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“They look at the weathervane for the direction of the wind.” – Sumerian text, ca 1600 BCCurrent Spot Prices:
7:53 am Tue. October 17, 2017
(Time = USMT)
Monthly Archives: July 2017
U.S. advanced trade gap narrowed to -$63.9 bln in Jun, inside expectations of -$65.0 bln, vs revised -$66.3 bln.
U.S. durable good orders surge 6.5% in Jun, well above expectations of +2.8%, vs positive revised -0.1% in May; ex-trans +0.2%.
Gold higher at 1263.68 (+3.18). Silver 16.81 (+0.187). Dollar higher. Euro lower. Stocks called lower. U.S. 10-year 2.30% (+1 bp).
The U.S. dollar fell on Wednesday, erasing an earlier gain after the Federal Reserve was seen as striking a somewhat cautious note on inflation, which is seen as bearish for greenback.
The U.S. central bank said inflation was “running below 2%” instead of “running somewhat below 2%,” as it had in its June statement. The Fed’s preferred inflation gauge, the personal-consumption index, or PCE index, has tapered off to 1.4% growth over 12 months from a five-year high of 2.1%.
The Fed also indicated, as expected, that it would start to wind down its bondholdings “relatively soon” and kept interest rates unchanged, as had been widely expected.
PG View: The dollar index tumbled to fresh 13-month lows after the Fed’s announcement, providing on ongoing tailwind for gold.
Gold jumped 1 percent to a six-week high on Wednesday, after the U.S. Federal Reserve said it would start to wind down its massive holdings of bonds “relatively soon,” pushing the dollar lower.
The U.S. central bank kept interest rates unchanged as expected and said it was continuing the slow path of monetary tightening that has lifted rates by a percentage point since 2015, the Fed said in a statement following a two-day meeting.
…”Gold clawed back recent losses and surged to fresh highs of the rally as the Fed confirmed it was on a summer sabbatical with a safe statement that nodded to lower inflation but was offset by a confirmation that balance sheet tapering would occur ‘relatively soon,'” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.
It’s no secret that the Bank of England, Bank of Japan and European Central Bank have been aggressively flooding their respective economies and in turn, the global financial system, with liquidity in some form of quantitative easing. If there is one lesson to be learned from The Great Moderation, it is that liquidity acts as a shock absorber.
In a less liquid world, the crash in oil prices would have resulted in a bankruptcy bloodbath. In a less liquid world, the bursting of the housing bubble would have led to millions of foreclosed homes clearing at fire sale prices. In a less liquid world, highly leveraged firms would have been rendered insolvent and incapable of covering their interest costs.
In short, a less liquid world would be smaller, for a time. But when the time came to allow nature to take its course, central bankers could not bear the pain, nor muster the discipline, to allow creative destruction to cull the weakest from the herd. Their policies have forced us to pay a dear price to maintain a population of inefficient operators.
…So we have one-in-ten firms effectively sucking the life out of the world economy’s ability to regenerate itself. There is no such thing as a productivity conundrum against a backdrop of such widespread misallocation of capital and labor. There is no mystery cloaking the breakdown in new business formation. And there is no enigma, much less any reason to assign armies of economists to investigate, shrouding the new abnormality we’ve come to know as a low growth world.
There is simply no room for an economy to excel when its growth potential is choked off by an overabundance of liquidity that is perverting incentives. What is left behind is a yield drought, one that has left the whole of the world painfully parched for income and returns and yet too weary to conduct fundamental risk analysis.
PG View: This is an excellent essay by former Fed insider Danielle DiMartino Booth. I highly encourage you to read it in its entirety and realize too that, “The Fed’s actions have not saved the little guy; they’ve skewered him.”
The Federal Reserve signaled it is ready to start unwinding its crisis-era stimulus programme as soon as its next meeting, suggesting that the central bank remains confident in the US outlook even as it acknowledges a spate of weak inflation readings.
The Fed kept rates unchanged at 1 per cent to 1.25 per cent at the meeting, as expected by financial markets. But in a sign of resolve on its policy committee, the Fed said in a statement that it was ready to start paring back the size of its balance sheet “relatively soon” as long as the economy stays on track.
PG View: The Fed is more concerned about the decline in inflation, but remains optimistic that it will return to the 2% target in time. Sep rate hike odds dropped from 8.2% to 3.1%.
Gold firmed into — and after — the FOMC statement, to approach 5-week highs at 1258.79/90 once again.
Fed holds steady on policy, in line with expectations. Overall and core inflation “have declined.” Balance sheet unwind to start “relatively soon.”
While the highly inflated value of the U.S. Retirement Market reached a new high this year, something is seriously wrong when we look behind the scenes. Of course, Americans have no idea that the U.S. Retirement Market is only a few steps from falling off the cliff, because their eyes are focused on the shiny spinning roulette wheel called the Wall Street Stock Market.
Yes, everyone continues to place their bets, hoping and praying that they will win it big, so they can retire in style. Unfortunately, American gamblers at the casino have no idea that the HOUSE is out of money. The only thing remaining in their backroom vaults is a small stash of cash and a bunch of IOU’s and debts.
…Regretably, Americans have no idea that their monthly retirement contributions are not being saved or stored in a nice gold vault, rather they are being used to pay the lucky slobs who retired before them Now, when I say SLOBS or POOR SLOBS, I am not being derogatory. However, I am using the word as a Wall Street Banker would label those they prey upon.
PG View: The charts presented in this article are a warning to anyone who will be reliant on a 401k or pension once they retire. The time to diversify and reallocate a portion of your retirement savings to a hard asset like gold is now.
U.S. Treasury Secretary Steven Mnuchin on Wednesday urged Congress to raise the federal debt limit before lawmakers leave Washington for their August recess to avoid higher interest costs to taxpayers and market uncertainty about a potential default.
Mnuchin told a Senate Appropriations subcommittee that maintaining U.S. creditworthiness was of “utmost importance” and that the United States must pay its bills on time.
“As I’ve suggested in the past, based upon our best estimate at the time, we do have funding through September, but I have urged Congress to take this up before they leave for the recess,” Mnuchin said.
The last extension of the federal borrowing limit expired in March with total debt of around $20 trillion, but the Treasury has extended its ability to issue debt by employing extraordinary cash management measures, including deferring reinvestment in federal employee pension funds and suspending sales of savings bonds and debt instruments to state and local governments.
Gold dipped to a new low for the week in overseas trading, but has since rebounded into positive territory as markets await today’s Fed decision. The yellow metal has been consolidating the last two-weeks of gains so far this week.
The Fed is widely expected to hold steady on rates when they announce policy at 2:00ET today. There is some degree of hope that the Fed will take this opportunity to clarify its policy intentions for the remainder of the year, or at least provide some additional information on balance sheet normalization.
However, in light of the weak inflation and growth data, I suspect the Fed will play this one pretty close to the vest. In other words, the statement will look much like — if not exactly like — the June statement.
The Fed is expected to stand pat at its policy meeting this week but conflicting economic signals present a dilemma https://t.co/GBtUWGZmNd
— WSJ Central Banks (@WSJCentralBanks) July 26, 2017
Meanwhile, Treasury Secretary Mnuchin is urging Congress to raise the debt ceiling before they all depart for the August recess. “As I’ve suggested in the past, based upon our best estimate at the time, we do have funding through September, but I have urged Congress to take this up before they leave for the recess,” Mnuchin said.
Oh, but that’s not the way Congress operates these days. They’ll take their recess, go do their fundraising and take up the debt ceiling when a crisis is imminent. Make no mistake though, the debt ceiling will be raised or suspended. It always is . . .
Frank Holmes of U.S. Global Investors makes the case that global debt is the “mother of all bubbles.” In the past decade since the financial crisis, global debt as risen by an astonishing $120 trillion to $217 trillion! That’s 327% of global GDP!
Despite the obvious risks, market volatility continues to plumb historic lows:
— StockTwits (@StockTwits) July 25, 2017
And that in and of itself is somewhat ominous. When volatility returns — and you can be sure that is will — it may return with a vengeance.
According to a Bloomberg article today, gold’s 120-day volatility is at levels not seen since 2005. Gold spent much of that year narrowly confined within the $410-$450 range. When it broke out of that range in July of 2005, gold was off to the races, trading as high as $730 in March of 2006. By the fall of 2007 the yellow metal had set new all-time highs above $850 and was on its way to its first foray above $1,000 as the financial crisis truly got underway.
The setup we’re seeing today feels awfully familiar. The calm before the storm is the ideal time to be buying gold, because when the storm is raging, prices and premiums will be a lot higher.
Britain’s economy grew by just 0.3% in the second quarter of 2017 after what government statisticians called a “notable slowdown” in the first half of the year.
The expansion in the three months to June followed 0.2% growth in the first quarter and was in line with City expectations for the eagerly awaited first estimate of the economy’s recent performance.
…Darren Morgan, head of national accounts at the Office for National Statistics, said: “The economy has experienced a notable slowdown in the first half of this year. While services such as retail, and film production and distribution showed some improvement in the second quarter, a weaker performance from construction and manufacturing pulled down overall growth.”
Today I want to discuss reports that global debt levels are at all-time highs, and what this means for your investment decisions going forward.
…Gold’s medium- to long-term investment case, I believe, looks even brighter. Many unsettling risks loom on the horizon—not least of which is a record amount of global debt—that could potentially spell trouble for the investor who hasn’t adequately prepared with some allocation in a “safe haven.”
According to the highly-respected Institute of International Finance (IIF), global debt levels reached an astronomical $217 trillion in the first quarter of 2017—that’s 327 percent of world gross domestic product (GDP). Notice that before the financial crisis, global debt was “only” around $150 trillion, meaning we’ve added close to $120 trillion in as little as a decade.
PG View: It’s like the financial crisis taught us nothing at all. There is assuredly a day of reckoning coming . . .
U.S. new home sales +0.8% to 610k pace in Jun, below expectations of 615k, vs negative revised 605k in May.
Gold continues to consolidate as markets await the FOMC’s latest decision on monetary policy. The policy statement comes out at 2:00ET.
It is widely expected that the Fed will hold steady on policy and provide no additional clues about the timing of balance sheet normalization. Prospects for a September rate hike remains a long-shot.
Economic data will be light today with just EIA crude stocks for last week and June new home sales. A rise to a 615k annual pace is anticipated for new home sales.
The dollar’s decline has taken a pause, but the trend remains unquestionably bearish. Should that downtrend resume, it will provide an ongoing tailwind for gold.
Peter Spina of GoldSeek told MarketWatch yesterday that “the dollar has crumbled while the price of gold has begun inching higher toward a price takeoff trigger that should shoot it higher by $200-$300 an ounce over the coming rest of the year.” While Spina doesn’t specify where that trigger is, I think it lies at 1296.06/1300.00.
Gold steady at 1247.34 (+0.40). Silver 16.44 (+0.031). Dollar and euro flat. Stocks called higher. U.S. 10-year 2.32% (-2 bps).
Gold prices ended lower on Tuesday, suffering the first back-to-back decline in about three weeks ahead of a midweek policy update from the Federal Reserve.
…A broad measure of the U.S. currency, the ICE U.S. Dollar Index DXY, +0.06% which compares the buck against a half-dozen other currencies, has fallen 1.7% month to date but traded little changed Tuesday. Gold typically has an inverse relationship with the dollar as moves in the U.S. unit can influence the attractiveness of those commodities to holders of other currencies.
Overall, “the dollar has crumbled while the price of gold has begun inching higher toward a price takeoff trigger that should shoot it higher by $200-$300 an ounce over the coming rest of the year,” Peter Spina, president and chief executive officer of GoldSeek.com, told MarketWatch.
PG View: Downticks over the past two sessions have been negligible. In fact, the spot market closed ever-so-slightly higher yesterday.
Gold is consolidating recent gains as the Fed begins their two-day FOMC meeting. While the Fed is not expected to change policy, there is perhaps some scope for changes to the wording of the statement.
Will they make an effort to get September back on the table with a more hawkish tone? Will they concede September and start trying to build expectations for December? My guess is that there is little to no change in the verbiage from June. We’ll find out tomorrow at 2:00ET.
With the dollar still under pressure, the path of least resistance in the gold market remains to the upside. The dollar index set yet another 13-month low today, leaving the 2½-year low from May 2016 at 91.92 vulnerable to a challenge. The last time the dollar index was below 92.00, gold was on its way above $1300.
With expectations of stimulus from the fiscal side continuing to wane, the weakness in the dollar over the past five-months — despite rising rates — probably looks pretty appealing to policymakers. I’m not sure they’d be terribly inclined to upset that apple cart at this juncture.
The ones that are probably upset are the Europeans, which saw their currency surge to 2½-year highs, despite no expectations of imminently tighter policy. Apparently Mario Draghi and the ECB simply weren’t dovish enough last week. The euro is up nearly 11% year-to-date, which is certainly not going to help the export driven European economy.
Do we have the makings for a revived currency war? That may be in the near-term offing as well, even as rumblings of trade-wars echo simultaneously.
U.S. consumer confidence surged to 121.1 in Jul, above expectations of 116.8, vs negative revised 117.3 in Jun.
The IMF on Sunday lowered its economic growth forecasts for the United States to 2.1% for this year and the next, down from the 2.3% for 2017 and 2.5% for 2018 that it had predicted in April.
That’s a far cry from the 4% growth President Trump promised on the campaign trail, and significantly lower than the 3% growth he has targeted since assuming office.
The global financial institution cited the “uncertainty” over the Trump administration’s policies as the main reason for the downgrade.
“The major factor behind the growth revision, especially for 2018, is the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of U.S. fiscal policy changes,” the IMF said in its latest World Economic Outlook released Sunday.
U.S. Case-Shiller home price index for 20-cities (nsa) +0.8% in May to 199.0, vs positive revised 197.4 in Apr; +5.7% y/y.
Gold prices edged higher on Tuesday, after hitting a one-month high in the previous session, buoyed by political uncertainty in the United States, as investors awaited the Federal Reserve meeting for clues on monetary policy.
Investors also braced for possible hints on when the next interest rate hike is coming, ahead of the Fed’s rate-setting two-day committee meet starting on Tuesday.
“While no rate hike is expected, the market is likely to remain subdued leading into the meeting,” analysts at ANZ Research said in a note.
…”We remain cautiously constructive on gold as we see no end to dollar weakness for the moment given the ongoing political dramas in Washington and the approaching deadline to extend the debt ceiling,” said INTL FCStone analyst Edward Meir.
Gold has rebounded from modest overseas downticks to trade little-changed on the day, as the dollar continues its slide. The dollar index has fallen to fresh 13-month lows, making the 2½-year low at 91.91 look increasingly attractive.
Last week’s gains in gold returned considerable credence to the uptrend that has emerged so far this year. While there are several additional tiers of resistance above the market, dollar weakness should help keep gold underpinned.
The Fed’s 2-day FOMC meeting begins today and the policy statement will be released tomorrow at 2:00ET. The Fed is widely expected to hold steady on policy. While I think they will keep their cards close to the vest, the market will be looking for clues as to the likelihood of a September rate hike. Fed funds futures put the probability at just 8.2%.
Later this morning we’ll see Case-Shiller and FHFA home prices for May. More gains in both are expected. We’ll also get July consumer confidence and the Richmond Fed index. The former is expected to ease modestly, while the latter is expected to come in steady.