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“They look at the weathervane for the direction of the wind.” – Sumerian text, ca 1600 BCCurrent Spot Prices:
8:53 am Fri. October 20, 2017
(Time = USMT)
Monthly Archives: June 2017
Gold rebounded to within about $3 of last Friday’s closing price, retracing nearly all of yesterday’s so-called mysterious flash crash. A weaker dollar and heightened risk aversion are providing additional underpinnings to the gold market.
In an interview with KitcoNews, Canadian mining mogul Frank Giustra said that be believes the gold price is “managed” by policymakers because it is essentially the canary in the coal mine: A rising gold market makes it harder for those policymakers to stoke confidence. And that gentle reader is why the gold price is never managed, manipulated or fat-fingered higher.
So the next question was a good one: Why stay in the gold space if the price is “managed?” Giustra responded, “ultimately when everything else goes wrong — which it will — gold will be the only real asset left.” He believes that every portfolio should have some physical gold, “It’s your hedge against the world going bonkers; and the world is going bonkers.”
There seem to be some cracks forming is the manufactured confidence. There seems to be heightened concern about the frothy stock market and some analysts seem worried that we may be on the cusp of another crisis. Even Janet Yellen said today that she could not rule out another crisis, but she doesn’t think it will happen in our lifetime. That statement simply drips with hubris.
Philly Fed President Harker said today that he sees balance sheet normalization and one more rate hike this year, unless “inflation continue to deteriorate.” If that happens, he will have to reevaluate his position.
Fed Vice-Chair Fischer said the Fed must remain vigilant in monitoring financial stability risks. He conceded that the central bank lacks insight in the shadow banking system and expressed specific concern about subprime auto loans and student loans.
Peurto Rico’s legislature passed it’s $9.6 bln budget with no provisions for debt servicing. That seems like a pretty clear indication that they have no intentions of making those payments. I suspect another downgrade is in the offing.
Illinois is in similar straits: If the Land of Lincoln fails to pass a budget by month end, they will be the first state o see its debt rated as junk. It seems very unlikely that Governor Rauner and the Democrat controlled legislature will be able to strike a deal by Friday.
We’ll see if the Fed can maintain the confidence charade as the summer wears on. If confidence fades, gold will look increasingly attractive as a safe-haven trade.
The U.S. dollar hit a more than nine-month low against the euro on Tuesday after the head of the European Central Bank opened the door to steps that might begin to reduce the central bank’s emergency stimulus to the economy.
Speaking to a conference in Portugal, ECB President Mario Draghi said the ECB could adjust its policy tools of sub-zero interest rates and massive bond purchases as economic prospects improve in Europe.
But any change in the bank’s stance should be gradual, as “considerable” monetary support is still needed and the rebound in inflation will also depend on favourable global financing conditions, he added.
Gold prices are relatively unchanged, holding on to some positive gains following economic data that highlight strong optimism among U.S. consumers.
Tuesday, the U.S. Conference Board, reported that its consumer confidence index rose to a reading of 118.9 in June, up from May’s revised reading of 117.9. Economists were expecting to see relatively weaker consumer sentiment, with consensus forecasts calling for a reading around 116.1.
Gold was showing modest gains ahead of the report as the market continued to recover from Monday’s flash crash. Prices are relatively unchanged in initial reaction with August gold futures last trading at $1,250.10 an ounce, up 0.30% on the day.
The International Monetary Fund cut its outlook for the U.S. economy, removing assumptions of President Donald Trump’s plans to cut taxes and boost infrastructure spending to spur growth.
The IMF reduced its forecast for U.S. growth this year to 2.1 percent, from 2.3 percent in the fund’s April update to its world economic outlook. The Washington-based fund also cut its projection for U.S. growth next year to 2.1 percent, from 2.5 percent in April.
The world’s biggest economy will probably have a hard time hitting Trump’s target of 3 percent annual growth as it’s faced with problems ranging from an aging population to low productivity growth, and with a labor market already back at full employment, the fund said in its annual assessment of the U.S. economy released Tuesday.
Given broad uncertainty on policy, “we have removed the assumed fiscal stimulus from our forecast,” Alejandro Werner, director of the IMF’s Western Hemisphere Department, said at a press briefing in Washington.
U.S. consumer confidence rose to 118.9 in Jun, above expectations of 116.0, vs negative revised 117.6 in May.
U.S. home-price gains pulled back slightly but remained robust early this year, prompting questions about how sustainable such a streak can be.
The S&P/Case-Shiller 20-city index rose 5.7% in the three-month period ending in April compared to a year ago, down two ticks from the 5.9% annual gain notched in March. Economists had expected the 20-City index to increase 5.9% for the year.
Gold snapped back on Tuesday from Monday’s sharp losses, on its way to post four gains in five sessions as demand for stocks and the dollar soured.
Gold was finding some underpinning as geopolitics clouded trade, lifting the short-term attraction of haven investments including the yellow metal. The Trump administration on Monday night accused the Syrian government of preparing another chemical weapons attack, and threatened the Syrian military would “pay a heavy price” if an attack was carried out.
Gold is recovering from yesterday’s “mysterious” flash crash. The yellow metal is now nearly $15 off of yesterday’s intraday low and has come within $4 of a full retracement of the plunge.
What of course is really mysterious is that there is never a flash rally in the paper market. Whether by accident or with intent, it’s always a massive sell order that hits the market. Invariably though, such losses can not be sustained.
Today we’ll see the April Case-Shiller home price index, along with June consumer confidence and the Richmond Fed index. We’ll hear FedSpeak from Yellen and Harker in London and Kashkari is speaking at a townhall this evening.
Gold higher at 1249.81 (+6.55). Silver 16.68 (+0.11). Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 2.18% (+4 bps).
Gold remains defensive after getting slammed in early European trading by a huge $2 billion notional sell order in the futures market. Some are speculating that this was a “fat-finger” trade, but why are there never any “fat-finger” buyers in the gold market? The yellow metal is already more than $10 off the intraday low.
While the trendline off the mid-December low was temporarily violated, the 200-day moving average has successfully contained the downside thus far. Zerohedge quotes Citi analysts as saying, “we have confirmed triple weekly momentum divergence on Gold and as a reminder, this is one of our favorite indicators to suggest that a trend (downtrend in this case) is running out of steam.” In short, they seem to be suggesting that this pullback is a buying opportunity.
I’m inclined to agree based on this morning’s soft U.S. economic data and the resulting downgrades to Q2 GDP expectations. Weak yields and a weak dollar suggest that the market remains skeptical about the September rate hike, despite persistent hawkish FedSpeak.
Fed funds futures put the odds of a September hike at a meager 12.8%. Therefore, I expect the hawkish tone to persist as the Fed works to put the September hike back on the table. Janet Yellen will have her opportunity to try and set that table when she speaks on global economic issues tomorrow in London.
Extending its overnight decline, Bitcoin is now down almost 15% from last week’s highs, back at its lowest since June 16th…
…all of the largest 30 virtual currencies are deep in the red…
…Catalysts for this most recent drop remain unclear but as we noted last night, chatter is focused on uncertainty surrounding SegWit (another potential fork in the codebase) and some looming large ICOs.
The dollar sagged against its major peers on Monday, losing traction as U.S. Treasury yields stayed low amid fading expectations that the Federal Reserve to hike interest rates again later this year.
…The index had climbed to a one-month peak of 97.871 earlier last week, supported by expectations that the Fed, fresh from a mid-June rate hike, would tighten policy again as early as September.
But such expectations ebbed over the course of a week, with investors doubtful of another rate increase this year as U.S. data on balance have fallen short of forecasts.
“The main reason behind the weakness of the dollar, which has lost its upward momentum since the Fed rate hike, is U.S. yields stuck at low altitude,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.
A new financial crisis is brewing in the emerging economies and it could hit “with a vengeance”, an influential group of central bankers has warned.
Emerging markets such as China are showing the same signs that their economies are overheating as the US and the UK demonstrated before the financial crisis of 2007-08, according to the annual report of the Bank for International Settlements (BIS).
PG View: Today’s drop in the gold price is a great opportunity to start building/bolstering your hedge position.
Gold, one of this year’s best-performing commodities, is still pinned around the day’s lows after a mysterious tumble earlier on Monday.
…Traders struggled to pin the fall on a particular event, with some analysts suggesting that an accidental ‘fat finger’ trade may have triggered the initial fall, although moves like that typically immediately unwind.
…Precious metals have received a boost this year from a soggy dollar, which makes them more desirable to international investors. Subdued expectations for US economic growth have also provided a tailwind.
Legendary bankruptcy expert Dr. Edward Altman cautioned that this benign credit cycle — characterized by low default rates, low yields, low spreads, and lots of liquidity — could come to an abrupt end.
“It’s been a terrific market for investors for quite a long time and if anything is concerning it’s that we now are more than eight years into a benign credit cycle,” Altman, a professor at NYU Stern School of Business, told Yahoo Finance. “We’ve never had such a long benign cycle. And just that one little fact is something that we should be concerned about because if it comes to one and it could come to an end very dramatically.”
Altman, the creator of the financial-distress sniffing Altman Z-Score, warned in mid-2007 of a “Great Credit Bubble” and that there was going to be trouble in the market. He predicted that a meltdown would stem from corporate defaults. While the primary culprit of the financial crisis turned out to be mortgage-backed securities, investors who heeded Altman’s warning nevertheless avoided a lot of grief.
…Troublingly, Altman sees the reckless behavior of 2007 surfacing again.
Gold tumbled to its lowest price in nearly six weeks as a large sell order and a stronger dollar hit sentiment on Monday, though losses were limited by political uncertainty around the world.
…The sale of 18,500 lots of gold, totalling 1.85 million ounces, and 5,000 ounces of silver in 5,500 lots on Comex in a short space of time was behind falling prices, said Afshin Nabavi, head of trading at MKS in Switzerland.
“Clearly somebody sold it by mistake and bought it back quickly, triggering stops below $1,250,” said MKS trader Bernard Sin.
“Fundamentally, there is still a lot of uncertainty in the world, with Italian bank bailouts, Trump’s policies and Brexit. The world is in geopolitical chaos and gold is still good insurance.”
PG View: Gold was unable to break the 200-day moving average, so if it was indeed a mistake, these losses should be retraced.
Italy will commit as much as €17bn to clean up two failed banks in one of its wealthiest regions, the nation’s biggest rescue on record.
The intervention at Banca Popolare di Vicenza and Veneto Banca includes state support for Intesa Sanpaolo to acquire their good assets for a token amount, Finance Minister Pier Carlo Padoan said Sunday after an emergency cabinet meeting in Rome. Milan-based Intesa can initially tap about €5.2bn to take on some assets without hurting capital ratios, Padoan said. The European Commission said it approved the plan.
The lenders will be split into good and bad banks, and the firms will be open on Monday, Prime Minister Paolo Gentiloni said. Intervention was needed because depositors and savers were at risk, he said. The northern region where they operate “is one of the most important for our economy, above all for small- and medium-size businesses.”
Gold sold off sharply in Europe as big sell orders hit the market. Reportedly 18,000 gold contracts ($2 bln notional) were dumped in a 1-minute period. However, the 1241.30/1235.82 support zone we were watching has contained the downside thus far.
According to Zerohedge, “With no clear driver for the move, Bloomberg has suggested it may be a “fat-finger” mistake, although many are skeptical and see either algo or central bank intervention…” If it was indeed a mistake, one might expect retracement over the short-term.
Weaker than expected durable good orders and a miss on the Chicago Fed’s national activity index should help the cause as these data perpetuate concerns about the true health of the U.S. economy. Today’s sell-off may prove to be a great buying opportunity.
U.S. durable goods orders -1.1% in May, below expectations of -0.6%, vs negative revised -0.9% in Apr.
Chicago Fed national index -0.26 in May, below expectations of 0.20, vs positive revised 0.57 in Apr.
Gold lower at 1242.71 (-13.81). Silver 16.61 (-0.119). Dollar lower. Euro higher. Stocks called higher. U.S. 10-year 2.13% (-1 bp).
Flows into equity funds fizzled over the past week amid concern by investors about high prices for shares and a hawkish US central bank.
…“The Fed’s move to increase rates and shrink their balance sheet is analogous to someone trying to take off their pants without first removing their shoes,” said Michael Underhill, chief investment officer at Capital Innovations. “I’m not sure why there is a such a hurry to raise rates and shrink the balance sheet in light of how accommodative they have been and the fact that we have a fragile economic recovery.”
PG View: A growing number of investors seem increasingly worried about the Fed ignoring the data.
The dollar fell against a basket of major currencies on Friday, recording its biggest one-day fall in three weeks, on persistent doubts whether the Federal Reserve would raise interest rates again this year due to softening inflation data.
The greenback also broadly weakened versus commodity-linked currencies, which got a boost as global benchmark Brent futures recovered from a seven-month low.
…Traders, however, were doubtful about another rate increase later this year as recent U.S. data on balance have fallen short of forecast.
Gold is modestly higher after bouncing from in front of important trendline/moving average support at 1241.30/1235.82 midweek. At this point, the yellow metal is slightly higher on the week. A higher close today would break the string of lower weekly closes in the two previous weeks and confirm a simple hook reversal on the weekly chart.
Dovish comments from St. Louis Fed President James Bullard, show that Minneapolis Fed dissenter Neel Kashkari is not a lone voice in the wilderness calling for a pause in the tightening schedule. Expressing particular concern about waning inflation pressures, Bullard said “The Fed can wait and see how the economy develops before making any further adjustments to the policy rate.”
Bullard is a nonvoter, so he can’t really bolster Kashkari’s dissent. However, his concerns further highlight the fact that the FOMC as a whole is ignoring the data.
In the video we shot yesterday, I suggested that investors are confused by the Fed’s confidence; what do they see that the rest of us are missing? ECB President Mario Draghi may have provided the answer by telling EU leaders that he expects the economy and wages to grow and that “confidence is the cheapest stimulus”.
Zerohedge rightfully pointed out that that sentiment does not explain the ECB’s €4.2 trillion balance sheet. The Fed is clearly doing the same thing, trying to foment confidence despite the realities evident in the data.
At some point though, reality is likely to overcome this fake confidence and not only will confidence in the economy fail, but confidence in the Fed itself will fail. In that respect, confidence becomes a very, very expensive form of stimulus.
An asymmetric trade is a situation where investing a relatively small amount of money holds the potential of yielding a profit many times the amount of the original sum at risk. In other words, where the risk to reward is skewed massively in the direction of reward.
This took place recently with Bitcoin (BTC). Is this conceptually different from bets made years ago on Microsoft, Cisco, Amazon, or Facebook, which yielded hundreds of percent profit to intrepid investors? Does it have relevance to the possible returns during the next few years for those who hold physical gold and silver?
I would answer “yes” and “yes.”
The Federal Reserve should wait on any further rate increases until it is clear inflation is reliably heading to the Fed’s 2 percent target, St. Louis Fed President James Bullard said on Friday, highlighting the central bank’s struggle over how to weigh a recent slip in the rate of price increases.
“Recent inflation data have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target,” Bullard said at an Illinois Bankers Association conference. “The Fed can wait and see how the economy develops before making any further adjustments to the policy rate.”
PG View: Kashkari apparently is not alone: Too bad Bullard is a non-voter.
India has ‘consumed’ around $ 00 billion worth of gold in the last ten years, a report by Kotak Institutional Equities has found. The report says gold prices have risen by 300% in this decade (FY 2008-FY2017). The best period for investing in gold was, however, the first five financial years (FY2008-12) covered by the report when ‘trade’ worked well as gold prices were rising rapidly. But the story has not been the same in the last five financial years (FY2013-17). This period has seen half the gold ‘consumption’ of the past decade and virtually flat gold prices.
PG View: That’s a lot of gold to be sure and while demand has tapered in more recent years, it was in the face of what amounted to an all-out war on gold. In light of that, I would suggest that gold demand remains quite resilient.