Monthly Archives: March 2017

The Daily Market Report: Longer-Term Prospects for Gold Remain Positive as Debt Mounts


USAGOLD/Peter A. Grant/03-31-17

Gold is trading modestly higher, but it is still off the highs of the week — set on Monday — by more than $10. With the high for the year from February at 1263.87 intact and the 200-day moving average at 1258.31, resistance is well defined.

Today’s close will mark the end of Q1: Gold appears poised to post an 8% gain. Meanwhile, the much ballyhooed stock market hasn’t fared as well since the first of the year. As of this writing, the Dow is up 4.1%, S&P500 is +4.7% and the Russell 2000 is up a scant 1.1%. The one outlier is the tech-heavy NASDAQ at +8.9%. However, silver is leading the pack at +14%.

Despite the mildly corrective/consolidative tone that emerged after Monday’s surge, the downside has been limited. Further tests of the upside seem likely amid ongoing political uncertainty, toppy-looking stocks and waning expectations about the likely number of Fed rate hikes this year.

So while the Fed has promised to raise interest rates a few more times this year — some say two more, others three — the reasoning for such an increase may be unraveling a bit. — BusinessInsider’s Pedro Nicolaci da Costa

Continued lackluster growth and a tempering of price risks has some wondering how the Fed might justify further rate hikes if these trends continue. After a modest and below expectation 0.1% gain in March PCE, the Atlanta Fed’s GDPNow projection for Q1 growth was revised back to 0.9%. Goldmann Sachs cut its Q1 GDP forecast from 1.8% to 1.5% based on the “softer pace of consumption growth in the first quarter”.

Even as St. Louis Fed hawk James Bullard kicked around the idea of reducing the balance sheet, he cautioned that Q1 tracking estimates are showing sub-1% growth. If that’s the reality, a rational central bank would not be tightening policy into such weakness.

All of this should be generally supportive to gold. However, the big driver for gold in likely to remain our ever-growing debt burden. The CBO predicts that the debt/GDP ratio will nearly double from 77% to 150% over the next 30-years. At the same time, they predict that interest on that debt will quadruple, from 1.4% to 6.2% by 2047.

This is an unsustainable paradigm. The only way for the U.S. to service such a debt at such a rate is to devalue the dollar. If the dollar resumes it’s long term downtrend, gold will resume its long-term uptrend. Now is the time to position for that inevitability.

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

U.S. debt to double over the next 30 years

CNNMoney/Jeanne Sahadi/03-30-17

U.S. debt is likely to double as a share of the economy over the next 30 years, according to the Congressional Budget Office.

Considering President Trump’s push for big tax cuts and a promise not to touch key drivers of the debt, the picture could worsen.

Right now the nation’s debt amounts to 77% of GDP. That’s already the highest level since the post-World War II era. If current law remains in effect, it’s on track to jump to 150% by 2047, according to the latest long-term budget projections from the CBO.

…Interest on the debt, meanwhile, will almost quadruple — from 1.4% today to 6.2% by 2047. That’s due to rising rates and the growing pile of borrowed money.

PG View: This has been a major driver for gold for decades and clearly it’s going to continue for decades . . .

Posted in Debt |

Gold marks its 8th first quarter gain in 10 years

CNBC/Luke Graham/03-31-17

Gold has recorded a strong gain in the first quarter of 2017, with prices for the precious metal rising around 8 percent.

This is the biggest quarterly gain since the first quarter of 2016, when the price rose around 16 percent, according to data from ICE Benchmark Administration Limited. In fact, gold prices have made positive gains in 8 of the last 10 first quarters.

One of the main reason for gold’s gains is volatility hitting other assets, says Adrian Ash, head of research at Bullion Vault.

Posted in Gold News, Gold Views |

EU draws up tough stance on Brexit transition deal

FT/Alex Barker/03-31-17

EU leaders are preparing a tough opening stance in Brexit talks, explicitly stating that Britain must accept the bloc’s existing laws, court, and budget fees if it seeks a gradual transition out of the single market.

…Most worrying for London, the draft unambiguously spells out conditions for a transition phase, which would minimise disruption until a trade deal is complete. If the EU’s single market legal “acquis” — its body of common rights and obligations — is prolonged at all after Brexit, the guidelines say it requires “existing regulatory, budgetary, supervisory and enforcement instruments and structures to apply”.

Posted in Europe |

U.S. Chicago PMI rose to 57.7 in Mar, above expectations of 56.8, vs 57.4 in Feb.

Posted in Economic Data |

University of Michigan sentiment (final) revised down to 96.9 in Mar, below expectations of 97.6, vs 97.6 prelim.

Posted in Economic Data |

Gold set for best quarter in a year on political uncertainty


Reuters/Arpan Varghese/03-31-17
Gold remained steady on Friday with global political uncertainty, the upcoming elections in Europe in particular, seen supporting prices of the yellow metal, driving the metal to its best quarter in a year.

…spot prices were set for their best quarter since the quarter ended March last year, gaining about 8 percent.

…the fundamentals are still bullish for gold, especially with the upcoming elections in France and elsewhere in Europe. So prices are not really expected to go much lower from here”

PG View: Um, if markets close around the current levels, gold will have performed twice as well as the DJIA in Q1. I’d bet most investors have no idea . . .

Posted in Gold News, Gold Views |

The Fed is running out of reasons to keep raising interest rates

BusinessInsider/Pedro Nicolaci da Costa/03-31-17

Federal Reserve Chair Janet Yellen said the primary reason for raising interest rates in March was a simple one: the central bank is confident in a steadily improving economy.

Here’s the rub. The economy hasn’t really been improving lately, it’s actually been deteriorating somewhat. Despite record-setting rallies in stocks and renewed optimism among business leaders, hard data mostly point to a still-subdued environment for both investment and consumer spending.

…So while the Fed has promised to raise interest rates a few more times this year — some say two more, others three — the reasoning for such an increase may be unraveling a bit.

PG View: Yellen acknowledged disappointing growth in her testimony before Congress, but markets shrugged it off. That may be starting to change

Posted in Central Banks, Economy, Monetary Policy |

Morning Snapshot: Gold consolidating at low end of week’s range

USAGOLD/Peter A. Grant/03-31-17

Gold is consolidating at the low end of this week’s range, weighed by a firm dollar and a rebound in U.S. yields. Offering support is political uncertainty both in the U.S. and Europe.

Personal income rose 0.4% in February, in line with expectations. However, PCE came in at just +0.1%, below expectations. This is disappointing in light of recent strength in consumer sentiment. Further pressure on Q1 growth expectations becomes likely.

Later this morning we’ll see Chicago PMI and the final Michigan sentiment read for March. FedSpeak from Dudley, Kashkari and Bullard.

Posted in Gold News, Gold Views, Snapshot |

U.S. personal income +0.4% in Feb, in line with expectations, vs upward revised +0.5% in Jan; PCE +0.1%, on expectations of +0.2%.

Posted in Economic Data |

Gold easier at 1241.62 (-2.08). Silver 18.18 (+0.027). Dollar firm. Euro lower. Stocks called easier. U.S. 10-year 2.42% (+4 bps).

Posted in Markets |

Shutdown feared if Trump spending plans hit wall

FT/Courtney Weaver/03-30-17

Republicans in Congress are pushing back against a proposal from President Donald Trump to tack funds to pay for a new wall on the US-Mexico border on to stopgap spending plans as they seek to avert a government shutdown after April 28.

While Mr Trump has asked for a $33bn increase in defence and border spending as part of a deal that will keep the US government funded beyond April, lawmakers fear that his demands could force a government shutdown as Democrats refuse to accept Republican proposals.

Posted in Politics |

The Daily Market Report: Gold Corrective as Dollar Rebounds


USAGOLD/Peter A. Grant/03-30-17

Gold slipped deeper into the range as the dollar extended to the upside. The greenback is getting a boost today as a result of dovish ECBSpeak from Liikanen, Praet, Nowotny, which re-highlights ongoing policy divergence.

Additionally on the FX front, the Trump administration is reportedly assessing whether it can penalize currency manipulators. This has weighed on some currencies, lifting the dollar in the process. If the U.S. does indeed seek to label some of our trading partners as currency manipulators and punish them accordingly, we could see additional turmoil in currency markets.

One has to wonder what they’ll do about the Swiss, which directly intervenes in FX markets to weaken the franc. And what of our own history of manipulating the dollar lower via accommodative monetary policy and our own bouts of dovish FedSpeak.

And speaking of currency devaluation: The latest report from the CBO gives a pretty strong hint about the likely long-term direction of the dollar.

Government debt and budget deficits are both set to spiral higher in the coming three decades if current patterns hold, according to new projections released Thursday by the Congressional Budget Office. — CNBC

The CBO projects that the debt/GDP ratio will climb to 150% by 2047. That is completely unsustainable and the CBO notes that debt growth heightens the risk of another financial crisis. Rising interest rates only exacerbate the situation.

About the only way to deal with a debt problem of this magnitude is to inflate it away. That is accomplished by debasing the currency.

There is a long history of this in America and is reflected in the long-term downtrend in the dollar (in which the recent multi-year rally is but a small blip). If the long-term downtrend in the dollar is going to continue, then one can reasonably expect the long-term uptrend in gold is going to re-exert itself as well.

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

Trump is looking at new ways to go after countries that game their currencies

CNBC/Ylan Mui/03-30-17

The Trump administration is assessing the scope of its power to penalize countries whose currencies it believes are undervalued, according to two people with direct knowledge of the review, an effort to fulfill the president’s campaign pledge to crack down on what he frequently called unfair trade.

Posted in Currency Wars |

Britain is the least of Europe’s problems

Telegraph/Ambrose Evans-Pritchard/03-28-17

The European Union is encircled on the outside, split three ways on the inside, and is saddled with a corrosive currency union that is still not established on workable foundations and is likely to lurch from crisis to crisis until patience is exhausted.

Europe’s economic “Lost Decade”, and the strategic consequences that stem partly from this failure, have emboldened enemies and turned the Continent into a dangerous neighbourhood. The EU now badly needs a friend on its Atlantic flank.

While it would be undignified for any British government to exploit these circumstances (and Theresa May is certainly not doing so) this is the diplomatic and military reality as Britain triggers Article 50.

Posted in Europe |

Debt and deficits are going to explode in the next 30 years, CBO says

CNBC/Jeff Cox/03-30-17

Government debt and budget deficits are both set to spiral higher in the coming three decades if current patterns hold, according to new projections released Thursday by the Congressional Budget Office.

Due largely to increases in Medicare and Social Security, federal debt will reach 150 percent of gross domestic product in 2047, the CBO report said.

The total current debt held by the public of $14.3 trillion is 77 percent of GDP. The current total debt level of $18.8 trillion is about 101 percent of GDP (the CBO computes debt to GDP based on public debt).

Posted in Debt |

Morning Snapshot: Modestly defensive as dollar firms

USAGOLD/Peter A. Grant/03-30-17

Gold is modestly lower this morning, weighed by a firmer dollar and persistent hawkish FedSpeak. Silver is easier, but is maintaining gains above $18.

Offering support for the metals are political uncertainty, Brexit concerns and the medium term down trend in the greenback. Some uncertainty about stocks is offering some underpinning as well.

Initial jobless claims fell last week, but was still above expectations. Q4 GDP was revised up from 1.9% to 2.1%. That’s slightly better than the 2.0% that was expected, but it’s still a dramatic drop from the 3.5% Q3 pace. Prospects for Q1 growth continue to hover around 1%, according to the Atlanta Fed’s GDPNow model.

Later this morning we’ll see the Bloomberg Consumer Comfort Index for last week, EIA natural gas stocks, Ag prices for March and M2. Additionally, Fedspeak is due from Mester, Williams, Kaplan and Dudley.

Posted in Gold News, Gold Views, Snapshot |

U.S. Q4 GDP (3rd report) revised up to 2.1%, above expectations of 2.0%, vs 1.9% prelim read and 3.5% in Q3.

Posted in Economic Data |

U.S. initial jobless claims -3k to 258k for the week ended 15-Mar, above expectations of 247k.

Posted in Economic Data |

Gold lower at 1247.55 (-5.16). Silver 18.17 (-0.057). Dollar higher. Euro lower. Stocks called lower. U.S. 10-year 2.38% (unch).

Posted in Markets |

Trump Steers into Global Economy Collision Course

Der Spiegel/Christian Reiermann/03-29-17

U.S. President Donald Trump is currently steering his country into economic isolation. Bodies like the IMF, the G-7 and the G-20 fear for the future of the global financial system. They want Germany to take on a stronger role in standing up to the Americans.

..The world has become an unsettled place since the new American president took office — not just for Lipton, but for the entire IMF. No, he told his hosts, rising prices for commodities aren’t the greatest risk for the global economy, and neither are financial or currency crises. The true threat is that of a “geopolitical recession,” the American told them. The reference is to political developments like Brexit, but even more to populist economic policies from the new U.S. government that call for the erection of trade barriers and could throw the global economy off track.

PG View: It is primarily the globalists that are “unsettled,” but the threats that are emerging to the systems that they have created over recent decades are very real.

Posted in all posts |

The Daily Market Report: Gold Consolidates Recent Gains, Buoyed by Silver Strength


USAGOLD/Peter A. Grant/03-29-17

Gold continues to consolidate Monday’s solid gains, but the high for the year from February at 1263.87 remains intact. The trend remains favorable however, making further tests of the upside likely.

Both gold and silver are showing good resilience in the face of today’s good economic data and hawkish FedSpeak, which has served to lift the dollar. However, stocks remain well off their recent highs amid ongoing political uncertainty and perhaps the hawkish FedSpeak.

As we mentioned earlier this week, silver in fact may be the harbinger for further tests of the upside for both metals. The corresponding February high in the silver market is 18.48. While we’re still waiting for a cross of the 200-day moving average in gold, silver crossed that barrier on Monday and continues to sustain those gains.

Boston Fed hawk Rosengren, while a nonvoter, said that he would favor a rate hike at every other meeting this year. That would make a total of 4 hikes for 2017, which is more hawkish than the consensus. San Francistco Fed moderate dove John Williams (also a nonvoter) said he would not rule out more than 3 hikes. Chicago Fed dove Charles Evans took a more measured approach of 1 or 2 more hikes; expressing ongoing concerns about long-term inflation expectations.

The dollar firmed somewhat, with an additional boost from Brexit related Sterling weakness. The UK officially triggered Article 50 today, meaning that Brexit will proceed. The NASDAQ article I posted earlier today contends that gold will be a beneficiary of Brexit. The author sees gold as a currency and believes that some of the flows out of Sterling and the euro will find their way into gold. Given the relative size of the gold market to the $5 trillion average daily volume in the FX market, even a little shift could have a dramatic impact on the yellow metal.

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

Why Brexit Makes Gold A Buy


NASDAQ/Martin Tillier/03-29-17

Today is an historic day for the nation of my birth. Nine months after the surprise referendum vote to leave the European Union (EU), the U.K. Prime Minister Theresa May signed Article 50 of the E.U Charter, formally beginning the withdrawal from Europe, or Brexit as it has become known. As significant as the day is in historical terms, though, investors should be careful not to read too much into the news from a market perspective. The process may now be irreversible, but the actual terms of the withdrawal and of any trade agreements that follow are not yet known and they will determine the impact on stocks, both in the U.K. and elsewhere. There is, however, one market that could benefit as negotiations get underway and that is gold.

Gold is technically a commodity, but unlike most commodities it has very little practical use. It is therefore more accurate to think of the yellow metal, not as a commodity but as a currency, and it is in that role that gold stands to benefit from Brexit. The interbank currency markets, where I got my start in a dealing room and worked for nearly two decades, are huge. The average daily turnover is just north of $5 Trillion, making it easily the world’s largest market. In effect, foreign exchange is a massive pool of money looking for a home and if just a fraction of that cash finds its way into gold the precious metal is in for a strong bullish run.

PG View: A writer for NASDAQ acknowledging that gold is a currency! He’s right too, even if a fraction of the currency flows associated with Brexit find their way into gold, it will have a big impact.

Posted in Gold News, Gold Views |

U.S. NAR pending home sales index +5.5% to 112.3 in Feb, above expectations of 109.2, vs 106.4 in Mar.

Posted in Economic Data |

‘No turning back’ on Brexit as Article 50 triggered

BBC/03-29-17

Britain’s departure from the European Union is an “historic moment from which there can be no turning back”, Theresa May has told MPs.

The prime minister said it was a “unique opportunity” to “shape a brighter future” for the UK.

She was speaking after Britain’s EU ambassador formally triggered the two year countdown to the UK’s exit by handing over a letter in Brussels.

Posted in Geopolitical Risks, Politics |

Gold ticks higher as Brexit triggered


Reuters/Eric Onstad/03-29-17

Gold edged up on Wednesday, as uncertainty about Brexit talks, French elections and U.S. President Donald Trump’s economic policies boosted safe-haven buying and offset a firmer dollar.

“There are a lot of uncertainties regarding the Trump reflation trade after the failure last week to overhaul Obamacare and uncertainty in Europe with French elections coming up and the official start today of Brexit negotiations,” saidCarsten Fritsch, analyst at Commerzbank in Frankfurt.

The general picture is still positive (for gold) with dips seen as buying opportunities,” he said.

Posted in Gold News, Gold Views |

Morning Snapshot: Gold remains generally well bid

USAGOLD/Peter A. Grant/03-29-17

Gold is modestly higher, still within striking distance of the highs for the year at 1263.87 from February. This week’s challenges of this level have reinforced the resistance, but the yellow metal remains underpinned by political uncertainty, a soft dollar and lower U.S. yields.

A definitive push through this area would be a significant technical event as it would also constitute a breach of the 200-day moving average. Upside follow-through would be likely.

Pending home sales for February and EIA crude data are out later this morning. We’ll also hear FedSpeak from Evans Rosengren and Williams.

Posted in Gold News, Gold Views, Snapshot |

Gold higher at 1253.12 (+3.10). Silver 18.15 (+0.014). Dollar better. Euro lower. Stocks called mixed. U.S. 10-year 2.40% (-2 bps).

Posted in Markets |

The Daily Market Report: Gold Backs-Off From Highs for the Year Again


USAGOLD/Peter A. Grant/03-18-17

Gold slipped back into the range after failing to take-out the high for the year at 1263.87. The yellow metal is being weighed upon by rebounds in the dollar and stocks. However, the greenback remains defensive for the month of March, and in fact going back to the beginning of the year when the dollar index peaked at 103.82. Since that time, the DX is off nearly 4%.

Silver remains resilient, holding gains above $18, which may bode well for the underlying trend in gold as well. Silver has definitely been leading on the upside since the healthcare reform bill failed to clear the House last week, raising concerns about President Trump’s broader agenda.

Janet Yellen spoke today in Washington, focusing on job training. She did not provide any queues as to monetary policy moving forward.

Vice Chair Fischer confirmed that the Fed is watching political developments closely and seems disinclined to count any ‘fiscal chickens’ before they’ve hatched. He thinks two more rate hikes this year seems reasonable.

Esther George and Robert Kaplan towed the company line, expressing some optimism about the economy, but reiterating that Fed tightening will be slow and steady. The Atlanta Fed’s GDPNow model calls for 1% growth in Q1. While the “Blue Chip Consensus” is higher, it has been trending lower since late-February and moved below 2% recently.

The economy remains far from robust. While Esther George noted that we are in the midst of one of the longest economic expansions in history, it has been tepid at best. One has to wonder what tools remain at the Fed’s disposal when the expansion ends. Because it will end . . .

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

Richmond Fed Index rose to 22 in Mar, above expectations of 15, vs 17 in Feb.

Posted in Economic Data |