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Monthly Archives: December 2016
30-Dec (USAGOLD) — Gold is mildly defensive on the last trading day of the year, retracing a portion of Thursday’s solid gains. Nonetheless, the yellow metal appears poised to notch its first positive annual performance in four-years.
At this point it looks like gold will close around 8.5% higher for the year. Silver is on track to record and annual gain of about 15%. Not too bad when you consider that the metals have been under pressure for the last five-months!
Meanwhile, CNNMoney reported today that the major U.S. stock indices will end the year up “between 8% and 14%.” However, those too have come under pressure during the trading day. For now, the eagerly anticipated DJIA 20,000 level will have to wait until next year . . . or maybe even longer.
On that note, I was reminded that yesterday marked the 27th anniversary of the 38,957.44 all time high in the NIKKEI 225. At the time, it was not de rigueur to wear kooky hats proclaiming the inevitability of the next ‘big-round-number’, but man, wouldn’t you love to have a “NIKKEI 40,000” hat from back in the day?!
The index hasn’t been anywhere close to that level since; even with the massive QE efforts of the BoJ. Of the approximately ¥10 trillion worth of ETFs on the BoJ’s balance sheet, more than half are tied to the Nikkei 225.
One of these days, one of those Dow XX,XXX hats are going to be the kiss of death. It may not be 20,000, but one of these days . . .
Gillian Tett of the FT points out today that political risks in the the developed world have ramped up significantly in the past year:
Most notably, 2016 was the year when western markets were rocked by political shocks almost as startling as anything seen recently from the emerging markets world. In 2017 investors will probably confront even more political risk in the “developed” world that will make asset values look more volatile. — Gillian Tett
Heightened political risk can substantially amplify other risks. The implosion of the Renzi government in Italy for example, is going to make it much harder to resolve the developing banking crisis.
Ms. Tett warns that even greater political risks in 2017 is “bad news for anybody who hates market volatility.” One asset class that may benefit in such an environment is a safe-haven like gold.
Additionally, recent events suggest we may be getting closer to cyber warfare that could pose considerable risk to the traditional banking and financial services industry. The U.S. has retaliating against Russia for recent cyber attacks that perportedly influenced the recent U.S. Election. Vladimir Putin responded by saying, “we reserve the right to retaliate.”
We have maintained for some time — and now it may be a better idea than ever — that investors keep a portion of their wealth outside the traditional (electronic) banking/financial system. A stash of gold and/or silver coins held in your possession can’t be hacked or electronically disappeared.
On behalf of everyone here at USAGOLD, I would like to wish each and every one of you a happy and prosperous new year.
“Most notably, 2016 was the year when western markets were rocked by political shocks almost as startling as anything seen recently from the emerging markets world. In 2017 investors will probably confront even more political risk in the “developed” world that will make asset values look more volatile.
…The coming year could be equally unpredictable. France, Germany and the Netherlands will hold elections, just as support for populist candidates is swelling. Theresa May, UK prime minister, is embarking on Brexit negotiations, creating more uncertainty; and markets are waiting nervously to see what Mr Trump does (or does not) do in office, amid a host of conflicting signals.”
PG View: It would seem that the heightened political risks — and myriad attendant risks that come along with such a condition — would significantly enhance the appeal of a safe-haven, hard asset such as gold.
“Gold hit a two-week high on Friday on a weaker dollar and was set to close 2016 more than 9 percent higher, snapping three years of declines.
…Silver, up 0.2 percent at $16.18, was on track to end the year 17 percent higher.”
PG View: Late-year pullback not withstanding, it was still a pretty good year for the precious metals. Meanwhile, gains in the three major U.S. stock indexes will range “between 8% and 14%” according to CNNMoney.
30-Dec (USAGOLD) — Gold has retreated modestly in the wake of yesterday’s solid gains, even as the dollar remains under pressure. With only Chicago PMI on the calendar and a long holiday weekend ahead, trading is likely to be subdued. However, the yellow metal is 3% off the cycle low that was established last week. Upside follow-through early in the new year would lend some additional credence to the bottoming scenario that seems so strikingly similar to trading a year ago.
“While the precious metal has always been hoarded in times of trouble, a bevy of political and economic surprises in 2016 sparked a surge in buying that sent bullion to the first annual gain in four years. Prices may rally 12 percent in 2017, according to a Bloomberg survey of 26 analysts.”
Gold lower at 1156.30 (-3.70). Silver 16.16 (-0.048). Dollar lower. Euro lower. Stocks called higher. U.S. 10-year 2.48% (unch).
29-Dec (USAGOLD) — Gold has surged by more than 1% ahead of the new year, buoyed by a softer dollar and the loss of upside momentum in the stock market this year. The much ballyhooed Dow 20,000 level remains elusive this far.
This year’s price action in gold is very reminiscent of last year’s: A year ago, gold was being declared dead as the Fed hiked rates for the first time in nearly a decade. There were expectations that further normalization of monetary policy was in the offing for the new year.
It took a whole year for the Fed to initiate that next rate hike. In the interim, gold rallied nearly 30% through July of this year. As it began to look like another rate hike was indeed being queued-up, gold came under pressure in the latter half of the year. That anticipated tightening is now out of the way and there is some understandable skepticism about when the next hike might come.
Some trusted FedWatchers believe the central bank will be on hold at least through Q1 and some don’t see another hike until June. We will undoubtedly see rate hike expectations ebb and flow with the incoming economic data, much as we did this past year.
There are some differences for this upcoming year of course; most notably the impending inauguration of Donald Trump. We’ll like get a better feel for the policies he’d like to implement within the first one-hundred days of his presidency. However, it may take until midyear to see any actual results. Will the optimism that emerged post-election be validated? Is the national debt about to explode higher? Is inflation finally going to take hold?
We’ll be watching all of this quite closely, and with great interest, as 2017 unfolds. We’ll also be watching to see if gold’s low is in place and a brighter new year is going to emerge. It all feels very familiar though.
“Gold futures notched a fourth straight advance Thursday, finishing at a two-week best and trimming their December decline to roughly 1.4%, as the dollar index pulled back from 14-year highs.”
PG View: Bargain hunting and short covering ahead of year-end have driven gold more than 1% higher today alone.
“As you can see in the oscillator below, gold is now down more than two standard deviations from its mean, or average, dollar amount. The reason I show you this is because, in the past, this was a good time to begin accumulating, as mean reversion soon followed.”
PG View: This article was timely, as gold is now up more than $15 on the day. While there’s still a lot of trading day remaining, this is the yellow metal’s best day since early November. Is this an early indication that gold is poised to repeat the chart pattern of a year ago? Time will tell.
Gold jumps to more than 2-week high of 1156.72, buoyed by dollar softness and eroding risk appetite into year-end.
Zerohedge reports that 30,000 futures contracts ($3.5 bln notional) were bought into the European close.
Reuters via CNBC/12-29-16
“Gold is not out of the woods yet but yields are a bit lower and the dollar is weaker, especially against the yen and yen-gold has showed a phenomenal correlation since the U.S. election,” SaxoBank head of commodity research Ole Hansen said.
29-Dec (USAGOLD) — Gold is edging higher, buoyed by a softer dollar and a bit of a bounce in the euro. Nonetheless, the Italian banking crisis — centered on Monte de Paschi — continues to develop. With the ECB and Germany demanding that creditors and depositors bear the burden of a bailout, depositors at least are not surprisingly running for the exist.
“It’s a national tragedy,” said Marco Elser, a Rome-based partner at Lonsin Capital Ltd., a British investment firm. “Monte Paschi survived the Inquisition, the unification of Italy, fascism and two world wars. But it couldn’t survive the mismanagement and corruption of bankers and politicians in the 21st century.” — Financial Post
It’s become a good old-fashioned bank run. That of course has driven up the expected scope of the bail-out/in to $9.2 bln according to the ECB. The risks here remain considerable.
The U.S. advance trade gap grew to -$65.3 bln in November, well outside expectations of -$61.6 bln, versus -$61.9 bln in October. This offers further confirmation that dollar gains are indeed having a detrimental impact on U.S. exporters.
Initial jobless claims fell 10k last week, but ongoing jobless claims rose 63k. EIA data, ag prices and M2 come out later today.
U.S. advance trade gap widened to -$65.3 bln in Nov, outside expectations of -$61.6 bln vs -$61.9 bln in Oct.
Gold higher at 1146.16 (+3.58). Silver 16.06 (+0.041). Dollar lower. Euro higher. Stocks called better. U.S. 10-year 2.49% (-2 bps).
“In 2014 Total Global Assets Topped $105 TRILLION (i.e more than $105,000,000,000,000) An astronomical amount by any standards. Interestingly, only a small fraction of this monumental amount has been allocated to gold investments.”
MK note: Old friend, Vronsky, posts a quick read and an interesting tale of “what if. . . . . .”.
“He also said a precautionary state recapitalization of banks can only be part of a solution in exceptional cases and under strict conditions and that owners and creditors must be among the first to suffer losses. The bank must be solvent, he added and state money must not be used to cover losses.”
PG View: Monte Paschi remains on the brink and Germany’s hard-line certainly is not going to help pull the bank back from the edge. In fact, the ECB is now saying Monte Paschi needs to raise $9.2 bln, nearly twice as much as the ongoing effort seeks to raise. That’s going to smart twice as much for those owners and creditors . . .
28-Dec (USAGOLD) — Gold is maintaining a consolidative tone around the 1140 level. Price action is being constrained by thin holiday trading conditions and persistent dollar strength.
However, the dollar strength is really more about euro and sterling weakness. The former is being weighed by ongoing concerns about the Italian banking system as well as ECB policy. The latter is being pushed lower by Brexit related growth risks and worries about further deflation in the housing market.
U.S. pending home sales disappointed in November, falling 2.5%, as rising mortgage rates took a bite out of demand. Following the Fed’s move to hike rates for only the second time in more than a decade, 30-year mortgage rates have pushed decided above 4% to 2-year highs.
It’s also worth noting that debt issued by banks has reached a new record high of $6.6 trillion. Half of that is corporate debt and about a third of that is household debt. That means that corporations and households are as leveraged, or nearly as leveraged as they were right before the financial crisis struck.
That is especially troubling when you consider the still rather tenuous footing the economy is on. Even a moderate shock could cause this house of cards to collapse.
This poses quite a conundrum for the Fed moving forward. Given that the national and corporate debt are at new highs and household debt is nearly there, further rate hikes pose considerable risks.
It seems the Fed will have to take a far more cautious approach early in the new year than many are expecting. If a more dovish tone prevails in the week ahead, much of the recent losses in the bond market, and gains in the dollar, could get reversed. That very well could put a floor under gold as well.
“Rutledge’s top asset pick is real estate — the opposite of what was recommended when Reagan was beginning his presidency, the economist said.”
MK note: Former Reagan economist John Rutledge details an opinion very similar to what we expressed in a News & Views Special Report published earlier this month titled “Trump, Reagan economies at polar opposites.” If you read that Special Report and thought the argument had some merit, you will gain from the first-hand details provided at the link above. In the 1970s, the era that preceded the Reagan years (1980s), inflation dominated the financial landscape. Real estate did well and so did gold and silver – in fact spectacularly well. Rutledge seems to be expecting an era more like the 1970s than the 1980s.
If you would like to read the USAGOLD Special Report mentioned above, you can sign-up for immediate access here.
“Companies accounted for more than half of the $6.62tn of debt issued, underlining the extent to which negative interest-rate policies adopted by the European Central Bank and the Bank of Japan, as well as a cautious Federal Reserve, encouraged the corporate world to increase its leverage.
Corporate bond sales climbed 8 per cent year on year to $3.6tn, led by blockbuster $10bn-plus deals to finance large mergers and acquisitions.”
PG View: Corporations are leveraged to the hilt; at levels not seen since right before the financial crisis.
MarketWatch/Rachel Koning Beals/12-28-16
“Gold futures squeezed out a narrow gain Wednesday, enough to keep the contract flirting with two-week closing highs, even as the dollar also firmed.
…For 2016, gold and silver are still poised for their most robust gains since 2012 thanks to an early-year surge when global economic uncertainty pared the interest-rate outlook. Gold is headed for a roughly 6% advance and silver is up 14% for 2016.”
PG View: In light of the late-year retreat in gold, that’s not a bad annualized performance. And silver is actually up more than the much ballyhooed stock market!
28-Dec (USAGOLD) — Gold is little changed this morning, despite renewed strength in the dollar. The dollar index is pressuring the recently established 14-year highs as both the euro and sterling fall.
As British markets reopen after the long holiday weekend, the pound has come under renewed attack amid heightened concerns about global growth risks and Brexit side-effects; including housing market deflation. This all raises doubts about the BoE’s likely next move, which was fostered by the central bank’s own statement that rates could go “either way.” The market seems to be biasing toward easier policy.
Today’s U.S. calendar is light with November pending home sales and the weekly EIA report. Trading is likely to remain thin and choppy as we hurdle into year-end.
Gold steady at 1139.02 (-0.65). Silver 15.88 (-0.086). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.56% (unch).
27-Dec (USAGOLD) — Gold rebounded in overseas trading, reaching a one-week high of 1150.96 before retreating back into the range. Gains were initially capped by persistent dollar strength, but today’s better than expected consumer confidence number perpetuated the risk-on environment that has emerged since last month’s U.S. election, pushing gold back to only modestly higher on the day.
The heightened risk appetite is driving investors out of their safe-havens to over-weight stock positions on the belief that Donald Trump will be a tax-cut and spend President. Those investors seem to be looking past the destabilizing debt that will accumulate as a result of such policies.
The national debt is already nearing a staggering $20 trillion dollars. The stronger dollar and rising interest rates only exacerbate the problem because it makes servicing this monster all the more difficult.
The Wall Street Journal suggested earlier today that gold’s initial rebound was associated with rising inflation expectations. If that is the case, rising consumer confidence should in fact be a positive, as heightened consumption drives prices. Yet we’ll have to see if Donald Trump’s claim of a shoppers spent $1 trillion on Christmas this year is really true.