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Monthly Archives: April 2017
President Donald Trump and Congress are on a collision course over government funding this week, as the White House demands money for a border wall with Mexico and Democrats vow it will never see a penny.
But just five days out from a government shutdown, Trump appears headed for disappointment. Democrats are signaling they’re unlikely to cave, and Hill Republicans are already pressing the administration to fight another day.
Hedge funds increased their wagers on a gold rally to the highest since November, betting that this year’s 11 percent advance has more to go. Investors are also loading up on the metal through exchange-traded products, pouring $487 million into SPDR Gold Shares on Wednesday. That was the biggest daily inflow into the world’s top bullion ETF in seven months.
Gold is shining bright as the dollar trades near the lowest since November, lifting the appeal of alternative assets. At the same time, escalating tensions between the U.S. and North Korea have boosted demand for a haven, while delays in implementation for President Donald Trump’s campaign promises to cut taxes and pursue a pro-growth agenda are clouding the outlook for earnings.
“There’s an appetite for storehouses of wealth at this point,” said Peter Sorrentino, the Dallas-based chief investment officer of Comerica Asset Management Group, which oversees $43 billion, including gold ETFs. “Rather than run the risk of having your dollars eroded on a relative basis, you can use gold as a life raft to sort of avoid a sinking ship.”
Gold fell more than 1 percent on Monday, marking its biggest tumble in more than a month, after the market’s favored candidate won the first round of the French election, easing worries over a political shock in the second round. Centrist Emmanuel Macron took a big step towards the French presidency on Sunday by winning the first round of voting, with the latest opinion polls showing him as strong favorite to beat far-right candidate Marine Le Pen in the final vote.
The news represented a huge defeat for anti-European Union forces on the right and left of French politics. It also sent European shares vaulting higher, boosted the euro by as much as 2 percent at one point and sparked a sell-off in safe-haven bullion.
Gold retreated below the 1270 level as global risk appetite surged in the wake of the French election results. As anticipated, Emmanuel Macron and Marine Le Pen will advance will advance to the run-off election on May 7, with the former favored to win.
This is the first time in more than sixty-years that the two main political parties in France do not have a candidate in the run-off, reflecting the ongoing dissatisfaction with the political status quo. To the relief of many, at least one of the finalist is a euro-friendly centrist that started his own party to get into the race.
The revived risk appetite has caused the euro and equities to surge. The dollar index fell to pressure the 98.86 low from late March, which has limited the downside in the yellow metal somewhat. Persistent geopolitical tensions continue to help underpin gold as well.
Centrist Emmanuel Macron has gone through to the second round of the French election, where he will face far-right leader Marine Le Pen.
Mr Macron, a former banker, is seen as a political newcomer – and ran without the backing of an established party.
After topping Sunday’s vote, he is now favourite to win the run-off on 7 May.
It is the first time in six decades that neither of France’s main left-wing or right-wing parties has had a candidate in the second round.
Gold lower at 1270.74 (-13.68). Silver 17.84 (-0.085). Dollar lower. Euro higher. Stocks called higher. U.S. 10-year 2.29% (+4 bps).
The murder of a policeman in the centre of Paris has dominated the final day of France’s volatile presidential election campaign, fuelling security fears and sparking concern that undecided voters would be influenced by the terror attack.
…Bernard Cazeneuve, the prime minister, called on the French people not to let the attacks shift their vote, saying they should “not succumb to fear, manipulation, division”. He added that “nothing must hamper this democratic moment, essential for our country”.
Gold has rebounded intraday to approach the 5½-month highs set early in the week. Silver on the other hand remains defensive below $18, pushing the gold/silver ratio to a 14-week high approaching 72.
Gold is being underpinned by persistent geopolitical risks and uncertainties associated with the French election this weekend. Silver may be suffering from renewed worries over disinflation as oil gives back most of the gains accrued over the over the previous 3-weeks.
Crude has plunged more than 7% this week after gains earlier in the month stalled ahead of the important $55 level. Rising U.S. production and concerns that the OPEC production cut agreement — and perhaps OPEC itself — will fall apart, have all weighed on oil.
A sustained drop in energy prices will further temper inflation expectations, that are already on the ropes in the wake of the weak CPI data that were reported last week. The dimming of price risks has tempered rate hike expectations, driving U.S. yields lower and contributing to a weaker dollar over the past two weeks.
Fed Vice Chair Fischer told CNBC today that he still sees three rate hikes this year, but added “we’re not tied to three.” He expressed concern — as Janet Yellen has recently — about the slowing economy. The Atlanta Fed’s GDPNow forecast for Q1 is a scant +0.5%.
by Michael J. Kosares
“In the absence of a credible monetary standard, we expect no escape from the treadmill of rising debt, both US and globally, that outpaces economic growth. Income inequality, wage stagnation, overvaluation of financial assets, and speculation instead of productive investment are likely to be prolonged under the current monetary regime. Whether or not policy makers take a proactive approach to address monetary reform, the fact remains that gold is massively underpriced in all paper currencies. It would be preferable if the necessary adjustments could occur without a repeat of a 2008-like financial crisis. We give this possibility a chance, albeit slim. In any event, we expect a significant repricing of gold higher during the current administration, either by design or because of market events. Whenever a repricing happens, we expect broad grassroots support for that outcome.” – John Hathaway, Tocqueville Funds
The past few days illustrate an important event in the gold market that both beginning and accomplished investors should try to understand thoroughly. I say that because by such an understanding you will become a more educated, patient and successful gold owner.
On April 19th, over $3 billion in paper gold was sold in the London over-the-counter market dropping the gold price by $14 per ounce in a matter of minutes. Just as quickly, the cries of foul play rose among gold punditry across the internet. Just before the “hit,” gold was trading in the $1286 range. It plunged to $1272. Since this morning’s AM London Fix, gold has been in recovery mode and it is now trading again in the $1286 range. Except for those who took the drop as a buying opportunity, these events will be seen essentially as a sound and fury signifying nothing. At the same time, quietly the notion of gold’s indestructibility has been reinforced – not so much with respect to its physical qualities, but with the place it occupies in the minds of investors across the globe. The recovery today in a certain sense is a fractal event in both amplitude and duration – a hint of a greater manifestation that might be coming down the road in the not too distant future.
More. . . . .
The gold price is determined in the futures markets, but the effects of that determination are in the physical market, i.e., the price for bullion, coins, jewellery, etc. Those who feel that the gold market price is controlled solely by forces within the paper market do not fully understand the constraints on paper imposed by physical supply and demand.
In a nutshell, if the paper market is successful in suppressing the price for too long and at too low a rate, the physical demand globally will eat up the physical supply and threaten the existence of the primary source of the metal – the mines. That is why top-level analysts like John Hathaway (Tocqueville Funds) often talk about the inevitability of one-off repricing events. As long as gold can be freely owned, the market at some point finds the real price of gold, reconciles the books and exposes the power of price manipulators for what it is – a temporary, staying action rather than a successful long-term program. It is the time period before that happens which presents the best buying opportunities – times like the present. The events of April 19th through today illustrate the point in a microcosm.
As it is, annual mine production has leveled out over the past several years and there has not been a major gold find anywhere in the world for decades. Meanwhile global demand for the physical metal has not only sustained itself in recent years, it has grown rapidly, and clearly at a rate that far exceeds the rate of growth in mine production. Just this past week, we have seen reports of renewed strong demand in China and India – two traditional powerhouses when it comes to physical ownership of the precious metals. Generally speaking, the East buys on price while the West buys on momentum, thus one might conclude that anecdotal evidence shows that the price has been “right” in recent months. This time around, as reported here previously, professional money managers have positioned themselves as buyers in concert with the East, something that happens only on occasion. The two together though are currently an imposing presence the global gold marketplace.
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The only way the gap between mine production and physical demand can be made-up is from above-ground sources, or by trading paper to the extent that it masks the wide gap between physical demand and physical supply. At some point, the paper price will succumb to reality of shortages as it always does. Those short the metal will need to find it and deliver on the price promises made previously, a process that usually excites the price discovery process in the paper market. If the pressure exerted by the traders of gold paper were powerful enough to overcome these realities in the physical gold market, the price never would have traversed the enormous gap between $250 per ounce in 2000 and $1850 per ounce in 2011, and roughly $1300 per ounce at present.
So no matter how much we lament the impositions of paper traders, i.e., their corruptions of the market and restraints to the upside, gold’s opponents can only win the occasional battle; they will never win the war. As I have said before, the paper traders must equally curse the ever-present power wielded by physical buyers of the metal, and over the years, the true believers in the precious metals, have only viewed episodes of price suppression as buying opportunities.
Ultimately, the end result might be another unprecedented price explosion, as Mr. Hathaway suggests, when the impotence of the controls becomes apparent on a far larger scale than what occurred in the gold market over the past few days. At a time, as has been the case since 1971, when the production of fiat money rules the roost, gold’s natural inclination will always be to rise in price in terms of that currency. In fact, if that were not the case, it would be unnecessary for anyone to attempt controlling the price. That affinity to rise is only compounded in the end by attempts to restrict the natural price level.
USAGOLD – Celebrating our 43rd year in the gold business and 20th on the world wide web
[Paul Tudor Jones], who made a large part of his fortune by calling the infamous stock market crash in October 1987, referred to a chart of the market’s value relative to the country’s economy and said it should be “terrifying” to central bankers, namely Federal Reserve chief Janet Yellen, according to the report.
…The trader said that low interest rates instituted by central bankers around the world have ballooned U.S. stock market valuations back to 2000 levels, right before the dot-com bubble burst and shares plunged.
This chart is sometimes called the “Buffett Indicator” because the Berkshire Hathaway chairman once referred to it in an interview as one of the key measures of valuation he tracks.
Oil prices fell more than 2 percent on Friday and were on course for their biggest weekly drop in a month due to doubts that an OPEC-led production cut will restore balance to an oversupplied market.
…The chief executive of France’s Total warned this week that prices could fall further due to rising U.S. production.
U.S existing home sales +4.4% in Mar to 5.710M pace, above expectations of 5.550M, vs negative revised 5.470M in Feb.
U.S. Markit flash manufacturing PMI fell to 52.8 in Apr, below expectations of 53.8, vs 53.3 in Mar; services 52.5 on expectations of 53.2.
Gold held steady on Friday, with safe-haven demand remaining intact as investors kept an eye on the upcoming French presidential vote that is seen as too close to call.
…”I would expect investors to stay on the fence… they would likely be market-watching rather than market-trading ahead of the French elections on Sunday, especially when there is no clarity,” OCBC analyst Barnabas Gan said.
“Into the near term, if the geopolitical tensions intensify, there is a chance that gold prices will reach $1,300 or more.”
The lucky participants in one of the best retirement plans around are coming after yours with a meat cleaver.
In the early stages of negotiating tax reform, Congress is already considering whether to reduce the benefits of contributing to a 401(k) and similar retirement plans — even as U.S. representatives and senators bask in the safety of the pension system that taxpayers fully fund for federal employees.
Alongside several million U.S. government workers, members of Congress participate in the Federal Employees Retirement System, which wraps their current savings and future pensions in a cushion of comfort that most American workers can only dream of.
PG View: The war on saving continues . . .
With the start of the French election just days away, investors are contemplating their nightmare scenario: a choice between far-left and far-right candidates.
In recent days, a surge in opinion polls has placed Jean-Luc Mélenchon, a left-wing firebrand who promises higher wages and fewer working hours, as a potential candidate to move past this Sunday’s first round of voting. That could set up a second-round vote in May 7 with Marine Le Pen, an economic nationalist who wants to pull France out of the euro.
…A runoff between Ms. Le Pen and Mr. Mélenchon “would be a disaster for France…[and] a disaster for Europe,” said Patrick Zweifel, chief economist at Pictet Asset Management.
Under that scenario, investors would dump the debt of France and of weaker European economies and send the euro sharply lower, analysts say.
PG View: Apparently some people are thinking about this possibility . . .
Gold is maintaining a consolidative tone as the week comes to an end. Geopolitical concerns continue to offer support, as does uncertainty surrounding the French election on Sunday.
French election polls have narrowed considerably in recent weeks, turning it into a close four-way race. With anti-euro candidates on both sides of the political spectrum that have pledged Frexit referendums, nobody seems to be considering what happens if those candidates — Le Pen and Melenchon — advance to the May run-off election. That would certainly shake things up on the Continent, and give the eurocrats in Brussels a case of the vapors!
Flash Markit PMIs for both manufacturing and services are out later this morning, along with existing home sales for March.
Gold better at 1282.93 (+1.50). Silver 17.97 (-0.074). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.23% (unch).
CNN/MJ Lee, Deirdre Walsh & Lauren Fox/04-20-17
Top House Republicans may be nearing a significant breakthrough among some key players on efforts to repeal and replace Obamacare, one month after a Republican health care bill was pulled from the House floor.
The leader of the conservative House Freedom Caucus, North Carolina Rep. Mark Meadows, and the head of the moderate Tuesday Group, New Jersey Rep. Tom MacArthur, are working toward a deal that could bring 18 to 20 new “Yes” votes from the conference’s conservative wing, according to a source familiar with the talks. But it’s not clear there would be enough votes in the broader GOP House conference to pass the bill.
PG View: Stocks seem to like this news as it fosters some hope that the broader Trump agenda has not stalled completely.
Laurence D. Fink, chief executive officer of BlackRock Inc., said the lackluster growth of the U.S. economy and uncertainty around the Trump administration’s ability to quickly pass key reforms pose a risk to markets.
“There are some warning signs that are getting darker,” said Fink, in an interview Wednesday on Bloomberg Television. Fink, who runs the world’s largest money manager, mentioned a pullback in car sales and a slowdown in merger and acquisition activity as indications that uncertainty is rising. The slowest economy among the G-7 nations is the U.S., he said.
After heading into the uncharted territory of quantitative easing, the world’s central banks are starting to plan their course through the uncharted waters of quantitative tightening.
How the Federal Reserve, European Central Bank and — eventually — the Bank of Japan handle the transition could make the difference between a global rerun of the 2013 “taper tantrum,” or the near undetectable market response to China’s run-down of U.S. Treasuries in recent years. Combined, the balance sheets of the three now total about $13 trillion, equating to greater than either China’s or the euro region’s economy.
“You know what they say about mountaineering right? The descent is always more dangerous than the ascent,” said Stephen Jen, London-based chief executive of hedge fund Eurizon SLJ Capital Ltd. “Shrinking the balance sheet will be the descent.”
Gold is consolidating after tests of the upside earlier in the week faltered ahead of $1300. The highs from Monday and Tuesday at 1292.30/1295.46 now provide intervening resistance.
The underlying bias remains positive, given heightened geopolitical tensions and the looming French elections. The first round is to be held this coming Sunday and the run-off between the two top finishers is slated for May 5.
Of the five candidates, two have pretty strong anti-euro leanings and have pledged to hold a Frexit referendum if elected. Those two candidates are Marine Le Pen and Jean-Luc Melenchon. The former has been a front-runner throughout the campaign, but the latter has made a late surge. Centrist europhile Emmanuel Macron has been the other front-runner and he would be the choice of those in Brussels . . . if they could vote.
Right now, the race is too close to call, which could make this a very exciting weekend. The European press and polling has pretty consistently believed that Le Pen and Macron will advance to the final and that Macron will ultimately prevail.
However, hearkening back to the U.S. election in November, we all know how wrong the press and polls can be. Perhaps even more-so than U.S. voters, the French are fed-up with the political status quo; both in Paris and in Brussels. This could be an exciting couple of weeks.
U.S. Secretary of State Rex Tillerson is reportedly considering putting North Korea back on the list of State-sponsors of terror. That would further isolate Pyongyang and either force them to negotiate, or prompt them to lash out.
“We are reviewing all the status of North Korea both in terms of state sponsorship of terrorism, as well as all the other ways we can bring pressure to bear on the regime in Pyongyang to re-engage, but re-engage with us on a different footing than the past talks have been held,” Tillerson said. That last part means that the U.S. is no longer willing to exchange aid for nuclear concessions.
North Korean responded by threatening a “super-mighty preemptive strike,” which suggests they are not ready to come to the bargaining table just yet.
• Gold has no counter-party risk in a 2008-style crash.
• The continual devaluation of the US dollar is inevitable.
• Gold will eventually return to its true historic role as money.
• The destruction of government balance sheets, continual devaluations, and the widespread implementation of zero interest rate policies probably will result in hyper-inflation.
• Central banks are nearing an inflection point where they no longer can supply the gold necessary to prevent rising gold prices.
• Gold has survived governments, leaders, parliaments, central bankers, economic stupidity, graft, corruption, and wars.
• Investment demand for gold is rapidly accelerating. The western world is in the early stage of a panic and “gold rush.”
• There is growing recognition that many paper gold products are not backed by physical gold.
PG View: Follow the link to see the rest of the list. It’s a good one . . .
Gold prices fell for a second straight session Thursday even as the dollar eased, pulling back after a five-day run had driven the safe-haven precious metal to five-month highs that failed to clear the closely watched $1,300 mark.
…“Gold remains steady, as traders are reluctant to short the market ahead of this weekend’s first round of French elections,” said Peter Hug, global trading director, with Kitco Metals, in a note.
“Physical buying has been prominent on the continent and in the Far East, as investors remain wary of geopolitical risks with North Korea, but North American demand remains anemic,” he said. “[I] would expect gold to trend firmer into the weekend…as investors digest the outcome of the first round of France’s election.”
Gold is consolidating around the 1280 level, just off the 5½-month highs set earlier in the week at 1292.30/1295.46. A weaker dollar, as well as persistent geopolitical tensions are seen as supportive.
Initial jobless claims rebounded last week and the Philly Fed index missed expectations significantly. Leading indicators for March is out later this morning. Median expectations are +0.2%.
Fed Governor Powell is speaking on regulatory issues in Washington, DC this morning. He did mention in his opening remarks that while the economy has recovered from the financial crisis, he is concerned about weak growth.