The fall was broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August.”

Gunn said the selling would truly set in if the Dow Jones Industrial Average were to fall below 17,992 or if the S&P 500 were to dip under 2,116.


JK Comment: HSBC joins the growing number of investment houses calling for a significant decline in equities. A murmur growing louder by the day…

Posted in all posts, JK |

Update 2 – When markets go bump in the night

Stock market on brink of bubble burst

CNBC video/Rebecca Ungarino/10-10-2016

bearphot1MK note: As we enter the earnings season, stocks take a turn for the worse – down nearly 200 at the moment. In this video, Lombard Street Research economist Charles Dumas tells CNBC that the stock market is “on the brink of a bubble burst.” He breaks down the problem in the stock market to a simple, straight-forward cause and effect analysis. The market, he says, has been held up by company stock buy-backs which in turn have been financed by borrowed money at very low rates. As a result, any interest rate rise would likely put an end to that input source and put the stock market into a tailspin.

“When the Fed gets real and makes the necessary increases, this market could prove much more vulnerable than is traditional in the early stages of a rate-hike cycle.” – Charles Dumas, Lombard Street Research

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