Monthly Archives: September 2015
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.”
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.
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.
[source]
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.
U.S. Chicago PMI fell to 48.7 in Sep, below expectations of 53.4, vs 54.4 in Aug.
Canada GDP +0.3% in Jul, above expectations of +0.1%, vs negative revised +0.4% in Jun.
U.S. ADP employment survey +200k in Sep, above expectations of +190k, vs negative revised +186k in Aug.
Gold lower at 1121.00 (-4.83). Silver 14.60 (unch). Dollar higher. Euro lower. Stocks called higher. US 10yr 2.09% (+4 bps).
Here’s Why We Are Heading Towards Deflation
29-Sep (Bloomberg) — A. Gary Shilling & Co. President Gary Shilling discusses the price of commodities and deflation. He speaks on “Bloomberg Surveillance.”
“You’ve got excess supply of almost everything in the world.” – Gary Shilling
[video]
PG View: A couple things that aren’t in oversupply at this point, and are perhaps teetering on the edge of the other extreme; gold and silver.
The Daily Market Report: Is There 1,747 Tonnes of Gold Missing From London Vaults?
29-Sep (USAGOLD) — Gold is consolidating near unchanged, after recovering from an overseas downticks. Renewed uncertainty surrounding the Fed’s policy intentions for the remainder of the year are likely to be the market’s focus into this Friday’s jobs report.
Given the current rangebound nature of the market, and my ad nauseam coverage of the ebb and flow of Fed rate hike expectations, let’s use the DMR today to examine some of the yeoman research work done recently in the area of gold supply and demand:
First, Ronan Manly of BullionStar wrote a piece early in the month entitled: How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults in which he reports evidence of a rather significant outflow of good deliver bars from London.
According to Manly, as recently as April of 2014, the LBMA’s vaulting page reported “In total there is approximately 9,000 tonnes of gold held in London vaults, of which about two-thirds is stored in the Bank of England.” That’s a figure that the LBMA has apparently been using since 2011.
Earlier this year, the same page reported a significantly lower figure: “In total it is estimated that there are approximately 7,500 tonnes of gold held in London vaults, of which about three-quarters is stored in the Bank of England.”
In an LBMA presentation by CEO Ruth Crowell just 3-months ago, one of the slides stated that “There are ~500,000 bars in the London vaults, worth a total of ~US$237 billion.” That is the equivalent of 6,250 tonnes gold.
In other words, 2,750 tonnes of gold — nearly a third of the total reported in April 2014 — may have been removed from London vaults over the course of the last 4-year. Manly details some caveats in his blog post, but that is pretty startling outflow even if the reality isn’t exactly spot-on.
In a follow-on post, Manly aggregates as much information as he could gather about which central banks are housing their gold in London: Central bank gold at the Bank of England.
However, the real burning question of course is; where did all that gold go? If you’re a regular visitor to this site, or follow the gold market even casually, you probably have a pretty good guess . . .
The flow of physical gold from weak hands in the west to strong hands in the east has been well documented in recent years. One of the more dogged investigators of this ongoing phenomenon is Manly’s colleague Koos Jansen.
From Koos’ post on 25-Sep entitled The London Float And PBOC Gold Purchases:
We don’t know exactly when in 2011 the LBMA measured there were 9,000 tonnes of gold in London, but it doesn’t really matter. In the chart above we can see that the most significant movements since 2011 have taken place in 2012 and 2013. If we measure the flow of gold from the UK between 2012 and 2014, the net outflow is 970 tonnes. So it’s not that important when in 2011 the 9,000 tonnes were counted by the LBMA. What is important is that since 2011 not more than 997 tonnes of non-monetary gold has left the UK, according to official trade statistics.
Nick Laird and I noticed that although the total amount of physical gold in London fell roughly 2,744 tonnes (9,000 – 6,256) over four years (graph 1), only 997 tonnes were net exported as non-monetary gold (graph 4). This makes me wonder where the residual 1,747 tonnes (2,744 – 997) went. Possibly, this gold has been monetized in the UK and covertly shipped to a central bank in Asia, for example China. I don’t have rock hard evidence, but it fits right into the wider analyses.
Furthermore, from 2006 to 2011, the UK was a net importer every year. If the 9,000 tonnes estimate by the LBMA was hopelessly outdated, say, it was from 2008, this would increase the “missing gold” even more (as net export over the years would have been smaller than 997 tonnes).
What stands out for now is, (i) the LBMA has stated there were 9,000 tonnes of physical gold in London in 2011 and (ii) gold trade provided by HMRC reflects all physical movement of non-monetary gold in and out of the UK. Both these handles have nothing to do with complicated rules on changes in ownership of gold in London (that I’m aware of). Therefor we must conclude 2,744 tonnes left the UK since 2011, but only 997 tonnes was seen leaving as non-monetary gold. Where did the residual 1,747 tonnes go?
The supposition is that those 1,747 tonnes went to the People’s Bank of China. “Did the PBOC covertly buy 1,747 tonnes of gold in London?”, asks Jansen.
You may recall that this past July, China reported that it increased its gold reserves by 604 tonnes to 1,658 tonnes. The 57% increase was viewed as wildly disappointing, leading to speculation that the figure was grossly understated.
Many expected that Chinese gold reserves had at least doubled in the 6-years since they last reported. However, Bloomberg Intelligence estimated that China had tripled its gold reserves to 3,510 tonnes. Add the 1,747 tonnes missing from London to the most recent 1,658 “official” figure from China and you get to 3,405 tonnes. Interesting . . .
Icahn video – Danger ahead
“It’s not will it happen, but when it will happen.” – Carl Icahn
MK note: I would like to add my endorsement of Carl Icahn’s video presentation to Pete’s (below). The title for the video is “Danger Ahead” and in it Icahn delivers a chilling analysis of where the actions of the Federal Reserve, Wall Street and America’s major businesses are likely to lead us. He also offers some ideas as to what can be done to alter the financial situation, i.e., “the dysfunction,” as he calls it, prominent in Washington and in America’s corporate boardrooms. Icahn notes that financial leaders in 2007 and 2008 did not warn the people and he wants to make sure that this time around financiers in the know, people like himself, fulfill their responsibility to get the word out and give investors time to act.
This is the man Donald Trump has named publicly as his choice for Secretary of the Treasury if he is elected president. Icahn came out recently as endorsing Trump for president. In this video he says Trump will wake up the country as to what’s going on and likens him to Teddy Roosevelt – someone who is not afraid to say “this is complete bullshit.”
If you decide to take Icahn’s advice to prepare, you should not just consider what you might want to sell, but what you might want to buy. If gold and silver come to mind, so should USAGOLD. Helping investors properly balance their portfolios is is what we are good at. Call the Trading Desk to have your questions answered, receive the proper advice for your particular situation.
Not Enough Gold To Pay All Holders Of Gold Obligations
By Hubert Moolman
29-Sep (GoldSeek) — It is often reported that governments and central banks have for years leased or sold their gold to bullion banks; therefore, they are unlikely to possess the tons of gold, they are said hold. Also, the bullion banks seem to be under enormous pressure recently. Just look at the recently reported spike in the gold coverage ratio on COMEX, with, there being over 200 ounces of paper gold claims for every ounce of deliverable gold (as reported on zerohedge.com)
This made me think of whether there is a pattern visible on the charts that could link the current physical gold shortage to the famous gold shortages of the 30s and 70s. During those famous gold shortages, there were gold promises/obligations in existence that would never be settled. They have still not been settled, and have been instrumental in pushing gold prices much higher.
[source]
U.S. consumer confidence rose to 103.0 in Sep, above expectations of 97.0, vs negative revised 101.3 in Aug.
CARL ICAHN WARNS: The red-hot stock market is being supported by an unsustainable earnings mirage
29-Sep (BusinessInsider) — Carl Icahn warns that trouble is coming to the financial markets.
In a new video titled “Danger Ahead,” the billionaire Wall Street veteran lays out the major problems coming out of both Washington and Wall Street to argue that what’s coming next will be “very dangerous and could be disastrous.”
…For the financial markets and the economy, Icahn says the core problem is the Federal Reserve and its ultra-easy, zero-interest-rate policy. While Icahn credits the Fed with getting us out of the most recent crisis by using these policy tools, he also argues that it was the Fed that got us into that crisis to begin with.
Icahn observed that while low rates are intended to boost business investment, in reality they have actually led corporate managers to employ financial engineering and accounting shenanigans to boost earnings per share.
[source]
PG View: Icahn does an excellent job of explaining how companies engineered their stocks higher, thanks in large part to cheap financing courtesy of the Fed, even as the economy remains soft. He also explains why it’s not sustainable . . .
U.S. Case-Shiller home price index for 20-cities +0.6% to 181.9 (nsa) in Jul, below expectations, vs negative revised 180.7 in Jun; +5.0% y/y.
Reserve Bank of India cut repo and reserve repo rates by 50 bps each, more than the 25 bps expected. Fourth easing by RBI this year.
Gold easier at 1130.50 (-1.83). Silver 14.64 (+0.05). Dollar better. Euro lower. Stocks called higher. US 10yr 2.11% (+2 bps).
Mexico Extends Intervention After Currency Hits Record Low
28-Sep (Bloomberg) — Mexico will extend daily dollar auctions for two more months as global market volatility continues to pressure the most-traded emerging-market currency, its central bank said on Monday.
The peso trimmed losses after the statement was posted on Banxico’s website and was down 0.3 percent to 17.0183 per U.S. dollar as of 10:59 a.m. in Mexico City. It had earlier weakened as much as 0.9 percent.
Emerging-market currencies last week fell to their cheapest levels against the dollar since at least 1993 as low oil prices and weaker-than-forecast manufacturing data in China spurred concern that global economic growth is slowing. The peso hit a record low of 17.3425 per dollar on Thursday.
“It is the best thing that they can do,” Win Thin, head of emerging-markets strategy at Brown Brothers Harriman & Co. said in an e-mail. The dollar-selling program is “meant to be a circuit breaker when markets get crazy.”
[source]
The Daily Market Report: Gold Slips on Latest Hawkish FedSpeak
28-Sep (USAGOLD) — Gold fell back into the range on Monday, on the seemingly unending talk that a Fed rate hike could still happen this year. Some Fed members maintain that a rate hike before year-end would be appropriate, two-weeks after the central bank failed to make such a move at the September FOMC meeting.
The next big data release will occur on Friday with September jobs data. Nonfarm payrolls are expected to rise 200k, and the unemployment rate is projected to hold steady at 5.1%.
One would think that another sub-200 NFP print would kill rate hike talk for 2015 once and for all. However, the Fed seems inclined to hang the tightening prospect over markets for the foreseeable future, irregardless of the data.
The next opportunity to hike would be at the October FOMC meeting, but there is not a press conference scheduled. They could certainly call a press conference to explain any decision, but the more likely reality is they simply won’t tighten in October.
December seems unlikely as well. What kind of scrooge would raise interest rates — potentially triggering market turmoil — into the Christmas holiday?
‘Historic Coins of France’ Special Offer
For our September special, we’ve compiled the most diverse group of historic French coins we’ve ever seen here at USAGOLD. This list has something for everybody, from the inexpensive bullion substitutes to the historically significant heirloom items. So without further ado we bring you our ‘Historic Coins of France’ Special!
Pictured below are just some of the coins available in this offer. With numerous options pre-dating 1850, including Napoleon I, Louis XVIII, and Louis Phillipe, this is perhaps the most historically significant and impressive group of French coins to hit the market in years.
Pricing, details and availability are all accessible at the following link:
September Special – Historic Coins of France
