DMR–Gold abruptly turns south coincident with sharp drop in yuan

DAILY MARKET REPORT

Gold abruptly turned south in overnight and early U.S. trading coincident with a sharp drop in China’s yuan.  The yuan in turn fell abruptly on growth numbers that fell short of expectations and speculation that the Peoples Bank of China might move to lower interest rates.  Not helping matters, the European Central Bank formally announced plans to halt its quantitative easing program, but also stated it would reinvest proceeds from maturing bonds.  In addition, it reassured markets that it would refrain from raising interest rates until late next year.

In short, China and Europe went dovish at a time when the Fed is scheduled next week to raise U.S. interest rates another .25%.  The dollar index jumped over a half a point in response and gold dropped about the same.  As today’s DMR is posted, gold is down $7.50 at $1235.  Silver is down 20¢ at $14.54. Stocks are not all that happy with overnight developments either – down nearly 200 in futures’ trading.

Quote of the Day
“Buying gold today is a statement that you believe that global economic events may spiral out of the control of Central Bankers. It is insurance against some sort of massive monetary policy mistake that cannot be fixed without re-conceptualizing the global economic regime – hyperinflation in a developed nation, the collapse of the Euro, something like that – not an expression of a commonly shared belief in some inherent value of gold.. . . . The stronger the Narrative of Central Banker Omnipotence, the more likely it is that the price of gold goes down. The weaker the Narrative – the less established the Common Knowledge that central bank policy determines market outcomes – the more likely it is that the price of gold will go up. In other words, it’s not central bank policy per se that makes the price of gold go up or down, it’s Common Knowledge regarding the ability of central banks to control economic outcomes that makes the price of gold go up or down.” – W. Ben Hunt, Epsilon Theory

Chart of the Day

Chart note: This chart shows the gains or losses in gold from the same month a year earlier. Since the Fed began raising interest rates in early 2016, gold has gone higher in 22 out of the past 34 months. That means that you could have purchased gold in any one of those months a year earlier and showed a gain 12 months later, and sometimes that gain was significant – as much as 10% to 22%!

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