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Monthly Archives: March 2017
For the gold market, 2016 marked the return of the “opportunistic generalist investor” – or more simply, the short-term-focused gold enthusiast who previously exited the market in late 2011 and early 2012 – this according to the latest findings of CPM Group.
“While net investment demand in 2016 at 27.4 million ounces was below the high levels seen between 2009 and 2012, it was a recovery from the reduced investor interest in recent years,” CPM said in its annual release of its coveted gold yearbook on Tuesday.
…Savant added that gold’s first leg up really started following Fed Chair Yellen’s dovish speech back in early March and the metal has since continued its ascent. He said the firm is forecasting the metal to be stronger in the second-half of the year, with prices moving into the $1,300-an-ounce territory.
U.S. consumer confidence surged to 125.6 in Mar, well above expectations of 113.6, vs positive revised 116.1 in Feb.
Gold and silver prices are trading slightly higher in early U.S. dealings Tuesday. The near-term technical postures for both precious metals have turned significantly more bullish the past few weeks. April Comex gold was last up $2.10 an ounce at $1,257.70. May Comex silver was last up $0.032 at $18.14 an ounce.
Global stock markets were mostly firmer Tuesday, on corrective bounces from recent selling pressure. Traders and investors are debating whether the recent downside pressure in stock markets is the end of the “Trump rally” that had been in place since the U.S. president was elected in November. Or, are the recent slides in stock indexes just normal corrective pullbacks in bull markets that still have more room to run?
Gold prices held near one-month highs on Tuesday, supported by political and economic uncertainty in the United States and expectations of a lower dollar.
…Traders report more investor buying interest after U.S. President Donald Trump failed to push through healthcare reform last week, fuelling concern about his ability to implement his economic policies.
That worry also sent the dollar to a four-and-a-half-month low against a basket of currencies on Monday. This makes dollar-denominated gold cheaper for holders of other currencies, potentially boosting demand.
“The dollar has come under a lot of pressure and lifted gold,” said Julius Baer analyst Carsten Menke. “Changing perceptions of the outlook for U.S. interest rates will create volatility in gold.”
USAGOLD/Peter A. Grant/03-28-17
Gold remains well bid after pressuring the high for the year yesterday. The yellow metal is higher this morning, within striking distance of resistance 1261.01/1263.87. The 200-day moving average is at 1258.87 today.
The dollar and stocks remain defensive and yields are still under pressure. This all conspires to keep gold underpinned.
Advance goods trade deficit narrowed to -$64.8 bln in February. The Case-Shiller home price index rose in January by 0.9%, above expectations. Later this morning we’ll see consumer confidence and the Richmond Fed Index.
Fed Chair Yellen speaks at the Community Reinvestment Conference in Washington at 12:30ET. There is also FedSpeak from Esther George, Robert Kaplan and Jerome Powell.
Case-Shiller home price index (20-city composite) +0.9% in Jan, above expectations of +0.7%; +5.7% y/y.
U.S. advance goods trade narrowed to -$64.8 bln in Feb, inside expectations of -$67.0 bln, vs -$69.2 bln.
Gold higher at 1258.24 (+4.89). Silver 18.15 (+0.075). Dollar easier. Euro steady. Stocks called lower. U.S. 10-year 2.36% (-2 bp).
USAGOLD/Peter A. Grant/03-27-17
Gold surged higher in overseas trading, buoyed by mounting concerns that the U.S. reflation trade is on the ropes. The high for the year at 1263.87 was pressured, but has successfully contained the upside thus far.
Nonetheless, a weaker dollar and lower yields should continue to underpin the yellow metal. The dollar index tumbled through important support at 99.23, establishing 4-month lows. Those losses lend some credence to the scenario that suggests the top is in for the dollar. That would be a positive for gold.
Certainly if the stock market rolls over — based on diminished optimism that President Trump will be able to advance his broader agenda — that too would be gold positive. If the delay of fiscal stimulus also causes the Fed to back-off from their anticipated 3 to 4 rate hikes this year, then gold could really be off to the races.
A sustained move to new highs for the year would also constitute a decisive breach of the 200-day moving average, returning considerable credence to the long-term uptrend. Further gains, or even consolidation at these levels, will continue to drag the 50-day moving average higher as well, toward a potential “golden cross.”
Keep an eye on silver as an indicator as well. Silver surged back above $18 for the first time in 4-weeks. Silver remained well bid, even as gold retreated into the intraday range, as the gold/silver ratio continues its retreat from above 71.00.
Gold eases after failing to clear the high for the year set in Feb at 1263.87, but the trend remains favorable.
New highs for the year in gold would also constitute a definitive breach of the 200-day moving average.
Gold prices jumped to a one month high Monday as the precious metal extended its rally since the U.S. Federal Reserve rate hike earlier this month amid a collapse in the dollar and increased global market uncertainty.
Spot gold was marked $13.70, or 1.1% higher at $1258.50 per ounce in early European trading, the highest since Feb. 28 and 5.15% higher than it traded on March 15 when the Federal Reserve lifted its key interest rate by 0.25%.
Monday’s rally is likely directly linked to the failure of U.S. President Donald Trump to push through a health care reform bill last week following the last-minute cancellation of a Congressional vote by House Majority Leader Paul Ryan.
Gold futures jumped 0.7% in early Asian trading on Monday as the U.S. Dollar Index fell another 0.4%, leaving the gauge of the greenback’s strength hovering near a two-month low of 99.3.
The U.S. dollar has long enjoyed the status as the world’s reserve currency, but the greenback’s esteemed standing is increasingly being challenged as China and Russia show their eagerness to to diversify away from the U.S. dollar.
…The weakness in the U.S. dollar can be partly attributed to recent doubts about the reflation policies favored by U.S. President Donald Trump. Gold prices typically rise when the U.S. dollar falls.
Gold rallied more than 1 percent on Monday after U.S. President Donald Trump’s failure to push through a healthcare reform package on Friday raised questions over his ability to deliver promised tax cuts and spending plans.
That knocked the dollar to a four-month low versus a currency basket and drove a drop in stock markets, with European indices sliding nearly 1 percent in early trade and U.S. stock index futures hitting six-week lows.
…”Trump’s spectacular failure to get his health bill through Congress raises concerns about his ability to achieve his goals on other policies,” Saxo Bank’s head of commodity research Ole Hansen said.
“With stocks, the dollar and bond yields lower and geo-political risks on the rise, gold may stand out as the commodity of choice at such time.”
PG View: Gold is certainly standing out this morning. Silver is doing even better!
USAGOLD/Peter A. Grant/03-27-17
Gold is up sharply as Friday’s healthcare debacle threatens to delay and possibly delay President Trump’s entire agenda. The yellow metal jumped to within striking distance of the high for the year at 1263.87 from February.
Silver has reclaimed the $18 handle. With the gold/silver ratio back below 70, it may be time for silver to play a little catch-up.
The dollar came under pressure on the uncertain political backdrop and falling yields, as there is now considerable doubt as to whether the Fed will get the fiscal help they likely were anticipating. Additionally, Angela Merkel’s CDU party emerged victorious in regional elections, dispelling some concerns about her hold on power. The euro surged to 4-month highs, putting additional pressure on the greenback.
The U.S. calendar is light today with the March Dallas Fed Index and a $26 bln 2-year note auction. We also will hear FedSpeak from Evans, Praet and Kaplan.
Gold higher at 1258.88 (+15.30). Silver 18.07 (+0.281), Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 2.36% (-5 bps).
Why gold coins and bullion are the better option for most investors.
Editor’s Note: You decide that the time has come to include gold in your investment portfolio. You contact your investment advisor and he or she puts you into a gold ETF. Did you do the right thing? In this article, which originally appeared at Forbes magazine, Olivier Garret tells why gold coins and bullion owned outright are the better option.
Gold ETFs are rising in popularity due to their convenience. They’re easy to trade, there’s no need to store anything, and no one is going to break into your house to steal your GLD shares.
But there are a lot of hidden dangers inherent in the structure and operation of gold ETFs that few investors are aware of — and these risks are more pronounced than ever, as the threat of another financial crisis is always around the corner.
Considering the public’s waning trust in the banking system, many investors find themselves wondering how GLD stacks up to owning the real thing. When you look at both assets more closely, it’s clear that gold ETFs and gold bullion are very different investments.
Why GLD is not the same as gold
SPDR Gold Trust (GLD), the largest, most popular gold ETF, is an investment fund that holds physical gold to back its shares. The share price tracks the price of gold, and it trades like a stock, but the vast majority of investors don’t have a claim on the underlying gold.
The reason for this is that you can only request physical delivery of metal if you own a minimum of 100,000 GLD shares (most investors don’t: at $1,000 gold, 100,000 shares is more than a million dollars). Even if you do own enough shares, the GLD ETF reserves the right to settle your delivery request in cash.
So why is GLD appealing to investors if you never actually own any gold?
For one, the fund is both convenient and low cost. If you’re looking for an inexpensive way to invest in the direction of the gold price, GLD is ideal.
The other advantage is you can employ leverage with options, which can be risky, but it’s something you can’t do with gold bullion. If you’re an investor who doesn’t plan to take delivery and you’re comfortable with a higher degree of risk, GLD can be a good way to gain exposure to the price of gold.
Counterparty risk on all levels
While gold ETFs can be a fine investment, they come with a lot of counterparty risk inherent in their chain of custody. And this risk will only grow commensurately with systemic uncertainties.
Think about it: If you own GLD, you must rely on a counterparty to make good on your investment. If the fund’s management, structure, chain of custody, operational integrity, regulatory oversight, or delivery protocols break down, your investment is at risk.
It all raises too many questions. Can you be sure the bank doesn’t front-run its customers? How safe are the fund’s holdings? Is the fund protected by adequate insurance? Is the custodian bank trustworthy enough to safeguard the gold?
The best reason to own gold is as a hedge against risk. It can be your last line of defense in an economic crisis—a form of wealth insurance, if you will. But since gold ETFs are part of the very banking system you need protection from, you must ask yourself if they serve one of the primary purposes for owning gold.
In a period of financial crisis, the risks inherent in holding GLD would only rise. In fact, the frequency and severity of counterparty risks with gold ETFs are already rising.
When you consider how these ETFs function, the problem of counterparties quickly becomes apparent:
When you invest in GLD, you buy shares through an Authorized Participant, which is usually a large financial institution responsible for obtaining the underlying assets necessary to create ETF shares.
When it does so, it is buying shares in the fund’s trustee, the SPDR Gold Trust. The trustee then uses a custodian (HSBC) to source and store the gold for it.
Trust in the custodian is paramount: If you’re buying gold as a hedge against a failure in the financial system, you must be confident that the custodian would not be impaired if a crisis were to happen.
As HSBC is one of the world’s largest banks, you simply don’t have that assurance. If there’s a systemic disruption, your GLD shares would likely be negatively affected.
Custodians like HSBC can use sub-custodians, such as another bank, to source and store gold. So in addition to the risk you assume with the fund’s primary custodian, you’re now exposed to even more risk because it has added another counterparty.
There are no written contractual agreements between sub-custodians and the trustees or the custodians, which means if a sub-custodian drops the ball, the ability of the trustee or the custodian to take legal action is limited.
This leaves the trustee on the hook for any negligence. But trustees don’t insure the gold for gross negligence; they leave that to the custodian, who secures limited general insurance coverage for the contents of the vaults. The value of the gold in the vaults is likely to be much greater than this limited policy would cover.
What this all boils down to is that if anything happens to any of the counterparties, you’re the one who loses. And you have zero recourse.
This article originally appeared at GoldSeek and is reprinted at USAGOLD with permission.
Facing a growing rebellion within his own ranks, House Speaker Paul Ryan pulled the Republican Obamacare replacement plan from the House floor on Friday just before a scheduled vote.
The decision is a staggering defeat for Ryan and President Donald Trump in their first attempt to partner on major legislation and fulfill a seven-year Republican promise to repeal Obamacare. It comes a day after Trump issued an ultimatum to House Republicans to vote for the bill or live with Obamacare.
Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007.
Credit rating firms have begun downgrading states and municipalities whose pensions risk overwhelming their budgets. New Jersey and the cities of Chicago, Houston and Dallas are some of the issuers in the crosshairs. Morgan Stanley says municipal bond issuance is down this year in part because of borrowers are wary of running up new debts to effectively service pensions.
…It’s no coincidence that pensions’ flight from safety has coincided with the drop in interest rates. That said, unlike their private peers, public pensions discount their liabilities using the rate of returns they assume their overall portfolio will generate. In fiscal 2016, which ended June 30th, the average return for public pensions was somewhere in the neighborhood of 1.5 percent.
…So why not just flip the switch and require truth and honesty in public pension math? Too many cities and potentially states would buckle under the weight of more realistic assumed rates of return. By some estimates, unfunded liabilities would triple to upwards of $6 trillion if the prevailing yields on Treasuries were used. That would translate into much steeper funding requirements at a time when budgets are already severely constrained. Pockets of the country would face essential public service budgets being slashed to dangerous levels.
PG View: A 550% rise in unfunded pension obligations over the course of a decade is bad enough, but even that grossly understates the problem because of the pensions’ own pie-in-the-sky performance projections. They almost have to keep piling into stocks hoping against hope that they can do better than 1.5% returns. Thanks Fed! This is a train wreck just waiting to happen.
USAGOLD/Peter A. Grant/03-24-17
Gold is heading into the weekend trading slightly higher on the day and just off the three week high set yesterday at 1253.31. The yellow metal is presently up 1.8% on the week and appears poised for a second consecutive winning week.
Focus remains on Capitol Hill, where passage of the GOP’s healthcare bill remains very much in doubt. President Trump has reportedly asked for a vote today regardless, but I suspect Republican leadership is loath to risk such a defeat this early in the Trump administration.
However, even if they go back to the drawing-board to attempt more palatable legislation, it would suggest to markets — especially stocks — that the Trump agenda is probably way overbought. If stocks roll-over, gold will likely benefit from continued safe-haven flows.
If the reflation trade is suspended, one has to wonder how the Fed will react. FedSpeak today continues to be rather optimistic, but I suspect they were actually hoping for a little fiscal help this year. If those hopes are diminished on the healthcare reform flop, the central bank may have to take a more dovish stance to ward off a stock market collapse and possibly even recession.
The Atlanta Fed’s GDPNow model now projects 1.0% growth in Q1. While that’s slightly better than the 0.9% forecast from March 16, it is hardly reflective of the “good clip” referenced by NY Fed President Dudley today.
House GOP leaders aren’t confident they have enough votes to pass their embattled health-care bill, according to a senior congressional aide, and are already considering what to do if the measure is blocked before a do-or-die vote hours away.
House Speaker Paul Ryan arrived at the White House Friday to brief President Donald Trump ahead of the vote. Vice President Mike Pence canceled a trip to Arkansas to be in Washington for the vote, a White House official said.
The Trump administration is doubling down on its demand that House Republican leaders hold a vote Friday on their embattled health-care bill without any changes and with an influential GOP member saying he’s not sure they have the votes.
Gold was on track for a second weekly gain on Friday as concern about the ability of U.S. President Donald Trump to push legislation through Congress held the dollar near 7-week lows, making bullion cheaper for holders of other currencies.
Spot gold was up 0.1 percent at $1,245.53 an ounce at 1131 GMT. The metal has risen 1.4 percent this week and on Thursday touched $1,253.12, its highest since Feb. 28.
…Gold, seen as a safe haven asset, has benefited from falls in the dollar, U.S. bond yields and stocks as Trump’s difficulty in passing healthcare reform has undermined faith that he can deliver on promises of tax cuts and investment.
President Donald Trump’s ultimatum to Republicans to overturn the Democratic health care law they’ve been campaigning against for years heads to the House floor Friday for a momentous showdown that will test the GOP’s ability to govern.
And no one, not even the people in charge of counting the votes, can say what will happen.
USAGOLD/Peter A. Grant/03-24-17
Gold corrected modestly overseas before returning to unchanged on the day. The yellow metal appears poised to score a second consecutive higher weekly close on a weaker dollar and worries that healthcare reform may stall the broader Trump agenda.
GOP leadership opted not to put AHCA to a vote in the eleventh-hour yesterday because they didn’t seem to have the votes. They’ll try again today, but considerable doubts remain as to whether the votes are there.
The gold market seems nonplussed by the February durable goods orders. Later this morning we’ll see Flash Markit manufacturing and services PMI. FedSpeak is due from Evans, Bullard and Dudley today.