“‘Because the Fed is raising rates too fast. And it’s independent, so I don’t speak to him,’ Trump said in an interview with Fox Business, referring to Fed Chairman Jerome Powell. ‘But I’m not happy with what he’s doing because it’s going too fast. Because – you look at the last inflation numbers, they’re very low.’”
USAGOLD note: There has yet to be a response from the Fed and one doubts we are going to get one anytime soon.
“‘It was severely oversold below $1,200. We did get a pickup in physical emerging market demand and a further reduction in scrap supply, and the market tightened a little bit, and that helped it move higher,’ said [HSBC’s Jim] Steel. ‘The real catalyst for the jerk higher in the last few days has been the equity market wobble.’”
USAGOLD note: HSBC sees gold averaging $1274 through the end of year.
Financial Times/Cat Rutter Pooley/10-16-2018
“A record proportion of investors believe the global economy is in the late stage of the business cycle according to a closely-watched survey, topping the previous peak of December 2007 and underlining the twitchiness that has afflicted markets over the past week.”
USAGOLD note: Evidence from Bank of America Merrill Lynch that stock market sentiment may be shifting, volatility on the rise.
Reuters/David Lawder and Yawen Chen/10-14-2018
“China will continue to let the market play a decisive role in the formation of the RMB exchange rate. We will not engage in competitive devaluation, and will not use the exchange rate as a tool to deal with trade frictions.” – Yi Gang, governor, Peoples Bank of China (as reported by Reuters at the link above)
Bloomberg/Susanne Barton and Mavin G. Perez/10-12-2018
“For a measure of how much this week’s surge in gold prices may have caught many in the market by surprise, consider that hedge funds had just made their biggest-ever bearish wager on the metal days before.”
USAGOLD note: Some of the abrupt turnaround, as we suggested in our Thursday update, might have been due to some of those same players reversing short positions. Here is what it looked like on the chart including volume bars (bottom) and a partial repost of Thursday’s update for those who missed it:
“This is the first time in 2018, a cursory review tells us, that gold has gone up when the Dow Jones Industrial Average has gone down more than 1000 points – a break with recent trends that speaks to a possible resurgence of gold’s safe haven status. Too, we should not overlook the possible role of short-covering in today’s rally. Speculators have built-up a record short volume on the COMEX and will need to reverse those positions in order to lock-in profits. As an early indicator that sentiment might be shifting among funds and institutions, gold ETFs yesterday recorded net purchases of eight tonnes – “the first daily inflow since July” according to Commerzbank.”
More below. . . . .
Financial Times/Joe Rennison, Nicole Bullock and Robin Wigglesworth/10-12-2018
“Weakness in Treasuries undermines the appeal of the long bull run in equities. . .”
USAGOLD note: Rising rates present problems at many levels in financial markets, not least the cost of carry on all sorts of trades and positions, corporate debt of all kinds and sovereign debt. Positions established in the zero per cent interest rate environment become increasingly a burden as rates rise and create the potential for significant, rapid liquidations – particularly if/when counter-parties make margin calls forcing asset sales. The events of the past two days serve as a healthy reminder of the dangers that come with leverage and derivatives.
As for gold, the potential for a leverage problem is on the short side of the market. For details on what it might unleash, please see. . . .
Gold – A reverse bubble in search of a pin
The victim could quickly find itself the beneficiary
“China recorded a record trade surplus of $34.13 billion with the U.S. in September amid intense trade tensions between the world’s two largest economies.”
USAGOLD note: The Trump administration is not likely to be thrilled with this report. As noted below, the larger tariff scheme just went into effect late September with the remainder scheduled to go into effect January, 2019, so these are pre-tariff numbers. Unless China finds some way to absorb the tariffs without raising its prices, the surplus is likely to shrink.
Financial Times/James Politi and Stefania Palma/10-11-2018
“Fears grow that more countries will require loans as currency and debt woes pile up . . .”
USAGOLD note: How many bailouts can the IMF handle? The problem is deep, but how deep are the IMF’s pockets??
CNBC/Christina Wilkie and Everett Rosenfeld/10-10-2018
“The problem I have is with the Fed. The Fed is going wild. I mean, I don’t know what their problem is that they are raising interest rates and it’s ridiculous,” Trump said during a telephone interview with Fox host Shannon Bream. “The problem [causing the market drop] in my opinion is Treasury and the Fed. The Fed is going loco and there’s no reason for them to do it. I’m not happy about it.”
“’I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy,’ the president said after walking off Air Force One in Erie, Pennsylvania for a rally. Fears about rapidly rising rates helped cause the Dow Jones industrial average to drop more than 800 points Wednesday. ‘Actually, it’s a correction that we’ve been waiting for for a long time, but I really disagree with what the Fed is doing,’ the President added.”
Financial Times/Laura Pitel/10-9-2018
“Turkey’s finance minister has set out a new approach to tackling the country’s soaring inflation — urging the nation’s shops and businesses to give consumers discounts to keep prices in check.”
USAGOLD note: Such notions defy common sense and even a rudimentary understanding of economics. In reading this report, I was reminded of the Gerald Ford administration’s Whip Inflation Now campaign launched in the mid-1970s. The Ford administration sincerely believed it would help stop inflation in its tracks. Instead the campaign became a frequent target for late night comedy shows.
International Advisor/Kate Lin/10-10-2018
“Conservative high net worth gold investors prefer physical bullion over ETFs, says State Street Global Advisors. Private banks in Asia mainly use ETF vehicles when making active bets on gold based on a short-term outlook, Robin Tsui, gold ETF strategist at SSGA, said during an event in Hong Kong. For strategic allocations or longer-term investing, buying physical bullion and storing it in a safe remains the norm.”
USAGOLD note: The same is true in the United States and Europe. Financial institutions and funds tend to favor the ETFs while private investors tend to prefer coins and bullion stored nearby.
The Strait Times/9-9-2018
“International Monetary Fund chief economist Maurice Obstfeld said yesterday that he was not concerned about the Chinese government’s ability to defend its currency despite the recent depreciation of the yuan. . . Dr Obstfeld said financial markets have overly emphasised short-term movements in China’s currency, adding that the yuan has often recovered quickly from periods of volatility in recent years.”
USAGOLD note: China’s need to deter capital flight will continue to play a significant role in its decisions with regard to the yuan. That is why Dr. Obstfeld is probably right about it recovering quickly from its current downtrend. On this side of the Pacific, the Fed is promoting policies that seemingly promote a stronger dollar. It is getting pressure from all sides – emerging countries, the IMF as well as the White House – that restrain its drive for higher rates. How the currency drama plays out, remains to be seen. Much is up in the air.
“President Donald Trump said the Federal Reserve is moving too fast with interest rate increases, intended to keep the U.S. economy from overheating, and dismissed concerns about inflation. ‘I don’t like it,’ Trump said Tuesday at the White House, referring to the Fed’s rate increases. ‘I think we don’t have to go as fast. I like low interest rates,’ Trump said.”
South China Morning Post/Karen Yeung/10-9-2018
“The People’s Bank of China is among central banks that have been adding gold to their reserves over the past several years, according to the World Gold Council. The Chinese central bank is aiming to diversify its reserve assets and hold the precious metal as a form of currency as well as store of value.”
USAGOLD note: Some might think that we spend too much time on China, but it keeps coming up and for those interested in financial markets in ways difficult to ignore. As I have written before, it is the dragon in the room.
Chart courtesy of TradingView.com
Click to enlarge
USAGOLD note: While the bulk of attention is centered on China and its woes, the markets are also keenly aware of the situation in Italy where its 10-year paper is taking a hit. The euro is collateral damage in the fray – down against the dollar today and adding to the drag on gold. At some point, one would think that the market sentiment associating this sort of thing with a stronger dollar will migrate to the bigger issue – an unraveling global economy and the very large systemic risks it represents. When that happens, gold will be understood again for what it is – a true depository of wealth that transcends the problems of nation states and their currencies and, come hell or high water, a better alternative than the dollar.
“The Trump administration is concerned about the Chinese yuan’s depreciation as the Treasury Department weighs whether to name China a currency manipulator in a report due out next week, a senior Treasury official said Monday. Treasury Secretary Steven Mnuchin has faced pressure from the White House to formally designate China a currency manipulator in the report. The yuan has tumbled 9 percent against the dollar in the last six months in one of Asia’s worst performances, raising speculation that China has been deliberately weakening its currency as trade tensions with the U.S. have escalated.”
USAGOLD note: Naming a country a currency manipulator does not necessarily resolve the problem of currency manipulation. The chart tells the tale – the yuan in dollar terms.
“On Monday, the Shanghai market posted its worst daily performance in months on Monday after the central bank cut the reserve requirement for banks over the weekend. The Shanghai composite fell 3.72 percent to close at around 2,716.51 — which marked its largest decline since June 19, according to Chinese financial services firm Wind Information.”
USAGOLD note: By way of perspective, a 3.7% drop in the DJIA would amount to 975 points. The yuan is also in full retreat dragging gold down with it.
This Is Money/Joanne Hart/10-7-2018
“Central banks across the world are hoarding gold amid growing fears about global volatility and a possible downturn for financial markets. They have snapped up almost 275 tons of gold this year alone – 8 per cent ahead of 2017 – at a cost of more than £13 billion. Many national banks have been returning to the market for the first time in years.”
USAGOLD note: Demand for the physical aside, the price is determined in the paper market for gold and that is why the price can decline even when demand for the metal itself is high.
Bloomberg/Lu Wand and Sarah Ponczek/10-5-2018
“If there’s one thing the prophets agree on, it’s that the end will come in the bond market. Even for stocks. Prophesies of doom are everywhere. There’s billionaire investor Stan Druckenmiller, who says our ‘massive debt problem’ will ignite a crisis. Oaktree Capital’s Howard Marks warns that public and private debt will be ‘ground zero when things next go wrong.’ And Citadel’s Ken Griffin sees a credit binge ending badly.”
USAGOLD note: A singular theme appears regularly in the media. We are on the edge of something about to end badly. If compiled, the list of doomsayers – many big names in the investment business – would stretch down the page.
“The speculative bearish position rose for the third consecutive week and for the fourth time out of the past five weeks. The current standing is now above the -20,000 net contract level for the first time since December of 2001. This week marked the eighth straight week that gold speculator bets have been in bearish territory.”
MarketWatch/Myra P. Saefong and Mark Decambre/10-4-2018
“Gold moved lower ‘after the China hack revelations and U.S. Vice President Mike Pence’s speech, Michael Kosares, founder of gold broker USAGOLD, told MarketWatch. ‘The two together [are] a major blow to hopes of trade tension resolution and improved relations with China.’ ‘Gold has moved fairly consistently in sympathy with the prospects for commodities’ usage in China and today’s events undermine prospects of patching things up soon,’ he explained. ‘Gold, as a result, gave up its gains.’”
Financial Times/Emma Dunkley/10-5-2018
“The surge in the oil price to a four-year high has taken its toll on Asia’s biggest crude importers, with already weakening currencies deepening the damage. India in particular faces a triple threat in the form of a massive current account deficit funded in large part by foreign capital, a falling rupee and its position as the world’s fourth-largest oil importer.”
USAGOLD note: The danger is that India is only one among many in similar straits with some affected already reeling from debt and currency problems.
Image by Reserve Bank of India / Pdpics [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0) or GODL-India (https://data.gov.in/sites/default/files/Gazette_Notification_OGDL.pdf)], from Wikimedia Commons [Edited]
Bloomberg/Jordan Robertson and Michael Riley/10-4-2018
How China used a tiny chip to infiltrate America’s top companies
“During the ensuing top-secret probe, which remains open more than three years later, investigators determined that the chips allowed the attackers to create a stealth doorway into any network that included the altered machines. Multiple people familiar with the matter say investigators found that the chips had been inserted at factories run by manufacturing subcontractors in China.”
USAGOLD note: Apparently, from what we can gather reading this Bloomberg article, the same motherboards are also in use by the U.S. military, the CIA and beyond. One wonders what other forms of infiltration of American business and government are yet to be discovered. The markets are likely to read this news as a major blow to free trade and U.S. relations with China.
Business Day/Rajendra Jadhav/10-4-2018
“India’s gold imports may rise in the fourth quarter as investors seek alternatives to faltering equity markets and a plunging rupee. Traditional buying will also rise during the festival season, said several sources involved in the market.”
USAGOLD note: Gold is rising in India for traditional reasons. Spread the word. . . .
“Gold coins are back in favor. Australia’s Perth Mint reported a jump in sales of coins and minted bars to 62,552 ounces in September, the highest since January 2017. Sales of similar silver products more than doubled from a month earlier to 1.3 million ounces, the highest in two-and-a-half years, according to the company’s blog.”
USAGOLD note: This report echoes our own on U.S. Mint gold and silver bullion coins posted Monday. Sales of silver Eagle bullion coins soared in September – up 89% over August and 900% over September last year.
“With Brent crude surging north of $85 a barrel and some analysts warning that $100 is just around the corner, it’s comforting to remember that we’re still a long way from 2008, when oil hit an all-time record of $147.50. Comforting, but wrong. For much of the world’s population, we’re already at or near the worst levels endured during the 2008 price spike.”
USAGOLD note: In the periphery, local inflation rates could soar in combination with mounting high unemployment and already-evident systemic risks. This dangerous confluence of stagflationary pressures makes many countries vulnerable to a black swan event. Rising oil is a particularly dangerous catalyst because it can affect so many countries at the same time. “A year ago, I said, ‘the sun is shining—fix the roof,” says IMF managing director Christine Lagarde, “Six months ago, I pointed to clouds of risk on the horizon. Today, some of those risks have begun to materialize.”
Wall Street Journal/David Hodari and Amrith Ramkunar/10-2-2018
USAGOLD note: The Wall Street Journal attributed gold’s strong showing yesterday gold to concerns about Italy. . . .The Journal reports that the Northern League’s Claudio Borghi said that ‘Italy would resolve the vast majority of its [economic] problems’ if the country had its own currency.” Such a move on Italy’s part would do great harm to the euro, perhaps even threaten its existence. If Italy were to move in this direction, it would likely ignite gold demand in Europe. We posted on the problems in Italy Monday: Please see Noland – Crisis dynamics gravitating from the ‘Periphery’ to the ‘Periphery of the Core’ [LINK]
Bloomberg/Ben Holland and Jeanna Smialek/10-1-2018
“Trump is proving as indifferent to fiscal orthodoxy as to any other kind. The spending measure he signed on Friday, along with the one approved in March and December’s tax bill, amount to the biggest stimulus outside recessions since the 1960s. They sailed through a House led by the supposedly hawkish Paul Ryan, who’s due to step down in January without much progress on his goal of reining in so-called entitlements like social security – an illustration of how Republican deficit scolds are in retreat.”
USAGOLD note: Let’s face it, the deficit scolds were a minority and largely ineffective in Washington from the get-go. The takeaway from this article is that government spending has finally spun out of control. The Washington consensus, according to this article, says ‘so what’ and the markets shrug.