“Amazon bought Whole Foods today. Widespread carnage in the grocery stock prices followed. Jim Cramer called it a major deflationary disruption saying stores cannot compete.”
MK note: Interesting buzz on Amazon’s Whole Foods prospective acquisition. Whenever the subject of deflation comes up, I think of gold’s stellar performance in the wake of the last crisis which, in fact, was disinflationary. Disinflation, in turn, is a close cousin to deflation as discussed in some detail HERE and HERE, along with gold’s historic relevance in protecting against either or both.
The Financial Times reports this morning that the European Central Bank gave a “seal of approval” to the Chinese renminbi with a purchase of 500 million euros worth of the currrency for its reserves – a small transaction but with “huge symbolic significance.” It is also important symbolically that the ECB sold dollars to purchase the renminbi. This ECB purchase may be the most important development to date with respect to China’s establishing the yuan as a global reserve currency, and a possibly a direct response to the cool relations between the U.S. and Europe on display at the recent G-7 meeting. – MK
Wall Street, the financial media and a good many investment analysts are down on gold and silver. It is difficult to understand why.
As of Friday’s closes,
– the Dow Jones Industrial Average is up 7.30% thus far in 2017
– Gold is up 11.12%
– Silver is up 10.37%
– the Dollar is down 3.52% (based on the Dollar Index – Major currencies)
– Commodities are down 5.9% (based on the Bloomberg Commodity Index)
All of which tells us that, as of June 2, 2017, gold and silver are still being purchased as hedges against disinflation and overall financial system risks as has been the case since the turn of 21st century. At the moment, we can also throw in dollar weakness as a factor, though it is difficult to know whether or not that weakness is temporary or something with staying power.
Up $10 as this is posted.
A Wall Street Journal article published this morning might have inspired new fund/institutional buying. The WSJ is often used by the Fed to channel messages to the market and this looks like one of those articles. It suggests that a rate hike might be on hold for September although the June hike is still a likelihood. The article cited political wrangling in Congress and a possible government shutdown as primary reasons for putting September on hold. Another aspect of the Fed’s agenda – unwinding the balance sheet – was also covered. It seems the board is leaning toward retiring its holdings gradually as debt instruments mature rather than any sort of wholesale dumping. The go-slow approach is meant, according to the WSJ, as an attempt to ward off a future “taper tantrum” in the bond market. Gold apparently likes the new agenda, or at the very least, likes the fact that the Fed has decided to be cautious on both rates and the balance sheet. MK
Here’s a Barron’s take on the Wall Street Journal article: Will Political Wrangling Alter The Fed’s Rate Hike And Taper Timeline – Uncertainty in Washington may shake up the central bank’s plans beyond June.
“This is clearly Washington-driven,” said Michael Shaoul, chairman and CEO of Marketfield Asset Management. “It’s a lot like 1998-99, when the market had to deal with the [Monica] Lewinsky scandal.”
MK note: Unravelling euphoria + deflating bubble = Gold up $15.
The FOMC meets Tuesday and Wednesday this week. Today’s downside, in my view, is the standard sell-off that generally accompanies Fed meetings these days – irrespective of the expected meeting results. From what I’ve read, this particular meeting will focus on the manner and method of reducing the Fed’s balance sheet and skirt the interest rate issue, though one never knows.
On the balance sheet issues, I’m still lingering on first base asking the basic question: Why does the Fed need to reduce its balance sheet? Why not simply leave things as is given the potential harm that reduction might have on the bond and stock markets, not to speak of the overall economy? To me, it appears the Fed, for whatever reason, chooses to drive the streets in a truck full of nitro-glycerine. It is the Fed’s choice to so so, but one wonders why.
Gold’s appeal will likely be enhanced by the market instability such considerations are likely to generate on a global basis. Already we are seeing reports of major bond liquidations in Japan. In doing so, it joins China in the on-going liquidations, and just as importantly, a reluctance to buy bonds at the weekly auctions. Oddly enough, an absence of buyers of U.S. sovereign debt, should it occur, could ultimately lead to another round of quantitative easing, a process we called printing money in times past, and led to the huge balance sheet position the Fed now says it wants to liquidate.
And if all of that doesn’t confuse you, I don’t know what will.
“Credit Suisse said a global glut of debt suggests dovish future monetary policy by central bankers. Central banks collectively hold a greater percentage of sovereign debt than ever before, and sensitivity towards disrupting markets means that they likely will be cautious in pursuing policies that could disrupt the current low rate environment supporting the economic recovery.”
MK note: The less-than-well-informed translate rising rates, and rising rates alone, as an indication of tight monetary policy, but the mere act of raising interest rates is not enough to accomplish that goal. Tight monetary policy translates to forcing interest rates above the inflation rate (or even the natural market rate on Treasuries), and neither Yellen nor Trump want that.
So it is that the professional investors are reading negative returns and the potential for inflation in our collective futures. They are buying gold and silver in response as reflected in rising ETF holdings. Judging from volumes at USAGOLD over the past few days, private individual investors, like their professional counterparts, are finally catching on. It will not be long until reports begin to surface that the average investor has joined the new gold buyers club.
Solving the secret behind the Chinese gold market
Epoch Times/Valentin Scmid/3-13-2017
“Here, Jansen points out a peculiarity regarding Asian buying: ‘Asian demand is strong when the price goes down. Western demand is strong when the price goes up. In April 2013, the gold price collapsed and a lot of gold was exported from the West to China, mostly from the U.K.’”
MK note: The quote in the headline is from Koos Jansen, the Dutch researcher/expert on Chinese gold demand. It sums up the end result of the London-Zurich-Hong Kong-Shanghai gold pipeline which has been in operation for a number of years. Most of the experts believe the black hole is likely to remain functional as long as the West can unearth or pry loose hard metal to feed it. For those who are just now learning the dynamics of the gold market, this article deals with a key piece to the puzzle – China’s enduring interest in the yellow metal. China, Jansen points out, doesn’t allow even one ounce of gold and silver to leave its shores once it enters.
Watch movie online The Transporter Refueled (2015)
“Make no mistake, there is the world of difference between tearing up bilateral and multilateral trade agreements, and, unwinding a monetary union as far reaching in scope as the EMU (economic and monetary union) project,” Deutsche Bank said in a note Tuesday. “It is the difference between a benign global risk event and something that has the potential to go beyond a ‘Lehman’s moment’.
MK note: Two essential mental plug-ins come to mind. One, Marine LePen who promises a Frexit referendum is ahead in the polls. Two, the last time France voted on the EU it was on the question of a European constitution and it voted “against.” Note Deutsche is not calling Frexit a “Lehman moment,” but “beyond a Lehman moment.”
“What I’m even more confused about is who, exactly, is buying all the Treasury debt while simultaneously buying all the equity’s (and real estate, and and and)?. . . I’m astounded that somehow the domestic public is able to push equity prices up by over $16 trillion from there ’09 lows while simultaneously buying record quantities of Treasury debt. The TIC data (Treasury International Capital system) combined with Fed data and further Treasury data show the public is presently purchasing nearly $70 billion a month (average) of still near record low yielding debt?!? The only previous period that the domestic public bought even 2/3rds the present amount, asset valuations were in free fall from 2008 to 2010 as money rotated from risk to perceived safety.”
MK note: Confused? So are we. . . . .
Also. . . .
Why biggest U.S. creditors are selling Treasuries/Bloomberg/2-22-2017
“It’s the biggest pile of debt in the world — the $13.9 trillion U.S. Treasuries market. It’s been built with the help of foreign central banks and investors, who have clamored to buy U.S. government debt through good times and bad. But what happens if they lose their taste for Treasuries? With creditors from Tokyo to Beijing to London having second thoughts, we may be about to find out.”
MK note: Based on the data, they have already lost their taste for U.S. government debt. The real question reverts back to the previous article: Who is buying all this U.S. government debt in a rising interest rate environment? There is always a kind of built-in demand based on normal day-to-day financial market needs, but when you factor in the huge amount of debt sold in Asia plus the huge on-going needs of the U.S. government we are talking some very big numbers. . .very big supply and very big demand.