Category: Daily Market Report

DMR–Gold shifts to higher ground, real rate of return goes negative on U.S. government paper

DAILY MARKET REPORT

Gold shifted to higher ground this morning after the government released its latest consumer price report which showed inflation pushing the 3% mark – a rate that puts the real rate of return on government paper in negative territory, even the 30-year bond.  Such stirrings are the sort of thing that can motivate a shift in investor perceptions – with commodities and gold being among the usual beneficiaries in a negative return environment. Today’s inflation number might mark something of a turning point in that regard, particularly when you take into consideration that sentiment favors rising inflation as a probable outcome of the trade war.   As it stands, gold is up $4 on the day at $1247 and silver is up 12¢ at $15.94.

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: Few correlations in the financial markets ring truer and more consistently than the one between the federal debt and gold. That relationship between the two is about as fundamental as it gets. For those with capital preservation as the goal, gold has been a stalwart and productive ally since the United States went off the gold standard in 1971 and launched the era of fiat money, federal deficits and the massive federal debt. As for the future, we should keep in mind that the very same conditions which created the long-term secular trend for both the national debt and gold are still in place today – nothing has changed fundamentally. As long as that is the case, we can assume gold will continue to attract capital as a long-term portfolio hedge just as it has, to varying degrees, through the first 47 years of the fiat money system. Please note, too, that gold is trading below the federal debt’s trend line, an indication that it might have some catching up to do in the months and years ahead.

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

DMR–Gold drops with rest of commodities complex, producer prices signal possible inflationary trend

DAILY MARKET REPORT

Gold dropped in early trading today in sympathy with the rest of the commodities complex.  Using the Bloomberg Commodity Index as a reference, raw commodities are down 1.25% as the markets attempt to factor in the impact of the latest round of tariff threats and counter-threats.  Gold is down $5 at $1251 and silver is down 10¢ at $15.94. Echoing a theme we raised earlier today (see below), Bloomberg headlines a growing concern that the latest “tariff barrage” will push “China fight to the point of no return.” Meanwhile, the producer price index registered a 3.4% gain over the past 12 months – an indication, when coupled with last month’s 3.1% annualized gain, that an inflationary trend might be in motion.  Tomorrow the  BLS will release the consumer price index report.

Quote of the Day
“If you could go back to 2007 would you really choose these policies again? Had they been used as short-term shock therapy only, the central bankers might have got away with it. As it is they now made our economies more dysfunctional than ever – and, worse, they can’t find a way out. . .They helped get us into this. They are not having much luck getting us out. But our elected governments have still ceded such enormous power over our financial system to them that we have no choice but to listen to their every word – if we want to have a chance of figuring out how the next (inevitable) crisis will play out, that is. Of all the things that have happened since 2007 that, I think, is the one that makes the least sense of all.” – Merryn Somerset Webb, Editor-in-Chief, Money Week

Chart of the Day

Chart note:  Much has been written and said about the lack of volatility in the financial markets over the past couple of years, but the volatility index can change direction abruptly and without notice. A single, negative event can send it soaring. If and when that happens, gold is likely to begin climbing as well as illustrated in the chart. Note how quickly the volatility index bolted higher in the early months of the 2008 financial crisis. Two months later, gold bottomed and began its historic run from the $750 level to nearly $1900 per ounce.

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DMR–Gold recovers from $1248 low in European trading, awaiting producer and consumer price reports

DAILY MARKET REPORT

Gold is down $4.50 on the day at $1254 after dipping below the $1250 level for the second time since this latest break began in early June. Gold turned around sharply during European trading hours after hitting a low of $1248.  Silver is trading at $16.03 and down 7¢ on the day. Trading in both metals is irresolute and lacks clear direction – in short a typical day in the annual summer doldrums. It looks like short-sellers are looking to reverse their positions on dips at or below the $1250 level and may be a sign that the price has reached a bottom.  Too, the precious metals could simply be in a wait and see mode with producer prices out tomorrow and consumer prices Thursday.

Quote of the Day
“I’m in the inflation camp. I think it’s coming. I have thought this for a while. People have looked all over for it as if looking for a lost sock or a hairpin: Where did it go? Where is that thing? But I do believe that the central bankers who have been kind of begging for inflation will be surprised at the generosity of the inflation gods over what they will ultimately be handed.” – James Grant, Grant’s Interest Rate Observer

Chart of the Day

Chart note:  Since 1971, the year the United States went off the gold standard, freed the dollar to float against other national currencies and ushered in the fiat dollar international monetary system, gold has appreciated over 3000%. In “Essay on the Coinage of Money” (1526), Conpernicus, the famed astronomer, noted: “Although there are countless scourges which in general debilitate kingdoms, principalities, and republics, the four most important (in my judgment) are dissension, [abnormal] mortality, barren soil, and debasement of the currency. The first three are so obvious that nobody is unaware of their existence. But the fourth, which concerns money, is taken into account by few persons and only the most perspicacious. For it undermines states, not by a single attack all at once, but gradually and in a certain covert manner.” Today gold protects its owners against the nemesis of currency debasement as it has over the centuries and during the Copernicus’ times.

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

DMR–Gold jumps on North Korea tensions, possible trade war escalation

DAILY MARKET REPORT

Gold is moving higher in international markets this morning.  According to a Reuters report from London, the upside is the result of investors covering short positions.  That short covering, which began in Asia overnight and carried over to European trading, is likely the result of rekindled tensions with North Korea and the escalating trade war between the United States and China.  Gold is up nearly $11 at $1265.50.  Silver is up 19¢ at $16.22.  A firmer Chinese yuan is also helping gold this morning.

Senator Lindsay Graham yesterday blamed China for the breakdown in talks with North Korea. If he is right, it would represent a rapid and dangerous escalation that puts a whole new twist on the trade war. If China is willing to move its response outside reciprocal tariffs and trade sanctions to the political and military realms, then we are in a whole different ball game than what has already been priced into financial markets. “I see China’s hands all over this,” he told Fox News yesterday. “We’re in a fight with China. We buy $500 billion worth of goods from the Chinese. They buy $100 billion from us. They cheat. President Trump wants to change the economic relationship with China.”

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

USAGOLD note:  The inflation rate in Venezuela is 24, 571%.

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Morning Snapshot: Gold Retreats Into Range Following NFP Miss

USAGOLD/Peter Grant/01-05-18

Gold is down modestly, having been unable to sustain a post jobs report rebound, but is still on track for a fourth consecutive weekly gain. Silver was able to attain a new 6-week high before retreating into the range.

U.S. nonfarm payrolls rose just 148k in December, below expectations of +190k and well below the whisper of +225k, versus a positive revised 252k in November. The unemployment rate steady at 4.1%, in line with expectations.

Hourly earnings rose 0.3%, which was in line with expectations as well, versus a negative revised 0.1% rise in November. The average workweek held steady at 34.5 hours.

The technical outlook for gold continues to be favorable after the yellow metal reached new 3½-month highs earlier in the week. More than 61.8% of the correction from the September high at 1357.50 to the December low at 1235.90 has now been retraced and gold is well supported above key moving averages. This all lends credence to the underlying uptrend.

On the fundamental side, geopolitical tensions, a weak dollar and growing concerns over inflation are all expected to continue to provide a tailwind. Buying on short term dips has been evident of late.

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Posted in Gold News, Gold Price, Gold Views, Snapshot, Today's top gold news and opinion |

The Daily Market Report: Gold Jumps to New 3½-Month Highs


USAGOLD/Peter Grant/01-04-18

Gold is up, trading at new 3½-month highs, having negated Tuesday’s high at 1321.47. The yellow metal is being buoyed by ongoing geopolitical tensions and renewed weakness in the dollar.

In what is perhaps a testament to gold’s growing favor as a portfolio hedge, the yellow metal is rising in the face of new record highs in stocks. Savvy investors realize that shares are now really overextended and are taking some profits and rotating the gains into gold.

Traders seem optimistic that tomorrow’s December jobs report will be a good one on the heels of today’s better than expected ADP employment survey. Median expectations for nonfarm payrolls is +190k, but the whisper is that we’ll see a print closer to +220k.

A significant payrolls beat would stoke confidence in Fed guidance that calls for three rate hikes in 2018, particularly if we see hotter than expected wage growth as well. That should keep bonds under pressure. Gold on the other hand seems to be shrugging it all off.

Rising U.S. yields should be supporting the dollar, but that doesn’t seem to be the case. In fact, the greenback appears poised to set 3-year lows against the euro. Something else seems to be afoot here, beyond geopolitical tensions and the weakness in the dollar.

Mounting concerns about over-inflated asset prices are surely part of the answer. There seems to be heightened talk about more general inflation as well, with commodity prices reaching levels not seen since 2014, when the oil market fell out of bed. Today, we saw palladium set a new all time high above $1100.

I read a great Grant William’s piece yesterday, that pretty clearly shows that the inflation the Fed has been trying to stoke for the last decade has been hiding in plain sight. If that inflation ultimately makes its way into broader prices, gold is likely to really shine as it is the classic hedge against inflation.

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Morning Snapshot: Gold Rebounds to Keep Pressure on Upside

USAGOLD/Peter Grant/01-04-18

Gold is up in early U.S. trading, boosted by renewed weakness in the dollar and ongoing geopolitical uncertainty. A breach of the 3½-month high set on Tuesday at 1321.47, would keep focus on last year’s high at 1357.50. Beyond that, the high from 2016 at 1375.15 attracts.

The greenback was unable to sustain yesterday’s corrective gains and is now back on the defensive with scope for a short-term challenge of the 4-year low in the dollar index at 91.13. Below that, there’s not much in the way of support until 84.75/10.

This morning’s ADP employment survey came in stronger than expected at +250k. “The tight labor market will get even tighter, raising the specter that it will overheat,” warned ADP. Where’s the wage pressure though?

This may indicate some upside risk for tomorrow’s December jobs report, where median expectations for nonfarm payrolls are at +190k. The jobless rate is expected to hold steady at 4.1% and hourly earnings are anticipated to rise 0.3%.

We’ll hear Fedspeak from St. Louis Fed dove Bullard.

It’s worth mentioning that the price of my coffee refill this morning was up 30% over yesterday! Is inflation finally taking hold?

Silver is up a dime, pressuring yesterday’s high at 17.24. The technical picture looks bullish. Resistance at 17.38/47 is the key to unlocking further gains.

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Posted in Gold News, Gold Price, Gold Views, Snapshot, Today's top gold news and opinion |

The Daily Market Report: Gold Corrects from Yesterday’s 3½-Month Highs


USAGOLD/Peter Grant/01-03-18

Gold is down moderately, having turned more corrective as the U.S. session progress. Much of yesterday’s gains have now been retraced, as the dollar index moved back toward its earlier high.

However, the greenback was under considerable pressure in 2017, despite the gradual ratcheting higher of U.S. interest rates. That is likely to continue in 2018. Quite honestly, the dollar almost has to weaken given the current fiscal situation.

Congress successfully kicked the can on the budget and debt ceiling right before Christmas, so the new deadline is January 19. One thing is for certain, the level of debt is going to continue to rise and by many accounts, the recently passed tax reform is going to make it worse.

Perhaps the historic correlation between gold and the national debt is finally getting back on track. If that is the case, gold has some serious catching up to do.

And as we discussed in yesterday’s DMR, silver has some serious catching up to do versus gold. Even with the recent gains, there are definitely some opportunities in this market.

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Morning Snapshot: Gold Corrects Modestly, But Uptrend Remains in Favor

USAGOLD/Peter Grant/01-03-18

Gold is down modestly this morning, weighed by a bit of corrective bounce in the beleaguered dollar. However, the solid gains into year-end 2017 and yesterday’s follow-through to fresh 3½-month highs continues to bode well for the dominant uptrend.

With more than 61.8% of the entire decline off the September high at 1357.50 retraced, that peak is looking increasingly attractive from a technical standpoint. The move back above the 100-day moving average last week gives further credence to the uptrend.

The U.S. economic calendar has December manufacturing ISM, November construction spending and December auto sales. The minutes of the December FOMC meeting will also be released. Friday is the December jobs report. Median expectations for nonfarm payrolls is +185k. The unemployment rate is expected to hold steady at 4.1%.

Silver remains well bid above $17. The white metal remains attractively undervalued, but the consolidation band at 17.38/47 likely needs to be cleared to put silver in catch-up mode. Such a move would shift focus to 18.00/18.21 initially, but potential would be toward $20 and beyond. See Mike’s Gold, Silver Predictions 2018.

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

The Daily Market Report: Gold Starts the Year Off Right


USAGOLD/Peter Grant/01-02-17

Gold is up in the first trading day of 2018. The yellow metal posted a solid 13% gain in 2017 and is up nearly another 1% intraday. Gold is garnering support from heightened geopolitical tensions, as well as continued weakness in the dollar.

With 61.8% of the decline off the 1357.50 peak from this past September now exceeded and gold trading comfortably above all the major moving averages, considerable credence has been returned to underlying uptrend. This is a rather pretty technical picture:

The broader commodity sector is also helping gold. The CRB index is engaged in a challenge of important resistance above 194 and penetration would bode well for a near-term push above 200, a level last seen in 2015.

With commodity prices on the rise, investors and consumers are becoming increasingly concerned about inflation. Gold is of course the classic hedge against inflation.

We’ve seen oil trade above $60 today, for the first time in 2½-years. However, the star of the sector is arguably palladium, which is up around $30 (2.5%) today after posting a whopping 56% gain in 2017. The industrial metal is zeroing in on all-time high of $1110 from Jan 2001.

Copper was another impressive performer in 2017, gaining 31.7%. All of this screams that silver, which bridges the precious metal/industrial metal sectors, is really undervalued! Silver was up just over 6% in 2017, having spent much of the year consolidating around $17.

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Morning Snapshot: Gold Extends Gains to 3-Month Highs

USAGOLD/Peter Grant/01-02-18

Gold is up in early New York trading, reaching levels last seen in mid-September. The yellow metal is being buoyed by heightened geopolitical tensions and a weak dollar.

Gold ended 2017 up more than 13%, driven largely by these two factors. U.S. political uncertainty was another driving force. The dollar index posted a 9.4% loss in 2017, its biggest annual decline since 2003.

Mounting political unrest in Iran has sparked additional haven interest in gold. The rise in oil prices to a 2½-year high above $60 is also stoking inflation concerns.

The technical picture improved significantly in the final week of 2017. The yellow metal is now trading comfortably above the 20-/50-/100- and 200-day moving average complex, which has returned considerable confidence to the underlying uptrend that dominated last year. This morning, the 61.8% retracement level of the decline off the early-September high at 1357.50 was exceeded.

Silver has eked out a 5-week high, returning to the consolidative range that dominated trading in October/November last year. Focus is now on resistance at 17.38/46.

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Morning Snapshot: Gold Consolidates Gains Notched Earlier in the Week

USAGOLD/Peter Grant/12-21-17

Gold is down slightly after having established a new 2-week high at 1268.29 overseas. A slightly firmer dollar and continued strength in stocks may be limiting the upside for the yellow metal, but political and geopolitical uncertainties continue to support.

This morning’s data has had little impact on the market. U.S. Q3 GDP was revised down slightly to 3.2%. The Philly Fed index for December jumped significantly. U.S. initial jobless claims jumped 20k to 245k last week, above expectations of 232k.

Later this morning, we’ll get November leading indicators. Median expectations for LEI is +0.4%.

Market action is likely to taper heading into the long Christmas weekend, but remember that tomorrow is the deadline for a budget deal (temporary or otherwise) to avert a government shutdown. Eleventh-hour negotiations last night reportedly did not go well. There are some risks heading into the weekend.

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The Daily Market Report: Gold Sets Two-Week High, Nears Important Resistance


USAGOLD/Peter Grant/12-20-17

Gold is trading at two-week highs, buoyed by a softer dollar and persistent political and geopolitical uncertainties. Limiting the upside is continued strengths in stocks and yields at the long-end of the curve in anticipation of tax reform legislation getting passed.

The House is presently taking a second vote on the tax plan, over a procedural issue that arose yesterday, but it is widely anticipated that the votes needed are still there. At that point, the bill will be sent to the President for his signature.

President Trump is already planning a press conference for later this afternoon, despite reports earlier in the day that he might delay signing the bill into law until after the first of the year. This potential delay revolves around the deficits that are likely to result from tax cuts that would trigger automatic spending cuts. Mr. Trump would like to see those budget rules waved.

Stocks and the dollar slumped in reaction, helping gold to notch fresh intraday highs. The next tier of resistance is 1267.60/1269.36, where the 200-day moving average and the halfway back point of the decline from late-November converge.

Both the U.S. and China appear to be escalating preparations for war on the Korean peninsula, according the BusinessInsider. “We’re not committed to a peaceful resolution — we’re committed to a resolution,” said National Security Advisor H.R. McMaster.

Meanwhile, President Trump continues to rattle the saber as well. “America and its allies will take all necessary steps to achieve a denuclearization and ensure that this regime cannot threaten the world . . . It will be taken care of,” said the President.

In times of geopolitical uncertainty, gold is a favored safe-haven. Along with North Korea, Iran, Russia and China are deemed to be geopolitical hot spots.

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Morning Snapshot: Gold Remains Firm as Tax Reform Moves Down the Homestretch

USAGOLD/Peter Grant/12-20-17

Gold is up modestly in early U.S. trading, establishing fresh 2-week highs. A softer dollar is helping to keep the yellow metal underpinned, despite continued buoyancy in stocks and yields as the tax bill moves down the homestretch.

Despite the impending legislative win on tax reform, the U.S. faces a government shutdown at the end of the week. There is little hope that Congress will pass a budget before midnight on Friday, so they will likely try to pass another stopgap funding measure that will kick the can into the new year.

With Democrats perhaps feeling a little stung from the tax reform process, they may be a less amicable on the budget negotiations. The resulting uncertainty may be contributing to recent gains in gold.

The U.S. calendar is light today with existing home sales and EIA crude inventory.

Silver is up at 2-week highs as well, trading comfortably back above $16 and near the 38.2% retracement level of the decline from the mid-November high. A rise above 16.50 would further ease pressure on the downside.

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Morning Snapshot: Gold Remains Firm Ahead of House Vote on Tax Bill

USAGOLD/Peter Grant/12-19-17

Gold is up slightly as markets awaits today’s anticipated House vote on tax reform legislation. In the mad scramble to get this piece of legislation to the President’s desk before the end of the week, the market seems to be ignoring the fact that the current short-term spending bill expires on December 22.

While neither party seems to have the stomach for a government shutdown, the window to get something done before the Christmas recess begins is small. Continually kicking the can with short-term continuing resolutions is no way to run a government, and yet this seems to be the only way to avert a government shutdown these days.

The inability of the dollar to build on last week’s bounce is helping to underpin gold. Meanwhile, stock market gains associated with an expectation of impending corporate tax cuts, have limited the upside for the yellow metal.

Rising geopolitical tensions are also seen as supportive to gold. The U.S. has blamed North Korea for a cyber attack earlier this year. Meanwhile, National security adviser H.R. McMaster said he doesn’t think the U.S., nor the world, can “tolerate” the risk of a nuclear armed DPKR.

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The Daily Market Report: Gold Rises, Despite Surging Stocks


USAGOLD/Peter Grant/12-18-17

Gold is up, having established a 7-session high at 1263.97. A breach of minor chart resistance at 1264.10 would favor a short-term challenge of the 200-day moving average 1268.83.

This is a critical week for the GOP and the Trump administration. Tax reform is expected to be voted on early this week with the plan to deliver the bill to the President’s desk before the Christmas recess. However, the budget and debt ceiling issue has to be dealt with before December 22 as well.

A partial government shutdown may hang in the balance, although neither party seems inclined to press the issue. Consequently, we may see that can get kicked into the new year.

One thing is certain, the debt ceiling is going to have to rise. The tax bill is expected to add the maximum $1.5 trillion to the national debt over the next decade. However, that may be conservative based on perhaps too optimistic growth projections.

With the Fed both raising rates and tapering their balance sheet, the cost of financing the massive and growing debt are likely to rise as well. That is going to provide an additional headwind to those growth prospects.

Consumer debt exceeded the $1 trillion milestone earlier this year, but MarketWatch contends more consumer debt is “One sure-fire prediction for 2018.” Perhaps not surprisingly, delinquencies are expected to rise in the year ahead as well. This is another significant impediment to growth.

Despite the risks, stocks love the prospects for tax cuts. However, I’m wondering if this will end up being a classic case of ‘buy the rumor, sell the fact.’ Yale economist Stephen Roach cautions that “the CAPE ratio has been higher than it is today only twice in its 135-plus year history – in 1929 and in 2000. Those are not comforting precedents.”

The implication of course it that stocks are really overvalued and we know what happened in 1929 and 2000. A little portfolio balancing into year-end, seems like a prudent strategy.

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Morning Snapshot: Gold Firms As Congress Pushes to Pass Tax Deal, Faces Shutdown

USAGOLD/Peter Grant/12-18-17

Gold is up in early U.S. trading, buoyed by a weaker dollar. The rise in the yellow metal comes despite continued gains in shares and firmer yields, as cyclical forces seem to have taken hold.

The stock market is eagerly anticipating final passage of the GOP tax bill early this week, despite swirling doubts about the positive economic impact of the legislation and a certainty that the debt level is going to rise. Congress also needs to pass a budget agreement and address the debt ceiling this week, or face a partial government shutdown.

While the tax bill can get passed without any support from Democrats, the budget/debt ceiling agreement is going to require at least a little bipartisanship. The more likely scenario is that they kick-the-can yet again with another short-term deal.

Silver is back above $16, but remains comparatively soft. However, there is a growing recognition that silver is quite undervalued relative to gold. Kitco reported late last week that “both TD Securities and Bank of Montreal came out and said that they see silver prices pushing to $20 an ounce next year.”

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The Daily Market Report: Gold Poised for First Weekly Gain in Four


USAGOLD/Peter Grant/12-15-17

Gold is up modestly, having given back more significant gains seen earlier in the session. However, the yellow metal still appears to be on track for its first weekly gain in the last four.

News that some last-minute concessions were being made on the tax bill to win the support of GOP holdouts, helped the dollar recover intraday, knocking gold off the highs for the week.

The final version of the tax bill is expected to be made public later today. Given that the plan is not terribly popular with the general public, perhaps it’s not surprising that it will drop late on a Friday. Congress would then likely vote next week and get the bill to the President before the Christmas recess.

Congress is also going to have to come up with another temporary spending measure and kick the can on the debt ceiling on or before December 22 as well. The tax bill is expected to add the maximum $1.5 trillion to the national debt over the next 10-years.

However, it may prove to be much more than that if tax cuts fail to spark the fast growth that proponents are anticipating. As noted in this morning’s Snapshot, the Fed’s economic forecasts that came out earlier in the week, reflect some serious doubts.

While the central bank now projects 2.5% GDP in 2018, they see the pace of growth moderating to 2.1% in 2019 and 2.0% in 2020. The Fed kept their long-term growth forecast steady at 1.8%.

The Fed definitely tends to be pretty optimistic on their forecasts. However, their forecasts suggest they see the fiscal impact of the first major tax overhaul in more than 30-years as negligible and short-lived.

Without any significant and sustainable fiscal stimulus, the onus is going to fall right back on the Fed to support growth with easier monetary policy. In other words, the tightening cycle that began a year ago may have to be paused again, or perhaps even reversed.

That realization would weigh on the dollar, boosting gold in the process. The yellow metal needs to climb back above the 200-day moving average (presently around 1268.52) in order to ease near-term pressure on the downside. At that point, renewed tests above $1300 would become likely.

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Morning Snapshot: Gold Recovery Continues

USAGOLD/Peter Grant/12-15-17

Gold is up in early U.S. trading, buoyed by a softer dollar and appears poised to record its first weekly gain in the last four. This is a good initial indication that the pattern that has emerged in recent years, where gold bottoms late in the year and rallies into the new year, is set to repeat.

Fresh doubts about whether the reconciled tax bill has the votes to clear Congress is stoking political uncertainty. While the Fed now sees GDP rising to 2.5% in 2018, they see it tapering again to 2.0% by 2020. The long range forecast remains steady at 1.8%, raising doubts that the tax bill will “pay for itself.” as the backers claim.

The GOP is trying to get the legislation passed before the new Democrat Senator from Alabama can get seated, which would further narrow the already razor thin advantage Republicans holds in the upper chamber. If the tax measure fails to get to the President’s desk by year-end, stocks would likely reverse, which would push gold back toward $1300.

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The Daily Market Report: Gold Maintains Post-FOMC Gains


USAGOLD/Peter Grant/12-14-17

Gold extended to new highs for the week in overseas trading, but has since been consolidating the solid gains seen after the Fed’s policy decision yesterday. Silver on the other hand, was unable to sustain the rebound above $16.

Today’s generally better than expected U.S. economic data and steady policy from both the BoE and ECB are providing some support for the dollar, which is a bit of a headwind for gold. With the Fed raising rates and the other major central banks still on hold, the divergence will tend to favor the dollar.

That being said, the Fed’s continued concern about low inflation and slow wage growth may temper tightening expectations if those conditions persist into the new year. As noted yesterday, at some point the central bank is going to have to give up on the notion that the situation is “transitory.”

The World Gold Council’s investor report focuses on Germany, but this paragraph in introduction is a nice thumbnail sketch for the gold market at this point:

Looking ahead to 2018, there are good reasons to be optimistic about gold’s performance. US interest rates may be rising but a lot is priced into the curve already and the direction of the dollar remains uncertain. Meanwhile, the long bull market in equities raises serious questions about prospects for stock prices. — Aram Shishmanian, CEO World Gold Council

That fits nicely with the seasonal patter that has emerged in recent years, where gold has bottomed around the time of the December FOMC meeting and rallied into the new year. Yesterday’s initial post-FOMC rally is encouraging, but some upside follow through is needed to further bolster confidence in the upside.

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Posted in Daily Market Report, Gold News, Gold Price, Gold Views, Today's top gold news and opinion |

Morning Snapshot: Gold Eases After BoE and ECB Hold Steady on Policy

USAGOLD/Peter Grant/12-14-17

Gold is down slightly in early U.S. trading. The yellow metal is mostly maintaining yesterday’s post-FOMC gains, but the corresponding retreat in the dollar seems to have stalled following this morning’s round of generally favorable economic data.

Initial jobless claims for last week were lower than expected. November retail sales were in line, but ex-auto beat expectations. Import and export prices were hotter than anticipated as well.

While the data seem to support Fed guidance for another 3 or 4 rate hikes in 2018, periods of data inspired optimism have tended to be fleeting. As noted yesterday, there is still cause for concern on the wage and inflation fronts.

Both the BoE and ECB held steady on policy today, and this divergence with the Fed is likely to provide some underpinning for the dollar. That in turn presents a bit of a headwind for gold.

However, seasonal pressures that have been evident in recent years, provide a potentially countervailing tailwind. If the pattern repeats of course.

Silver was able to regain $16 after the Fed announcement yesterday, but those gains have proven unsustainable thus far. Silver is back below $16 and most of the pullback in the gold/silver ratio from yesterday has already been retraced. Silver remains very undervalued, presenting an intriguing value proposition.

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Daily Market Report: Gold Jumps Following Fed Decision


USAGOLD/Peter Grant/12-13-17

Gold jumped more than 1% on Wednseday, after the Fed did exactly what everyone was expecting. Silver surged more than 2%, reclaiming the $16 level for the first time this week.

The Fed raised interest rates by 25 bps and guidance for next year suggests they remain on track for at least three more hikes. However, both Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari dissented.

That dovish dissent may serve to temper market expectations for further tightening of policy in 2018. While Fed claims to be optimistic on growth and employment, expectations for subdued inflation, wage growth and productivity persist: Even with fiscal stimulus from tax cuts being taken into consideration.

While the GDP projections for the coming years were edged up, growth over the next two-years of 2.5% seems to mark the high point of expectations. The outlook drops to 2.0% by 2020 and the long-range forecast remains at 1.8%. Huh, is that really “optimistic”?

At any rate, the dollar retreated after the policy release, providing some buoyancy to precious metals. We’ll see if there’s some upside follow-through into the new year, as has been the pattern in recent years.

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Morning Snapshot: Gold Stabilizes Ahead of Fed Decision

USAGOLD/Peter Grant/12-13-17

Gold is up slightly as the market eagerly awaits the Fed policy decision later today. The yellow metal remains generally on defense, having set a 5-month low yesterday at 1235.90. We’ll see if the December FOMC meeting closely corresponds with a market low for a third consecutive year.

The Fed is widely expected to announce a 25 bps rate hike at 2:00ET today. Focus will be on the forward guidance within the statement and dot-plots, as well as what is likely to be Janet Yellen’s final presser as chair.

Headline CPI met expectations at +0.4% in November, pushing the annualized pace of consumer inflation up to 2.2%. However, core inflation rose just 0.1% m/m and the annualized pace slowed to 1.7%.

There doesn’t seem to be cause for much optimism on the wage or inflation front. I mean, you can only cry “transitory” for so long before you need to acknowledge something structural might be occurring. One really only need look at Japan’s experience over the last 30-years to perhaps get an inkling of what’s in store. Certainly tighter monetary policy is not going to help the cause.

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The Daily Market Report: Gold Weighed As Fed Meets and Dollar Rises


USAGOLD/Peter Grant/12-12-17

Gold’s annual slide ahead of the December FOMC decision continues, with a new 5-month low established at 1235.90. The dollar index has edged to a new 4-week high in anticipation of a rate hike tomorrow and perhaps more hawkish guidance for 2018.

However, there is another camp that believes weak wage growth and inflation continue to warrant a note of caution on the part of the Fed. These were the precise reasons the central bank opted to pause the tightening cycle back in September, and neither condition has materially improved in the intervening months.

Before the policy statement is released, the market will get a look at November CPI. While an uptick in the annualized pace of headline consumer inflation is anticipated, core inflation is expected to remain stagnant.

Congressional Republicans are reportedly closing in on a reconciled tax bill. There’s very little margin for error here, as the Republicans can’t really afford to lose more than one vote in the Senate.

One thing seems certain, the legislation will add $1.5 trillion to the debt over the next decade, the maximum allowed. It will likely be quite a bit more, especially if the long-overdue recession strikes at some point during the next 10-years.

Then Congress only has until December 22 to pass a budget and raise or suspend the debt ceiling. Or of course, they could always kick the can again.

Which brings us full-circle back to the Fed. Rising debt and tighter policy — via higher rates and so-called “normilization” of the Fed’s balance sheet — creates a significant headwind for growth. The Fed could end up triggering that overdue recession.

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Morning Snapshot: Gold Slides to 5-Month Low As FOMC Meets

USAGOLD/Peter Grant/12-12-17

Gold is down slightly in early U.S. trading, having eked out a new 5-month low at 1238.90. Gold continues to be pressured by a stronger dollar as the Fed begins their 2-day FOMC meeting.

A 25 bps rate hike is fully expected when the Fed announces policy tomorrow. Dollar and yield strength seems to reflect growing expectations of more hawkish guidance for 2018.

Headline PPI rose 0.4% in November, pushing the annualized rate to producer inflation to a 6-year high of 3.1%. However, core PPI remained steady at +2.4% y/y, despite a higher than expected m/m rise of +0.3%.

November CPI comes out tomorrow in advance of the Fed’s announcement. Headline CPI is expected to rise to a 2.2% annualized pace, while core CPI is anticipated to hold steady at +1.8%.

Along with the Fed decision tomorrow, we’ll get the central bank’s economic forecasts and Chair Yellen will hold a press conference. We’ll see how optimistic the Fed is about wage and price growth in the year ahead.

Silver remains under pressure as well, also edging to new 5-month lows with the breach of last week’s low at 15.62. Silver is pretty oversold at this point, but $16 must be regained to ease pressure on the downside.

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The Daily Market Report: Gold Remains Defensive Ahead of This Week’s FOMC Meeting


USAGOLD/Peter Grant/12-11-17

Gold is down, pressuring the 4+ month low established last week, as focus shifts to this week’s FOMC meeting. The Fed will announce policy on Wednesday and it is widely expected that they will raise rates by 25 bps, despite still moribund wages and inflation.

However, the last two December rate hikes (2015 and 2016) closely corresponded with significant lows in the price of gold. The market could be setting up for a similar event this time around, but in 2017 gold has been comparatively buoyant ahead of year end.

David Fickling, writing for Bloomberg, notes the distinct seasonal trend that has emerged over the past decade. “Whatever the reason, it’s enough of a consistent pattern these days that it’s starting to become a self-fulfilling prophecy,” says Fickling.

[G]old exhibits a pronounced seasonality. January, February, July and August — the four months this year when the metal has rallied most strongly — had, on average, been the best months to buy gold over the previous 10 years.

In 2016 and 2015, the lows actually occurred in December. “If history is still reliable, January will be a great month to own precious metals,”said John Rubino in a separate note for Sprott Money.

With BitCoin futures now trading on the CBOE, many are arguing that the meteoric rise of the cryptocurrency is stealing gold’s thunder. This is happening at the same time that many are warning BitCoin has become the biggest bubble since the Tulip-Mania of 1636-1637.

Have precious metals suddenly lost their luster – has their 10,000 year history as a store of value suddenly evaporated within the matter of a month? Of course not. This is absurd and ludicrous and sounds like a copy and pasted line from any MSM financial outlet. — Nathan McDonald, Sprott Money News

Certainly BitCoin has been stealing headlines this year, but how long can this last. Clearly longer than many first thought, but with each push to new highs, it arguably becomes increasingly unstable.

That tweet outlines some very serious concerns. One that is not mentioned, is that to this day, nobody even knows who the creator of BitCoin is in reality. Investing — or perhaps more appropriately speculating — in an asset where that critical piece of knowledge is missing seems crazy to many.

Nonetheless, it’s just one of many oddities that have emerged since the financial crisis that seem to have little grounding in economic reality. That of course doesn’t preclude further gains, but like the price, the risks seem astronomic as well.

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Morning Snapshot: Gold Trading Near Unchanged from Friday’s Close

USAGOLD/Peter Grant/12-11-17

Gold is trading near unchanged in early New York trading after overseas uptick faded. The yellow metal remains defensive near the 4-month plus lows that were set last week as markets await the Fed decision on Wednesday this week, with a softer dollar offering some support.

The Fed is widely expected to hike interest rates by 25 bps, despite persistently soft earnings and inflation. Fed funds futures continue to put the probability of a hike in excess of 90%.

Today’s calendar is light with JOLTS job openings for October and 3- and 10-year auctions. November PPI and CPI come out on Tuesday and Wednesday respectively. Headline numbers are expected to edge higher, while core readings are likely to remain sluggish.

Silver is down modestly and remains on the ropes below $16 after posting a third consecutive weekly decline. With the gold/silver ratio elevated above 79, silver is arguably quite undervalued. A move back above $16 would ease short-term pressure on the downside.

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Morning Snapshot: Gold Up Modestly Post-NFP

USAGOLD/Peter Grant/12-08-17

Gold remains defensive at the low-end of yesterday’s range. The yellow metal continues to be weighed by a firmer dollar and heightened risk appetite.

The greenback has risen more than 1% this week on expectations that the Fed will come off “pause” next week and hike the Fed funds rate by 25 bps. The current ‘risk-on’ environment is keeping focus on stocks and bitcoin.

Today’s better than expected nonfarm payrolls number lends credence to the anticipated rate hike. However, there continues to be reason for concern in the earnings data.

Nonfarm payrolls rose 228k in November, above expectations of +198k, versus a negative revised +244k in October (was +261k). The unemployment rate steady at 4.1%, as expected.

Hourly earnings rose 0.2%, below expectations of +0.3%, versus a negative revised -0.1% (was unch) in October. That does not bode well for an imminent end to this allegedly “transitory” period of low inflation.

Congress passed a stopgap spending measure late yesterday, which will keep the government funded for an additional two-weeks until December 22. A kick of the can, albeit a short one.

Silver remains defensive below $16, but is trading slightly higher this morning. The gold/silver ratio reached a high of 79.53 yesterday, suggesting that silver is very undervalued relative to gold. A rebound above $16 is needed to ease short-term pressure on the downside.

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The Daily Market Report: Gold Falls to 4-Month Lows On Heightened Risk Appetite


USAGOLD/Peter Grant/12-07-17

Gold remains under pressure after dropping through the low end of the range in overseas trading. The yellow metal is being weighed by elevated risk appetite and a firmer dollar.

The market is optimistic that some deal will be struck this week to avert a government shutdown. While House Minority Leader Nancy Pelosi declared that Democrats would not support today’s stopgap spending bill, GOP leaders say they have the votes to kick the can for two more weeks.

If a partial government shutdown is temporarily averted, there will be a full-court press by the GOP to reconcile the House and Senate tax bills and get something to the President’s desk by Christmas. While there is some concern about the increase in deficits surrounding tax reform, the market seems to be focused solely on wider profit margins for corporations.

The market is also expecting a decent NFP print tomorrow (+198k median), which will further reinforce expectations for a 25 bps rate hike next week. While inflation and wage growth continues to disappoint — and these were the primary concerns that prompted the September pause — the Fed may ‘bet on the come’ regarding tax cuts, hoping they provide some level of long-awaited fiscal stimulus.

It is worth remembering that gold has rebounded smartly after the previous two December rate hikes. What’s different this year is that gold has been relatively buoyant ahead of the December policy decision, as compared to previous years.

Weakness in the broader commodities complex, attributed to concern about slowing growth in China, may also be playing a role in the recent pressure on gold. Pretty much every commodity fund/index/ETF has a gold component and when these are sold, gold is sold as well.

However, softer commodities portend broader economic weakness and the likelihood that below target inflation will persist. This could end up warranting more dovish central bank policies that one might associate with weaker currencies and a higher gold price.

Offering an underpinning to the gold market are heightened geopolitical tensions. North Korea has said that war is inevitable. Meanwhile, the Trump administrations decision to move the U.S. embassy to Jerusalem has sparked heightened unrest in the middle east.

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Morning Snapshot: Gold Drops to 4-Month Lows

USAGOLD/Peter Grant/12-07-17

Gold is down in early U.S. trading, having definitively breached the low end of the range at 1260.10 overseas. That puts the yellow metal at a 4-month low amid a firmer dollar and ongoing optimism that a tax bill will get to the President’s desk before year-end.

Tomorrow is the deadline for at least a temporary spending measure to avert a government shut down. Congressional leaders are slated to meet with President Trump at the White House today in a last ditch effort to kick this can once again.

Then the Fed will make their final policy decision of the year next week. There is plenty of evidence to suggest they should remain on pause, but the market remains convinced that a 25 bps rate hike is in the cards.

U.S. initial jobless claims fell 2k to 236k in the week ended 02-Dec, below expectations of 240k. Later this morning we’ll get October Consumer Credit and M2 for last week.

Tomorrow is jobs Friday. Nonfarm payrolls are expected to rise by 198k. The jobless rate is expected to hold steady at 4.1%.

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