Gold was down today picking up where it left off Friday by giving up another $5.14 and finishing the day at $1270.86. Silver finished off 15¢ at $16.67. Most of the downside occurred in the Asian market and simultaneously (again) with depreciation in the Japanese yen against the dollar. Gold and silver both leveled out in U.S. trading. Gold and silver are down marginally in overnight trading. Generally speaking, most of the downside in gold the past few weeks is related to speculation about who might end up chairing the Fed and future interest rate policy. An announcement on the next Fed chair is due before the end of the week.
Quote of the Day
“A financial strategist at a major investment bank in Europe recently told me he keeps two-thirds of his personal investment portfolio in a global stock portfolio and the remaining third in gold bullion. He’s not a crazy, far-right conspiracy nut or classic gold bug either. So why all the gold? ‘Political risk,’ he says. ‘It’s my insurance against the world’s governments or central banks screwing things up.'” – Brett Arends, MarketWatch
Happy Halloween everyone!
If you would like a different perspective on the economy and the financial markets – one distinctly separate from what is bandied about in the financial press as the daily regimen – you would probably enjoy our newsletter.
In the November issue (to be released soon) . . . .
Government finances and gold (in-depth)
What does it take to garner a real rate of return on your money these days
Four steps to becoming a successful gold and silver investor
And more. . . . .
It is available free of charge to our current and prospective clientele, and we invite you to sign up here. Immediate access to our October issue.
Gold has turned defensive in the range once again, weighed by a rebound in the dollar. Upbeat U.S. data also buoyed risk appetite and stocks today.
U.S. home prices and consumer confidence continue to rise. The employment cost index jumped as well, which inspires hope that wage growth and then inflation might accelerate. However, as we saw yesterday, the Fed’s preferred measure of inflation remained sluggish in September.
Will that be worth mentioning when the Fed announces policy tomorrow? And if they do, will it temper December rate hike expectations?
The ECB came out with more dovish than expected guidance last week, as did the Bank of Canada. The latter likely had an inkling that the economy had contract in August, as the rest of us found out today.
The Canadian dollar came under pressure as hopes for tighter monetary policy evaporated. The yen also dropped today after the BoJ held steady with no mention of any plans for normalization.
As I mentioned in the Morning Snapshot, it might be in the best interest of the Fed to adopt a more dovish tone tomorrow, to better align with the current policy direction of the other major central banks. No change in policy is expected at this meeting and they will likely leave the door open for a December hike, but a tempering of the high expectations of that hike might be warranted.
The consolidative tone in gold persists as the dollar remains firm and stocks rebound. The yellow metal still needs to climb back above $1300 to ease short-term pressure on the downside.
The BoJ left the policy rate unchanged at -0.1%, kept 10-year JGB rates capped “around zero” and will maintain the QE pace of ¥80 trillion per year. Despite optimism about both growth and inflation, guidance remains dovish. That pressured the yen, buoying the dollar in the process.
The Fed begins their two-day FOMC meeting today. When policy is announced tomorrow, no change is expected. While a December rate hike will remain on the table, it might behoove the central bank to start tempering those expectations; unless they truly believe inflation is on the verge of rebounding.
Expressed concern about the ongoing absence of inflation — which is the reason they paused in September — would likely halt the recent rise in the dollar. With the ECB, BoC and BoJ maintaining their dovish guidance, it might be in the best interest of the Fed to hint that the pause might be perpetuated into 2018.
The Bank of Japan has kept monetary policy on hold as it made slight downgrades to inflation forecasts but predicted steady economic expansion.
It kept short-term interest rates at minus 0.1 per cent, a cap on 10-year bond yields at “around zero” and pledged to carry on buying assets at a pace of ¥80tn a year as it strives to end two decades of on-and-off deflation.
The continued optimism of the bank’s inflation forecasts suggests it believes the economy is on track and there is no need for extra monetary stimulus.
WSJ/Amrith Ramkumar & Georgi Kantchev/10-30-17
Gold prices inched higher Monday, with many investors awaiting news later in the week that could swing prices.
On Wednesday, the Federal Reserve is scheduled to release its latest statement following a two-day meeting that could offer clues about its outlook for interest rate increases moving forward. Gold struggles to compete with yield-bearing assets like Treasurys as borrowing costs rise. Additionally, President Donald Trump is expected to announce his nominee to be the next Fed chair this week. The Wall Street Journal reported that Mr. Trump is expected to nominate Fed governor Jerome Powell as his nominee.
Investors will also be paying attention to Friday’s monthly jobs report for the latest reading on the U.S. economy, which could affect expectations for future rate increases. Signs of inflation could also boost gold prices because some investors use the precious metal as a hedge against higher consumer prices.
“There’s some interest coming back into [gold] down at these levels.” — Bob Haberkorn, senior market strategist at RJO Futures.
Gold has firmed modestly intraday, but remains well contained within the recent range. A number of important events and data releases are slated for this week, which seems to have tempered risk appetite somewhat.
We’ll get policy announcements from the BoJ, Fed and BoE this week on 31-Oct, 01-Nov and 02-Nov respectively. The BoJ is likely to hold steady on the heels of Abe’s resounding elections victory. The Fed is expected to hold steady. The BoE may hike by 25 bps to at least reverse out the post-Brexit emergency rate cut.
The Fed policy statement will be closely watched for any indication about ongoing concerns about the absence of inflation. Today’s PCE data for September showed that inflation remains below target, which is the precise reason they did not tighten in September.
With a December rate hike fully priced in, arguably the risk is toward a more dovish statement. Will there be verbiage in the statement to rattle the conviction of the hawks? There is no press conference scheduled for this FOMC.
The White House has confirmed that President Trump will be making his nomination for Fed chair this week, reportedly on Thursday. Odds have seemingly shifted in favor of centrist Fed Governor Jerome (Jay) Powell.
The House is also expected to release the details of its tax cut legislation this week. Will those details be sufficient to keep the stock market bubble inflating, or will this be a classic case of ‘buy the rumor, sell the fact?’ And perhaps most importantly, what will be the implications for the national debt, bearing in mind that the debt ceiling comes back into play on December 4.
U.S. President Donald Trump is likely to pick Federal Reserve Governor Jerome Powell as the next chair of the U.S. central bank, a source familiar with the matter said on Monday.
An announcement on whom Trump will choose is expected on Thursday, a White House official said separately.
Gold steadied on Monday as traders stayed on the sidelines before this week’s central bank meetings and policy news, including President Donald Trump’s expected announcement of the next Federal Reserve chair.
The U.S. central bank kicks off a two-day policy meeting on Tuesday, while the Bank of Japan and Bank of England also meet this week to discuss interest rate policy.
…”The front end of the U.S. rates curve doesn’t seem to have priced in a Taylor Rule Fed … which means that a surprise would send yields and the dollar higher, and risk assets down,” SG Forex said in a note on Monday.
Spain is set to put in place measures to take direct control of Catalonia in response to the region’s declaration of independence last week.
On Friday, Madrid stripped Catalonia of its autonomy and removed Catalan leader Carles Puigdemont from office.
The temporary move will see as many as 150 of the region’s ministers replaced. Some have vowed to continue to work.
Mr Puigdemont and other Catalan officials may face criminal charges, a move likely to lead to huge protests.
PG View: Those charges have since been announced:
Gold starts the week as it ended, consolidative within the recent range. The dollar is a little easier, as are stocks, with risk appetite tempered somewhat ahead of this rather busy week.
The first indictments in the Russian collusion investigation are occurring today. Former Trump campaign chairman Paul Manafort and his aide Rick Gates are supposed to turn themselves in to the FBI today.
The Fed’s two-day FOMC meeting commences tomorrow. No change to policy is anticipated, but markets will be looking for further clarification of the central bank’s intentions for December. The BoJ and BoE meet this week as well.
Today’s U.S. data are a mixed bag. Personal income and consumption jumped in September. However, core PCE inflation was up a scant 0.1%. The Fed still has an inflation problem, which was the primary reason they paused the tightening cycle in September.
Politico is reporting that President Trump will make his nomination for the next Fed chair on Thursday. They reported last week that the field had narrowed to John Taylor and Jerome Powell.
Matterhorn Asset Management/Egon von Greyerz/10-27-17
Little did I know in 1969 that Nixon two years later would change the destiny of the world for decades to come as the US came off the gold standard. By throwing off the shackles of a gold backed currency, there was no longer anything stopping the US government and the financial system from creating unlimited credit and printing infinite money.
The consequences have been a US and global credit expansion of gigantic proportions. Just in the US, credit has grown 47X from $1.5 trillion to $70 trillion.
…One thing is certain, gold will continue to preserve wealth and maintain purchasing power as it has done in the last few thousand years.
…if we take the next 10 years, gold (and silver) is likely to vastly outperform most conventional assets like stocks, bonds and property. The Dow is now the most overbought it has been in over 60 years with gold and silver depressed by a fake paper market.
…The Dow / Gold ratio crashed by 87% from 1999 to 2011. After a weak correction, the ratio is still down 60% since 1999.
…The current correction up of the ratio could go slightly higher but it is now very stretched and the downside risk is massive.
NYT/Raphael Minder & Patrick Kingsley/10-27-17
Spain’s leader fired the government of the country’s Catalonia region on Friday, dissolved the regional parliament and ordered new elections after defiant Catalan lawmakers declared independence, escalating the biggest political crisis in Spain in decades.
The measures announced by Prime Minister Mariano Rajoy in a televised address capped a frenzied day of political maneuvering in Madrid, Spain’s capital, and Barcelona, the capital of Catalonia, where the long drive for independence — illegal under Spain’s Constitution — has now reached its fiercest level yet.
…Spain’s attorney general may now seek to detain Catalan leaders on grounds of rebellion.
Gold appears poised to end the week on a consolidative note, well within the range that has dominated so far in October. That range is defined by the 1260.10 low from 06-Oct and the 1306.04 high that was set 10-days later.
Dollar gains and risk appetite continue to limit the upside for gold. Additional optimism about the U.S. economy was garnered from today’s better than expected 3.0% advance GDP print. That lends an additional measure of confidence to expectations that the Fed will indeed raise rates again in December.
The Catalan parliament votes to declare independence from Spain today. Spanish PM Rajoy quickly moved to invoke Article 155, dissolving the Catalan parliament, moving to fire Carles Puigdemont and his cabinet and calling for a regional election.
Tensions are high and there are risks for unrest over the weekend. Headlines following the initial independence referendum several weeks ago suggested Spain was on the verge of a civil war. That is probably even more true today.
Will Spain send in the national police and army troops to enforce direct rule? How will the people of Catalonia react?
Now that the budget has passed both the House and Senate, the GOP is obliged to release the specifics of their tax proposal. That should come next week and that will allow analysts to calculate the debt implications and I suspect they will be significant.
With the national debt and household debt at record levels, it’s reasonable to wonder just how much more debt this economy can tolerate. That in turn begs the question, why would the Fed raise rates into this situation; especially when inflation remains so subdued.
BusinessInsider/Pedro da Costa/10-27-17
The US economy expanded a robust 3% in the third-quarter, the Commerce Department reported on Friday. That’s a second quarter of growth above the 2% pace that has persisted for much of the economic recovery, and well above Wall Street’s expectation of a 2.6% rise.
But there are a few important details in the numbers that economists, including those at the Federal Reserve, will look at. They paint a more subdued picture.
Bloomberg/Jennifer Jacobs & Saleha Mohsin/10-27-17
President Donald Trump is leaning toward appointing Federal Reserve Governor Jerome Powell to be the next chairman of the Fed, according to three people familiar with the matter.
The decision isn’t yet final, the people cautioned, and Trump could change his mind at any time. Yet his preference for Powell dims current Fed Chair Janet Yellen’s chances for a second term at the helm of the world’s leading central bank.
CNN/Claudia Rebaza & Laura Smith-Spark/10-27-17
Catalonia’s regional Parliament voted overwhelmingly Friday in favor of independence from Spain, taking the country’s political crisis into uncharted territory.
The vote came as the Spanish Senate debated the Madrid government’s unprecedented plans to seize control of the autonomous region in a bid to quash its independence bid.
…Addressing the Senate on Friday, Rajoy said the rule of law had been “stomped on” in Catalonia and warned of a fracturing of society. “Exceptional measures need to be adopted when there are no other ways to go back to normality,” he said.
He proposed sacking the government of Catalonia and calling new elections, under the provisions of Article 155 of the Spanish constitution.
Gold prices touched their lowest point in nearly three weeks on Friday as the euro slipped against the dollar following the European Central Bank’s extension of its bond-buying programme.
Currency investors played a diverging monetary policy outlook, with the U.S. expected to raise interest rates again before the end of 2017 while Europe is not now expected to do so in the coming years.
Gold remains defensive at the low end of the recent range, weighed by heightened risk appetite and a stronger dollar. Support in the yellow metal is well defined by the 1260.10 (06-Oct low).
U.S. advance Q3 GDP came in better than expected at 3.0%, essentially unchanged from +3.1% in Q2. This will help justify persistently elevated expectations for a December rate hike, even though the absence of inflation continues and that’s the “mystery” that prompted the Fed to pause in September.
The BoJ faces the same problem with October CPI coming in at +0.7% y/y. Don’t expected any move toward tighter policy anytime soon.
The dollar is rallying based on anticipated widening of interest rate differentials. Most of the world continues to lean toward easier policy, while the U.S. is in the midst of a tightening cycle (Sep pause notwithstanding). These dollar gains are keeping a lid on gold for now.