Category: Daily Market Report

DMR–Gold inches higher ahead of vote on Brexit plan

DAILY MARKET REPORT

Gold inched higher in early U.S. trading after a relatively quiet night overseas – up $1.50 at $1293 –  as the world’s attention shifted to the United Kingdom and today’s vote on Brexit. Silver is down 1¢ at $15.67.  A House of Commons’ vote is scheduled for later this afternoon.  A firmer U.S. dollar is helping to keep gold constrained this morning.

The major news services are predicting a defeat for the current plan for Britain’s departure from the European Union leaving it a guessing game as to what might happen next in the world’s fifth largest economy.  We have seen estimates of up to $1 trillion in capital flight from Britain as a result of that departure.  Safe haven demand for gold on both sides of the English Channel has been one of the hallmarks of the departure wrangling.

U.S. Global Investors’ Frank Holmes offers the following summation of the current gold market: “Gold, meanwhile, is set for its fourth weekly gain, marking its longest rally since October. Traders surveyed by Bloomberg are bullish on the yellow metal for a ninth straight week. . .ETFs backed by gold saw 10 straight days of inflows, adding 37,174 troy ounces on Thursday alone. This year’s net purchases so far are 762,975 troy ounces, according to data compiled by Bloomberg.”

Quote of the Day
“But the same analysis applies to debased or light-weight coins driving out full-bodied coins. Examples abound in the ancient literature of the consequences of coinage debasement. From the very beginning of coinage, generally assumed, on the authority of Herodotus, to originate with 7th century Lydia, coinage was overvalued. The earliest coins were made of electrum, a natural alloy of about 70 percent gold and 30 percent silver. But hoards of the earliest coins found in the Temple of Artemis at Ephesus in 1904 contained ;artificial’ electrum coins with much lower gold contents. The weights of the stater coins (or its fractions) were uniform but the gold contents were as low as 30 percent. The Lydians and Greeks had not only learned how to use ancient Egyptian techniques of metallurgy, but also how to overvalue coins by using less of the more expensive metal and exploit the monetary prerogative as a fiscal device.” – Robert Mundell, Uses and Abuses of Gresham’s Law in the History of Money

Chart of the Day

Chart and note courtesy of the World Gold Council/GoldHub

Chart note:  “Large net short positions,” says the World Gold Council, “are often prone to covering, creating buying opportunities for investors.  In addition, gold speculative positioning in futures markets remains low by historical standards after hitting record lows in the final months of 2018. CME managed money net long positions stand near record low since 2006 – when data was first broken down by investor type. Furthermore, net combined speculative positions, which go back further, are negative for the first time since December 2001. And large net short positions have historically created buying opportunities for strategic investors, as such positions are prone to short-covering adding momentum to rallies in the gold price.”

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Posted in Daily Market Report, Today's top gold news and opinion |

DMR–Gold lays groundwork for solid start to the week, hits a wall in early NY trading

DAILY MARKET REPORT

Gold was in the process of laying some groundwork for a very good start to the week – trading up to the $1296 level in Asian and European markets overnight – until it hit a wall of what looked to be programmed trading at the open in New York and dropped almost $8 in a matter of minutes.  It has retraced some of those losses since and is now priced at $1292 and up $5 on the day.  Silver is up 6¢ on the day at $15.64.

Much of the gold’s gain overseas can be tracked to a stronger yuan and concerns about a less than inspiring earnings period ahead of us.  Adding to the stock market’s woes is a report out of China this morning that its trade deficit with the United States grew 17% despite the imposition of tariffs. Lurking in the shadows, and not getting a great deal of attention in the United States, UK’s parliament votes on Brexit this week and that could be a catalyst for surprise capital rearrangements that few anticipated.

Quote of the Day
“I think we’re getting to the point now where the breakout is going to be on the inflation upside. The only question is when.” – Alan Greenspan, February 2018

Chart of the Day


(Interactive chart)

Chart note: This interactive chart compares price appreciation for gold and the dollar index. Gold has consistently outperformed the dollar in twelve of the last eighteen years – a formidable record. Even if one were to add in average yields on dollar-based investments, gold still comes out the clear winner in those twelve years. Gold had an off-year in 2018 – down 1% while the dollar was up almost 7%. Given the performance record, though, contrarian investors might see the present disparity as a buying opportunity.

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DMR–Gold trades sideways, markets looking for direction

DAILY MARKET REPORT

Gold is trading sideways this morning after a quiet overnight session – down $1 at $1292.  Silver is down 8¢ at $15.67.  The markets, in general, seem unsure how to react to a slew of global political and economic events over the past few days and looking for a functional narrative upon which it can proceed.

Two pieces of news yesterday might provide that direction as time goes on. One is Fitch’s warning that it might drop the U.S.’ AAA credit rating if things do not improve in Washington.  The credit agency’s warning came hours before the president walked out of a meeting with Congressional Democrats at the White House. The other is the Bloomberg report of “a steep decline in demand” at the U.S. Treasury’s bond auctions. That piece of unsettling news comes at a time when the federal government’s needs are growing rapidly as China and Japan, the two largest holders of U.S. sovereign debt, have moved to the sidelines.

Neither development is minor or easily dismissed as passing phenomena.  As mentioned yesterday, when Standard & Poor’s lowered its credit rating of the United States from AAA to AA+ on August 5, 2011, it set off a strong rally in the gold price. On August 4, the price stood at $1662. Within four days it was trading at over $1800. By August 21st it had hit its all-time highs of over $1900 per ounce.

Quote of the Day
“The great Russian opera singer, Feodor Chaliapin, lost his entire fortune–then worth more than a million pounds–in the Russian revolution. This disaster seared him. He left Russia after the Revolution and went to live in France where in 1931 he bought gold bars and put them in a safe in his cellar in Paris. He was interviewed by the British Sunday Express newspaper on the 5th of May 1935, when he said, ‘People in Britain think governments cannot collapse. They think banknotes are money; banks are impregnable. But I have had everything I made in 25 years stripped from me. I was reduced to singing for tea in which there was sawdust, and bread in which there was wood. With my bar of gold and a pen knife I shall never go hungry.’” — Anecdote told by Haruko Fukuda, World Gold Council chair, in 2000 to the Business Club Zurich

Chart of the Day

Chart note: This long-term gold chart is drawn in log-scale. “Common percent changes,” says Investopedia of log-scale charts, “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.” On a linear chart, the lesser values are compressed to the point that the viewer misses the strength of a price move, and the greater values are extended to a degree that they tend to dramatize a price move – up or down. The log-scale chart presents data in a more realistic framework without the drama. As you can see from the chart above, the upward trend of the gold price since the early 2000s is not nearly as strong as the move between 1970 and 1980 in percentage terms leading some analysts to believe that we have considerable upside yet to be charted.

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DMR–Gold resumes climb on trade talks progress, strong yuan

DAILY MARKET REPORT

Gold  – up $6.00 at $1291 – resumed its climb this morning after a dull session overseas.  News that trade talks between the United States and China had made some progress pushed the yuan sharply higher.  The commodity complex in general led by crude oil is also sharply higher on the day.  Silver is up 10¢ at $15.76.

A World Gold Council report released on Monday indicated a strong rebound in gold ETF buying on the part of funds and institutions in December to end what had been a year of luke-warm demand for the bullion funds.  Strong interest among professional money managers indicates a possible change of sentiment in the global money centers that often drives gold market pricing.  Today’s strong move at the New York open is part and parcel of the generally growing interest in precious metals.  Here at USAGOLD, we have experienced a steady increase in activity among private investors in both gold and silver – in terms of both fresh buying and first-time inquiries.

Quote of the Day
“. . .[I]f you go down the line of currencies around the world, you don’t find many attractive opportunities. And that’s why I say if the world were to give up on dollars and give up on euros, they’d probably go back to the old standby, which is gold. And I don’t mean by gold, government-run gold standard,like we had in the late 19th century. That’s politically impossible. Governments will never be willing to subordinate their policies to the constraints of a hard commodity ever again… So how could gold make a revival as a sort of international money? Well, we don’t actually need a government-run gold standard anymore…since people have always had confidence in gold as a long-term store of value, there’s no reason why it couldn’t play that role.” – Benn Steil, Director of International Economics, Council on Foreign Relations

Chart of the Day

Chart note: With the US dollar the centerpiece of interest in recent months, we thought it appropriate to post the long-term overlay chart of the gold price and the major-currency version of the US Dollar index. As you can see, the dollar has been in a secular, long-term decline against other major currencies since the early 1970s when the U.S. abandoned gold-backing for the currency and the world switched to free-floating gold and currency prices. Despite all the talk of a strong dollar and how Treasury secretaries historically back the concept, the reality is the opposite – a weak dollar when measured against its major competitors over the long term. In the end, unencumbered ownership of physical gold coins and bullion, as this chart amply illustrates, has proven to be an effective defense in the on-going process.

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Posted in Daily Market Report, Today's top gold news and opinion |

DMR–Gold turns south on technical/trading issues

DAILY MARKET REPORT

Gold ran into significant resistance just short of the $1295 early yesterday.  It subsequently turned south and that sell-off carried over to today’s open.  Gold is trading now at the $1281 level and off about $8 on the day.  Silver is down 5¢ at $15.63. The turn south looks more like a technical/trading issue than anything substantive.

Recent dovish pronouncements from the Fed chairman and the possibility of some kind of rapprochement between the United States and China on trade underlies psychology in the gold market at the present. “Any kind of agreement should be bullish for gold because of a stronger Chinese renminbi,” Commerzbank analyst Carsten Fritsch told Reuters overnight. “Gold is in positive environment. It had such a strong year-end, it is not surprising to see some profit taking,” he said.  As it is, the dollar is trading to the upside this morning and gold has taken the opposite tack.

Quote of the Day
“Take some advice from two observers who have been around for awhile: The long term gets here before you know it. . . .Instead, we’d be dependent on foreign investors’ acquiring most of our debt — making the government dependent on the ‘kindness of strangers’ who may not be so kind as the I.O.U.s mount up. We can’t let that happen — not if we want an America that is able to provide growth and stability at home while maintaining global leadership. We would risk returning with a vengeance to stagflation — the ugly combination of inflation and economic stagnation that we tasted in the 1970s.” – Paul A. Volker and Peter G. Peterson

Chart of the Day

Chart note:  The subject of much controversy as to its positive or ill-effects, the Federal Reserve continues to reduce its original $4.5 trillion balance sheet albeit at a very slow pace.  Thus far, the Fed has allowed about $350 billion to run-off the balance sheet and its total holding is now about $4.14 trillion. The pace of quantitative tightening is expected to ratchet-up as 2019 progresses and this is causing concern among some analysts. “We believe the increase in the speed of the Fed balance sheet runoff could have a significant impact on the market,” says Brandywine Global Investment Management in a Seeking Alpha report this morning, “especially the long-end of the Treasury curve, as most of the Fed’s holdings are long-dated. With almost all major central banks reversing quantitative easing – including the European Central Bank’s recent coda to its asset purchases – we could face more of a dollar liquidity shortage.”

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DMR–Gold sharply higher on Powell’s promise to be patient on rates, China reserves increase

DAILY MARKET REPORT

Gold moved sharply higher in early trading today as the effect of Friday’s job numbers receded and Fed chairman Jay Powell’s promise to be “patient” on rates moved to the pole position.  The yellow metal is trading up $8 at $1293. Silver is up 9¢ at $15.77.

Gold is enjoying a run of positive forecasts of late and acquisition recommendations from various financiers.  BlackRock, one of the world’s largest hedge funds, came out in gold’s favor over the weekend.  “’We’re constructive on gold,” portfolio manager Russ Koesterich told Bloomberg on Friday. “We think it’s going to be a valuable portfolio hedge. We’re multi-asset investors: we think about its effect on the entire portfolio, and what we see value in right now is gold’s value as a diversifier.”

Also, helping gold this morning is a report out of China that the Peoples Bank of China increased its holdings by roughly 10 tonnes – the first such report of an upgrade since 2016.

Quote of the Day
“Debasement was limited at first to one’s own territory. It was then found that one could do better by taking bad coins across the border of neighboring municipalities and exchanging them for good with ignorant common people, bringing back the good coins and debasing them again. More and more mints were established. Debasement accelerated in hyper-fashion until a halt was called after the subsidiary coins became practically worthless, and children played with them in the street, much as recounted in Leo Tolstoy’s short story, Ivan the Fool.” – Charles P. Kindleberger, Manias, Panics and Crashes

Chart of the Day

Chart courtesy of TradingEconomics.com

Chart note: If you follow the on-going trade war between the United States and China with even passing interest, you have no doubt come across references to China selling U.S. Treasuries as its ultimate hole card. This chart shows something that few, including many financial journalists, acknowledge: China has been unloading exchange reserves since 2014 when they peaked at nearly $4 trillion. Most of those reductions, which have taken China’s reserves to a little over $3 trillion (a 25% reduction) came as part of its policy to smooth the yuan exchange rate against the dollar and prevent wholesale capital flight. It is unclear at this juncture to what extent China would be willing to drain reserves in defense of the yuan in the future. Trading Economics, as the chart shows, projects further reserve reductions in the future.

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DMR–Gold retreats from $1300 mark, tumbles on jobs report

DAILY MARKET REPORT

Gold, in bullish fashion, made a charge at the $1300 mark in Asian trading overnight. Unable to keep the momentum, it retreated quietly during European trading and then tumbled in New York on the release of this morning’s surprisingly strong jobs report. It is now down $17 at $1278 – a wholly unpleasant end to what up until now had been a fairly good start to the year. Silver kept its composure through it all and is now down a modest 13¢ at $15.61.

Given the fact that gold’s problems this morning have not spread to other sectors, this morning’s sell-off could turn out to be a temporary affair. Oil is up sharply again. Commodities in general look firm. The yen is down but not dramatically so. Meanwhile, the global economy itself is still in dangerous waters despite the feel-good jobs number. Perhaps we would be well-served to see how it all plays out before casting judgement. . . . . . . .

Gold, after all is said and done, is roughly level on the week and still up over 4.5% since December 1.

Quote of the Day
“Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Fed’s monetary policy which has drained global dollar liquidity. We have already seen the impact on the Turkish and Argentinian currencies. We remain concerned about geo-political problems including Brexit, North Korea and the Middle East, at a time when populism is spreading globally. The resolution of these problems in this unpredictable era will surely be difficult. In 9/11 and in the 2008 financial crisis, the powers of the world worked together with a common approach. Co-operation today is proving much more difficult. This puts at risk the post-war economic and security order. In the circumstances our policy is to maintain our limited exposure to quoted equities and to enter into new commitments with great caution.” – Lord Jacob Rothschild, RIT Capital Partners, Half-Yearly Financial Report, June 30, 2018

Chart of the Day

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.

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DMR–Silver up sharply, breaks ranks with gold

DAILY MARKET REPORT

Gold is higher for the second day running in 2019, but it is silver that is capturing the attention of traders this morning – up 17¢ at $15.67. Gold is up $2 at $1288. The metals are holding much of the ground gained overnight in response to a sudden surge in the value of the Japanese yen. Since then the yen and gold have settled into a range, but silver, seemingly determined to strike out on its own, has broken ranks and is up over 1% on the day thus far.

Clive Maund, the London-based commodities analyst, says that silver’s breakout “may well be the opening shot of a major bull market. . . The PM sector has been about the only one that hasn’t become a bubble in recent years, and the way things are shaping up, it could wind up being the only sector that becomes a bubble while most everything else is dropping through the floor.”

Oil is up sharply and the rest of the commodities complex looks firm confounding early year expectations that the Chinese economy will slow in 2019 and push commodity prices lower.

Quote of the Day
“As the unwind continues, Financial Assets inflated by the free-money effects of QE are still finding new equilibrium valuations. Markets will remain volatile. Tech change and supply fundamentals will continue to shock us – look at oil prices for an example; turning a good year for oil and energy into a question market. Or look at how iPhone sales in India have fallen off a cliff as people buy cheaper phones that do the same – commoditisation! The thing that scares me most is liquidity – the lack of it.” – Bill Blain, Blain’s Morning Porridge

Chart of the Day

Chart note:  Gold’s for the most part sideways performance in 2018 aside, it has been a steady performer since the turn of the 21st century – registering gains in fourteen of the first eighteen years.

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DMR–Gold up tenuously to start the new year

DAILY MARKET REPORT

Gold is putting its best foot forward to start the New Year – trading up $3.50 at $1285 in today’s early going.  Silver, not quite as enthusiastic about the turn of the year, is down 6¢ at $15.41. With the dollar strengthening overnight on reports of an economic slowdown in China, the positive start for gold appears on the surface a bit tenuous. With that in mind, many will call it a good start for the year if gold simply holds its ground in positive territory by the end of the day. Commodity markets in general are off with oil down over 2.5% on the day.

Today’s upside adds to a rally that began in mid-November at the $1200 level.  As it is, gold finished up 5% for December, but down 2.6% for 2018.  Silver, always more volatile than gold on both the up- and downsides, finished up 8% for December, but down about 9.3% for 2018.

Quote of the Day
Central bankers are coy about gold’s importance as a monetary metal. Former Fed Chair Benjamin and presidential candidate [Emphasis added]Bernanke, at one of our hearings, claimed flatly that gold was not money. When I pressed Bernanke on why, then, do central banks hold gold, he declared after a long pause that it was merely ‘tradition.’ He had no interest in my suggestion that the gold could be sold off to the American people if it’s not money. The point is that due to today’s impending crisis, many governments are now accumulating more gold—while others are holding onto what they have with the expectation it will once again be used in the monetary system.” – Ron Paul, former Congressman and presidential candidate [Emphasis added]

“Students of monetary history should recall that global growth shrank  in the wake of the Smoot-Hawley Tariff Act of 1930, and the US was forced to devalue the dollar against gold in January 1934 with the result that the gold price rose by 70% (from $20.67 to $35.00).” – Martin Murenbeeld, Gold Monitor newsletter

Chart of the Day

Chart note:  From time to time we re-post this chart on the average annual price of gold since 1971 – the year the U.S. severed the tie between the dollar and gold and launched the fiat money era.   It dispels 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 demonstrates at a glance gold’s strong performance as a portfolio holding over the long haul and emphasizes its role as a reliable long-term portfolio safe haven and means to long-term wealth preservation.

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DMR–Gold, silver up sharply in early trading, beneficiaries of major, on-going capital rotation

DAILY MARKET REPORT

Normally, we would take a break from posting the DMR during this last week of the year, but given the unusual circumstances in financial markets and the large number of visitors to the site, we thought a few comments might be in order.

Gold is up another $11 at $1279 in early trading today as investors, including funds and institutions, continue to rotate capital out of stocks and into safe-haven alternatives.  Silver is up a steep 39¢ at $15.17 and solidly over the $15 barrier.  The climb began overnight in Asian and European markets and carried over to the New York COMEX open. Bonds are also a beneficiary amidst the shifting currents.

A detailed article in this morning’s Wall Street Journal points up something we have warned about for years on this page and what many see to be the primary influence in this stock market sell-off, i.e., the over-wrought presence and dominance of computer-based trading.  With respect to the ill-effects, our characterization remains the same: Live by the algo. Die by the algo.  And just as the momentum in a football game can turn on a single event, so too can it turn in financial markets. Massive capital that poured into stocks for a good many years will now be looking for a place to go.  To what degree, this capital tsunami will affect the much thinner gold market remains to be seen.

As we approached the holiday break last week, we learned of a meeting of the Working Group for Financial Markets called by Treasury Secretary Mnuchin and also his contact with several of the large banks on their liquidity levels.  Whether or not the plunge protection team can turn the tide will dominate Wall Street concerns over the next few days, and the rest of us will be watching closely as well.

Quote of the Day
“The speed and magnitude of the move probably are being exacerbated by the machines and model-driven trading. Human beings tend not to react this fast and violently.” – Neal Berger, Eagle’s View Asset Management, as quoted in today’s Wall Street Journal

Chart of the Day

Chart note:  This chart illustrates the changing sentiment in financial markets since early October of this year.  Stocks have suffered in the worst late year market performance since the Great Depression.  Gold has been a beneficiary as investors seek a safe haven.

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DMR–Something in the air as we near the holiday season

CHRISTMAS MESSAGE

Gold’s come off a bit from yesterday’s nearly $20 rise, but that is to be expected.  We mentioned late last week that the upcoming Fed Week might be different from the rest.  Little did we know how different it would be. One would have to reach deep into the memory banks to find a comparison if there is one.

 As the smoke begins to clear from the past week’s events, though, we sense that sentiment in the financial marketplace has been fundamentally altered – a significant and surprising overturning of a way of thinking that has driven markets for a very long time. One hesitates to suggest such a thing because that governing mindset has been with us for a very long time.

Yet it would be hard to deny that something is in the air, as very significant developments have begun to emerge in the political realm as well.  Today’s Chart of the Day featuring gold and volatility speaks to that shift in sentiment. So, as we bring 2018 to a close, the word change superimposes itself over our Christmas message  – change that likely will present challenges and test our skills in the year ahead. We will be called upon, it appears, to adjust and prepare as investors for what could be tumultuous times ahead.

Wishing you and yours the very best for the holidays from all of us at USAGOLD!

Quote of the Day
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy followed by a dictatorship. The average age of the world’s great civilizations has been two hundred years. These nations have progressed through the following sequence: from bondage to spiritual faith, from spiritual faith to great courage, from courage to liberty, from liberty to abundance, from abundance to selfishness, from selfishness to complacency from complacency to apathy, from apathy to dependency, from dependency back to bondage.” – Alexander Tyler, 18th-century historian and jurist

Chart of the Day

Chart note: High volatility in the past has preceded upward movement in the gold price. In an article this morning under the headline “Wild days return to stock market as VIX surges like never before,” Bloomberg points out that volatility now is running at levels not seen since the 2007-2008 breakdown and, in fact, “the biggest annual surge on record.” In yesterday’s Chart of the Day, we featured the lag in gold’s response to the early phases of the 2007-2008 financial crisis. The move upward came later after investors came to realize the full extent of the crisis and it culminated at all-time highs.

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DMR–Gold surges to higher ground on confluence of factors

DAILY MARKET REPORT

Gold’s surge to higher ground began overnight in Asia and Europe then carried over to early U.S. trading.  It is up $16 at $1260 as we post today’s DMR and now well over the $1250 psychological barrier.  Silver is up 16¢ on the day at $14.80.

To really get a feel for what is driving gold we would encourage you to read through the last two day’s posts and visit the links that gain your attention.  The current situation encompasses a confluence of factors including. . . . .

(a) gold’s strong upside bias over the past three years in the wake of the December Fed conclave (as illustrated in the graph posted in yesterday’s DMR), and

(b) the central bank’s open options approach to 2019 on interest rates – a more dovish stance that has been slowly put together by the Powell Fed over the last several weeks

Those two factors in turn are encouraging

(c) short-covering, in our view, among major market players though we won’t know that for certain until after the COMEX data comes public

(d) fresh purchases of physical and paper metal as a hedge against a complex set of unknown and unknowable economic and financial possibilities

Some will point to the sharp decline in the dollar overnight (see below) as the sole cause of gold’s upside, but that is the easy explanation.  What we just outlined could very well be – in fact is likely to be – only part of a more complex story. Stay tuned to USAGOLD as we will update as the situation comes into better focus.

Quote of the Day
“Why does the cycle move as it does? What causes these periodic alternations, this ebb and this flow, in the national priorities? If it is a genuine cycle, the explanation must be primarily internal. Each phase must flow out of the conditions – and contradictions – of the phase before and then itself prepare the way for the next recurrence. A true cycle is self-generating. It cannot be determined, short of catastrophe, by external events. Wars, depressions, inflations may heighten or complicate moods, but the cycle itself rolls on, self-contained, self-sufficient and autonomous. . .The roots of cyclical self sufficiency lies deep in the natural life of humanity. There is a cyclical pattern in organic nature — in the tides, in the seasons, in night and day, in the systole and diastole of the human heart.” – Arthur M. Schlesinger, Jr., The Cycles of American History

Chart of the Day

Chart note: As the chart above illustrates, gold does not always react to the start of a crisis as anticipated. As the credit crisis gained momentum in 2008, gold declined as the dollar rose – acting in much the same way it is reacting now to the emerging markets crisis and U.S.-China trade war. It was not until late 2008, when the full extent of the crisis became all too apparent, that it began to move higher. Thereafter, from 2009 to September 2011, it rose to its all-time high of $1895 – a 215% gain in three years.

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DMR–Gold peeks head above $1250 mark, looks around. . . .bolts higher

DAILY MARKET REPORT

Gold peeked its head cautiously above the $1250 mark in overnight trading, looked around and decided to bolt higher.  It is now up $8.00 on the day at $1258.  Silver is up 16¢ at $14.83.  The rest of the financial universe appears equally optimistic as it awaits today’s Fed decision on rates and more importantly its concluding statement followed by chairman Powell’s press conference.  Stocks, bonds and commodities are all up in early trading.  The dollar appears to be the outlier with the index down sharply as this posted. Festivities will begin with the statement at 2 pm ET. The press conference is scheduled for 2:30 pm.  Given gold’s recent history as discussed below, short covering might also be a factor in today’s price action.

Gold market analyst Arkadiusz Sieron posted an interesting chart at Gold Eagle in which he notes gold trending down in advance of December Fed meetings since 2015, then turning higher thereafter into the start of the new year.  That chart is reproduced immediately below. The green boxes encompass December Fed Week.  We will be back later in the day if events warrant. . . .

Quote of the Day
“Nobody knows what would happen if Britain’s LCH or Germany’s Eurex Clearing came under stress. They have thin layers of capital compared to banks. Before the 2008 crisis most derivatives were cleared by trading parties in direct dealings. The G20 shift has lifted the share of CCPs [central counterparties] for interest rate derivatives from 20 to 60 percent. The effect is to concentrate risk. The BIS warns that the system may encourage a rush for the exit in events of extreme stress. The International Monetary Fund has also flagged the dangers. It warned this year that CCPs ‘increase the risk of a failure of the infrastructure itself’ and could lead to a ‘catastrophe’ if the all layers of defense were overrun by a big default. It would be like the failure of the Maginot Line.” – Ambrose Evans-Pritchard, BIS warns of seizure at heart of financial clearing system

Chart of the Day

Chart note: Growth in the money supply continues to be stubbornly restrained. That circumstance, however, does not necessarily signal weakness in the price of gold. As this chart illustrates, the effect can be just the opposite. As the 2008 credit crisis unfolded, gold to the surprise of many proved its mettle as a hedge under disinflationary circumstances. Demand flourished among investors worldwide concerned about potential bank failures and a stock and bond market crashes. Even in the more placid economic setting since early 2016, gold has risen as monetary growth has slowed, mostly among global investors seeking a safe-haven against financial system risks.

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DMR–Gold moves cautiously sideways amidst widespread concern about tomorrow’s Fed meeting

DAILY MARKET REPORT

Gold is moving cautiously sideways this Tuesday before the Wednesday of Fed Week – the day the U.S. central bank’s governors sit down for a fateful meeting amidst widespread concern in financial markets.  This morning’s market action across the boards has all the look of the calm before the storm: Stocks, defying the general concern, are pushing higher.  Bonds are running laterally. Commodities are quiet.  The dollar is up slightly.  Gold, too, is non-commital – up just $1.50 at $1247.50 after yesterday’s strong performance that took once again near the $1250 mark.  Silver is up 2¢ at $14.69.

The Wall Street Journal reports this morning that the Fed is weighing carefully what will be said in its closing statement and how it will be said – and well it should.  Much hangs in the balance including the potential effect on the dollar and by proxy – gold.  The fact of the matter is that the Fed plans to stay the course on a .25% in interest rates – but that speaks to the present.  The markets are concerned about the future and will be sifting through the grit of the closing statement to find the gemstone.

Univest Wealth Management’s Timothy Chubb, quoted in this morning’s Journal, captured the spirit of the moment:  “Investors are losing confidence in the direction and the progress we’re making on monetary policy and trade.  Powell has to be careful with his words because investors are looking for any doubt in the Fed’s mind that the global economy is on strong footing.”

Quote of the Day
“The cost of living has skyrocketed in recent years. Let’s look at the cost of goods in services in terms of a salary earned by a full college professor. In the 1980s, our ‘full professor’ needed to pay almost 15 minutes of his salary to buy one kilogram of beef. Today, in July 2017, our full professor needs to pay the equivalent of 18 hours to buy the same amount of beef. During the 1980s, our full professor needed to pay almost one year’s salary for a new sedan. Today, he must pay the equivalent of 25 years of his salary. In the 1980s, a full professor with his monthly salary could buy 17 basic baskets of essential goods. Today, he can buy just one-quarter of a basic basket. And what about the value of our money? Well, in March 2007, the largest denomination of paper money in Venezuela was the 100 bolivar bill. With it, you could buy 28 US dollars, 288 eggs, or 56 kilograms of rice. Today, you can buy .01 dollars, 0.2 eggs, and 0.08 kilograms of rice. In July 2017, you need five 100-bolivar bills to buy just one egg.” – Timothy D. Terrell, on life in Venezuela (2018)

Chart of the Day

Chart courtesy of HowMuch.net

Chart note: “Looking at a map of economic freedom for the entire world reveals distinct pockets of freedom and repression,” says HowMuch.net, the creator of this chart. “The freest continuous group of countries stretches from the United States and Canada over to northern Europe and the Baltic countries. Russia is the only country touching the Arctic Ocean in a color other than dark and light green. Australia and New Zealand also stand out in the Pacific as bastions of freedom, especially combined with the other countries in Southeast Asia. On the other hand, almost all of South America, Africa, and Asia (at least on the continent itself) remain repressed.”

Chart note 2: It is also interesting to note that it is among the “mostly unfree” and “repressed countries” where the current emerging country currency and debt crisis resides.

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DMR–Gold pushes quietly higher to start Fed Week

DAILY MARKET REPORT

Gold pushed quietly higher early today, a fete that normally would pass without much notice or comment.  It is Fed Week, however, and typically speculators would be anticipating gold’s text-book weakness when the FOMC meets and hoping to gain some short-term advantage. As we mentioned in an earlier note, though, this time around – with the Fed looking to pull back on its march to higher interest rates – things might be different. The dollar took a sharp turn to the south today in early trading and commodities turned north – both beneficiaries of the same sentiment.  With much on the table politically, geopolitically and monetarily, it could turn out to be an interesting week as we go into the final leg of the holiday season.  Gold is up $2.50 on the day at $1241.50.  Silver is up 6¢ at $14.62.

Quote of the Day
“For we have reached a critical point.  In a sense, it is true that the mists are lifting.  We can, at least, see clearly the gulf to which our present path is leading.  Few of us doubt that we must, without much more delay, find an effective means to raise world prices; or we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what outcome we cannot predict.”  – John Maynard Keynes, The Means to Prosperity (1933)

Chart[s] of the Day

Charts courtesy of TradingEconomics.com

Chart note:  These three charts show the central bank balance sheet debt holdings for three of the top four largest economies – the United States, Japan and the European Union.Together the three central banks hold an astonishing nearly $13 trillion in debt instruments, and not all are of the highest quality. The US Federal Reserve is in the process of trimming its balance sheet, albeit on a slow fuse. The European Central Bank is scheduled to begin reducing its holdings later this year. The Bank of Japan, for its part, says it will continue with its acquisition program as long as it deems necessary.

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DMR–Gold abruptly turns south coincident with sharp drop in yuan

DAILY MARKET REPORT

Gold abruptly turned south in overnight and early U.S. trading coincident with a sharp drop in China’s yuan.  The yuan in turn fell abruptly on growth numbers that fell short of expectations and speculation that the Peoples Bank of China might move to lower interest rates.  Not helping matters, the European Central Bank formally announced plans to halt its quantitative easing program, but also stated it would reinvest proceeds from maturing bonds.  In addition, it reassured markets that it would refrain from raising interest rates until late next year.

In short, China and Europe went dovish at a time when the Fed is scheduled next week to raise U.S. interest rates another .25%.  The dollar index jumped over a half a point in response and gold dropped about the same.  As today’s DMR is posted, gold is down $7.50 at $1235.  Silver is down 20¢ at $14.54. Stocks are not all that happy with overnight developments either – down nearly 200 in futures’ trading.

Quote of the Day
“Buying gold today is a statement that you believe that global economic events may spiral out of the control of Central Bankers. It is insurance against some sort of massive monetary policy mistake that cannot be fixed without re-conceptualizing the global economic regime – hyperinflation in a developed nation, the collapse of the Euro, something like that – not an expression of a commonly shared belief in some inherent value of gold.. . . . The stronger the Narrative of Central Banker Omnipotence, the more likely it is that the price of gold goes down. The weaker the Narrative – the less established the Common Knowledge that central bank policy determines market outcomes – the more likely it is that the price of gold will go up. In other words, it’s not central bank policy per se that makes the price of gold go up or down, it’s Common Knowledge regarding the ability of central banks to control economic outcomes that makes the price of gold go up or down.” – W. Ben Hunt, Epsilon Theory

Chart of the Day

Chart note: This chart shows the gains or losses in gold from the same month a year earlier. Since the Fed began raising interest rates in early 2016, gold has gone higher in 22 out of the past 34 months. That means that you could have purchased gold in any one of those months a year earlier and showed a gain 12 months later, and sometimes that gain was significant – as much as 10% to 22%!

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DMR–Gold continues to track sideways, some cheerful technical analysis ($1300 by year-end?)

DAILY MARKET REPORT

Gold continued to track sideways this morning – down $2.50 at $1243.50. The metal was stable in Asian trading then dropped moderately on minor speculative selling on London AM fix associated with Theresa May’s surviving a Tory vote of no-confidence.  All in all, the wait-and-see, sideways pattern established earlier in the week seems to have gained the upper hand for now. Barring a major event, we could remain in a narrow range until after Wednesday’s meeting of the Federal Open Market Committee. Silver is up 2¢ on the day $14.77.

Anna Couling, who posts technical commodity analysis at Investing.com, offers a hopeful note as we move toward the conclusion to 2018.  In a short analysis titled Some Christmas Cheer for Gold Bugs [LINK], she says –

“Last week’s price action was seminal, with gold breaking through strong resistance in the $1238 per ounce region. In addition, this price action was supported with excellent volume and in agreement, with the trend monitor confirming the transition to the bullish sentiment. A recovery to $1280 per ounce now seems possible and possibly to $1300 per ounce, provided this is supported with strong and rising volume on the weekly chart. And of course, further weakness in the USD may well provide additional help given the FED’s pace of rate increases which looks set to slow.”

With those words of reassurance, we will close out today’s report and wish you a pleasant rest of your day.

Quote of the Day
“Reality is far more vicious than Russian roulette. First, it delivers the fatal bullet rather infrequently, like a revolver that would have hundreds, even thousands of chambers instead of six. After a few dozen tries, one forgets about the existence of a bullet, under a numbing false sense of security. Second, unlike a well-defined precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality. One is capable of unwittingly playing Russian roulette – and calling it by some alternative ‘low risk’ game.” ― Nassim Nicholas Taleb, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets

Chart of the Day

Chart note: Since the turn of the new century, gold consistently provided a real rate of return on investment when measured against inflation.  In fact, it provided a real rate of return in twelve of the eighteen years represented on the chart.  The period was one of subdued inflation. Gold’s performance, as a result, took many analysts and professional money managers by surprise and altered the perception among money managers that the precious metal is solely an inflation hedge.

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DMR–Gold seesaws in a range, biding its time

DAILY MARKET REPORT

Gold seesawed in the $1242-1247 range unable to make up its mind on direction in overseas trading. By the time New York opened, though, it appeared comfortable with the northern edge of the range – up $3 on the day at $1246. Silver is up 13¢ at $14.72 and making progress toward the important $15 mark. Yesterday’s producer price report came in at a benign .1% and today’s consumer price report showed a 2.2% rise in prices – numbers unlikely to cause even a ripple among Wall Street traders.

The markets today are entertaining the notion of a thaw in the U.S.-China trade battle but it was another conflict – the one between the White House and Congressional Democrats – that dominated national attention yesterday.  The president declared he would be “proud” to shut down the government over financing for a wall at the Mexican border.  Those with a memory for major market events recalled that it was another shutdown in 2011 that caused Standard & Poor’s to downgrade the U.S government’s credit rating.  Another downgrade now could have deadly consequences at a time when foreign creditors are already backing away from the U.S. treasuries’ market.

Gold, through all of it, appears to be biding its time, but seemingly at the ready. . . . . . . .

Quote of the Day
“A common feature of all these earlier troubles was that, having happened, they were over. The worst was reasonably recognizable as such. The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to ensure that as few as possible escaped the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. (Not only were a record 12,894,650 shares sold on 24 October; precisely the same number were bought.) The bargains then suffered a ruinous fall. Even the man who waited out all of October and all of November, who saw the volume of trading return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next twenty-four months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.” – John Kenneth Galbraith, The Great Crash: 1929

Chart of the Day

Chart note:  This long-term gold chart is drawn in log-scale. “Common percent changes,” says Investopedia of log-scale charts, “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.” On a linear chart, the lesser values are compressed to the point that the viewer misses the strength of a price move, and the greater values are extended to a degree that they tend to dramatize a price move – up or down. The log-scale chart presents data in a more realistic framework without the drama. As you can see from the chart above, the upward trend of the gold price since the early 2000s is not nearly as strong as the move between 1970 and 1980 in percentage terms leading some analysts to believe that we have considerable upside yet to be charted.

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DMR–Gold encounters resistance at $1250 mark in overnight trading, a possibly tumultuous week directly ahead

DAILY MARKET REPORT

Gold encountered what appears, at least for now, to be minor resistance at the $1250 mark with a tumultuous week for markets behind us and a new and perhaps even more imposing week looming ahead.  I say imposing because the markets face a minefield of reports and events this week any one of which could dish out a fair share of damage in financial markets.  Today we have the auction of short-term Treasury bills (3- and 6-month).  Tomorrow we have the producer price index and crude oil stocks.  Wednesday we have the core inflation rate, jobless claims and another bond auction (30-year).  If the markets are looking to get a reading of the economy, the coming week will provide plenty of statistical fodder.

As it is, gold is down $3 on the day at $1245.50 after nudging the $1250 mark in overseas trading.  Silver is down 3¢ at $14.61.

Quote of the Day
“I spoke to bankers at the time who said that what happened was supposed to be impossible, it was like the tide going out everywhere on Earth simultaneously. People had lived through crises before – the sudden crash of October 1987, the emerging markets crises and the Russian crisis of the 1990s, the dotcom bubble – but what happened in those cases was that capital fled from one place to another. No one had ever lived through, and no one thought possible, a situation where all the credit simultaneously disappeared from everywhere and the entire system teetered on the brink. The first weekend of October 2008 was a point when people at the top of the global financial system genuinely thought, in the words of George W. Bush, ‘This sucker could go down.’ RBS, at one point the biggest bank in the world according to the size of its balance sheet, was within hours of collapsing. And by collapsing I mean cashpoint machines would have stopped working, and insolvencies would have spread from RBS to other banks – and no one alive knows what that would have looked like or how it would have ended.” – John Lanchester, After the Fall

Chart of the Day

Chart note:  Rate convergence, or the flattening of rates in the popular financial parlance, is the subject of much concern on Wall Street and this chart, drawn in log scale, tells the reason why in a glance.  In pulling together the data for these charts, we could not help but take special note of the two previous occasions in which there was a similar convergence – in 2000 just before and during the bursting of the dotcom bubble and in 2007-2008 just before and during the Bear Sterns/Lehman Brothers’ implosions and the launch of the global financial crisis.  When the financial press bemoans the flattening of rates as a portent for a future recession, it is telling only part of the tale.  Beyond the threat of recession lies a much deeper concern  – the threat of another all-out financial crisis.

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DMR-Jobs drop, gold pops; stocks face ‘psychological and algorithmic leverage’ and ‘computer herding’

DAILY MARKET REPORT

The jobs number dropped and gold popped in early Friday trading – up $7 at $1245.  Silver is up 9¢ at $14.60.

Gold’s recent stability – we hesitate to call it strength at this juncture – should be traced directly to dovish remarks emanating from the Fed. A perceived agreement on oil production among members is also adding to gold’s appeal today as are concerns about the trade negotiations between the U.S. and China – particularly in light of the arrest of Huawei’s chief financial officer, Meng Wanzhou, daughter of the company’s founder. “After Ms. Meng’s arrest,” says Financial Times this morning, “the deadline for progress looks like a timebomb.” Meanwhile, the president, as if nothing unusual just happened, tweets this morning that the trade talks with China “are going very well.”

On another page in the Financial Times, columnist Gillian Tett makes an attempt to explain the wild swings in financial markets, a trend that seems to be snowballing.  She passes along an interesting observation from Seth Klarman, founder of the Blaupost hedge fund. “In 2008,” he says, “we had massive disguised [debt] leverage.  Now we have less financial leverage, but there is psychological leverage.”  Is that another way of saying that the markets are on the verge of panic?

Klarman goes on to warn about “algorithmic leverage” and “computer herding” – problems we have written about on these pages for years. [Link to the full editorial] Ms Tett, who has written with distinction about the markets and their tendency toward crisis for a good many years, ends with the observation that the propensity toward wild swings rather than a sudden, full-out crash gives “seasick investors opportunity to jump ship.” That is a course of action worth pondering as we head deeper into what could be an eventful closing month to the year.

Jumping ship, we will point out, is one thing, establishing a solid portfolio hedge is another.  The first without the second may turn out to be an empty exercise.

Quote of the Day
“Our central bank monetary-led boom has made debt replace wealth for a long time. That’s not sustainable, of course. (We are ‘mining’ our soil for short-term gain.) We’ll see a return to the significance of productive stuff again I think, and that even includes farming – maybe especially farming. And the Midwest has a pretty good track record with productive stuff. Hard assets will matter again. But of course, I sound ridiculous even saying such things. Like a grumpy old grandpa.” – Mark Spitznagel, Universa Investments (as quoted by columnist, P.J. O’Rourke)

Chart of the Day

Chart note:  After all is said, as of yesterday, gold is down just less than 2% on the year.  The last twelve months have been a struggle for the yellow metal but not as much the annus horribilis some would have us think. Predictions for 2019 have begun to show up in the financial media and most surprisingly strike a positive chord. Recently published observations from ABN-Amro’s Georgette Boele are a case in point.  “Gold prices,” she says, “have declined so far this year. But 2019 and 2020 should be positive again because we expect a lower dollar, lower US Treasury yields, a recovery of the Chinese yuan and higher jewellery demand. Speculators are expected to cut their substantial short positions and gold prices should rise to above the 200-day moving average. We keep our year-end target for 2019 at USD 1,400 per ounce.”

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DMR–Gold takes pause after three-day rally, stock market gets needed breather

DAILY MARKET REPORT

Gold took pause this morning after a three-day, $25 rally that took it over the $1240 mark. It is now trading at $1238.50 and level on the day.  Silver is down 2¢ at $14.55. The dollar is also trading sideways as the stock and bond markets suspend trading for the day for the funeral of former president George H. W. Bush.

After yesterday’s chaotic nearly 800 point stock market rout, a breather might be just what the stock market needs. Then again, there is the possibility that a day of reflection will give rise to even more powerful animal spirits (to resurrect an old, but still lingering, allusion).  The yuan is down a bit but generally holding steady even with China coming-off as hesitant on commitments it reportedly made at the Trump-Xi dinner.

Trading in bonds is having what can only be described as a profound effect on stocks in recent sessions. Much, it seems, hangs on how the relationship between various maturities plays out, i.e., inverted yields and their perceived dangers.  What transpires will likely affect the value of the dollar and consequently gold – not to speak of future monetary policy.  It is a time for current and would-be gold owners to be vigilant if not proactive.

Quote of the Day
“I’m fond of saying how crazy things get near the end of Bubbles. Convinced this is History’s Greatest Bubble, I’ve been anticipating a pretty astonishing variety of ‘crazy.’ Watching this all unfold with increasing trepidation, I sense an important line has been crossed. It’s time to retire ‘crazy’ – find a replacement that conjures up something more foreboding – more disturbing. And markets, well, they’re seemingly fine with it all; at times almost giddy. And that’s the fundamental problem: Dysfunctional markets continue to promote incredibly risky policy behavior – the polar (bear) opposite of imposing discipline.” – Doug Noland, Credit Bubble Bulletin

Chart of the Day

Chart courtesy of St. Louis Federal Reserve [FRED], Board of Governors, IBA

Chart note: With the US dollar the centerpiece of interest the past several weeks, we thought it appropriate to post the long-term overlay chart of the gold price and the major-currency version of the US Dollar index. As you can see, the dollar has been in a secular, long-term decline against other major currencies since the early 1970s when the U.S. abandoned gold-backing for the currency and the world switched to free-floating gold and currency prices. Despite all the talk of a strong dollar and how Treasury secretaries historically back the concept, the reality is the opposite – a weak dollar when measured against its major competitors over the long term. In the end, unencumbered ownership of physical gold coins and bullion, as this chart amply illustrates, has proven to be an effective defense in the on-going process.

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DMR–Gold continues trek higher on yuan strength, short-covering

DAILY MARKET REPORT

Gold continued its trek higher this morning rising another $10 to trade at $1241.50.  Silver is up another 22¢ at $14.63.  Lost in the media focus on trade and interest rates has been the on-going reduction in short positions on the COMEX in both metals, an indication that traders might have begun the process of squaring those positions before year end.  We will know more about that at the end of week when the Commitment of Traders of report is released for public consumption.

In addition to the possible short-covering, we also take note of the improving scenario for China’s yuan over the past few days. Note the upward spike that began in Asian trading immediately after the Trump-Xi dinner. As noted in the Bloomberg article below by John Authers, tellingly a stronger yuan/weaker dollar is what Trump and Xi wanted. Gold, in the process,  has become one of the beneficiaries.

 

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)

Chart of the Day

Table courtesy of the World Gold Council/GoldHub

Table note:  Global gold demand in physical form for jewelry, central bank reserves and private investment continues to grow steadily.  Private investment demand stands out as particularly robust – up 30% from 2010 through 2017.

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DMR–Gold pushes convincingly to higher ground

DAILY MARKET REPORT

Gold pushed convincingly to higher ground this morning – up $11 at $1233. Silver is up 38¢ at $14.55 – a move of more than 2.5%% that outpaces gold’s less than 1% gain.

Two developments over the weekend fueled the surge, both with important implications in the overall commodities complex.  First, the president’s announcement that China and the United States had negotiated a “major” trade deal.  Second, Vladimir Putin’s announcement of an agreement on oil production between Russia and Saudi Arabia. In Friday’s DMR we pointed to “major changes in financial markets dynamics” in the making.  Over the weekend we saw some progress in that direction.

In addition to those two commodity-based developments we will add a third (and perhaps the most important of all with respect to the overall market psychology), i.e., the Fed’s apparent interest in ratcheting down rising interest rate expectations.  The Dallas Fed’s Robert Kaplan buttressed that message over the weekend when he told Financial Times “I want to avoid a situation where we have overdone it. I think because inflation readings are more muted, we have the luxury to be patient and be very vigilant here, and try to avoid making that mistake.”

All in all, a positive 48-hours for the gold market. . . . . .

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

Charts courtesy of TradingEconomics.com

Chart courtesy of TradingView.com

Chart note: The top chart shows Argentina’s inflation rate.  The middle chart shows the number of Argentine pesos it took to buy a dollar. The bottom chart shows the price of gold in Argentina pesos.  Over the past twelve months, gold has increased in value 107.57% while the peso has declined nearly 60% and the inflation rate has risen 80%. All in all, the three charts provide convincing proof of gold’s role as a hedge against rapid currency depreciation.

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DMR–Gold resumes ‘wait-and-see’ posture

DAILY MARKET REPORT

Gold resumed its wait-and-see posture this morning as major changes in financial market dynamics seem to be in the making. Minutes to the October FOMC meeting released yesterday point to a drift among governors toward a more dovish overall position.  Markets are still digesting that drift along with the dovish tilt in chairman Powell remarks to the Economic Club of New York this past Tuesday. A change to easy money – or even easier money – will have wide-ranging effects in financial markets, particularly with respect to the dollar and consequently gold.

Adding to the tense market environment, on Saturday the presidents of the United States and China will meet for what many believe will be fateful dinner – one that will likely become a centerpiece in future historical accounts of the era. Goldman came out with its view this morning that the most likely outcome of the Trump-Xi parlay will be an escalation in the trade war, with a “pause” as a close second. Trade negotiator Robert Lighthizer, on the other hand, says he expects the dinner to be a “success.”

The stock market can’t seem to make up its mind on how all of this will work out.  It rallies, then it falls.  Gold, through it all, has taken a more steadfast, even-keeled approach. For today though, the mood has swung back to  cautious. The yellow metal is down $3 on the day at $1221.50.  Silver is down 10¢ at $14.23.

Quote of the Day
“Let it be emphasized once more, and especially to anyone inclined to a personally rewarding skepticism in these matters: for practical purposes, the financial memory should be assumed to last, at a maximum, no more than 20 years. This is normally the time it takes for the recollection of one disaster to be erased and for some variant on previous dementia to come forward to capture the financial mind. It is also the time generally required for a new generation to enter the scene, impressed, as had been its predecessors, with its own innovative genius.” ― John Kenneth Galbraith, A Short History of Financial Euphoria

Chart of the Day

Chart note:  Since 2008, eruptions in the volatility index have preceded upward moves in the gold price. Volatility is on the rise at the present but the increase is not nearly as dramatic as in 2009, 2011, and 2015. If the volatility index is an indicator of sentiment, investors appear worried but, at this juncture, not the level of worry that would cause a mass exodus to gold and other safe havens.  According to a report in Financial Times this past weekend, however, conservative investors have begun to pull money out of corporate bond funds and transfer that capital to gold. Inflows into gold ETFs, FT reports, are up for the seventh week running.

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DMR–Optimism creeps quietly into gold market with Powell’s dovish tilt

DAILY MARKET REPORT

Optimism crept quietly into the gold market beginning about mid-day yesterday. It took the form of a $6 advance immediately following Fed chairman Powell’s dovish tilt in a speech before the Economic Club of New York. It then gathered pace overnight in Asian and European markets and carried over to the U.S. open.  Gold is now trading at $1226 and up $5 from yesterday’s FOREX close.  Silver is up 5¢ at $14.37.

Some will see yesterday’s remarks as acquiescence to the president who two days ago said he was “not even a little bit happy” with the Fed chairman.  Others will see it as a needed adjustment to worrying signs beginning to surface in the economy mostly centered around wobbly stock and bond markets and an overly strong dollar.  Perhaps, in the end, it is a little of both. . . .

Also helping gold this morning are reports that Saudi Arabia is pushing hard behind the scenes for oil production cutbacks to address falling prices and a report from Reuters that Russia is “becoming increasingly convinced it needs to reduce oil output in tandem with OPEC.”

Quote of the Day
“Gold is scarce. It’s independent. It’s not anybody’s obligation. It’s not anybody’s liability. It’s not drawn on anybody. It doesn’t require anybody’s imprimatur to say whether it’s good, bad, or indifferent, or to refuse to pay. It is what it is, and it’s in your hand.” – Simon Mikhailovich, Tocqueville Funds (with thanks to Ron Stoeferle and Mark Valek at Incrementum AG)

Chart of the Day

Chart note:  As we head into the final month of the year, we thought it might be a good time to post a chart on gold’s performance thus far in 2018.  As of November 23, gold is down 5.1% on the year.  The downside is not as amplified as the day-to-day headlines might suggest and for value investors, the upturn over the last several weeks might indicate a change in sentiment and direction for the gold market – particularly with the latest stock market weakness taken into account and the Fed chairman’s migration to a dovish tilt in comments before the Economic Club of New York yesterday.

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DMR–Gold tracking in a narrow range, president says ‘Fed a bigger problem than China’

DAILY MARKET REPORT

Gold is tracking within a narrow range this morning essentially taking a wait-and-see approach to a number of issues on the event calendar.  Caution prevails. Topping the list are policy speeches from top Fed officials, tenuous talks between China and the United States at the upcoming G-20 conference and lingering concerns about vulnerable global stock markets. Gold made an attempt to go higher in Europe overnight then thought better of it – now at $1222 and down $1 on the day.  Silver, similarly disposed, is up 2¢ on the day at $14.27.  The president has little doubt about what tops the economic agenda these days. “I think the Fed right now is a much bigger problem than China,” he said in an interview yesterday.

Quote of the Day
“Europe has brought us a depression worse than 1929. It has led to entire peoples being broken and humiliated, like the Greeks, all for the sake of preserving the infernal instrument of the euro. This whole disaster has been adorned by a chain of lies, shouted ever louder because they are afraid that the colossal damage they have done will be discovered.” – Claudio Borghi, Catholic University of Milan

Chart of the Day


Chart courtesy of the World Gold Council

Chart note:  This chart shows global net gold ETF assets in tonnes since their inception in 2004.  Note the steady overall growth since 2016. Generally speaking, ETFs are the preferred method for gold ownership among funds and institutions.  For market-watchers, it indicates the level of interest among major market participants.  As you can see North American growth is up marginally since the beginning of 2016 but European interest has grown markedly.  In the United States, stock market over-valuation and interest rates head up fund and institutional concern.  Brexit and the possibility of a instability in Italy are at the forefront of European investor concerns.

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Posted in Daily Market Report, Today's top gold news and opinion |

DMR–Gold pushes marginally higher, shifting sentiment leans in gold’s favor

DAILY MARKET REPORT

Gold pushed marginally higher in early trading – up $2 on the day at $1225.  Silver is up 4¢ at $14.33.  As we close out November and move into the final month of the year, there has been something of a rhetorial shift at the Fed, hopes for raprochement between the U.S. and China at the Buenos Aires G-20 have been raised and tech stocks have corrected sharply – some market stalwarts by nearly 25%.  And then there is Bitcoin’s headline fall from grace – down nearly 40% (!)  so far this year (Please see our Chart of the Day.) . . . . If shifting sentiment seems to lean in gold’s favor, it is because the current mood is such a departure from the negative script that has plagued our favorite precious metals for much of the second half of the year.

Oil seems keen to stage a turnaround this morning, but much remains in its way.  Gold is better situated having held firm last week while a long list of commodities buckled. We will hope for the best, as many, including now Goldman Sachs, tells us that commodities – including gold – are set for a major turnaround in 2019.

Quote of the Day
“Reflect on what happens when a terrible winter blizzard strikes. You hear the weather warning but probably fail to act on it. The sky darkens. Then the storm hits with full fury, and the air is a howling whiteness. One by one, your links to the machine age break down. Electricity flickers out, cutting off the TV. Batteries fade, cutting off the radio. Phones go dead. Roads become impassible, and cars get stuck. Food supplies dwindle. Day to day vestiges of modern civilization – bank machines, mutual funds, mass retailers, computers, satellites, airplanes, governments – all recede into irrelevance. Picture yourself and your loved ones in the midst of a howling blizzard that lasts several years. Think about what you would need, who could help you, and why your fate might matter to anybody other than yourself. That is how to plan for a saecular winter. Don’t think you can escape the Fourth Turning. History warns that a Crisis will reshape the basic social and economic environment that you now take for granted.” – William Strauss & Neil Howe, The Fourth Turning [1997]

Chart of the Day

Chart courtesy of BarChart.com (Enlarged version)

Chart note: A sea of red. . . . If misery loves company, then gold has plenty of it as we head for the finish line in 2018. Thus far this year, a full fifty of sixty-one entries shown above are in the red – 82% of investments tracked. All in all, it has not been a very good year for financial markets.

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Posted in Daily Market Report, Today's top gold news and opinion |

DMR–Gold refuses to succumb to oil’s bruising fall yesterday – the ‘worst day of an awful year’ for financial markets

DAILY MARKET REPORT

Gold refused to succumb to pressure from a drop in commodities’ markets yesterday, particularly crude oil which dropped a bruising 6% in yesterday’s trading.  Oil has recovered a bit this morning – up almost 2% in early trading.  Gold, in fact, is up $5 on the day at $1227.  Silver is up 13¢ on the day at $14.49. Yesterday was not a particularly good day for financial markets across the boards.  Bloomberg labeled it “the worst day of an awful year” that left “no corner of the market unscathed.” Though few, at least publicly, are prepared to press the panic button on stocks, one would have to say that the worrying trends are beginning to look somewhat entrenched. Gold is trying to rise above it all.  This will be the last report until Monday. . . Have a Happy Thanksgiving!

Quote of the Day
“If we don’t quite know what the future holds, there is little point in getting carried away by very fancy mathematical calculations of optimal portfolios. Don’t rely on past data to be a good guide. Try to think through what mix of assets gives you the best chance of surviving some big event. That must mean including assets that are negatively correlated or uncorrelated in your portfolio. And I am very struck by the fact that over many many years, central banks, governments and individuals have always, despite the protestations of economists, held some gold in their portfolio. Obviously, there is no high running return, but when unexpected things happen, particularly when governments rise and fall, then gold is a means of payment that everyone is always prepared to accept. And I think that’s why even central banks have always had a role in their portfolios for gold.” – Mervyn King, former Governor, the Bank of England

Chart of the Day

Chart note: The United States dollar has lost more than 96% of its purchasing power from 1913 to present – a 105 year period. The 2018 dollar is now worth 3.8% the 1913 dollar. Put another way, what the consumer could buy with $1 in 1913, it takes $26 today.

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DMR-Gold inches higher as stock sell-off becomes more entrenched

DAILY MARKET REPORT

Gold inched higher in quiet pre-Thanksgiving trading – up $1 on the day at $1225.  Silver is down 2¢ at $14.43.  Gold is attempting an interim base in an around the $1220 mark and searching for a good reason to bolt higher.  Stocks are the big story this morning with the DJIA set to open 400 points lower.  The NASDAQ, led lower by Apple, looks to open almost 2.5% lower.

Gold continues to gather support the result of dovish Fed rumblings, concerns about the dispute between China and the U.S.  and weakness in equity markets –  weakness that seemingly becomes more entrenched with each passing day. Goldman Sachs surprised market participants prior to today’s open by advising its clients to get defensive and move a portion of their portfolios to cash because it now offers positive inflation-adjusted returns. “Cash,” says Goldman, “will represent a competitive asset class to stocks for the first time in many years.”  We have not seen a recommendation based on that particular rationale in a very long time.

Quote of the Day
“At the quarter-century mark of 1925, the great bull market was under way, and Graham*, then 31, developed what he later described as a ‘bad case of hubris.’ During an early-1929 conversation with business associate Bernard Baruch (about whom he disparagingly observed, ‘He had the vanity that attenuates the greatness of some men’), both agreed that the market had advanced to ‘inordinate heights, that the speculators had gone crazy, that respected investment bankers were indulging in inexcusable high jinks, and that the whole thing would have to end up one day in a major crash.’ Several years later he lamented, ‘What seems really strange now is that I could make a prediction of that kind in all seriousness, yet not have the sense to realize the dangers to which I continued to subject the Account’s4 capital.’ In mid-1929, the equity in the ‘Account’ was a proud $2,500,000; by the end of 1932, it had shrunk to a mere $375,000.” – Frank K. Martin, A Decade of Delusions

* Benjamin Grahm, “The father of value investing”, 1894-1976, Security Analysis (1934) with David Dodd, and The Intelligent Investor (1949).

Chart of the Day

Chart courtesy of OPTIONAlpha

Chart note: We guesstimate that we are somewhere between “Euphoria” and “Anxiety” on stocks and “depression” and “hope” on gold and silver. In short, the time might be right for starting to leg-out of stocks and ladder-into gold. The last time we featured this chart in late September, we put stock market sentiment at somewhere between “Thrill” and “Euphoria” and gold somewhere between “Despondency” and “Depression.”
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Posted in Daily Market Report, Today's top gold news and opinion |

DMR-Gold surges $11 at COMEX open on Brexit, Powell comments

DAILY MARKET REPORT

Gold surged at the COMEX open this morning – up $11 at $1225.  Silver is up 10¢ at $14.40.  We detect two principal factors driving today’s trading.  One is ominous and clear-cut – UK’s Brexit woes.  The other is less concrete but probably more influential in the marketplace – guarded comments from Fed chairman Powell that came off as an early warning that a change of direction might be brewing at the Fed on interest rates. Suddenly the possibility of a “pause” has entered market thinking. Adding to the “pause” argument, CNBC ran a blazing headline this morning: “Cramer says CEOs are telling him off the record the economy has quickly cooled.” Such anecdotal evidence might be what was behind Powell’s remarks two days ago.

As we mentioned yesterday, the unfolding Fed scenario might serve as incentive for traders to begin squaring the enormous short position at the COMEX which requires buying gold contracts as an offset.  With a shaky weekend ahead of us, the prudent course of action might be to buy today.

Quote of the Day
“I remember being told many years ago on a South African game reserve that the buffalo was the most dangerous of the big five game animals. In large part, this is because of the complacency shown towards them relative to the other, more obviously dangerous big five game animals (ie the lion, leopard, rhino and elephant). It’s also a fact that unlike the other big five, the buffalo gives no warning of an imminent charge (see link). It’s complacency that gets you killed, and the same goes for investors with the macro-risks. We all know what the big macro-imbalances are out there, caused by years of loose money, but investors continue to ignore them at their peril.” – Albert Edwards, SocGen

Chart of the Day


Chart note:  This interactive chart from the St. Louis Federal Reserve shows the average annual price of gold from 1970 through the present.  It demonstrates at a glance gold’s strong performance as a portfolio holding over the long haul and emphasizes its role as a reliable long-term portfolio safe haven.

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Posted in Daily Market Report, Today's top gold news and opinion |