Category: dailyquotes

DMR–Gold trades quietly, Pope comes down hard on derivatives’ trading

Daily Market Report

Gold is trading quietly this morning at $1289 with no news of particular interest surfacing and markets generally in a wait and see attitude. Silver is also nearly unchanged at $16.40. Included on that wait and see list are the China negotiations, the Iran sanctions coupled with Venezuela’s full breakdown (and their effect on oil prices), and the emerging country debt and currency problem.

The Vatican, it is noted in this morning’s menu of news items, has suddenly taken an interest in financial markets with Pope Francis calling derivatives “a ticking time bomb” – one that “has encouraged the growth of a finance of chance, and of gambling on the failure of others, which is unacceptable from the ethical point of view.” Not to mention, I might add, severe hardship to innocent investors when those gambles fail.

The Vatican goes on to show that it has done some in-depth research on the derivative question by citing an “ethical void which becomes more serious as these products are negotiated on the so-called markets with less regulation (over the counter) and are exposed more to the markets regulated by chance, if not by fraud, and thus take away vital life-lines and investments to the real economy.” A sentiment to which I, and a good many others irrespective of religious preference, will offer a hearty “Amen”.

Quote of the Day
“To suppose that the value of a common stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Welles when he told them over the radio that the Martians had landed.” – James Grant, Interest Rate Observer

Chart of the Day

Chart note: The drawing of a chart trend line is a notoriously risky undertaking, and the one we place on the chart above is no exception. Everything depends upon the two points joined to extend the line. Investors will be watching with a great deal of interest to see whether or not support once again holds above the trend line now at the $1280 level. Since gold began its turnaround in early 2016 at the $1040 level, whenever it has dropped near the trend line, strong physical and ETF buying interest has surfaced. The reappearance of geopolitical concerns in recent days both in East Asia and the Middle East are likely to encourage physical buying of gold for safe-haven purposes. Time will tell whether or not it is enough to keep gold above its trend line .

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DMR–Gold the outlier as the commodities complex led by oil moves higher

DAILY MARKET REPORT

Gold dithered around the $1290 mark today – down $2 on the day and in a continuation of the same trends that have kept it in a downward pattern for the past several days, i.e., a firmer dollar and rising bond yields. Silver is up 5¢ at $16.45.

While gold dithered, Brent crude oil prices breached $80 per barrel in overnight trading. Oil’s upside got another boost when Total, the French oil company, threatened to pull out of Iran unless the EU took measures to protect it against U.S. sanctions. Financial Times interpreted the move as putting a “dent in EU hopes” of saving the nuclear accord with Iran. Total is the largest foreign investor in Iranian oil production.

Brent crude is up 52.15% on the year and 8.7% over the past month, largely on MidEast concerns. When one analyzes what is going on in the commodity markets – the CRB is up 13% over the past year – gold, comes up as the outlier. It is up only 3.3% over the past year. “The geopolitical noise and escalation fears are here to stay,” Julius Baer’s Norbert Rücker told Reuters yesterday. “Supply concerns are top of mind after the United States left the Iran nuclear deal.”

In its Morning Briefing today, Seeking Alpha says, “Government borrowing costs are continuing to grind upwards. The 10-year Treasury yield has broken through 3.1% – its highest level since July 2011 – as higher oil prices point to increased inflation following yesterday’s upbeat U.S. retail sales numbers.”

Perhaps the outlier is due for a turnaround. . . . .

Quote of the Day
“Thanks to almost a decade of unprecedented market interventions by global central banks (which have collectively acquired assets totaling over $20 trillion), everywhere you look there is repression of yields, repression of market volatility, and their side effects of exploding asset valuations (to heights not seen since shortly before past historic crashes), financial-engineered debt, leverage, stock-buybacks, cryptocurrency-insanity, ‘short volatility’ and all manner of reckless yield-chasing investment schemes. This is an age of massive artificial economic imbalances and systemic risks.” – Mark Spitznagel, Mises Institute

Chart of the Day

Chart courtesy of Statista.com

Chart note: We thought this chart would be an appropriate follow-up to comments made yesterday by Goldcorp chairman, Ian Telfer. “We’re right at peak gold here,” he said, “Are we not looking for it? Are we bad at finding it? Or have we found it all? My answer is we found it all.” As you can see current global gold mine production in 2017 was 3150 tonnes. Meanwhile, in a report issued this morning by the World Gold Council, it predicts physical demand will increase in the years to come the result of economic growth and a rising middle class particularly in China and India. To that we would add growing investment demand for gold internationally as a safe haven. Global gold demand was 4108 tonnes in 2017 and got as high as 4738 tonnes in 2011, according to the World Gold Council. Scrap and above-ground inventories – both inconsistent sources – made up the gap.

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DMR–Gold continues retreat though less aggressively this morning

DAILY MARKET REPORT

Gold continued its retreat, though less aggressively this morning, down another $2.50 at $1290. Silver is steady at $16.29. Though yesterday’s downside was abrupt, it pays to keep things in perspective. Bloomberg reports this morning that major league hedge fund investors, Ray Dalio and John Paulson, have stayed “loyal to gold” in this period with both maintaining their holdings. In fact their loyalty appears to be part of a general trend among funds and institutions.

“SPDR Gold,” reports Bloomberg, “saw net inflows of $396 million in that period, boosting holdings in all bullion-backed ETFs tracked by Bloomberg to the highest since 2013.” We wouldn’t be surprised to learn that professional money managers have added to their positions on price weakness of the past few days.

In short, it is the long-term that really matters, both in terms of what gold can do for us as investors and the inevitable twists and turns financial markets will take along the way. All of which brings us to quote and chart of the day. . . . . . .

Quote of the Day

“Significant increases in inflation will ultimately increase the price of gold. Investment in gold now is insurance. It’s not for short-term gain, but for long-term protection. I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counter-party signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan

Chart of the Day

Chart courtesy of MacroTrends.com

Chart note: When the United States abandoned the gold standard in 1971 and freed currencies to float against one another, the fiat money era began. We are still in that era today. This chart shows the performance of gold from the early 1900s to 1971 when gold backed the dollar, and the era from 1971 to present when it did not. Gold has had its ups and down since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard, as Mr. Greenspan suggests above.

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DMR–Gold support levels collapse sending it down $21 in early trading

Gold support levels collapsed in early trading taking the metal below the $1300 mark at $1293 and down $21 on the day. Silver is also off sharply – down 32¢ at $16.24. The metals have been under constant pressure the past few weeks as dollar support strengthened the result of continued monetary easing by the Bank of Japan and the European Central Bank and tightening in the United States. The 10-year Treasury note pushed over the psychologically important 3% mark yesterday adding to gold’s discomfort. The Dow Jones Industrial Average is also taking a hit this morning – down 181 as this posted, also responding to rising yields on Treasury paper. Today’s gold chart is showing the kind of waterfall drop usually associated with momentum driven technical selling in the futures’ markets, though the volume thus far today has been surprisingly middle range.

Quote of the Day
“A few years ago, the government paid less than 1.5% on its 10-year Treasury note. Today the rate has doubled. This has a profound impact on Uncle Sam’s cash flow: they have to borrow MORE money just to pay interest on the money they’ve already borrowed… and spend a larger and larger share of the budget on debt service. It’s a financial death spiral. Think about it: if the government is having this much trouble making ends meet when they’re paying 2% interest on $21 trillion in debt, what’s going to happen when they’re paying 5% on $30 trillion? It’s foolish to think that this trend has a consequence-free outcome. No nation in history has ever become prosperous by borrowing record amounts of debt to finance reckless spending.” – Simon Black, SovereignMan.com

Chart of the Day

Chart note: This chart zeroes-in on why the national debt matters to ordinary Americans and does not require a lot of embellishment. Please note, though, the strong growth in interest payments from 2008 forward at a time when rates were abnormally low. Rising interest rates and massive growth in the federal debt will push these numbers much higher – so much so that the expenditure to service the debt will soon exceed what the nation spends on national defense.

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Gold attempting to gain some traction amidst mounting geopolitical concerns

Gold is attempting to gain some traction this morning trading up a little over $2 at $1321. Silver is up 4¢ at $16.68. There is much on financial markets’ plate as we begin the week and most of it revolves around growing geopolitical tensions – the Middle East, Iran, Italy and last, but not least, the festering currency and debt problems among emerging countries.

On that last score, Ethan Harris, head of global economics research at Bank of America Merrill Lynch in New York told Bloomberg that “It’s a bit like that old saying: The U.S. sneezes and the rest of the world catches a cold.” And while primary attention is focused on the other matters listed, and few others we left out, we should also keep an eye on the emerging country issues on the back burner.

Remember the Asian flu?. . . That cold to which BOA’s Harris refers can make the rounds and come back to where it started as something worse. On October, 27 1997, the year many feel sent warning shots across the bow on the general stock market dissolution that began a couple of years later, the Dow dropped 7.2% in a single day in response to the Asian contagion. An equivalent drop today would equate to the Dow shedding 1800 points – once again, in a single trading session – a bit of history that leads nicely into our Chart of the Day further below.

Quote of the Day
“I wish Montagu Norman, Philip Snowden and the monetary experts were admirals or generals. I can sink them if necessary. But when I am talking to bankers and economists, after awhile they begin to talk Persian, and then they sink me instead.” – Winston Churchill, 1924

Chart of the Day

Chart courtesy of MacroTrends.net

Chart note: This chart shows how many ounces of gold it took to buy the Dow Jones Industrial average from 1918 to present. At current prices, as you can see, the Dow is more expensive in terms of gold than in 1929, but less so with respect to the 1965 and 2000 peaks. It took just under 20 ounces of gold to buy the Dow in 1929 and right at 20 ounces at the present. Whether or not the ratio has room to expand is a matter of debate, but for the prudent planner who understands the value of not having all one’s eggs in the same basket, the current levels are inducement enough to encourage some judicious readjustment.

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Gold recovering quickly from $1302 low posted just three days ago, now at $1325

DAILY MARKET REPORT

Gold is pushing higher this morning – up $3.50 at $1325 as we move into the COMEX open. Silver is also higher – up 10¢ at $16.81. The dollar is lower this morning and oil is holding steady above the $71 per barrel mark in response to uncertainties in the Middle East and escalating tensions between Israel and Iran. (See below). Commodities in general continue to move higher. The CRB Index is up almost 23% since last July.

Gold is demonstrating once again how quickly it can recover from its periodic treks near the $1300 level. It was just three days ago that it visited the $1302 level where it found support and began turning to the upside. Today, it pushed over $1325 briefly and is now trading at $1324. Gold has spent 2018 oscillating in a range between $1300 and $1370 with a number of chart technicians predicting that it is coiling to break out of the range.

“Gold has been under pressure from a strengthening U.S. dollar,” says U.S. Global Investors Frank Holmes, “and May has historically delivered lower prices. As I’ve pointed out before, this makes it an ideal entry point in anticipation of a late summer rally before Diwali and the Indian wedding season, during which gifts of gold jewelry are considered auspicious. Demand in China for the remainder of the year also looks promising.” Given the circumstances, we might have a different kind of May in 2018.

Quote of the Day
“We sometimes forget that central banking, as we know it today, is, in fact, largely an invention of the past hundred years or so, even though a few central banks can trace their ancestry back to the early nineteenth century or before. It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. By and large, if the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with “free banking.” The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy.” – Paul Volcker

Chart of the Day

Chart note: The annual rate of return on gold since 2001: 14 years of positive returns, one year level, two years of negative returns. Not a bad track record after all is said and done during times of rapid, and often unexpected changes in the financial markets and the economy.
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Gold up on rising global geopolitical, economic tensions

DAILY MARKET REPORT

Gold was off to a rousing start this morning after a strong showing in Europe overnight then ran into resistance at the COMEX open. It is still up nearly $6 on the day at $1318.50, but got as high as $1322.50 in European trading. Silver is up 20¢ at $16.72.

In Europe, concerns are elevated that the U.S. has the power to enforce sanctions against European companies doing business in Iran and, as a result, put pressure on oil prices. Beyond the sanctions themselves, the threat of a military confrontation between the United States and/or Saudi Arabia or Israel and Iran has given markets globally a case of the jitters. Too, the consumer price index came in low dampening accelerated rate hike expectations. Even before Iran situation moved front and center, demand for gold was rising at the gold ETFs according to the World Gold Council. Funds and institutions are hedging their bets against what many see as an overvalued stock market and general geopolitical and economic instability on a number of fronts globally.

Quote of the Day
“There is a reason so many investors are increasingly becoming workaholics. We are operating in a world where feelings always run high and ideas instantly become ideologies. Yet, no one really seems to believe in much of anything. . . .Go away for a few days and it has become almost a parlor trick to be able to guess where markets will be…And the worst mistake you can make in trying to pull that off is following the news, but not the price action, while away.” – Richard Breslow, Bloomberg strategist

Chart of the Day

Chart courtesy of GoldChartsRUs.com

 

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“Silver technicals so ridiculously positive, you may wonder if there’s catch”

USAGOLD SPECIAL OFFER

“Note how in the previous couple of cycles (early and late 2017) the speculators’ net positions got close to zero but then bounced back quickly to the more normal net-long. But in the current cycle they’ve been net-short for most of the past two months. This has flummoxed industry analysts and led to some silver-to-the-moon predictions which, based on the rising volatility in the broader financial markets, are at least plausible.” – CommodityTradeMantra.com

You can order directly online HERE or
Call us at the ORDER DESK
1-800-869-5115 x100

by Jonathan Kosares, USAGOLD

Once upon a time, investors would routinely ask the question ‘What’s the best 5-year investment out there right now?’. And while this question is still important to some, for most, the same instant gratification impulse-based emotions that dominate daily life are now governing investment strategies. Quite simply, if an investment isn’t all over the place, it isn’t ‘exciting’ enough. Look no further than the crypto-currency craze. I’ll concede, reflecting on a ‘five year investment’ doesn’t get my heart pounding. But then again, I, for one, prefer my investments not keep me awake a night. So to me, this question, that has been notably absent in our current investment analysis climate, is the very question everyone should be asking right now, and quite ironically, if the answer does what it could, it might be just the thing that ultimately gets your heart really pounding…

So let’s do that…let’s ask that question… ‘What’s the best 5-year investment out there right now?”

Well, the stock market is stagnant after peaking out in January – and downside remains the path of the least resistance. We may very well be staring down a landscape much like the 2001-2011 period in which stocks, after a large rise, tracked lower before getting clobbered in 2008. Stocks did subsequently rise again, but ultimately ended an entire decade at the same level as the peak achieved in 2001. Property is arguably fully valued in most markets, if not a bubble again, stoked by yet another cheap-credit/leverage induced boom over the past five years. With interest rates rising, it’s hard to see a world where property value increase continues unabated. The bond market is stuck in ‘no-man’s land’, teetering on the brink of a true bear market. It’s going to be a long time before yields are sufficient to attract capital simply to earn interest, and yet still far too low to make any meaningful money playing the premiums in bond funds.

You can probably guess where this is headed…Gold, of course, but even more so of late, and the subject of this offer, Silver.

The current ratio of gold to silver of nearly 80:1 is within throwing distance of most undervalued condition in the market’s history. Even a return to the historic average of 62:1 would have remarkable implications for the silver price. In fact, widely read technical analyst Clive Maund called the current silver market ‘The most bullish set up for silver that I have ever seen.”

I’ll routinely sit down with clients and run a few hypotheticals (a picture is worth 1000 words) – I think you’ll quickly see why so many have ended these conversations with a single word, “Wow”.

Bond king Jeffrey Gundlach recently said he wouldn’t put it past gold to rise $1000 per ounce in the near future. BOA/Merril Lynch recently predicted a rise to $1450 or higher by year’s end. Many others have predicted rises anywhere from $1500-$1900 per ounce. So for the sake of this presentation, let’s pick a gold price of $1600 per ounce. I don’t think you’ll have much argument from anyone that $1600 is certainly possible, if not this year, in the next five.

Here’s what silver would do if:

The ratio improved to is historical average of 62:1
Gold $1600 divided by 62 = spot silver price of $25.80
(That’s a 50+% increase from current prices)

The ratio improved to it’s bull market level average (2010-2012) of 50:1
Gold $1600 divided by 50 = spot silver price of $32
(That’s basically a clean double from current prices)

And last, the ratio improved to its bull market peak of 34:1 (May 2011)
Gold $1600 divided by 34 = spot silver of $47
(That’s roughly triple current prices)

Wow.

And if you really want to make your head spin, run some hypotheticals at $2000 gold…

Which leads us to our May offer…handsomely discounted Silver American Eagles (40¢ per ounce) offered at the current cycle low spot silver prices, making this the best accumulation opportunity in silver eagles this year. And that’s not an exaggeration. Only 5000 coins available at this price. Free Shipping on orders of 500 ounces or more.

Here is a graph displaying the divergence between gold and silver as it has developed over the past year.

You can order directly online HERE or
Call us at the ORDER DESK
1-800-869-5115 x100


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Gold trading steady in an increasingly complicated national and international scenario

DAILY MARKET REPORT

Gold is trading steady at $1316 after hitting an overnight low of $1305 in Asian and European trading. Silver is up 9¢ at $16.5p. The precious metals are reacting to a mix of news this morning that includes advancing oil prices, a weaker than expected producer price index and a falling dollar.

Iran weighs heavily on all markets this morning with oil hitting a three year high at over $70 per barrel. Though the sanctions aspect of the Trump decision may turn out to be a non-starter (China and the European Union – the two largest destinations for Iran’s oil – are unlikely to participate), there is the greater danger of the U.S. deploying militarily to enforce those measures, or an overt Iranian retaliation of some kind.

As for the inflation outlook, weaker producer prices, i.e., the absence of inflation, is likely to figure into the Fed’s interest rate deliberations. Yield on the 10-year Treasury this morning topped the 3% benchmark once again and the dollar index is dropping precipitously.

All in all, a complicated set of circumstances that encourages a watchful eye. . . . . . .There could come at some point a flash point (or flash points) that leads to a cascading response in financial markets and it could come from any one of several potential sources.

Quote of the Day
“Why then is so much writing on the subject of money so needlessly complicated, with dense, impenetrable language and equations that make sense to only a handful of academicians? And why do so many people insist that bad ideas about monetary policy, like ‘inflation is needed to increase employment,’ are as settled and unassailable as scientific principles?” – Steve Forbes and Elizabeth Ames, Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It

Chart of the Day

Chart note: The gold price remains above its rising trend line since early 2016 and technically still showing signs of a possible breakout. “[S]ince bottoming in December 2015,” says a recent NASDAQ report on gold, “there has also been a clearly defined rising support line which is now converging very closely towards the 1,345 resistance. Typically this implies a breakout, up or down, is likely to occur soon. Given the long duration and size of this consolidation which strongly resembles a head & shoulder bottoming pattern, a breakout would likely to be accompanied by strong, accelerating momentum. And while the dollar has shown strength over the last three months, it looks more like a relief rally following 2017’s sharp decline. In time if the dollar resumes its downtrend, that could very well be the trigger for an upside breakout in gold which could be quite powerful.”

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Gold continues to grind lower on dollar strength

Gold continued to grind lower this morning – down $8 at $13.08 – mostly under pressure from a strengthening dollar, now trading near its high on the year. Silver is down 10¢ at $16.41. The dollar drag though could turn to a boost when President Trump announces the decision on the Iran nuclear deal and the resumption of sanctions. Those sanctions in turn could push oil prices higher though oddly, as this is written, oil is down on the day.

“A stronger dollar has created headwinds for gold but we don’t see the dollar going much higher on a medium term basis and in terms of geopolitics there are some factors to keep an eye on,” said Jens Pederson, senior analyst at Danske Bank, told CNBC. “It’s not our base case that the (Trump Iran announcement) will turn out to be a big market moving event but the risk (is there) that Iran will be hit with sanctions and (so we) could see gold buying again.” Meanwhile, the problem with emerging country currencies and debt continues to fester in the background the result of the dollar’s rapid rise the past few weeks. Argentina’s peso and Turkey’s lira both dropped to record lows against the dollar.

Quote[s] of the Day
“You know, so as you noted, the—what we’ve said in the longer-run statement of goals and monetary policy strategy is that we would be concerned with sustained or persistent deviations of inflation either above or below. We’ve also said—in minutes and in speeches and things like that—that that is a symmetric objective. So, that’s how we think of it. And, I think it’s—I wouldn’t characterize what we’ve done over the last five years as tolerating, you know, an undershoot of inflation.” – Jerome Powell, Fed chairman (Press conference 3/21/2-18)

“I would go back to the thought that, you know, we made one decision at this meeting, and that decision was to raise the federal funds rate by 25 basis points. The projections are really just individual projections that are submitted and then compiled. And, you know, you’re mentioning the median as being, you know, three and four being close, but, you know, I think, like any set of forecasts, those forecasts will change over time, and they’ll change depending on the way the outlook for the economy changes. So that’s really all I can say. It could change up. It could change down.” – Jerome Powell, Fed chairman (Press conference 3/21/2-18)

Chart[s] of the Day

Charts courtesy of MacroTrends.com

MK note: Three charts at the heart of the two-front – trans-Pacific and trans-Atlantic – trade war.

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Gold continues to trade in tight range, eyes trade problems and recent dollar strength

DAILY MARKET REPORT

Gold continued to trade in a tight range this morning with the price down $3 on the day at $1312. Silver is down 7¢ at $1645.

Markets, including gold, are attempting to decipher whether or not there would be any lasting effect from the breakdown in the China trade talks and recent strength in the dollar. A potential emerging country currency crisis moved front and center late last week when Argentina announced raising interest rates to 40% to stem the flow of capital out of the country. Some analysts blame gold’s range-bound price behavior on short-covering in the dollar – a trend driving the dollar up and gold down.

Quote of the Day
“You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability and intelligence of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.” – George Bernard Shaw (1856–1950)

Chart of the Day

Chart note: We do beg the forgiveness of those who have seen this chart before, but we think it worth re-posting on a regular basis to demonstrate gold’s strong performance as a portfolio holding over a long period of time – especially for newcomers. It also fits well with today’s Quote of the Day. It shows the average annual price of gold since 1970. It is meant to dispel the notion that gold is somehow volatile or unpredictable and as a result unreliable as a long-term portfolio safe haven. To the contrary, it shows gold living up to its reputation as precisely the opposite – stable in the face of rapidly changing economic circumstances, predictable in that it reacts directly to those circumstances and reliable in that it performs as advertised when held quietly in well-protected corner of the investment portfolio.

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Gold trading nervously on trade talks deadlock, jobs report miss

DAILY MARKET REPORT

Gold is trading nervously this morning unable to make heads or tails from the combination of deadlocked trade talks between the U.S. and China and an employment report that fell short of expectations.  At the moment, it is trading at $1308 level after hitting $1314 just after the jobs report release and down $4 on the day. Silver is down 4¢ on the day at $16.46.

Of the two developments, the China talks breakdown is by far the bigger of the two issues and one global markets will attempt to sort out over the next several days. Based on the warnings coming from both sides, we would suspect that more tariffs and retaliations are likely with the possibility of a response coming from the White House as early as today.

Jameel Ahmad, the head of currency strategy at FXTM, offered some interesting comments on the current gold market in an article at Scrap Hedge this morning. “The ability of gold to defend the psychological support level of $1,300,” he said, “will encourage investors to consider adding gold to their portfolio around its current levels.” He then added that “if the trade talks between the United States and China do hit a wall, as many anticipate, during the early phases, it would provide encouragement for investors to search for gold as a safe-haven asset. The Japanese yen would also likely benefit if the trade talks between the U.S. and China did lead to a period of renewed uncertainty in the market.”

Quote of the Day
“If I were trying to create a deflationary bust, I would do exactly what the world’s central bankers have been doing the past six years. I shudder to think of the malinvestment that has occurred. Corporate debt has soared but most was used for financial engineering. Bankruptcies have been minimal, but who know has many corprorate zombies free money is keeping alive? Individuals have plowed ever-increasing sums into assets at every-increasing prices. Of all the interventions by the not-so-invisible hand of government, not allowing the market to set the hurdle rate for investment is the one I see with the highest costs.” – Stanley Druckenmiller, Duquesne Family Office (Wall Street Journal opinion column)

Chart of the Day

Chart note: This chart illustrates the solid real rate of return gold has delivered against goods and services in twelve of the past sixteen years. In seven of those years, gold’s appreciation significantly outstripped the inflation rate. With gold currently trading at cyclical lows, you can now combine hedging the worst-case scenario with the extra advantage of securing an asset that is generally viewed as undervalued. This chart stands in stark contrast to the one we posted yesterday on the real rate of return on dollar-based savings, and reinforces gold’s role as an alternative savings vehicle for the times.

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Gold reverses course, Beijing negotiations loom, Fed adjourns

DAILY MARKET REPORT

Gold reversed course overnight and is trading $9 higher this morning at $1315 once again repeating the Fed Week pattern we have all come to know and understand. As we pointed out on Monday, when the market opened sharply lower – Quite often, Fed Week ends much differently than it begins. It looks like this rendition will follow the script though it is still early in the game. Silver is trading higher as well – up 13¢ at $16.54.

Aiding gold in its recovery are concerns about the upcoming trade talks in Beijing. The United States is threatening deeper restrictions on Chinese exports including telecommunication products, China, for its part, is doing what it can to weaken the yuan against the U.S. dollar. Both actions look like preliminary shots across the other’s bow. A CNBC headline reflected the consensus opinion on the Beijing negotiations: “Stocks are heading for a tumble at the open on waning hopes of real progress in the US-China trade talks”.


Quote of the Day
“A lot of the bank issues in the United States and around the world have been solved. But migrating the problem to the sovereign balance sheets. So the banks look pretty good, but the Fed has $4 trillion of debt on its balance sheet. And it’s even more, we are not in a European audience. In Europe they would really know what they meant because all the European banking system is fixed but Europeans are all also buying up all the debt. The budget deficits haven’t contracted, they’ve widened. The banks buy the debt, then walk over to the European Central bank, finance it. Get new money, so they can buy the next round of debt. So, you have countries with way bigger deficits, as a percentage of GDP than the U.S., that are borrowing money for ten years, at 3.0% or 2.5%. Really? And the banks look OK. It is the sovereigns that look risky, like Greece. You wonder is the next crisis going to be a sovereign crisis? And if it is, it will just be a continuation. People will look back and say ‘what we really did, we didn’t fix the outcome of the financial crisis. We left that open and as a result, its really been a thirty-year workout.’” – Lloyd Blankfein, Goldman Sachs [Source: CNBC]


Chart of the Day

Chart note: During that 18-year period from 2000 to present, the one-year Treasury provided a positive real rate of return in only six years.  The rest of the time, the real rate of return was negative.  The real rate of return is also important in the context of Federal Reserve interest rate policy in that it signals the performance of the dollar against other currencies and gold.  At the moment, the consensus opinion is that the Fed will keep interest rates below the inflation rate in order to keep the economy from swinging into a downturn, a situation causing some analysts to question the longer-term staying power of the recent rally in the dollar.  Tomorrow we will take a look at the real rate of return on gold.

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Gold trading sideways awaiting Fed; Bloomberg says U.S. debt outlook “bleaker than even Italy”

DAILY MARKET REPORT

Note: Today we return to our regular format of a single Daily Market Report, instead of the two we have been posting over the past few months. Both the Chart of the Day and Quote of the Day will be included in the morning report. We will post LATE DAY UPDATES when warranted, so check back late afternoon, early evening.

Gold is trading sideways this morning at $1305.50 waiting, like the rest of the financial markets, to see if the Fed will spring any surprises in its announcement this afternoon. Silver, though, has sprung a bit of a surprise of its own, up 24¢ at $16.42 this morning. Silver is vastly under-priced against gold at yesterday’s ratio of 80.5 to one and technical traders might be finally latching on to that opportunity at current lows.

Though the markets seem to have fully priced-in the Fed interest rate policy – at least for now – it has not even begun to take into account the immense problems associated with the rapidly growing national debt. In an article meant to alert readers that the Treasury Department intended to raise the quarterly long-term debt schedule from $39 billion to $73 billion – a small number in the scheme of things – it also slips in a somewhat scathing observation:

“The country’s debt load is seen spiraling compared with the rest of the world, with forecasts showing that in five years it will have a bleaker outlook than even Italy, the perennial poor man of the Group of Seven industrial nations.”

Over the past 12 months, the federal government has added $1.225 trillion to the national debt. Over the last 90 days, it has added an astonishing $574 billion to the national debt pile. On a number of occasions, we have posted charts on the direct connection between the national debt and gold since 1971. That correlation looks poised to enter a new realm, but few are paying attention to it. . .once again, at least for now.


Chart of the Day

Chart note: This chart zeroes-in on why the national debt matters to ordinary Americans. Rising interest rates and massive growth in the gross debt will push these number much higher – so much so that it will exceed in the near future what the nation spends on national defense. . . .and the higher interest rates grow the greater the problem will become. At some point one would think that like Italy or Greence, at some point, the level of debt and interest payments will affect the national credit rating.


Quote of the Day
“Investors who owned Russian stocks in 1917 or Chinese stocks in 1949 lost everything. London Business School market historians Elroy Dimson, Paul Marsh and Mike Staunton calculate that shares in Austria—which lost two wars and an empire—lost money after inflation over 97 years, even when counting dividends. Shareholders in Belgium, Germany, Italy, France and Japan were down in real terms for more than half a century, as were Spanish investors, who endured a destructive civil war and dictatorship.” – James Mackintosh, Wall Street Journal

 

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Gold continues south, Fed week happy campers few and far between

LATE REPORT

Gold continued the southerly trek begun this morning finishing at a two-month low of $1305 and down $11 on the day. Silver did not fare much better ending down 20¢ on the day at $16.17. As reported earlier today, tomorrow’s Fed meeting figures largely into gold’s performance the past two days.

Gold was not alone today in feeling the pain. Oil also took a hit today as did the rest of the commodities complex, and it has not been a good two days in the stock market either. In short, Fed Week happy campers have been few and far between. Only the dollar has a smile on its face – up over 3% the past two days.

Most likely, we will get a feel as to where gold sentiment truly lies after the Fed publishes its announcement tomorrow afternoon – for better or worse, but hopefully for better. My guess is we could see some short covering as early as tonight during Asian market hours.

Quote of the Day
“Fed speakers have done little to push back against this expectation … we expect no fireworks.” – Michael Feroli, JP Morgan (in a note to clients today)


“A customer of mine who is 55 years old recently asked if it was not too late for him to get into precious metals. The answer is no—it is not too late to invest in gold and make a profit at any age. Quite the contrary, with the market showing the early signs of a correction, it is, in my humble opinion, a perfect time to invest in precious metals.” – Oliver Garret, Forbes

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Gold continues to grind lower on upcoming Fed meeting

EARLY REPORT

Gold continued to grind lower this morning with the upcoming Fed meeting on Wednesday the main influence on trading activity. Gold is trading at $1308 as this posted and down just over $7 on day. Silver is down 6¢ at $16.28. Market analysts are split on where the economy is headed and the dichotomy is evident in comments posted in the mainstream financial media almost on a daily basis.

This morning a CNBC article quotes Lynn Reaser, an economist at Loma Nazarene University as saying: “With inflation firming and the economy likely to regain speed, the Fed has no reason to fight the market. Look for a steady diet of a rate hike each quarter.” Richard Brusca of Fact and Opinion Economics has the opposite view. “I think tax cuts and fiscal stimulus will be the big disappointments of 2018-2019,” he says. “It will leave Fed policy as too aggressive.” At the moment gold appears to be reflecting Ms. Reaser argument, but by the end of the week, Mr. Brusca’s view might once again be in the ascendancy.

Chart of the Day

Chart note: This chart supports the notion that the Fed’s policy of raising rates could turn out to be too aggressive. As you can see the money supply is not displaying the kind of growth that normally lends itself to future inflation. That’s not to say that the trend could not suddenly change. For the moment though, if there is inflation in our collective futures it is not evident in the chart on money supply, which signals more of the same disinflationary tendencies we have experienced for years. That makes the Fed’s policy of raising rates a dangerous one for the economy and understandably raises a concern that the central bank might be lowering the thermostat in an already cold room. Interestingly, gold’s performance, recent weakness aside, has indicated a propensity to weather, if not benefit, from weak monetary growth and disinflationary economic environment. Notably, over the past roughly two years, gold has risen as money supply has declined.

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LATE REPORT

Not much has changed since the EARLY REPORT was filed earlier today. Please scroll down the page if you missed it. Have a good evening. . . . .

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Gold off to rough start, it’s Fed Week

EARLY REPORT

The day got off to a rough start for gold with the metal trading down $11 at $1314, but this is to be expected. After all, it’s Fed Week and when the FOMC meets, it’s time to circle the wagons. Silver is also off in early trading – down 15¢ at $16.34. The talk is that the Fed could move from three rate increases to four before the year is out, but this is splitting hairs. That could happen or it could all change in a heartbeat should some unforeseen event or economic climate change suddenly intervene.

In the meantime, the markets will trade the perceived future as if it were reality, the algos will continue to spin out a high volume of one-way trades, and the gold market will suffer in the short term from trading linkages that may or may not hold up over the long run. For gold owners, it is a time to sit back and watch the show and do a little buying if you’ve been thinking about adding to your holdings on a dip. Quite often, Fed Week ends much differently than it begins.

Chart of the Day

Chart note: As we begin Fed Week, we thought it might be useful to post the overlay chart on gold and the effective Federal Funds rate. As you can see, since the Fed began raising interest rates in 2016, gold has tracked higher in concert with rising rates. Short-term trading, though it is the centerpiece of most reporting on the gold market, does not always reflect the long-term outcome.

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Gold finishes day in minor uptrend on tepid GDP, possibility of a two front trade war

LATE REPORT

Gold, pushed by a tepid GDP report, finished the day in a minor uptrend at $1324.50 and up $6 on the day. Silver lost 5¢ despite gold’s positive showing and finished the day at $16.55. As the day moved along, gold also got a bit of help from German chancellor Angela Merkel’s frosty reception at the White House. She had no sooner climbed back into her limo that talk of a trade war between the United States and Europe popped up in financial media.

It seems the Trump administration is intent on opening a two-front trade war with simultaneous Pacific and Atlantic theaters. It is hard to imagine how such a process could unfold without ramped-up demand for physical metals by Asians, Europeans and Americans alike.

A word on next week’s FOMC meeting . . . .

The Federal Reserve’s Open Market Committee will meet Wednesday, May 2, and announce their decision on interest rates at 2pm EDT. Though Fed meetings in recent months have been kryptonite to the gold market this one might not be all that damaging. First, the Fed is not expected to announce a rate increase. It is saving that for June. Second, there will be no analysis, unexpected guidance or forecasting in its statement, at least there is not supposed to be. Third, there will be no press conference in which the words of the Chairman can be misconstrued, over-analyzed, parsed, re-defined or otherwise bent to the purposes of those rendering an opinion. Gold just might, as a result, escape unscathed.

Quote of the Day
“Gold is a special kind of currency (it is a bet against the U.S. dollar). This is what we have been repeating for a long time (for example, you can check out the July 2015 edition of the Market Overview), but that simple message has not yet reached all investors. So they commit the same mistakes all the time. They focus on irrelevant factors, such as mining dynamics. Or they listen to Warrant Buffet and don’t own any gold. He has the right: gold is neither an industrial commodity, nor an asset generating cash flows. But so what? It’s like complaining to the lion that it’s not an elephant or a giraffe! So please remember one of the most important lessons about the yellow metal’s fundamentals: gold is more currency than commodity.” – Arkadiusz Sieron


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Gold gets its head above water on tepid GDP number

EARLY REPORT

Gold managed to get its head above water in today’s early going after the GDP came in 2.3% higher in the first quarter. That’s down from the 2.9% gain for the fourth quarter last year and pretty much directionally challenged from the Trump administration’s point of view. As it stands now, the markets seem a bit confused about the results, but things should become clearer as the day progresses. The markets are also attempting to sort out whether or not the latest cozying-up between the two Koreas translates to a real change or another false spring.

Gold is up $4 at $1322 and silver is down 5¢ at $16.51.  As pointed out in yesterday’s EARLY REPORT, the dollar remains range-bound despite recent monetary policy announcements in Japan and Europe that should have sent it soaring.  Both countries will leave their quantitative easing programs in place while the United States tightens. The fact that it cannot seem to get unstuck may be taken as a sign that the dollar’s mini-rally that began mid-April might be running out of gas.  Beyond that, there is the larger concern that the dollar might resume the downtrend that began in 2017.

Chart of the Day

Chart note: The log chart illustrates gold’s journey through the fiat money era without the drama implied in the arithmetic chart we are used to seeing. “Common percent changes,” says Investopedia, “are represented by an equal spacing between the numbers in the scale. For example, the distance between $10 and $20 is equal to the distance between $20 and $40 because both scenarios represent a 100% increase in price.” Linear charts, in short, emphasize nominal price movement while a log chart emphasizes the percentage movement and, as such, offers the more practical portrayal of price movement from an investment perspective.

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LATE REPORT

Not much has changed since the EARLY REPORT was filed earlier today. Please scroll down the page if you missed it. Have a good evening. . . . .

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Gold struggles as ECB signals “long goodbye to QE”

EARLY REPORT

Gold is struggling again this morning for the second day in a row trading at $1318.50 and down about $4.50 on the day.  Silver is also down this morning at $16.47 (-13¢).

Today we learn that the ECB will put a hold on rates accompanied by a Financial Times headline that there will be a “long goodbye for QE” in the European Union.  Matching that statement of intent, the Bank of Japan announced a similar course of action over last weekend.  Meanwhile, the Federal Reserve has not backed off its intent to tighten policy even as many raise concerns about an “end of cycle” recession looming on the immediate horizon. All this should have sent the dollar on a tear, but it hasn’t.  One wonders why. . . . .and what Mr. Market is trying to tell us.

I will round out today’s report with a bracing prediction from Standard Charter’s Suki Cooper who told CNBC earlier today that she sees gold testing five year highs by the end of the year starting after the Fed’s rate meeting in June.  Gold upside, she says, would come in concert with a weakening trend in the U.S. dollar.  That five year high as shown in our Chart of the Day is $1700 and, needless to say, would constitute a dramatic upside correction.

Chart of the Day

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Gold stabilizes as day wears on, unsure how to react to rate environment

LATE REPORT

Gold stabilized as the day wore on seemingly unsure how it should react to the 10-year Treasury establishing itself firmly above the 3% mark at 3.031%. It finished the day down $9.50 at $1322. Silver closed down 18¢ on the day at $16.57. Reuters reports rates being generally driven higher by the “growing supply of government debt and inflationary pressures from rising prices.” If that is truly the case, it is difficult to explain gold’s downside today. Historically, those two maladies – inflation and government debt – have served as inducement for higher prices not the opposite.

As for rising interest rates themselves, Investopedia has this to say on the subject: “While popular opinion is that interest rate hikes have a bearish effect on gold prices, the effect that an interest rate increase has on gold, if any, is unknown, since there is actually little solid correlation between interest rates and gold prices. Rising interest rates may even have a bullish effect on gold prices.” So, we shall wait patiently for the market to come to its senses, which if Jeffrey Gundlach is proven correct is something in the works.

Quote of the Day
“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.” – Ernest Hemingway


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Gold and other markets await bond auction outcome

EARLY REPORT

Gold, along with the stock and bond markets, are trading tentatively this morning awaiting the outcome of the Treasury Department’s auction of $52 billion two and five year notes – an offering bond market participants described as “massive” earlier in the week. The benchmark yield on the 10-year note closed at over the 3% mark yesterday and remains firm at that level this morning. Any weakness in demand could push rates higher as the day progresses with consequent effects on the rest of the financial markets.

Gold is down $9.50 in the early going at $1322 in the FOREX market and attempting to gain traction while silver is down 17¢ at $16.60. The dollar is equally entangled in the bond market drama, but slightly higher this morning with strength against the Japanese yen the most notable factor. Japan’s central bank chief Kuroda a few days ago made it clear that the Bank of Japan would continue full on with its quantitative easing program for the foreseeable future – a choice that kicked the stool out from under the yen.

Chart of the Day

Chart courtesy of TradingEconomics.com

Chart note: It pays to have a little perspective and this chart offers plenty. As you can see, despite all the hoopla in the financial media about a strong dollar in recent weeks, the real story is its weakness. The related story is gold’s strength – up 15% since January, 2017 – even with the current price weakness taken into account.

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Gold finishes higher – a day worth noting

LATE REPORT

Gold finished the day higher – up $6 at $1331. Gold doesn’t always do well when the stock market tumbles, but it did well today, and the fact that it did will not have escaped the notice of a good many market analysts. Today’s upside also broke precedent with another oft-repeated, but false premise – that gold responds negatively to rising interest rates. As such, though nothing to write home about in terms of dollar gains, it was a day worth noting for precious metals bulls. Silver also finished in positive territory – up 6¢ at $16.75.

Quote of the Day
“We have found that gold typically thrives amid deeper, longer-lasting and fundamentally driven bear markets, which are usually associated with a deteriorating macroeconomic outlook. Alternatively, gold’s performance is usually tepid when equities rise. A good analogy is home insurance: homeowners pay an insurance premium each year hoping the house doesn’t burn down, but if it does you redeem the policy. Here, we see gold’s “insurance characteristics” as becoming increasingly relevant for investors. But even if the insurance is not needed, gold could still offer value. If the US dollar slides (which we expect), emerging economies become wealthier while mining costs increase. Prices could therefore advance irrespective of US inflation, making gold more than just an insurance asset.” – Wayne Gordon, UBS Wealth Management


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Gold up modestly as markets reconcile opposing viewpoints

EARLY REPORT

Gold is up modestly at $1328 (+$3) in early trading as markets attempt to reconcile a trio of concerns – a massive issue of U.S. government debt this week, rising oil and commodity prices and background trade and geopolitical tensions between the United States and a host of foreign countries. Some see the glass as half full, other see it as half empty on all three issues, a situation that translates to see-saw markets that objectively cannot seem to find their footing.  Silver is also up a bit at $16.71 (+5¢).  Even the dollar cannot seem to make up its mind – a very good day yesterday has given way to a not so good day today.

Chart of the Day

Chart note: Oil hit a three-year high today – continuing its recent triek higher on Mideast concerns, specifically the confrontation between Saudi Arabia and Iran taking place in Yemen. In at least a generalized sense oil and gold have been traveling companions since 2000, though not in lock-step. Gold, too, has held up better than oil in the down times – oil being the more volatile of the two. Oil prices are important in the context of inflation because so much of what is produced or manufactured in the United States has an oil component in the pricing equation.

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LATE REPORT

Not much has changed since the EARLY REPORT was filed earlier today.  Please scroll down the page if you missed it. Have a good evening. . . . .

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Gold pushes lower as Japanese yen weakens and the 10-year Treasury pushes 3%

EARLY REPORT

Gold is pushing lower this morning as the 10-year Treasury neared the 3% yield level, commodities dipped lower, and Japan announced policies likely to weaken the yen (and strengthen the dollar). Gold is trading at $1325 early-on and down $11 on the day.  Silver is also lower, down 34¢ at $16.78. The U.S. dollar pushed higher against the Japanese yen in overnight trading on comments from central bank head, Haruhiko Kuroda, that Japan will continue a “strong accommodative monetary policy for some time.”

As for the bond market, all eyes will be on the Fed note and bill auctions this week as the Treasury Department looks to place a huge $96 billion in two-, five-, and seven-year notes.  A weak response could push the 10-year yield over the 3% barrier and unleash animal spirits in financial markets. TD Securities’ Gennadiy Goldberg told Bloomberg: “There’s a lot of supply coming, which is probably the understatement of the century.”  [Emphasis added] The size of this week’s auctions are a reminder that the rapid growth in the U.S. national debt remains a clear and present danger unlikely to go away anytime soon. The U.S. has added $1.275 trillion to the national debt over the past 12 months.

Chart of the Day

Chart note:  This chart on the gold price in Japanese yen tells an interesting tale.  Japan, we all know, has been caught up in a decades long disinflation, and some would say, a disinflation verging on deflation.  Over the past two years though, the price of gold has been on the rise in Japan.  In fact, it is up 14.5%.  And so you know that this is not some out-of-the-box oddity, since 2005, gold is up 329% in Japanese yen – all during a period when the inflation rate bounced around the 0% level.  We have commented on numerous occasions that gold is more than simply an inflation hedge.  It is a hedge against disinflation, even deflation, as investors hedge systemic financial risks, currency risks as well as political and geopolitical risks.  This chart offers further proof of the assertion.

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Gold closes lackluster day and week, an unexpected spike in yield on the 10-year Treasury

LATE REPORT

Gold pretty much ended the day where it started trading at the $1336 level and down about $9 on the day – a lackluster finish for the day and the week. Silver also weakened today finishing at $17.14 and down 10¢ on the day. Not receiving much attention today was the sudden spike in yields on U.S. Treasury paper. Yield on the 10-year note hit 2.943% indicating heavy selling. In the absence of any economic news of consequence, today’s performance is likely to renew speculation that China could be unloading U.S. debt as part of its response to U.S. tariffs.

Today’s unexpected spike in rates probably contributed to gold’s downside and the 200 point drop in the DJIA.  In gold’s case the negative effect is likely to remain short term.  As posted in Tuesday’s EARLY REPORT, gold has tracked steadily higher since the Fed began raising interest rates in late 2015.  It is up about 15% over the last 24 months.

Chart courtesy of MacroTrends.com

Quote of the Day
“Sir Isaac Newton was asked by the British Treasury officials and financiers of his day why the monetary pound had to be a fixed quantity of precious metal. Why, indeed, must it consist of precious metal, or have any objective reality? Since paper currency was already accepted, why could not notes be issued without ever being redeemed? The reason they put the question supplies the answer; the government was heavily in debt, and they hoped to find a safe way of being dishonest. But Newton was asked as a mathematician, not a moralist. He replied: ‘Gentlemen, in applied mathematics, you must describe your unit.’ Paper currency cannot be described mathematically as money.” – The God of the Machine, Isabel Paterson (1943)

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Gold tracking lower as we close out lackluster week

EARLY REPORT

Gold is tracking lower again today in a continuation of yesterday’s trend – down almost $8 today at the $1336.50 level. Silver is down 10¢ at $17.15. Precious metals trading has been lackluster all week as investors await direction on a laundry list of economic and political issues. Gold, though, is not the only market in a holding pattern. Stocks and the dollar have also spent the week more or less tracking sideways. In some respects no news is always good news. On the other hand, quiet times in markets almost always illicit an unsettled feeling that something might be lurking in the shadows waiting to pounce.

Chart of the Day

Chart courtesy of MacroTrends.com

Chart note: Commodities have been the bright spot in the investment arena this year – up almost 22% as measured by the Goldman Sachs Commodity Index shown in blue in the chart above. Gold, at times, has led the index over the past two years, even out-performed it in a couple of instances. Over the past year commodities have played catch-up. Perhaps it is time for gold to jump out and take the lead again. . . . . . .

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