Author Archives: News

$1B Worth of Fiat Currency Going To Zero?

KitcoNews/Sarah Benali/10-20-17

If you think fiat currencies don’t have an expiry date, think again.

The Swiss franc – known to many as a safe-haven currency – is set to expire soon, making up to one billion francs worthless.

This expiration date applies only to franc bank notes that were introduced in 1976, as reported on the Wall Street Journal Friday.

PG View: Physical gold never expires . . .

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US preparing for North Korea’s ‘final step’

CNN/Nicole Gaouette/10-20-17

CIA Director Mike Pompeo said the United States has to act as if North Korea is on the verge of being able to strike it with a missile and act accordingly — and that President Donald Trump is ready to do so.

…Pompeo is among a number of former officials who have been signaling the increased possibility of a slide into military confrontation with North Korea over its refusal to back down from its nuclear program.

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Posted in Geopolitical Risks, North Korea |

The Daily Market Report: A Fed Hike in December May Lead to Intolerable Policy Divergence/Stronger Dollar


USAGOLD/Peter Grant/10-20-17

Gold has retreated to the low end of the recent range after passage of the 2018 budget blueprint stoked optimism that the tax cuts will get passed as well. The prospects for lower corporate taxes is spurring risk appetite, sending shares higher.

As the stock bubble continues to inflate, the Fed may indeed be compelled to raise rates again in December, regardless of persistently weak inflation. The inflation that the Fed so desperately wants is occurring in asset prices, rather than in PCE, which they have identified as their primary benchmark.

As we’ve noted in previous commentary this week, PCE inflation has actually been declining since the central bank first started hiking rates in December of 2016. The Fed did do a one-off rate hike in December 2015, which proved to be a big mistake. That may still prove to be the case this time around as well.

The Fed also needs to consider the implications of a December rate hike if the rest of the world continues to lean toward easier policy:

With Fed quantitative tightening (balance sheet normalization) already underway, arguably the Fed is being plenty hawkish relative to the other major central banks. A December rate hike would result in greater and intolerable policy divergence, likely leading to a stronger dollar. Certainly appointment of someone like John Taylor to chair the Fed would have that effect.

However, President Trump has made it clear that he is not in favor of a stronger dollar. If reflation is the goal, via tax cuts, borrowing and spending. A weak dollar becomes all-but essential to pull that off successfully. The rest of the world maintaining easier policy may provide the necessary cover to maintain the pause in the current tightening cycle through year-end.

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Posted in Daily Market Report, Gold News, Gold Price, Gold Views |

Gold dips as dollar gains after U.S. Senate clears tax reform hurdle

Reuters/Apekshar Nair/10-20-17

Gold prices turned lower on Friday as the dollar regained ground after the U.S. Senate approved a budget plan for the 2018 fiscal year that will ease passage for
Republicans to pursue a tax-cut package without Democratic support.

…”The dollar is up on account of the Senate vote… which in turn could pave the way for introducing a tax reform bill. That is seen as a cause for higher (interest) rates,” INTL FCStone analyst Edward Meir said.

…”The (gold) market has been fairly quiet lately. There has been some profit-taking. Importantly, there are no known headlines from North Korea or Iraq,” OCBC analyst Barnabas Gan said.

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Posted in Gold News, Gold Price, Gold Views |

Senate narrowly passes 2018 budget, paving way for tax reform

The Hill/Jordain Carney & Niv Elis/10-19-17

Senate Republicans took the first step Thursday evening toward passing a tax plan and fulfilling a long-held campaign pledge.

Senators narrowly voted 51-49 to pass the fiscal 2018 budget after a grueling hours-long marathon on the Senate floor. Sen. Rand Paul (R-Ky.) joined with every Democrat and independent to vote against the bill.

…The budget would allow the Senate GOP’s tax plan to add up to $1.5 trillion to the deficit over a decade, a proposal that has raised concerns with fiscal hawks in the GOP. Its instructions call for the Senate Finance Committee to report a tax bill by Nov. 13.

PG View: There’s not much in the way of spending cuts in this budget, so there’s probably a whole lot more debt in our future.

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Posted in Debt, Politics |

U.S. existing home sales +0.7% to 5.39M pace in Sep, above expectations of 5.30M, vs 5.35M in Aug.

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Posted in Economic Data |

Morning Snapshot: Gold softens as advancement of budget/tax reform stokes risk appetite

USAGOLD/Peter Grant/10-20-17

Gold is back on the defensive within the range after the Senate narrowly passed the 2018 budget blueprint by a 51-49 vote. This bolsters hope that the GOP proposed tax reform will be advanced as well, prompting a rebound in risk appetite; as reflected by higher stocks.

Yields have rebounded as well, pulling the dollar higher, which has in turn pressured the yellow metal. The budget blueprint allows $1.5 trillion to be added to the deficit over the next 10-years. This is one of the keys to President Trump’s tax cut, borrow and spend reflation agenda.

Geopolitical risks are likely to limit the downside. Spain is expected to terminate Catlonia’s autonomy tomorrow. CIA Director Pompeo and National Security Advisor McMaster both seemed to suggest a heightened possibility of a military confrontation with North Korea at a security forum on Thursday.

The U.S. calendar is light today with just September existing home sales (-0.9% forecast) and Treasury Budget for September. We’ll also hear FedSpeak from Mester and Yellen.

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Posted in Gold News, Gold Price, Gold Views, Snapshot |

Gold lower at 1283.82 (-6.32). Silver 17.21 (-0.054). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.36% (+5 bps).

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Posted in Gold Price, Markets |

Bitcoin is not the new gold, Goldman Sachs says


CNBC/Arjun Kharpal/10-19-17

Cryptocurrencies like bitcoin are not the “new gold,” Goldman Sachs said in a note, advising investors that precious metals “remain a relevant asset class” in portfolios.

In a note to clients earlier this week, Goldman detailed the benefits of holding gold in a portfolio.

“The use of precious metals is not a historical accident – they are still the best long-term store of value out of the known elements,” the investment bank said.

PG View: I remain amused by the financial press’s instances on using a gold coin emblazoned with the symbol for some cryptocurrency in both pro and con stories (the video accompanying this piece is no exception). There is nothing tangible about cryptocurrencies. Absolutely nothing. And if they need to represent it with images of something that it most definitely is not (I do it just to make that point), it might be worth considering just buying the gold in the first place.

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Posted in Cryptocurrency, Gold News, Gold Views |

The Daily Market Report: ‘Risk-off’ Pushes Gold Higher


USAGOLD/Peter Grant/10-19-17

Heightened geopolitical tensions in Europe have prompted a rebound in gold, as the situation in Spain pushes the debate about the next Fed chair to the back-burner. U.S. yields and the dollar have dropped, providing support for the yellow metal.

For now, gold may be considered consolidative as investors await the weekend and Spain’s invocation of article 155, which would revoke Catalonia’s autonomy. Perhaps more important, will be the reaction of separatists and whether violence will erupt. A rise above Fibonacci/chart resistance at 1308.80/1313.62 is still needed to return confidence to the underlying uptrend. Monday’s high at 1306.04 now provides an intervening barrier.

The back-burner is exactly where the debate about potentially hawkish replacements for Janet Yellen belongs. If John Taylor for example were to get the nod, there would be an expectation that he utilize his own Taylor rule.

Even if he were to modify some of the assumptions of the rule he devised, as he has suggested he would consider, one might reasonably expect he’d push for faster policy normalization. However, it is also reasonable to ask, what is “normal” these days?

After nearly a decade of extraordinary policy measures, the landscape is nothing like what it was when Taylor created his rule 25-years ago. In accelerating the present tightening cycle — if you can really call it that — not only does he risk popping the stock bubble, but he could also tip the U.S. economy into a long-overdue recession.

That seems like risks not many at the Fed would be willing to take; perhaps even Taylor himself. Certainly President Trump doesn’t want either of those two things to happen on his watch, so why would he drastically alter the status quo? My bet is that he does not . . .

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Posted in Daily Market Report, Gold News, Gold Price, Gold Views |

Gold perks up as geopolitical tensions in Europe resurface


MarketWatch/Myra P. Saefong & Mark DeCambre/10-19-17

Gold prices traded higher on Thursday, on track to snap a three-session skid as political drama in the eurozone rattled investor confidence and the U.S. dollar and equities declined, lifting investment demand for the haven asset.

…“With stocks and the dollar down while bond prices rise, gold is just sticking to the script” with Thursday’s climb, Adrian Ash, head of research at BullionVault, told MarketWatch.

“Record-low volatility and record-high equities should make buying a little gold as insurance all the more urgent, but consensus at this week’s [London Bullion Market Association] conference in Barcelona saw weak investment demand continuing until the S&P’s bull market fails, not before,” he said.

PG View: Your “insurance” is going to be considerably more expensive, if you wait until the bull market in stocks fails first. Prudent investors are gradually taking profits in shares and moving some of those proceeds to gold now.

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Posted in Gold News, Gold Price, Gold Views |

Spain to trigger direct rule on Catalonia to crush independence bid

CNN/Laura Smith-Spark, Claudia Rebaza & Isa Soares/10-19-17

The Spanish government said Thursday it would begin the process to impose direct rule on Catalonia in an unprecedented move to crush the region’s independence bid.

In a statement from Madrid, the government of Prime Minister Mariano Rajoy said it would invoke Article 155 of the constitution, a provision that allows the central government to suspend the autonomy of the Catalan regional administration.

Rajoy’s Cabinet will meet on Saturday to agree measures to “restore the constitutional order” in Catalonia, where a banned referendum on independence took place earlier this month. The plan will then be put before the Senate, where Rajoy’s Popular Party has a majority, for approval.

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Posted in Geopolitical Risks |

U.S. leading indicators -0.2% in Sep, below expectations of +0.1%, vs +0.4% in Aug.

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Posted in Economic Data |

Morning Snapshot: Gold jumps as Spain prepares to revoke Catalonia autonomy

USAGOLD/Peter Grant/10-19-17

Gold is rebounding today and has already exceeded yesterday’s high amid reports that Spain will move to rescind Catalonia’s autonomy today. This unprecedented move has sapped risk appetite, weighing on global shares and pushing yields and the dollar lower.

Spanish PM Mariano Rajoy said that Article 155 would be invoked today, asserting direct rule over Catalonia. Rajoy says Spain seeks to “restore the constitutional order.” Put another way, this move seeks to crush the independence movement, but I doubt the separatist will go quietly into the night.

Again, it’s interesting to watch the dollar come under pressure at times of heightened geopolitical tensions. There was a time, not so long ago, when the dollar was THE safe-haven currency. That is no longer the case.

U.S. economic data were mixed this morning. Initial jobless claims fell 22k last week. The Philly Fed index for October came in much better than expected. However, leading indicators fell 0.2% in September, below expectations of +0.1%.

We’ll hear FedSpeak from Ester George later this morning as well, as prospects for a December rate hike remains elevated.

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Posted in Gold News, Gold Price, Gold Views, Snapshot |

Philly Fed index surged to 27.9 in Oct, well above expectations of 21.0, vs 23.8 in Sep.

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Posted in Economic Data |

U.S. initial jobless claims -22k to 222k in the week ended 14-Oct, below expectations of 243k.

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Posted in Economic Data |

Gold higher at 1286.56 (+6.11). Silver 17.04 (+0.037). Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 2.31% (-4 bps).

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Posted in Gold Price, Markets |

The Daily Market Report: Gold Defensive as Markets Continue to Ruminate on Next Fed Chair


USAGOLD/Peter Grant/10-18-17

Gold is maintaining a defensive tone as markets continue to ruminate over who might be the next Fed chair. Amid news that some perceived policy hawks are in the mix, worries over the implications for the ‘slow and steady’ policy normalization stance has lifted yields and the dollar, weighing on the yellow metal.

See yesterday’s DMR for a more in-depth look at why appointing a hawk to chair the Fed doesn’t really align with the President’s proposed fiscal policies.

Janet Yellen’s term as Fed chair doesn’t end until February 03, 2018, so this debate seems a bit premature. In fact, Ms. Yellen remains in contention for reappointment.

Of greater importance is what the Fed will do at its December FOMC meeting. The market believes another rate hike is all-but a sure-thing, but I’m wondering what has changed since the Fed paused in September?

Upticks in inflation are being largely attributed to the hurricane inspired rise in energy prices. That affect should be mitigated in the weeks ahead. If anything is “transitory” on the inflation front, it’s probably the recent gains.

The following chart shows the Fed’s preferred measure of inflation. Note that the annualized rate of core PCE inflation reached a high of 1.8% — shy of the 2.0% target — in December 2016 when the Fed raised rates for the first time since the feint of December 2015. Inflation reached 1.8% again in March of 2017 with the second rate hike of this cycle, presumably with the assumption that the central bank was serious this time. However, inflation has slowed since then, even with the June hike.

U.S. Core PCE Price Index YoY

So again, if illusive inflation was the cause for the pause in September, why is everyone convinced that the Fed will un-pause in December? Tighter policy is in fact an antidote for inflation, so if 2.0% inflation is what you desire and you never got there with policy that is easier than that of today, raising rates further really seems counterproductive.

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Posted in Daily Market Report, Gold News, Gold Price, Gold Views |

Gold slips as dollar firms on speculation over Fed chief

Reuters/Zandi Shabalala/10-18-17

Gold fell for a third straight session on Wednesday on pressure from a firmer dollar amid speculation that the next chair of the U.S. Federal Reserve could be a policy hawk.

“Interest rate hikes had not been fully priced in for next year. That has changed massively following speculation that (Fed Governor Jerome) Powell might become the next chairman,” said Commerzbank analyst Carsten Fritsch.

…”With dollar strength in mind, it would present further risks to gold, but I’m waiting to see how the Catalonia crisis unfolds tomorrow, pinpointing a possible next move for gold, in either direction,” said Jameel Ahmad, vice president of market research at FXTM.

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Posted in Gold News, Gold Price, Gold Views |

Morning Snapshot: Gold remains defensive as dollar/yields rise

USAGOLD/Peter Grant/10-18-17

Gold remains defensive after recent gains above $1300 faltered as talk about a potentially hawkish replacement for Janet Yellen began to circulate. That story continues to play out this morning, buoying yields and the dollar and pressuring the yellow metal.

As I wrote in yesterday’s DMR, appointing a hawk like John Taylor to chair the Fed risks derailing any hope that President Trump’s reflation agenda gets off the ground. What Mr. Trump really needs is an unabashed dove like Janet Yellen, or as DoubleLine Capital’s Jeff Gundlach speculated last week, Neel Kashkari.

U.S. housing starts and permits plummeted in September, well below the expectations of analysts who were already expecting a hurricane related slow down. Later today we’ll see EIA crude stocks and the Beige Book. FedSpeak from Dudley and Kaplan is already trickling out of a moderated discussion on economic development.

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Posted in Gold News, Gold Price, Gold Views, Snapshot |

U.S. housing starts -4.7% to 1.127M pace in Sep, below expectations of 1.183M, vs positive revised 1.183M in Aug; permits -4.5% to 1.215M.

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Posted in Economic Data |

Gold 1278.48 (-7.84). Silver 16.94 (-0.104). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.33% (+3 bps).

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Posted in Gold Price, Markets |

The Daily Market Report: Gold Retreats on Latest Speculation About Next Fed Chair


USAGOLD/Peter Grant/10-17-17

Gold retreated into the recent range amid the latest bout of speculation as to who will succeed Janet Yellen as Fed chair. Bloomberg reported that Stanford economist John Taylor impressed President Trump in a recent interview for the position.

If Taylor gets the nod, there is concern that he would attempt to implement his Taylor rule. That prompted rates and the dollar to jump today, putting gold under pressure. Stocks retreated intraday, but not before the DJIA set a new record high above 23,000.

The Taylor rule presently indicates that rates are far too low. While Taylor has signaled flexibility as to some of the inputs into his formula, it still suggests the potential for an acceleration of the present tightening cycle. That would of course be contingent on Taylor getting buy-in from other members of the FOMC.

If used as it was originally proposed, the Taylor Rule would imply that the Fed rate — currently set at a range of 1 to 1.25 percent — needs to be at 3.75 percent in order to meet the central bank’s goals of maximum employment and 2 percent inflation. Even if Taylor shied from pushing rates to that level as Fed Chair, using the rule would still make him appear much more hawkish than his two predecessors. — Bloomberg

However, given that President Trump’s economic agenda is premised on tax cut, borrow and spend fiscal policies, it would seem that tighter monetary policy would pose real problems. With a national debt already in excess of $20 trillion and headed higher, every uptick in interest rates makes servicing of that debt increasingly difficult.

Higher rates — or a wider differential with our trading partners — would cause the dollar to rise. President Trump has made it very clear throughout his first year in office that he is not a fan of a strong dollar. “Lots of bad things happen with a strong dollar,” said the President. He has also said that he “likes a low interest rate policy.”

That all seems incongruous with appointing a hawkish Fed chair. So, consider me a skeptic that Taylor is the latest front-runner for the position.

I would also point out that the Taylor rule was devised in the early 1990s. So much has changed in the past 25-years, one might reasonably assume that models of that era no longer reflect the present realities of markets and human behaviors. The Phillips curve is another glaring example, which attempts to show that unemployment and inflation have a stable inverse relationship.

Jim Rickards has consistently preached that the Fed is getting policy wrong because they continue to rely on antiquated models.

In a recent speech, Fed governor Lael Brainard, an ally of Yellen, said the Phillips curve today is “flat.” That’s a polite way of saying there is no curve. — Jim Rickards

Enacting monetary policy based on assumptions that these models are merely lagging, that the current conditions are “transitory,” may in fact be a recipe for disaster. I maintain that the main motivation for gradual rate hikes at the Yellen Fed is to give them enough clearance above the zero-bound to allow cuts when the economy eventually falls into recession.

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Posted in Daily Market Report, Gold News, Gold Price, Gold Views |

Crypto-Fool’s Gold?

ProSyn/Kenneth Rogoff/10-09-17

The price of Bitcoin is up 600% over the past 12 months, and 1,600% in the past 24 months. But the long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates – and there is no reason to expect virtual currency to avoid a similar fate.

“My best guess is that in the long run, the technology will thrive, but that the price of Bitcoin will collapse.” — Kenneth Rogoff
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Posted in Cryptocurrency |

Gold falls on hawkish views about possible next Fed chair

Reuters/Zandi Shabalala/10-17-17

Gold prices fell to a one-week low on Tuesday on speculation that the eventual successor to U.S. Federal Reserve Chair Janet Yellen will favour higher interest rates.

“It’s partly (the possibility of a hawkish Fed chair) and that the Fed is going to and needs to hike rates this year that is contributing to a bullish dollar environment,” Martin Arnold, commodities analyst at ETF Securities, said.

U.S. President Donald Trump was favouring policy hawk John Taylor as the next head of the Fed, Bloomberg reported, pushing the dollar higher and lifting U.S. Treasury yields.

PG View: But easier monetary policy would better facilitate President Trump’s economic agenda. He’s already spoken out about the detrimental impact of a stronger dollar, so why would he install a hawkish Fed chair?

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Posted in Gold News, Gold Price, Gold Views |

Violent collision of neutron stars is a gold factory

FT/Clive Cookson/10-16-17

Astronomers have entered a new era, combining observations of gravitational waves and light for the first time. They have recorded a cataclysmic collision between two neutron stars in a distant galaxy, which not only set the universe aquiver but also propelled newly created atoms of gold, uranium and other heavy metals into space.

“We now know that the violent collision of neutron stars is a gold factory.” — Professor Sheila Rowan of Glasgow University

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Posted in Gold News, Gold Views |

U.S. industrial production +0.3% in Sep, in line with expectations, vs upward revised -0.7% in Aug (was -0.9%). Cap use edged up to 76.0%.

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Posted in Economic Data |

Morning Snapshot: Gold retreats into range as dollar firms

USAGOLD/Peter Grant/10-17-17

Gold retreated into the range after failing to sustain recent probes above $1300, as the dollar firmed. However, political and geopolitical risks are still seen as supportive underpinnings to this market.

U.S. trade prices came in hotter than expected for September, with a 0.7% gain for imports and a 0.8% rise in export prices. Higher energy prices associated with the hurricanes contributed to the rise in import prices. While these gains may prove temporary, these data bolster the position of the policy hawks on the FOMC calling for a December rate hike.

Look for the probability of a rate hike to go back above 90%, which is pushing the dollar higher. However, with expectations already all-but a sure thing, there’s not much more room for improvement and gold has been holding up pretty well. There’s also still plenty of time before that December meeting.

U.S. industrial production rose 0.3% in September, in line with expectations, versus an upward revised -0.7% in August (was -0.9%). Cap use edged up to 76.0%, from a negative revised 75.8% in August (was 76.1%).

Later this morning we’ll see the NAHB housig market index for October, Treasury budget for September and August TIC data. We’ll also hear FedSpeak from Philly Fed’s Harker.

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Posted in Gold News, Gold Price, Gold Views, Snapshot |

U.S. import prices +0.7% in Sep, above expectations of +0.6%, vs +0.6% in Aug. Export prices +0.8% on expectations of +0.5%.

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Posted in Economic Data |

Gold lower at 1288.53 (-6.75). Silver 17.12 (-0.14). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.30% (+2 bps).

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Posted in Gold Price, Markets |