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Ranjeetha Pakiam (Bloomberg) Gold favored as Fed may have to backtrack, Mideast bank says Gold may rally to $1,400 an ounce in the near term and go on hit $1,800 by the end of next year as the world’s central bankers err, according to the largest lender in the United Arab Emirates, which is advising clients to hold up to 10 percent of portfolios in bullion and buy recent dips.
PG Note: If that Mideast bank liked the idea of buying the dip at the beginning of the week, buying it at the end of the week just ahead of solid chart/Fibonacci support at 1207.47/1205.32 may be an even better idea.
Annie Pei (CNBC) “If you look at gold on a very long-term basis, there is literally very little correlation between interest rates and gold,” Boris Schlossberg said Monday on CNBC’s ‘Power Lunch.’ ‘Basically, gold rose when interest rates rose in the ’70s, gold rose when interest rates declined in the ’90s,’ so the likely effect of Fed rate rises isn’t straightforward.
MK Note: One of the lessons I can pass along from many years watching the gold market, and working within it as a purveyor of the metal, is that none of the well-worn mantras and correlations carry much value in predicting short-term prices. For the most part, they are simply fodder to fill the trough of journalists charged with the responsibility of providing an explanation, realistic or not, for any given day’s market performance. In that respect, Mr. Schlossberg breaks down in one neat sentence the relationship between gold and interest rates, i.e., there isn’t one. That will not keep the Fed from jawboning, nor will it curtail market speculation on the prospective results – whatever course the central banks ultimately takes. In the end, the most enduring lesson history teaches us about gold is that it will protect its owners over the long run no matter what the central banks and governments dish out in the way of failed, or even successful, economic policy.
Brian Price (CNBC) Get into gold now! Prices could hit $1,900: Boockvar “In order to be bearish on gold, you have to believe that the Fed is going to embark on 100 to 200 basis points of hikes over the next couple of years, which I think is completely unrealistic,” added Boockvar. “This is an ideal opportunity for those who have not gotten in.”
PG Note: I am indeed amazed at the impact heightened expectations of a 25 bps rate hike can have on markets in the short-term. Boockvar is right: 100 – 200 bps is complete unrealistic.
27-May (Newsmax) — Alan Greenspan, former chairman of the Federal Reserve, said the global economy’s inability to produce goods and services efficiently is going to cripple the ability to pay for pensions and health programs for the elderly.
“We have a global problem of a shortage in productivity growth, and it is not only the United States but it is pretty much around the world,” he told Neil Cavuto at Fox Business. “Populations everywhere in the western world, for example, are aging and we’re not committing enough of our resources to fund that.”
…Greenspan says governments are going to confront another major financial crisis as economies struggle to pay for entitlement programs.
…Meanwhile, Newsmax Finance Insider David Stockman, former budget director under President Ronald Reagan, warns that the nation will plunge into recession by year’s end.
He said the Federal Reserve’s hawkish tone about hiking interest-rates is merely bluster.
PG View: Again, seems like a fine time to be contemplating another rate hike . . .
27-May (USAGOLD) — Gold edged modestly lower in early trading, weighed by an upward revision to Q1 GDP and a firmer dollar. The recent rise in Fed rate hike expectations continues to be a limiting factor on the upside.
Q1 GDP was revised up to +0.8%, below expectations of +0.9%, versus +0.5% in the preliminary report. That’s still very soft growth in the quarter immediately following the Fed’s first rate hike in nearly a decade.
While expectations for Q2 are better (+2.0% to +2.9%), it is reasonable to believe that the stronger forecasts may be largely attributable to the earlier belief that the Fed wasn’t going to hike again until late in the year. If the Fed moves earlier — in June or July for example — we may well see growth deteriorate again later in the year. So another rate hike may simply be an exercise to get a little more clearance above the zero-bound so that the Fed has some room to ease (without going negative) when the next recession hits.
Be assured there is another recession out there and it’s past due. The periods of recovery between recessions have been as long as 120-months, and as short as 12-months. The current recovery happens to be the weakest post-WWII recovery ever. The average period of recovery is just over 59-months. It has been 7-years (84-months) since the Great Recession “officially” ended in June 2009.
The Fed is playing a dangerous game in attempting to refill its toolbox at this juncture. They risk tipping the economy into the very recession they so desperately hope to avoid.
For now gold has had a very reasonable correction. We’re watching good chart/Fibonacci support at 1207.47/1205.32 ahead of the long holiday weekend. This area marks the corrective low from 28-Mar and the 38.2% retracement level of the entire rally from 1046.00 to 1303.80. The overbought condition has been relieved, so this may prove to be a good buying opportunity.
Next week, focus will be on the May jobs report, which comes out Friday, 03-Jun. Median expectations for nonfarm payrolls is +160k. That’s the same disappointing number that came out a month ago, which had everyone convinced that the Fed would NOT be raising rates any time soon. Kinda makes you wonder what might be going on . . .
26-May (Bloomberg) — At a time when about $8.1 trillion of global government bonds imply investors are paying borrowers for the privilege of holding the debt, it’s easy to understand why gold and the companies that mine the metal are back in favor.
Investors poured $8.9 billion into SPDR Gold Shares this year, the most of all the exchange-traded funds tracked by Bloomberg. In the first quarter, about 1,100 fund managers including billionaire George Soros bought more than 78 million shares of Barrick Gold Corp., the world’s biggest producer, company filings show. Gold prices are off to their best start to a year in a decade, while the value of about a dozen major mining companies doubled.
Driving the rally is a search for safer assets as global growth flags, along with bullion’s appeal as an alternative currency should inflation accelerate. Billionaire investor Stan Druckenmiller said he wagered on gold after unprecedented stimulus by central bankers led to “the absurd notion of negative interest rates.” Hedge-fund manager David Einhorn says “counterproductive monetary policies” mean prices are headed higher.
“When you have to pay to have your money stored, all of a sudden it makes sense to own gold, because even though the metal doesn’t pay you anything, at least you don’t have to pay,” said Alan Gayle, a senior strategist for Atlanta-based RidgeWorth Investments, which manages $38 billion. The move by Soros and others to own Barrick, which has the added benefit of a dividend, “could be a signal that there’s some strong hands in the sector now,” he said.
27-May (Reuters) — Gold steadied off an eight-week low on Friday, but remained on track for a fourth straight weekly drop as growing speculation that the Federal Reserve will press ahead with interest rate hikes hurt investor demand.
The metal fell for seven straight sessions to Thursday, its longest run of losses in more than six months, after minutes of the Fed’s latest policy meeting indicated last week that a rate rise may be on the cards sooner rather than later.
That view has been consistently supported by central bank officials this week. An increase in U.S. rates would raise the opportunity cost of holding gold, while boosting the dollar, in
which it is priced.
Spot gold was at $1,220.30 an ounce at 1236 GMT, little changed from late on Thursday but off an earlier low of $1,211.30. U.S. gold futures for June delivery were down 50 cents an ounce at $1,219.90.
The metal remains up 15 percent this year after a sharp first-quarter rally, but has fallen 4.5 percent since the Fed minutes were released last week.
“Expectations for summer rate hikes from the Fed have changed over the past couple of weeks, and looking at that, combined with the dollar being off its lows, equities near the highs, and yields higher, it’s a warranted move in gold,” UBS analyst Joni Teves said.
“That’s especially as you’re coming from quite a big build-up in positioning. Last week’s CFTC data showed that net longs were around 98 percent of the record high.”
Gold easier at 1220.42 (-2.04). Silver 16.33 (-0.035). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 1.82% (unch).
26-May (USAGOLD) — Gold was unable to sustain intraday upticks, resulting in continued pressure on the downside, amid ongoing speculation about a Fed rate hike. Recent Fedspeak continues to foster the notion that June is in play, which first emerged when the Fed minutes from the April meeting came out last week.
While the dollar has come off the recent highs, investors in the yellow metal seem inclined to scale back long exposure ahead of tomorrow’s second look at Q1 GDP. GDP is for the first three-months of the year is expected to be revised higher to +0.9% from the preliminary read of +0.5%. That’s still pretty soft, but expectations for Q2 GDP have been edging higher as well.
Brean Capital’s Peter Tchir says the Fed has been “horrible in terms of tying everyone to this small tiny number (25 bps),” and suddenly have investors who were pretty sure a week ago that June and July were not in play, wondering what they might have missed. “They’ve caused uncertainty,” warned Tchir.
Despite the Fed’s professed goal of providing clear guidance, they do indeed seem to be the primary purveyors of policy uncertainty. Are they just terribly at this guidance thing, or is fostering uncertainty their real goal?
The GDP revision and the May jobs report will hopefully provide some clarity over the course of the next week. But even if the Fed does bumps rates by another 25 bps, it by no means signals the end of the bull market in gold. In fact, the first rate hike back in December marked the beginning of that trend.
26-May (LawrieOnGold) — The latest figures for Swiss gold imports and exports raise some interesting questions. They confirm, for example, that Asian demand, as primarily represented by China and India, remains weak; that Hong Kong flows are no longer a proxy for total Chinese gold imports and; show a very big net export figure for gold going into the UK. While overall imports (146.2 tonnes) were virtually in balance with exports (146.7 tonnes) the sources of some of the imported gold will also raise questions about the state of the global gold market and where demand truly exists.
…But suddenly London is importing gold in significant quantities from Switzerland – presumably in good delivery bar weights (The April import figure alone will have been worth upwards of £2 billion which won’t please the UK government in trying to balance its books!). Now this may well be to satisfy demand from the big SPDR Gold Shares ETF demand. SPDR Gold Shares (GLD) are traded in North America but the gold is vaulted in London. This could suggest perhaps that there is very tight availability for physical gold in London as a number of analysts have been suggesting recently.
26-May (FT) — Global demand is in as bad a state as it was after the Lehman Brothers crisis in 2008, Shinzo Abe told G7 leaders on Thursday, in a clear sign the Japanese prime minister plans to delay a scheduled rise in consumption tax.
In the first session of the G7 summit in Ise-Shima, central Japan, Mr Abe showed world leaders a series of alarming graphs comparing today’s economic conditions with those of 2008.
…Mr Abe has repeatedly said that only a major natural disaster or an economic shock on the scale of Lehman Brothers would justify a delay. The recent earthquake in Kyushu provides the first; now he has found the second.
Delaying the consumption tax rise, in addition to a planned supplementary budget, would mean Japan will head into 2017 with an anticipated fiscal stimulus instead of contraction.
PG View: And Japan may in fact be the epicenter of any such crisis. Delaying the consumption tax hike may buy some time, but it pushes Japan ever-deeper into debt.
26-May (Reuters) — Gold edged higher on Thursday as the dollar’s rally paused, moving away from a seven-week low hit in the previous session, though gains were limited by expectations that U.S. interest rates could rise as early as June.
Spot gold rose 0.2 percent to $1,226.06 an ounce by 1226 GMT. The metal fell to its lowest since April 6 at $1,217.25 on Wednesday. U.S. gold was also up 0.2 percent at $1,226.30.
“Gold has entered a phase of consolidation due to stronger views that the U.S. Fed will raise rates this summer,” said Carlo Alberto de Casa, chief analyst at ActivTrades.
“Today we are just seeing a technical rebound after the metal touched $1,217 yesterday, where the next chart support stands.”
U.S. durable goods orders +3.4% in Apr, well above expectations of +0.5%, vs positive revised +1.9% in Mar; ex-trans +0.4%.
26-May (USAGOLD) — The internals of the report are not as positive as the headline number suggests. Nondefense capital goods orders (excluding aircraft) was -0.8% in April, versus upward revised -0.1% in March. This key indicator has been negative in five of the past 6-months.
Gold better at 1227.27 (+2.05). Silver 16.48 (+0.166). Dollar lower. Euro higher. Stocks called higher. U.S. 10-year 1.86% (unch).
25-May (Reuters) — Almost half of American families say they would struggle to pay for emergency expenses and those with a high school degree or less are most likely to say their well-being has declined, according to a Federal Reserve survey released on Wednesday.
The annual survey, in its third year, takes the pulse on the financial situation of U.S. families, which has been a key issue ahead of this year’s presidential election.
…A large swathe of Americans struggling with stagnant wages and fewer middle-class jobs have fueled the presidential campaigns of presumptive Republican nominee Donald Trump and Democratic candidate Bernie Sanders.
“Despite some signs of improvement overall, 46 percent say they would struggle to meet emergency expenses of $400, and 22 percent of workers say they are juggling two or more jobs,” said Federal Reserve Board Governor Lael Brainard in a statement.
Only 23 percent of respondents said they expected their income to be higher in the year after the survey, down from 29 percent at the time of the prior survey.
PG View: Despite any optimisms professed by policymakers, a large swath of America continues to struggle. Higher rates are certainly not going to improve their situations.
25-May (USAGOLD) — Gold extended modestly lower in earlier trading before stabilizing. The dollar remains firm amid ongoing Fed rate hike speculation, which is keeping the yellow metal under pressure.
While the debate rages on about whether the Fed will-or-wont pull the trigger this summer, the ECB is signalling again that it needs more support from governments in the form of fiscal reforms and closer coordination between countries within the EU. “Monetary policy cannot be a substitute for economic policy coordination or the lack of reforms,” said Bank of France Governor Villeroy de Galhau.
Monsieur de Galhau went on to add his voice to others that have suggested monetary policy has reached its limit. “Monetary stimulus is reaching its limits and if it is maintained for too long, it has negative side effects such as financial imbalances and misallocations in the broader economy,” said de Galhau. While there is technically no limit to the assets the central bank might buy or how deep into negative territory they might take rates, the efficacy of these policies are pretty clearly on the decline.
Of course we all know how elected officials feel about pushing painful fiscal reforms on their constituents. Their fear of not being reelected overwhelms their common sense; and as long as the central bank is willing to continue doing the heavy lifting, they seem to find comfort in their inaction.
One interesting exception has been Greece, where PM Tsipras and his Syriza party passed new austerity measures this week. You may recall that Tsipras and Syriza won election on an anti-austerity platform. “European leaders get the message tonight that Greece meets its obligations,” said Alexis Tsipras. As for his “obligations” to the voters of Greece . . . meh . . .
Here’s the payoff though: The move freed up another €10.3 bln tranche in bailout funds for Greece. On top of that, reports are circulating that the ECB will once again start accepting Greek paper as collateral for central bank loans.
Everyone’s a winner! With the exception of the Greek people: Who were sold a bill-of-goods in the last election. Are forced to endure more austerity. Find their country ever-deeper in debt.
It is astonishing that nearly a decade after the global debt crisis morphed into the global financial crisis and the Great Recession, countries are still trying to borrow their way back to prosperity. Last year, The McKinsey and Global Institute reported that global debt had increased by $57 trillion since 2007. To my knowledge that figure has not been updated, but we can be reasonably assured it’s higher today than when that story came out in February of 2015.
That dear reader is about as good a reason as there is for getting some gold. The correction in the yellow metal over the last several weeks may be a great opportunity to make that initial purchase, or add to your existing holdings.
25-May (CNBC) — Gold’s losing streak continued on Tuesday as the precious metal tumbled to its lowest level in more than five weeks. However, one of Wall Street’s most closely followed analysts says the dip presents a prime buying opportunity and that bears are reading the market incorrectly.
“This is just the beginning of a new bull market in the metals,” the Lindsey Group’s chief market analyst Peter Boockvar told CNBC’s “Futures Now” on Tuesday.
Ultimately, Boockvar believes that the 2011 highs of around $1,900 for gold are not only reachable, but surpassable, as reasoned that bull markets historically exceed the previous bull market peak at some point.
As Boockvar sees it, it’s just a matter of when.
“In order to be bearish on gold, you have to believe that the Fed is going to embark on 100 to 200 basis points of hikes over the next couple of years, which I think is completely unrealistic,” added Boockvar. “This is an ideal opportunity for those who have not gotten in.”
25-May (Reuters) – Gold fell to a seven-week low on Wednesday after upbeat U.S. home sales data in the previous session boosted expectations that the Federal Reserve will press ahead with interest rate hikes in the near term.
The metal has fallen more than 4 percent since Fed meeting minutes last Wednesday revived expectations for an imminent rate increase. Gold is sensitive to rising interest rates, which
increase the opportunity cost of holding non-yielding assets.
“It all does hinge on the Fed’s intentions for June,” Mitsubishi analyst Jonathan Butler said.
“We had surprisingly hawkish minutes last week which put the June rate rise back on the cards. That certainly has made life tough for gold, because the dollar’s rallied, 2-year Treasury yields have rallied, even 10-year yields have rallied somewhat.”
U.S. goods trade deficit widened to -$57.5 bln in Apr, inside expectations of $60.2 bln, vs revised -$55.6 bln in Mar.
U.S. FHFA house price index +0.7% to 233.1 in Mar, ,above expectations of +0.5%, vs 231.6 in Feb; +1.3% in Q1.
25-May (FT) — The European Central Bank has stepped up its calls for structural reform in the eurozone to support its own ultra-loose monetary policy — but recognised the difficulty of making its case to elected politicians.
The latest account of the deliberations of the ECB’s governing council said that at its April meeting the council “strongly reiterated the need for other policy areas to contribute much more decisively, both at national and European levels, in order to reap the full benefits of the ECB’s monetary policy measures”.
Central bankers across the 19-country currency area have cut interest rates below zero and pledged to buy €80bn-worth of mostly governments bonds a month until next spring to boost the region’s economic recovery.
While the ECB is confident such measures are aiding the economy’s return to health, top monetary policymakers are concerned that growth and inflation will remain weak unless governments carry out root-and-branch reforms of labour and product markets and loosen fiscal policy.
25-May (BBC) — Greece has agreed a deal to unlock a further 10.3bn euros ($11.5bn; £7.8bn) in loans from its international creditors, after talks in Brussels.
Eurozone finance ministers also agreed on debt relief for Greece, extending the repayment period and capping interest rates.
Greece needed this tranche of cash to meet debt repayments due in July.
The Greek government owes its creditors more than €300bn – about 180% of its annual economic output (GDP).
The International Monetary Fund (IMF) has been at odds with the Eurogroup of eurozone finance ministers for months over the issue of debt relief for Greece.
The IMF considers debt relief essential, but Germany in particular was opposed.
…Wednesday’s deal does not reduce the amount Greece will have to repay. Instead, debt relief will be phased in from 2018, after Germany’s general election late next year. As such, the deal is being seen by many as a compromise intended to buy time.
PG View: How many Greek bailouts is that now?
Gold steady at 1225.83 (+0.44). Silver 16.37 (+0.117). Dollar lower. Euro higher. Stocks called higher. U.S. 10-year 1.87% (+1 bp).
24-May (USAGOLD) — Gold dropped to new 5-week low as a surge in new home sales in April further boosted Fed rate hike expectations. The dollar index jumped to an 8-week high as Fed funds futures now put the odds of a June rate hike at 38%; July is now at 58%.
This is either good news indeed, or a really bad omen . . .
Americans Bought The Most New Homes In 8 Years Just As The Median Price Hit An All Time High https://t.co/ItrgaoRrtm
— zerohedge (@zerohedge) May 24, 2016
Did people finally decide to frontrun an anticipated mortgage rate increase? Is the housing bubble re-inflating? Is it bum data that will just get reversed out in the months ahead? Time will tell, but for the time being anyway . . . color me skeptical.
On the other side of the coin today, the Richmond Fed index for May unexpectedly crashed into contraction territory. The index tumbled to -1, well below expectations of 8, versus 14 in April. It was the largest monthly drop on record.
Bottom line: There is still plenty of conflicting data out there. However, the Fed has gotten the market leaning toward acceptance of a hike, so they may just take advantage of the shift in expectations to pull the trigger even if the true health of the economy remains dubious at best.
Part of the reason gold rallied so dramatically in the wake of the December hike is that the Fed made it clear that another hike would not be forthcoming for some time. It’s been nearly 6-months. If they hike again this summer and indicate that it will be another long-while until the next one, gold could well react in the same manner as back in December. This time though, the launch pad may be somewhere around $200 higher.
24-May (MarketWatch) — Gold futures dropped on Tuesday for a fifth straight session, sending prices to their lowest settlement in more than a month.
The precious metal’s decline comes as upbeat U.S. economic data fueled expectations the Federal Reserve will nudge interest rates higher, dulling demand.
June gold dropped $22.30, or 1.7%, to settle at $1,229.20 an ounce. Prices marked the lowest settlement since April 14. Month to date, prices have lost about 4.8%.
New U.S. home sales surged by 16.6% in April to a seasonally adjusted annual rate of 619,000, the Commerce Department said on Tuesday. That was the biggest monthly jump in 24 years.
Gold’s selloff Tuesday is “directly related to the blockbuster new home sales report and what that might portend for a June Fed rate hike,” said Brien Lundin, editor of Gold Newsletter. “Fed presidents seem eager to find sufficiently positive economic data to justify a June hike, and this new input from the residential real-estate market is more supporting evidence for the hawkish case.”
A flurry of Fed speeches this week is expected to do little to knock back the slightly higher odds for a June rate hike that financial markets have priced in, although gold prices would also be vulnerable to any surprise rhetoric from the speakers.