Monthly Archives: September 2016

Incrementum: In Gold We Trust 2016


29-Sep (Incrementum) — Gold is back! With the strongest quarterly performance in 30 years, the precious metal in Q1 2016 emerged from the bear market that had been in force since 2013. A decisive factor in this comeback is growing uncertainty over the recovery of the post-Lehman economy. After years of administering high doses of monetary painkillers, will the Fed succeed in discontinuing the practice? Or is the entire therapy about to be fundamentally challenged?

Generating growth and inflation remains the imperative of monetary policy. The systematic credit expansion required for this just doesn’t want to get going. Even the ECB, which initially acted with restraint after the financial crisis, is nowadays stuck in a perennial loop of monetary improvisation and stimulus. General uncertainty has now increased even further after the surprise outcome of the Brexit referendum.

After years of pursuing low interest rate policies, central banks have maneuvered themselves into a lose-lose situation: Both continuing and ending the low interest rate regime harbors considerable risks. In an attempt to finally achieve the desired boost to growth, a monetary Rubicon has been crossed in several currency areas with the imposition of negative interest rates. Gold is increasingly attractive in this environment. It used to be said that gold doesn’t pay interest, now it can be said that it doesn’t cost interest.

As a last resort, even the radical measure of helicopter money is considered these days. As the flood of liquidity has hitherto primarily triggered asset price inflation, newly created money is now supposed to be injected into the economy by circumventing the banking system in order to boost aggregate demand. It seems realistic to expect that such a windfall would indeed ignite the much-coveted price inflation. Whether it will be possible to put the genie back into the bottle once it has escaped is a different question.

An exit from the Fed’s monetary emergency programs has been announced for years in the US. This, together with the perception that the economy was recovering, led to a strengthening US dollar in recent years. Commodities and gold weakened as a result. So far, the actual extent of the normalization of monetary policy consists of the discontinuation of QE 3 and a single rate hike by 25 bps.

The US economic expansion appears to have run its course already. Should the rate hike cycle that has been initiated fail, a significant loss of confidence in the central bank’s policies and with it the USD appears likely. This would go hand in hand with rising commodity prices and a return of inflation and would represent a “perfect storm” for gold.

We believe the time for investing in inflation-sensitive assets has come. Apart from gold, silver and mining stocks offer very interesting opportunities. After several years of drastic adjustments, it is likely that mining shares will once again exhibit strong gold price leverage.

We believe that the events of the past year are validating our views and are maintaining our gold price target of USD 2,300 by June 2018.

[source]

PG View: We always eagerly await each annual edition of the In Gold We Trust report. As usual, it is a comprehensive and enlightening treatise on the fundamental factors impacting the gold market, revealing the importance of having some of the yellow metal as part of a well diversified portfolio.

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Posted in Gold News, Gold Views |

Dow drops 170 points as focus shifts to Deutsche Bank, Fed

29-Aug (MarketWatch) — U.S. stocks tumbled Thursday after two straight days of gains as investors appeared to shift from a focus on a preliminary agreement on oil output to worries about European bank contagion and talk of a December rate increase by the Federal Reserve.

Investors were following embattled Deutsche Bank, which is among Europe’s largest banks and buffeted by concerns about the health of its balance sheet, specifically its ability to withstand a potential $14 billion fine from the U.S. Justice Department. Deutsche Bank’s U.S.-listed shares DB, -7.15% were trading off sharply in recent trade.

[source]

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Posted in Markets |

The Daily Market Report: Gold Recoups Intraday Losses as Banks Lead Stocks Lower


29-Sep (USAGOLD) — Gold extended modestly lower in early New York trading, following some better than expected U.S. economic data. However, the yellow metal subsequently rebounded to trade little changed on the day as stocks rotated lower.

Q2 GDP was revised from 1.1% to 1.4%, slightly exceeding expectations. That leaves GDP for 2016 on a rather tepid pace to say the least.

However, a narrowing of the Q2 trade gap paints a potentially brighter picture for Q3. We’ve already seen some analysts upgrade their expectations for Q3, but Q4 projections remain just above 1%. That, in my humble opinion, does not warrant a rate hike.

Atlanta Fed President Dennis Lockhart, while a nonvoter, acknowledged support for steady policy at the last FOMC meeting. However, he said that he would be comfortable with a rate hike this year. Kansas City Fed hawk and dissenter Ester George believes it is time to start removing accommodations. No surprise there.

Stocks are being led lower by bank shares. Deutsche Bank is down more than 6% as hedge funds reduce exposure. There are also reports circulating of a dollar shortage developing in Europe.

As talk of contagion in the banking sector mounts, gold is likely to become increasingly attractive as a safe-haven. That may provide the impetus to finally move the yellow metal out of the recent range.

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

How gold helped South Korea repay its debt

29-Sep (BusinessInsider) — Nineteen years ago, South Korea came precipitously close to bankruptcy.

The Asian financial crisis had spread like a virus. Thailand, Malaysia, Singapore and other Southeast Asian countries were all affected, inciting fears of a global economic meltdown if the crisis couldn’t be contained.

… At the time, it was estimated that South Korean households held roughly $20 billion in gold, in the form of necklaces, coins, bars, trinkets, statuettes, medals, pendants, military insignias and more. Most of it carried strong personal and familial significance, far beyond its monetary value.

…Nearly 3.5 million people, almost a quarter of the entire country’s population, voluntarily participated in the campaign. Queues of people—young and old, rich and poor—stretched for blocks outside special donation points, all of them answering the call to help their country. Yellow ribbons proclaiming “Let’s overcome the foreign currency crisis by collecting gold” could be found pinned to people’s shirts.

[source]

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GDP growth better than predictions, still historically low

29-Sep (HousingWire) — Real Gross Domestic Product, that is, the value of everything a nation produces, increased in the second quarter at a slightly higher rate than previous estimates predicted.

GDP increased at an annual rate of 1.4% in the second quarter, according to the third estimate released by the U.S. Bureau of Economic Analysis.

This is up from the first quarter, when real GDP increased 0.8%, and the second estimate for this quarter when it increased 1.1%.

While this data is based on a more complete source of data than was available for the second estimate last month, the only substantial change was in nonresidential fixed investment, which showed an increase.

If economists were not happy about the number before, there is little hope they are impressed with the new estimate, which is just 0.2% above the first estimate.

[source]

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Posted in Economy |

Russia’s Adding Another 200 Tons of Gold to Its Treasury and Here’s Why


29-Sep (SputnikNews) — Russia plans to stock up on about 200 tons of gold this year, nearly matching the 208 tons it purchased in 2015. That’s according to Anton Navoi, the deputy head of the statistics department at the Russian Central Bank. Navoi explained that it’s profitable for the state to buy the precious metal, since Russia is a world leader in its production.

Speaking at a conference on Wednesday, the official said that “last year, the Central Bank purchased 208 tons of gold. This year, it will purchase around 200 tons.” Gold currently accounts for around 16 percent of the country’s foreign exchange reserves, Navoi noted. And while there is no directed effort to increase the precious metal’s share in Russia’s reserves, it seems likely to happen, as the purchase of gold is profitable for the country.

Gold currently accounts for around 16 percent of the country’s foreign exchange reserves, Navoi noted. And while there is no directed effort to increase the precious metal’s share in Russia’s reserves, it seems likely to happen, as the purchase of gold is profitable for the country.

…Russia has steadily built up its gold reserves over the last decade. In 2007, reserves totaled 402 tons. By 2012 they more than doubled to 883.2 tons; now, by the end of this year, the total looks set on nearly doubling again, this time to over 1,600 tons.

[source]

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Morning Snapshot: Gold remains defensive within range

29-Sep (USAGOLD) — Gold remains on the defensive within the recent narrow range. This morning’s U.S. economic data was generally constructive: Initial jobless claims where lower than expected last week, the trade deficit narrowed in Q2 and the upward revision to GDP was slightly better than expected.

This all may nudge December rate hike expectations ever-so slightly higher. However, the fact that gold’s well defined range remains intact suggests that risks elsewhere are likely underpinning the market.

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Posted in Gold News, Gold Views, Snapshot |

U.S. Q2 Advance trade deficit narrowed to -$58.4 bln, inside expectations of -$62.3 bln, vs -$59.3 bln in Q1.

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Posted in Economic Data |

U.S. initial jobless claims +3k to 254k in the week ended 24-Sep, below expectations of 259k, vs revised 251k in previous week.

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Posted in Economic Data |

U.S. Q2 GDP revised to 1.4% on expectations of 1.3%, vs 1.1% previously and 0.8% in Q1.

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Posted in Economic Data |

Gold lower at 1320.30 (-3.60). Silver 19.07 (-0.158). Dollar better. Euro lower. Stocks called lower. U.S. 10-year 1.58% (+1 bp).

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Posted in Markets |

John Embry – The Fundamental Attraction of Gold

28-Sep (Sprott) — For investors who are both just beginning their foray into gold investment, and for those who have been long time proponents of gold, Sprott Senior Advisor John Embry breaks down the recent history of the U.S., highlighting the pressures that have brought fiat currency to the brink, U.S. debt liabilities to staggering heights, and gold back to the institutional investor’s crosshairs. It’s a must-hear, dispassionate and highly instructional speech for anyone seeking to fully understand the state of the global economy and its implications for gold and silver, and why gold remains a cornerstone of a well-constructed portfolio today.

To quote Voltaire: “Paper money eventually returns to its intrinsic value. Zero.”

The U.S. has provided the world’s reserve currency since Breton Woods. Though we did not lose the implicit gold backing until 1971, the pressure of the 1960s set the stage. As President LBJ tried to fund both his Great Society program and the Cold War era arms race and the Vietnam War, cash was flying out of U.S. coffers. In the process, an ever-greater amount of U.S. cash – gold-backed cash – was ending up in foreign hands. At the time, only central banks could redeem U.S. currency for gold, and they came forward with arms outstretched. By 1970, the U.S. gold reserves were depleting at an alarming rate, causing Nixon to close off the vaults and unpeg the dollar. Few could imagine the financial engineering that was to follow.

[source]

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The Daily Market Report: Gold Slips Further Within Range


28-Sep (USAGOLD) — Gold is defensive within the range. While new lows for this week were set, price action remains confined to last week’s range.

Janet Yellen testified before the House finance committee this morning, suggesting that while there was no fixed timetable, she still anticipates hiking rates before year-end. Today’s downtick is acknowledgement that the words passed her lips, but the limited nature of the losses suggests the market isn’t terribly concerned. There will be more FedSpeak from others out later today.

U.S. durable goods orders came in unchanged in August. While that was quite a bit better than the -1.4% that was expected, July was revised lower from +4.4% to +3.6%.

The third report on Q2 GDP is out tomorrow and then the Fed’s preferred measure of inflation comes out on Friday. We’ll see if there is any indication of inflation starting to heat up, which could lend some confidence to those still calling for a December hike.

Right now the market needs some impetus in order to break out of this recent range. That may come from data, definitive FedSpeak or a price point that attracts buyers once again. However, we’ve always said — and it’s been proven time and time again — the best time to buy gold is during the quiet periods.

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

Gold slips deeper into range as Yellen says she still sees a rate hike later this year

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Posted in Gold News |

How Constant Is Gold’s Purchasing Power?

by Koos Jansen
28-Sep (BullionStar) — An often-perceived analysis in the gold community is that gold is the constant in our global economy. But is this true? Yes and no. Allow me to share my observations. Although gold has an exceptionally constant nature, and we have yet to see another currency that can compete with gold’s constant nature, the reality is, that there is no exact constant in economics. In any market all goods, assets, currencies, etc. continuously fluctuate in value relative to each other due to ever changing supply and demand dynamics. Having said that, in this post we’ll examine gold’s constant nature by measuring its purchasing power in the short (weeks) medium (years) and long term (decades). Additionally, we’ll compare our findings to fiat’s nature.

We will find that when gold is officially recognized as the center of a monetary system – throughout history there have been several forms of gold standards – gold is approximately constant in the short, medium and long term. Since the gold standard has been abandoned, the metal has become less constant in the short and medium term, but has remained impressively constant in the long term.

In turn, fiat can have periods of being constant in the short term, but will always loose value in the medium term and evaporate in the long term. Thereby, due to fiat’s fragile nature and the current stress in global finance, there are also risks fiat can significantly devalue overnight. Hence, gold is highly suitable to secure one’s purchasing power.

[source]

PG View: Given that fiat will “always loose value in the medium term and evaporate in the long term” it is imperative that every investor keep part of their savings in gold.

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Gold down as dollar firms ahead of Yellen’s testimony


28-Sep (Reuters, via CNBC) — Gold prices hit a one-week low on Wednesday, as the dollar firmed and investors shifted their focus to Federal Reserve chair Janet Yellen’s testimony later in the day.

Yellen will give her semi-annual testimony before a Congressional committee, where she could be asked questions about the Fed’s outlook on rates and the economy.

Financial markets will also monitor Cleveland Fed President Mester and Kansas City Fed President George’s speeches on the economy and monetary policy at separate events.

…”It is probably going to be a case of watching out for these Fed officials’ comments,” Mitsubishi Corp analyst Jonathan Butler said.

“We also have Friday’s U.S. inflation reading, which is the bank’s preferred measure of inflation and if that shows tick up towards the 2 percent target, it would give more confidence to markets that the Fed will move to raise rates in December.”

[source]

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Morning Snapshot: Gold remains soft within range

28-Sep (USAGOLD) — Gold edged lower in overseas trading, but remains well contained within the recent range. Durable goods orders for August came in better than expected, but was largely offset by a downward revision to the July number.

Lots of FedSpeak today from Kashkari, Bullard, Evans, Mester and George. Janet Yellen testifies before the House on the financial system and Fed supervision.

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

U.S. durable goods orders unch in Aug, well above expectations of -1.4%. vs negative revised +3.6% (was +4.4%) in Jul.

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Posted in Economic Data |

Gold steady at 1326.31 (-0.50). Silver 19.16 (-0.013). Dollar and euro steady. Stocks called better. U.S. 10-year 1.57% (+1 bp).

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Goldman: Gold is a ‘hedge against politicians’

27-Sep (CNBC) — Jeff Currie, head of commodities research at Goldman Sachs, attributes part of the 20 percent rally in gold this year to uncertainty over the coming U.S. election.

“We have a lot of political risk in the market right now, so gold has a strategic purpose,” said Currie, explaining that investors often gravitate toward hard assets in times of uncertainty. “Gold is a hedge against politicians.”

[source]

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The Daily Market Report: Gold Weakens Within Range, But Risk Aversion Limits Downside


27-Sep (USAGOLD) — Gold came under some pressure on Tuesday, but remains well contained within the recent range. Some better than expected U.S. economic data helped buoy the dollar, but last night’s Presidential debate is also being attributed.

U.S. home prices rose 0.6% (nsa) in July, according to the Case-Shiller home price index. However, the annualized pace of gains slowed somewhat.

Consumer confidence for August came in quite a bit better than expected. We’ll have to wait and see if that translates into better retail sales data.

Markit PPI bested expectations, while the Richmand Fed index was a miss.

Mounting risk aversion in Europe weighed on the single currency, which is also helping to underpin the greenback. Deutsche Bank stock remains under pressure after dropping sharply on Monday. The declining share price further erodes the capital position of the bank, raising the risk of a “Lehman moment,” and that phrase is being used with some regularity these days.

Share price and legal settlements are all plenty toxic, but Peter Bookvar of the Lindsey Group made a couple good points on CNBC yesterday:

“I think it gets to the larger picture of the destruction of the profitability and economics of banking in this modern-day regulatory and central bank world we’re in,” Boockvar said of Deutsche Bank’s recent stock slip.

According to Boockvar, negative interest rates are the toxic factor in the equation. “It is a tax on capital,” he said. “Every day, [negative rates] are bleeding the European banks.”

So, the ECB’s own monetary policy is putting a systemically important bank — that is already under duress — under even more pressure. If DB goes the way of Lehman, there is considerable risk of contagion throughout the global banking system.

Should another crisis get triggered, central banks employing ZIRP and NIRP are going to have to do a real hard examination of the risks they have created. If the decision is made to follow the (alleged) lead of the Fed and slowly nudge rates higher, global growth is likely to suffer. There is little room for error here; which should concern everyone.

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

Peak Gold Coming as Exploration Dwindles, Randgold CEO Says

27-Sep (Bloomberg) — Peak gold production may be reached within the next three years as miners fail to replace their reserves, according to Randgold Resources Ltd. Chief Executive Officer Mark Bristow.

The lack of new discoveries, cost cutting and miners digging out higher-grade material for a short-term gain, which can subsequently shorten the lifespan of a mine, are to blame for a supply crunch in the industry, Bristow told reporters in Johannesburg on Monday.

Bristow, a South African who made his name by discovering and building some of the continent’s biggest gold mines, is a longtime critic on his own industry and frequently criticizes miners for bad acquisitions and spiraling costs.

“The big debate is: When is peak gold? Is it 2019 as this graph shows?,” Bristow said while pointing to data compiled by BMO Capital Markets. “This is the waterfall I’ve been talking about at this meeting for some time. It’s now come into focus.”

[source]

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Gold dipped deeper within the range as consumer confidence beat further buoys greenback

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Posted in Gold News |

Richmond Fed Index rose to -8 in Sep, below expectations of -2, vs -11 in Aug.

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Posted in Economic Data |

U.S. consumer confidence jumped to 104.1.0 in Sep, well above expectations of 98.8, vs positive revised 101.8 in Aug.

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Posted in Economic Data |

U.S. Markit services PMI (flash) rose to 51.9 in Sep, above expectations of 51.1, vs 51.0 in Aug.

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Posted in Economic Data |

Oil prices slide more than 2% after Iran, Saudis douse hopes for production deal

27-Sep (MarketWatch) — Crude oil futures dropped sharply Tuesday after both Iran and Saudi Arabia played down expectations for a deal to freeze or cut oil production at the closely watched informal OPEC meeting on Wednesday.

Both countries said the meeting between members of the Organization of the Petroleum Exporting Countries and other heavyweight producers such as Russia, is only “consultative,” reinforcing views that major oil nations will walk away from the negotiations without an agreement.

Light, sweet crude futures for delivery in November fell 2.5%, to $44.76 a barrel on the New York Mercantile Exchange. November Brent crude traded on London’s ICE Futures Europe fell $1.23 cents, or 2.6%, to $46.70 a barrel.

“Any hopes for a crude output freeze being agreed [to] in Algiers this week have been dashed today after Saudi Arabia joined Iran in saying any talks on curbing output will be consultative,” said Neil Wilson, markets analyst at ETX Capital.

[source]

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Posted in Markets |

Gold down as dollar and stocks gain after U.S. debate


27-Sep (Reuters) — Gold fell on Tuesday as the dollar and stocks gained ground on the view that U.S. presidential candidate Hillary Clinton got the better of rival Donald Trump in their first debate.

Markets have tended to see Clinton as the candidate of the status quo, while few are sure what a Trump presidency might mean for U.S. foreign policy, trade and the domestic economy.

Gold, which is often seen as an alternative investment in times of geopolitical and financial uncertainty, suffered after the debate as a higher appetite for risk favoured shares, the dollar and the Mexican peso over the precious metal.

Spot gold was down 0.2 percent at $1,335.34 an ounce at 1136 GMT, snapping a six-day winning streak. U.S. gold futures eased 0.3 percent to $1,340.80 an ounce.

ETF Securities analyst Martin Arnold said Clinton came out on top during the debate against Trump, which eased investor uncertainty.

“The debate gave financial markets more optimism over the outlook so it put a little bit of pressure on gold, especially because the U.S. dollar has been supported by its outcome,” he said. “It takes away some of the uncertainty that has been weighing on investors’ minds.”

[source]

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Posted in Gold News, Gold Views |

U.S. Case-Shiller home price index for 20-citites +0.6% (nsa) in Jul; +5.0% y/y.

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Posted in Economic Data |

Morning Snapshot: Gold slips within range as dollar firms

27-Sep (USAGOLD) — Gold slipped within the recent range as rising risk aversion in Europe weighed on the single currency, buoying the dollar in the process. Concerns remain centered on Deutsche Bank and the risks the bank poses to the broader financial system. That should limit the downside in gold. As those risks heighten, gold will become more appealing as a safe-haven.

This morning we have S&P/Case-Shiller Home Price Index for July, Markit services PMI (flash), consumer confidence, Richmond Fed Index and there’s a $34 bln 5-year note auction. Fed VC Fischer speaks in Boston later this morning.

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Posted in Gold News, Gold Views, Snapshot |