Monthly Archives: May 2016

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.

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U.S. initial jobless claims -10k to 268k for the week ended 21-May, vs 278k in previous week.

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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).

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Fed survey lays bare U.S. economic divide

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.

[source]

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.

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The Daily Market Report: Gold Remains Defensive on Firm Dollar, Higher Stocks


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.

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Get into gold now! Prices could hit $1,900: Boockvar


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.”

[source]

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Gold drops to 7-week low on Fed rate hike prospects

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.”

[source]

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U.S. Markit services PMI (flash) falls to 51.2 in May, below expectations of 53.0, vs 52.8 in Apr.

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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.

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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.

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ECB steps up call for reform

ECBbuilding
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.

[source]

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Greece bailout: Eurozone deal unlocks €10.3bn

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.

[source]

PG View: How many Greek bailouts is that now?

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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).

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The Daily Market Report: Gold Extends Correction on Surge in New Home Sales


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 . . .

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.

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Prospect of higher-rates dog gold

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.

[source]

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Why the Fed might not be able to put a stop to gold’s run

CNBC/Annie Pei/5-24-2016

“‘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.”

2010_06hedgefundMK 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.

Only the wisdom meted out by the market itself in countless situations down through the centuries carries any real value with respect to gold and gold ownership. 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. It really gets down to a simple notion:  One either believes in the transcendence of gold when it comes to matters economic, or one does not.

That is why the quote on our home page from Thomas Bailey Aldrich has been enshrined there nearly from day one of this website:  “The possession of gold has ruined fewer men than the lack of it.”  That simple bit of advice has not only protected our clientele over the years; it has built significant wealth.  The Fed might attempt to put a stop to gold’s run in terms of the price, but it cannot put an end  to global demand, or dislodge the metal of kings and the king of metals  from the place it holds in the human heart. 

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U.S. new home sales surged 16.6% to a 619k in Apr, well above expectations of 520k, vs positive revised 531k in Mar.

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U.S. Richmond Fed index tumbled to -1 in May, well below expectations of 8, vs 14 in Apr. Biggest drop on record.

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Gold lower at 1246.66 (-5.69). Silver 16.38 (-0.189). Dollar firm. Euro lower. Stocks called higher. U.S. 10-year 1.84% (+1 bp).

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The Daily Market Report: Gold Moves Off of Range Low as Soft Data Offsets Rate Hike Expectations


23-May (USAGOLD) — Gold continues to consolidate at the low end of the recent range as FedSpeak continues to propagate the potential for a rate hike at the June FOMC meeting. The dollar index remains well bid above the 95.00 level, keeping the yellow metal suppressed.

Since the release of the FOMC minutes last week, the central bank has done a pretty good job of fostering expectations of a rate hike. The odds of a June hike based on Fed funds futures have risen from 4% to 30%. Kind of makes you wonder why they didn’t convey the message contained in the minutes when they issued the official statement back in April . . .

Perhaps this is why the market remains somewhat skeptical with gold hovering around 5% off its recent highs. You may recall that as the Fed continued to ramp-up expectations for the first rate hike in nearly a decade, gold was pushed to nearly a 6-year low of 1046.00. When they actually pulled that trigger in December, gold launched on a nearly 25% rally marked by the 1303.80 high set earlier in the month.

We’re not seeing anywhere close to the same anticipatory selling in gold this time around. In fact, the only U.S. economic data out today, moved gold off the range lows: Markit flash manufacturing PMI came in at 50.5, below expectations of 51.0, versus 50.8 in April. It was the lowest print since September 2009, suggesting that the U.S. manufacturing sector continues to struggle.

If the Fed does in fact raise rates — and indicate that further hikes are in the offing — the dollar index could continue it’s rebound. That would put further pressure on manufacturers and the broader U.S. economy.

You may recall that the quarter following the Fed’s December rate hike saw meager 0.5% growth. While that number may be revised higher next week (+0.9% median), it should still be below 1%. So the stronger growth expectations that the Fed is using as the reason the economy could withstand another rate hike, may in fact be diminished by that very rate hike.

It is that conundrum that I think will factor heavily in the FOMC’s June deliberation, weighed against the Fed’s own credibility. If the second look at Q1 GDP misses expectations, I think we’ll quickly see June come off the table again.

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