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“They look at the weathervane for the direction of the wind.” – Sumerian text, ca 1600 BCCurrent Spot Prices:
8:58 am Fri. October 20, 2017
(Time = USMT)
Monthly Archives: October 2017
Gold firm at 1304.71 (+0.92). Silver 17.45 (+0.066). Dollar better. Euro lower. Stocks called higher. U.S. 10-year 2.29% (+2 bps).
Gold continued its march to higher ground today finishing above the $1300 mark at $1303.60. Gold is up $10.00 on the day and $27 on the week, or 2.1%. Silver followed suit up 16¢ on the day at $17.38, and 59¢ on the week, or 3.5%. Gold’s rise this week has taken investment markets by surprise and it will probably take some time to sort out the reasons for the sudden resurgence of interest in the precious metals. Inquiries and sales are both up at USAGOLD over the past week, and investors are citing concerns about the long-term value of the dollar.
Quote of the Day
“In a lot of cultures, the word for money derives from the word for gold. In China, the ideogram for money is the ideogram for gold.” – Peter Oakley, Royal College of Arts (UK)
Commonality is probably something you would not expect to find as an attribute of a brokerage firm, but when it comes to gold it is an important one. Having a similar world view goes a long way in establishing the common ground essential to a good working relationship. For over 40 years we have resolutely advocated owning gold for asset preservation purposes. Admittedly, this philosophy does not resonate with all prospective gold owners, but if it does with you, we think you will find USAGOLD a kindred spirit.
If the time has come for you to begin or extend your gold and silver ownership plans – if you are raising the red flag – we invite you contact us and find out why thousands have chosen us as their gold firm.
Gold typically trades inversely to the dollar, or whichever currency it is being measured against. USAGOLD founder and president Mike Kosares wrote in this month’s newsletter that many might be surprised to find that gold is up against every major currency this year.
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Gold market expert Egon von Greyerz sees the long-term downtrend in the dollar as one of his 10 Factors To Propel Gold 10 Fold.
I would suggest the downtrend in the dollar goes back much further, to the late-1800 and the end of the Spanish American War. However, most analysts benchmark 1913 and the advent of the Fed. The BLS’s own CPI Inflation Calculator shows that a 1913 dollar presently has 4¢ of purchasing power. In other words, the value of that 1913 dollar has devalued by 96% since the Fed came into being.
The price of gold in 1913 was fixed at $20.67. In the intervening years — and even taking into consideration the corrective consolidative phase since the 2011 peak — the price of gold has risen a whopping 6,189%.
Can the dollar’s value really erode further? Absolutely. Over time, that 4¢ in purchasing power will become 2¢, will become a penny and then we’ll be talking fractions of cents. It is the inevitable reality of a fiat currency in a net-debtor nation.
And what of that debt? Last month, Congress suspended the debt ceiling yet again, allowing our national debt to surge beyond $20 trillion.
When the debt ceiling is reinstated on December 08, you should have no doubt as to what will happen. Oh sure, there may be at least a little debate next time, but the debt ceiling will be raised or suspended once again. There is absolutely no reason to consider any other conclusion. Since the very first debt ceiling was implemented in 1917, there’s never been a level that hasn’t ultimately been exceeded. In it’s entire 100-year history, the debt ceiling has never been lowered.
I think the national debt could easily double in the next decade, so I’d have to take the “over” as well. The only way out government will be able to service such a massive debt load will be to weaken the dollar, as it has since President Nixon closed the gold window in 1971, ending convertibility of the dollar to gold.
Nearly 50-years later, I think we can all agree there was nothing “temporary” about it. Nixon also called concerns about devaluation a “bugaboo,” claiming that “the effects of this action will be to stabilize the dollar.” In reality, nothing could have been further from the truth. The dollar tumbled in value against other currencies and against gold.
At the time of Nixon’s speech, gold was trading around $43 per ounce. By January of 1980, it had reached a high of $850, nearly a 20-fold increase.
The dollar index has fallen about 9% YTD in 2017. The recent 3% corrective bounce seems to have lost momentum, suggesting the dominant downtrend is re-exerting itself. A weaker dollar into year-end bodes well for higher gold prices over the same period. This may be the last opportunity to buy gold at these levels.
U.S. business inventories +0.7% in Aug, above expectations of +0.6%, vs upward revised +0.3% in Jul.
University of Michigan sentiment surged to 101.1 in Oct, above expectations of 95.4, vs 95.1 in Sep.
Gold futures pushed above the key $1,300 level Friday after the latest reading on U.S. inflation came in cooler than expected, raising uncertainty about the pace of U.S. interest-rate hikes over coming months.
Closely followed investor Dennis Gartman told the CNBC Futures Now program on Thursday that “one currency that will probably do best of all is gold. Gold has been rallying in dollar terms. It has been a bull market since December. And it is still a bull market.”
Gartman noted that on average gold has been outperforming the S&P 500 this year.
A spike in energy prices in the aftermath of Hurricane Harvey boosted the U.S. cost of living by the most since January, while inflation excluding food and fuel was below estimates, a Labor Department report showed Friday.
While economists expected an overall pickup in price gains in the aftermath of Hurricanes Harvey — energy costs rose by the most since June 2009 — the details suggest any broader acceleration in U.S. inflation may need more time to gain traction.
PG View: Should take at least a little wind out of December rate hike expectation sails.
Gold jumped back above $1300 after a tame core CPI print for September, shows that the Fed continues to face an inflation problem. Headline inflation rose 0.5%, the biggest m/m jump since January, but it was still below expectations of +0.6% and attributed to hurricane distortion.
Like PPI yesterday, higher energy prices in the wake of the recent hurricanes pushed the broader measures of inflation higher. However, these gains are unlikely to be sticky.
This morning’s gains put the yellow metal decisively back above the entire 20-, 50-, 100- and 200-day moving average complex, returning considerable credence to the underlying uptrend. Next resistance is at 1308.80, the halfway back point of the decline off the September peak at 1357.50.
U.S. retail sales +1.6% in Sep, above expectations of +1.5%, vs positive revised -0.1% in Aug. Ex-auto +1.0% on expectations of +0.8%.
U.S. CPI +0.5% in Sep, below expectations of +0.6%, vs +0.4% in Aug; +2.2% y/y. Core +0.1%, below expectations of +0.2%; +1.7% y/y.
Gold easier at 1292.31 (-1.99). Silver 17.22 (-0.04). Dollar better. Euro lower. Stocks called higher. U.S. 10-year 2.33% (+1 bp).
…as attracted to gold as Indians are, they weren’t the world’s biggest investors in the yellow metal last year, and neither were the Chinese. According to a new report from the World Gold Council (WGC), that title shifted hands to Germany in 2016, with investors there ploughing as much as $8 billion into gold coins, bars and exchange-traded commodities (ETCs). This set a new annual record for the European country.
…Germany’s rise to become the world leader in gold investing is a compelling story that’s quietly been developing for the past 10 years.
…a 2016 survey found that 42 percent of Germans trust gold more than they do traditional money.
This is where Germans and Indians agree. The latter group’s faith in the banking system has similarly been eroded over the years by regime changes and corruption, and gold has been seen as real money.
Gold remains fairly well bid, despite today’s firmer inflation data. The yellow metal is trading just below $1300, underpinned by geopolitical risks and perhaps slightly more dovish than expected minutes from the September FOMC meeting.
Below target inflation remains a considerable concern for the Fed based on the FOMC minutes that came out yesterday. However, that has seemingly done little to temper December rate hike expectations, which continue to hover near 90%.
Warmer producer inflation in September is being attributed at least in part to hurricane distortions. Focus now shifts to tomorrow’s CPI data, which is also expected to rise. The market and the Fed will need to ascertain if inflation is really picking up, or if these upticks are merely aberrations.
St. Louis Fed dove James Bullard says the central bank needs to defend the inflation target, or risk losing credibility. Continuing to raise rates when inflation is below 2% sends a signal that “the inflation target is not that important,” he warned.
In saying that it is a “denial of reality” to think inflation and rates would soon return to the norms of the ’90’s and 2000’s, Bullard is also acknowledging that something may have fundamentally changed. In the extreme, that may mean we will follow the path already blazed by Japan and that we are in for a perpetual state of easy monetary policy and moribund growth.
If that is to be the reality, one might wonder how stocks could possibly sustain current valuations. It would also favor the long-term downtrend in the dollar, which would be supportive for gold.
5. Own some gold.
…Gold’s recent advances have come along with the heightening crisis over North Korea’s nuclear program in which the country’s unstable leader Kim Jong Un and our own fragile President Trump have ratcheted up the rhetoric to the point where accident and miscalculation could lead to catastrophe.
…With that cataclysmic risk even remotely on the horizon, buying insurance by putting 5% of your money in gold is the least you can do.
Gold futures rose Thursday, pushing the yellow metal toward $1,300 as investors read minutes from the Federal Reserve’s September policy meetings as slightly dovish, offering a lift to the commodity.
…Mark O’Byrne, research director at GoldCore Ltd, said recent gains can also be attributed to expected seasonally stronger demand for gold by India heading into the Diwali holiday, or Deepavali, as well as geopolitical tensions tied to North Korea, the Middle East and U.S. President Donald Trump. Tensions between Iraq and Kurds in the region have escalated after a Kurdish independence referendum, while Trump’s belligerent rhetoric with North Korean leader Kim Jong Un has had investors on edge.
“Against this global macro backdrop, I do think that we possible we will push $1,400 [an ounce], and then close above $1,300 by year-end,” he said.
Gold re-approached the $1300 level in overseas trading, buoyed by heightened geopolitical tensions and a toppy-looking dollar. The yellow metal has retreated modestly intraday in the wake of warmer than expected inflation data.
U.S. PPI rose 0.4% in September, stoked by hurricane distortions and in line with expectations. Core PPI jumped +0.4% as well, which was above expectations of +0.2%.
Initial jobless claims fell 15k last week, suggesting that the hurricane effect on labor may already be reversing. However, it remains to be seen if that will be sufficient to reverse the existing downtrend in payrolls that had developed long before this hurricane season.
A move back above $1300 would put gold above the 20- and 50-day moving averages, returning confidence to the dominant uptrend. The halfway back point of the recent correction comes in at 1308.80.
U.S. PPI +0.4% in Sep, in line with expectations, vs +0.2% in Aug; +2.6% y/y. Core +0.4% on expectations of +0.2%, vs +0.1% in Aug; +2.2% y/y.
Gold higher at 1294.81 (+2.09). Silver 17.23 (+0.02). Dollar higher. Euro lower. Stocks called better. U.S. 10-year 2.34% (-2 bps).
Many Federal Reserve officials are concerned that inflation will remain lower for longer, according to minutes of the policy meeting they held in September.
…”Many participants expressed concern that the low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent,” the minutes said. Some members debated that more secular factors like the influence of technology on lowering prices may suppress inflation below the Fed’s 2% target for longer.
This may warrant more patience in raising interest rates, the Fed officials said. They were split on whether to hike for a third time this year, likely to be considered in December.
Spain’s prime minister has put Catalonia on notice that it could impose direct rule on the region.
Mariano Rajoy said his government had asked the regional government to clarify whether or not it had declared independence.
The move is the first step towards suspending Catalonia’s autonomy under the constitution.
Gold is maintaining a consolidative tone as traders await the minutes from the September FOMC meeting at 2:00ET. The recent bounce in the dollar seems to have lost momentum, which should help to underpin the yellow metal.
Immediately following the FOMC meeting, Janet Yellen warned that “payroll employment may be substantially affected in September” as a result of the hurricanes. However, the actual NFP print for the month was well below even the most pessimistic projection.
While a payrolls rebound would seem likely for this month, pay attention to the trend. If there is another bad number (it need not be negative necessarily), maintaining the “labor market continued to strengthen” line will become difficult. If the Fed is missing on both the inflation and jobs fronts, it seems like a rate hike in December would be ill-advised.
However, we won’t get the next jobs report for several more weeks. Until then, look for gold to garner support from the heightened geopolitical tensions and weakness in the dollar.
TASS news agency quoted North Korean Foreign Minister Ri Yong Ho as accusing President Trump of lighting “the wick of war.” Meanwhile, the U.S. and South Korea conducted more joint training missions that North Korea will assuredly view as provocative.
Catalonia sort of declared independence from Spain yesterday, saying they had the mandate to do it, but suspended it for the time being in favor of further dialog. Spain wants to know if they’ve declared independence or not and are reportedly considering direct rule over Catalonia. This saga is far from over.
U.S. JOLTS job openings -58k to 6,082k in Aug, below expectations of 6,125k, vs negative revised 6,140k in Jul.
Gold edged higher on Wednesday after Catalonia’s leader baulked at making a formal declaration of independence from Spain, sending the euro higher and the dollar down.
The dollar index fell to the lowest in over a week, making dollar-priced gold cheaper for buyers using other currencies.
“These concerns about the ramifications of the Catalan independence referendum are fading, giving some support to the euro and weakening the dollar,” said Jens Pedersen, senior analyst at Danske Bank in Copenhagen.
Gold is consolidating below the $1300 level as traders await the minutes of the September FOMC meeting. Geopolitical tensions and a softer dollar are seen as being supportive to the yellow metal.
The Fed paused the recent tightening cycle in September amid persistently sluggish inflation. The minutes will perhaps provide some additional clarity as to just how concerned the members are and if current market expectations for a December hike are realistic.
Recent gains in the dollar index stalled well shy of the 100- and 200-day moving averages. The trend is still down and negation of this 92.90/88 support level would return considerable confidence to that trend, which should push gold higher.
Gold steady at 1290.09 (+0.16). Silver 17.15 (-0.014). Dollar lower. Euro higher. Stocks called easier. U.S. 10-year 2.34% (-2 bps).
Janet Yellen’s mantra is, “It’s transitory!”
That’s Yellen’s typical response to a long litany of data that shows the U.S. is in the grip of a powerful disinflationary trend that may lead to outright deflation — a central banker’s worst nightmare.
The Fed has a publicly announced 2% inflation goal, which they consider to be price stability. In fact, 2% inflation cuts the purchasing power of the dollar by 75% in the course of an average lifetime. The Fed would tell you to ignore that.
…The Fed has created $3.5 trillion of new money since 2008, yet there has been no appreciable amount of inflation for nine years.
PG View: Rickards believes that rate hike expectations will deteriorate in the months ahead and that Yellen will be reluctant to do another rate hike as her last act as Fed chair.
The projected total U.S. debt will be $30 trillion within 10 years, using the Congressional Budget Office’s own numbers. But the CBO also makes the rosy assumptions that there will be no recessions and that gross domestic product will grow at a 4% nominal rate.
Now, that’s possible; I’m inclined to haircut it a bit.
If you asked me to bet the “over/under” on the debt in 2027, I would bet the over at $35 trillion.
PG View: Mauldin concludes that Social Security becomes “impossible” under such a debt load. My big concern would be the dollar. The only way to service a national debt of this scale would be to severely devalue the dollar and the way to protect against that is to buy gold.