Author Archives: News

Iran’s gold demand set for spurt before Trump sanctions bite

Bloomberg/Claudia Carpenter/5-10-2018

“‘What’s going to happen initially, people will try to convert whatever they have into dollars or gold or whatever is of value that’s not going to depreciate,’ Cagdas Kucukemiroglu, an analyst at London-based Metals Focus, said Wednesday by phone. ‘Then next year the demand will gradually start to go down but it’s not going to be drastic. The base is already very low.’”

MK note:  The better strategy no matter where you call home is to make gold a permanent part of your portfolio so that you are prepared no matter what comes down the road.  Having been a gold broker most of my adult life, I can tell you with some certainty that it is much better to buy gold before a crisis than to pay the price rendered once it sets in.

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Chinese bullion demand off to a good start in 2018

Value Walk/Frank Holmes/5-10-2018

“In China, the world’s largest importer of gold, jewelry demand rose 7 percent in the first quarter to 187.7 metric tons, a three-year high. According to the WGC, Chinese retailers are working on improving the customer experience, providing consumers with a more holistic retail solution.’ The industry is expecting a strong 2018 after a relatively subdued 2017.”

MK note:  You have to wonder what Chinese retailers mean by a more “holistic” solution . . . .

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Trump Iran sanctions just gave Saudi Arabia and Russia more clout in the oil market, so watch out for higher prices

CNBC/Patti Domm/5-10-2018

“Saudi Arabia said it will help meet world oil demand if President Donald Trump’s Iran sanctions create shortfalls, but analysts say it will do so only in conjunction with Russia, and the world may have to get used to higher prices as a result.”

MK note:  We must keep in mind that OPEC’s mission is not to keep oil prices down but to make sure it preserves the markets it has already established while increasing prices.  As pointed out in yesterday’s DMR, from the Western standpoint it is not so much the sanctions themselves that are a concern with respect to the flow of oil, but the possibility of military action affecting Middle East production as a whole.

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The Fed has ‘time to wait’ while hiking rates, former vice chair Fischer says

CNBC/Jeff Cox/5-9-2018

“‘When I left, which was only six or seven months ago [in October 2017], all the concerns were we’re not seeing any inflation,’ said told CNBC’s Leslie Picker during an interview on the sidelines of the Context Leadership Summit in Las Vegas. ‘I don’t think we’re seeing a whole lot more inflation than we saw at that time.'”

MK note:  As mentioned briefly in our DMR this morning the low producer price index number is likely to figure into future Fed interest rate deliberations.  Also, as we noted last week, the Fed statement following last week’s interest rate meeting carried a distinctly dovish tone – at least enough of a divergence from the past to warrant consideration.

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U.S. 10-year note sold at highest yield since 2014

Reuters/Staff/5-9-2018

“The U.S. Treasury Department on Wednesday sold $25 billion in 10-year notes at a yield of 2.995 percent, which was the highest yield at auction of this debt maturity since January 2014, Treasury data showed.”

Related:TREASURIES-Supply glut pushes 10-year yield back above 3 percent 

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Gold-backed ETFs had their strongest inflows since early 2017

World Gold Council/5-9-2018

“Global gold-backed ETFs holdings added 72.2 tonnes(t) to 2,481t in April. This is the strongest month of net inflows in more than a year. Growth in global holdings was led by significant North American and European inflows and supported by a small increase in Asia. ETF inflows were steady throughout the month even though the gold price retraced early gains, finishing April 1% down, after reaching an intra-day high of approximately US$1,360/oz mid-month.”

MK note:  ETF demand is led by hedge funds and institutions.  As we have reported consistently, that sector has been a major contributor to physical demand over the past few years and it likes to buy into price weakness.

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Trump tells Macron U.S. to pull out of Iran nuclear deal: New York Times

Reuters/Steven Holland and John Irish/5-8-2018

MK note:  Gold jumps almost $10 at $1315. DJIA drops over 100. Dollar index reverses course . . . .Trump announcement forthcoming.

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Oil faces a month of mayhem as geopolitical risks proliferate

Bloomberg/Christopher Sell/5-7-2018

“Plunging Venezuelan crude production; sanctions disrupting Iranian oil exports; Saudi Arabia pushing for even higher prices; North Korea peace talks — the coming weeks bring an abundance of risks for the oil market.”

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As currencies weaken, Asia’s original sinners go for classic defence

Reuters/Vidya Ranganathan/5-4-2018

“Intervening by buying and selling currencies has been the default policy option since the 1997/98 financial crisis for Asia’s governments. Even now, rather than raise interest rates in lockstep with the Federal Reserve, they are selling dollars and supplanting the easy money that global central banks are slowly removing from the world economy.  A big part of the reason has been the historic and high dependence on foreign portfolio flows, often referred to as the ‘original sin’ in the markets.”

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Is the supply of gold depleting?

The Gold Telegraph/Lawrence Thomas/5-6-2018

“The demand for gold is increasing, yet new discoveries of the precious metal have not kept pace with the demand. Funds for exploration are historically high, $54.3 billion, up 60 percent over the past 18 years. . . Gold discoveries have followed a predictable pattern. 263 major gold discoveries have been made in the past 28 years, but half of those discoveries happened in the 1990s. This boom lasted until the turn of the century when the rate of discovery began to decline. Only 16 discoveries were reported from 2000 to 2002, which produced 108.3 [million] ounces of gold. That amount was below the average finds of the 1990s. This decline has continued, with both new discoveries and the amount of gold mined decreasing steadily. By 2010, only 18.6 million ounces of gold was discovered, a severe drop from the 61.5 ounces found in 2009.”

 

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How the Fed’s removal of two words set off a firestorm of confusion

MarketWatch/Greg Robb/5-3-2018

“The fact that Federal Reserve policy statements are pored over by investors was driven home once again when the removal of two words from the prior statement set off an intense debate over the central bank’s view of risks to the economy. When the U.S. central bank issued its statement Wednesday, eagle-eyed Fed watchers noticed the central bank had removed ‘near-term’ from in front of roughly balanced risks.”

MK note:  You have to kidding me. . . . .

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The robots have dropped their dollar short – for now

Bloomberg/Dani Burger and Sid Verma/5-4-2018

“Automated trend-followers, known as commodity trading advisers, have flipped to neutral from a big short position on the greenback in recent weeks, a shift that helped accelerate the currency’s surprise advance. Now they’ve blown through all their stop-losses, and it could spell bad news for bulls from here.”

MK note:  Though the dollar’s advance has been drummed up as formidable, it doesn’t add up to much in terms of price movement.  Since the beginning of April the dollar’s “surprise advance” weighs in at just under 3% while gold dropped about 2%.

 

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Argentina stuns markets as it pushes interest rates to 40%

Financial Times/Cat Rutter Pooley, Adam Samson and Roger Blitz/5-5-2018

“Guy LeBas, chief fixed-income strategist at Janney Capital Management, said: ‘Any time you are hiking interest rates 12 per cent in a week to defend your currency it is past the point of crisis.’  The dollar rally has tracked signs of faltering economic growth outside the US and focused attention on a rapid rise of debt across developing world economies in recent years. That leaves EM as an asset class looking vulnerable to a broader reappraisal by investors who have flocked to the sector in recent years, attracted by higher yields.”

MK note:  Some will dismiss Argentina’s problems as something happening in a backwater country unlikely to affect global markets, but there is more to the latest crisis in Argentina than meets the eye.  The strong dollar is creating serious problems worldwide among emerging countries with Argentina – now shouldering a 40% interest rate, a runaway inflation rate (26%) and the first stages of an attack on its foreign exchange reserves – quickly emerging as a poster child in a broader emerging markets crisis likely, as time passes, to raise broader concerns.  The chart below shows the Argentina peso/dollar exchange rate and interest rates.  Note that the chart shows the number of pesos to purchase a U.S. dollar.

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Beijing talks: A ‘formalization of trade war hostilities’ between China and United States

Financial Times/Shawn Donnan/5-5-201

“Just days ago the hope was that if Washington and Beijing would just start talking then a trade war between the world’s two largest economies could be averted. But this week’s discussions in Beijing between the Trump administration and Xi Jinping’s economic team have only shown that a trade war may be inevitable.  ‘These meetings could end up going into the books as a formalisation of hostilities rather than as the basis for a negotiated settlement,’ said Eswar Prasad, a US-based China expert with close ties to Chinese economic policymakers.” 

MK note: The message that the Beijing negotiations more or less formalized hostilities rather than opening channels for agreement is likely to send a chill through markets.  Things happened so quickly at the end of the week that the markets barely had time to react, but by the end of the day on Friday, a subtle shift was discernible.  By Friday mid-day both the dollar and gold had reversed course.  It will be interesting to see how all of this plays out when markets open Monday after participants have had a weekend to process the information.

 

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U.S. China trade talks end with key differences still unresolved

TRADE WARS

Bloomberg/Staff/5-4-2018

“Two days of U.S.-China trade discussions ended in Beijing with an agreement to keep on talking, and little else. China’s official Xinhua News Agency reported Friday afternoon that both sides reached a consensus on some trade issues while acknowledging major disagreements on some matters. It said they would continue discussions, without providing specifics for when they would start again. Neither side briefed the media, and the U.S. delegation led by Treasury Secretary Steven Mnuchin departed Beijing in the evening. While a cure-all deal was always a long shot, the discord between the world’s two biggest economies means skittish global markets will continue to face ongoing trade tensions.”

MK note:  The stalemate probably means an escalation from the American side.  Reading through the details, it looks like the two sides are miles apart. A wall of resistance and a lack of anything to talk about does not bode well for either side. The question needs to be asked: So where do we go from here?

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Alan Greenspan’s take on the here and now. . . .

Fox News interview with Maria Bartiromo/NewsMax

“We are moving toward stagflation,” Greenspan, who served as chairman from 1987 through 2006, told Fox Business’ Maria Bartiromo on ‘Mornings with Maria.’ “In the process of moving in that direction, it feels good, but it’s a false dawn.”

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Last man standing: lonely Fed tightening spurs dollar surge

Reuters/Saikat Chatterjee and Ritvik Carvalho/5-3-2018

“As speculation about interest rate rises and policy ‘normalization’ in the euro zone, Japan, Britain and China falls away rapidly, the U.S. Federal Reserve’s now lonely monetary tightening has suddenly supercharged the dollar. The revival of the U.S. currency after more than a year on the wane is already causing mayhem in emerging markets from Turkey to Argentina and Indonesia, while tightening global financial conditions in a way that could eventually make even the Fed consider a pause for thought. In just two weeks the dollar has surged nearly four percent against a basket of the most traded currencies, erasing all the losses it had suffered since the start of 2018.”

MK note:  One has to ask:  Will the Trump administration sit back and watch as the Japan, China and Europe essentially devalue their currencies against the dollar?  In war – even trade and currency wars – we should keep in mind surprises are more the rule than the exception.  Too, as is the case in wars of the more conventional variety, gold is always a good hedge.

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Dow drops more than 300 points amid US-China trade worries

CNBC/Fred Imbert and Sam Meredith/5-3-2018

“Shortly before the talks were set to take place in Beijing, the mood between the world’s two largest economies worsened amid reports the U.S. administration is considering taking executive action to restrict some Chinese firms’ ability to sell telecoms equipment. On Wednesday night, President Donald Trump said in a tweet the group of administration officials ‘is in China trying to negotiate a level playing field on trade! I look forward to being with President Xi in the not too distant future.'”

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This billionaire has put half his net worth into gold

Bloomberg/Tamim Elyan and Manus Cranny/4-3-2018

“Some big investors see warning signs ahead for markets but are holding their positions. Egyptian billionaire Naguib Sawiris is taking action: He’s put half of his $5.7 billion net worth into gold. He said in an interview Monday that he believes gold prices will rally further, reaching $1,800 per ounce from just above $1,300 now, while ‘overvalued’ stock markets crash. ‘In the end you have China and they will not stop consuming. And people also tend to go to gold during crises and we are full of crises right now,’ Sawiris said at his office in Cairo overlooking the Nile. ‘Look at the Middle East and the rest of the world and Mr. Trump doesn’t help.’”

MK note: The link above includes a lengthy video interview of billionaire Naguib Sawiris in which he elaborates on why he has half of his net worth in gold. It is highly recommended. Though we can understand Mr. Sawiris’ motivation, we recommend a more modest commitment to gold between 10% and 30% of your net worth depending upon on your own assessment of present economic uncertainties.

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Dollar dips as Fed seen more likely to tolerate inflation

Reuters/Karen Brettell/5-2-2018

“The U.S. central bank held interest rates steady and in a statement following the end of a two-day policy meeting said that inflation had ‘moved close’ to its target and that ‘on a 12-month basis is expected to run near the Committee’s symmetric 2 percent objective over the medium term. ‘Markets are pretty much focused on the symmetric language, that’s kind of code for willing to let them overshoot their inflation target,’ said Mark McCormick, North American head of fx strategy at TD Securities in Toronto. ‘If inflation moves higher and they don’t respond to it, they are essentially keeping the accommodation in the economy the same,’ McCormick said. ‘That’s negative for the dollar because … the dollar needs higher real rates to essentially pull in the funding from the rest of the world.’” [Emphasis added]

MK note:  I see this quick analysis as spot on.  It doesn’t make sense that gold would go up then all the way back down given the message the Fed is attempting to deliver. . . .

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Fed keeps interest rates unchanged, says inflation near target

Reuters/Lindsay Dunsmuir, Howard Schneider/5-2-2018

“The Federal Reserve held interest rates steady on Wednesday and expressed confidence that a recent rise in inflation to near the U.S. central bank’s 2 percent target would be sustained, leaving it on track to raise borrowing costs in June.”

MK note:  In reviewing the changes to the Fed statement, the one thing that caught my eye was editing out the observation that “The economic outlook has strengthened in recent months” without substitution. All the other changes were innocuous.

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A Goldman trading desk that once had 500 people is down to three

Bloomberg/Sonali Basak and Christopher Palmeri/4-3-2018

“Many Wall Street traders are concerned about being replaced by machines in the future, but at one Goldman Sachs Group Inc. unit it’s already happened. ‘Equity trading: 15-20 years ago we had 500 people making markets in stocks. Today we have three,’ Goldman Sachs President David Solomon said Monday at the Milken Institute Global Conference in Beverly Hills, California. Solomon said the introduction of more technology into the trading business has made it more efficient for clients, while also introducing new risks. For Goldman Sachs, it has changed the mix of its workforce, as the bank has 9,000 engineers on staff and more employees are focused on regulation.”

MK note: It is easy to understand that 497 human market makers were replaced by machines, but what is a little more difficult to piece together is what the trend it represents might mean for financial markets now and in the years ahead.  What do we have when we subtract, or even just dilute, the human element from the financial marketplace?  An interesting question. . . . .  We explore that problem with respect to gold ownership and the gold market in an upcoming News & Views Special Report titled The case for gold in the era of financial virtual reality – On the holodeck the markets are telling us something but we know not what. This special report will be released in the clear soon and we will post a link to it here at MK’s Short & Sweet, but if you would like to be included on our e-mail list for this issue, future regular issues and special reports, we invite you to register for a no obligation FREE SUBSCRIPTION at this link.

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Israel seems to be preparing for war with Iran, U.S. officials say

NBC News/Courtney Kube/5-1-2018

“An Israeli airstrike on the western Syrian city of Hama on Sunday killed two dozen Iranian soldiers and targeted arms recently delivered from Iran, said three U.S. officials, and is the latest sign that Israel and Iran are moving closer to open warfare. ‘On the list of the potentials for most likely live hostility around the world, the battle between Israel and Iran in Syria is at the top of the list right now,’ said one senior U.S. official.”

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Forget 3%. That amazing bull run in Treasuries ended years ago

Bloomberg/Liz McCormick and Brandon Kochkodin/5-1-2018

“Last week, bond yields briefly broke above 3 percent for the first time since 2014 and prominent investors like Paul Tudor Jones and Ray Dalio say a full-on bear market is all but inevitable this time as rates rise and deficits grow. The die-hard bulls predictably insist the doomsaying will once again end in tears.  . . . Truth is, returns on U.S. government bonds have been so lousy they’ve failed to keep up with even the stubbornly weak inflation we’ve seen in recent years. On average, Treasuries have returned just 1.4 percent a year since the end of 2014, less than the 1.64 percent annual increase in consumer prices, data compiled by Bloomberg show. In other words, people have been losing money after taking inflation into account.”

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Get ready for the most expensive driving season in years

Associated Press/Alex Viega/4-3-2018

“Get ready for a little bit more pain at the pump this summer. Crude oil prices are at the highest level in more than three years and expected to climb higher, pushing up gasoline prices along the way. The U.S. daily national average for regular gasoline is now $2.81 per gallon. That’s up from about $2.39 per gallon a year ago, according to Oil Price Information Service. And across the U.S., 13 percent of gas stations are charging $3 per gallon or more, AAA said last week.”

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Growing concern: Foreign investors lose some hunger for U.S. debt

Wall Street Journal/Daniel Kruger/4-30-2018

“Foreign investors’ appetite this year for U.S. debt hasn’t grown at the same pace as the government’s borrowing needs, which some analysts worry could push bond yields higher and eventually threaten to slow economic growth. Investors in a broad category known as ‘indirect bidders,’ which includes both mutual funds and foreign investors, have been winning the smallest percentage of the bonds they’ve bid for since 2011, according to bidding data for recent Treasury bond auctions.”

 

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Goldman’s Solomon says greed is trumping fear in the bull market

Bloomberg/ Steve Dickson , Erik Schatzker , and Scarlet Fu/4-3-2018

“Investors lulled by the long bull market are being motivated more by a search for yield than concern a correction is coming, according to Goldman Sachs Group Inc. President David Solomon. ‘We’re down the road in the cycle, so there’s certainly places where people are further along the greed spectrum than the fear spectrum,’ Solomon said Monday in an interview on Bloomberg Television. ‘In an environment where money has been so inexpensive for such a long period of time, there’s no question that people have been reaching for yield.'”

MK note:  Unwinding this long and winding road could take time. . . .or it could happen in a New York minute.

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Europe and U.S. Teeter on the brink of a trade war

TRADE WARS

CNBC/Toluse Olorunnipa and Patrick Donahue/4-27-2018

“German Chancellor Angela Merkel failed to win a public commitment from President Donald Trump to halt U.S. tariffs on imported steel and aluminum from Europe, leaving the two economic powers teetering on the brink of a trade war. With a U.S. tariff exemption for the European Union expiring on May 1, Merkel said she discussed trade disputes with Trump during talks at the White House on Friday, including her offer of broader trade negotiations with the EU. She suggested the president wasn’t convinced. ‘The president will decide, that’s clear,’ Merkel told reporters at a news conference alongside Trump.  ‘We spoke about the state of negotiations and our respective assessments. The decision lies with the president.’”

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EU to City of London: Expect no Brexit favors, we don’t need you

Bloomberg/Ian Wishart and Silla Bush/4-26-2018

“Barnier debunked the line often taken by U.K. lobbyists that the EU needs the City of London and will suffer if it’s weakened. ‘This is not what we hear from market participants, and it is not the analysis that we have made ourselves,’ he said. With no special trade deal with the EU on financial services, U.S. banks are hardly suffering, however. Their domination of the investment-banking market was underscored on Thursday with the announcement that Deutsche Bank AG is abandoning its ambitions to be a top global securities firm.”

MK note: According to this report, Michael Barnier, the EU’s chief Brexit negotiator, “issued a stark warning that markets should prepare for a messy breakup.” The gold market in Britain might get a jolt from investors moving to the metal as a defense against the worst outcomes resulting from Brexit.  We have seen signs of that in the past.

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Fed at odds with itself as eases bank rules and raises rates

Bloomberg/Rich Miller/4-26-2018

“In unveiling a proposal on April 11 to ease leverage limits on Wall Street banks, the Fed and the Office of the Comptroller of the Currency said the step might lower the amount of capital lenders are required to hold in their main subsidiaries by $121 billion. The move would give banks added flexibility to extend credit.”

MK note:  That $121 billion can be leveraged into many hundreds of billion in loans.  Whether or not that occurs and it is actually injected into the Main Street economy is an open question.  This article presents a variety of viewpoints worth reviewing.

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