Category: Daily Market Report

The Daily Market Report: Gold Retreats From Above $1300


USAGOLD/Peter Grant/08-18-17

Gold probed briefly above $1300 in early New York trading, establishing new highs for the year, but these gains could not be sustained. The yellow metal is presently trading modestly lower on the day.

The retreat may have been simple profit taking ahead of the weekend, but the media is reporting a relief rally in risk assets on the apparent ousting of White House chief strategist Steve Bannon. While Bannon was perhaps one of the more divisive members of President Trump’s inner circle, I don’t quite understand why this is a risk-on event.

Nonetheless, stocks have rebounded and bonds and the yen have retreated along with gold. I suspect however that the departure of Mr. Bannon will do little to mitigate the ongoing drama in Washington; just as the ousting of Flynn, Spicer, Priebus, Scaramucci et al only amplified the political uncertainty.

That rising political uncertainty has been a driving force behind gold in recent months, which also magnifies to some degree the geopolitical uncertainty. Constant turnover within the President’s inner circle does nothing to clarify, nor improve the likelihood that his domestic agenda, trade and foreign policy will be advanced. That reality would seem to mark this dip in gold as yet another buying opportunity.

Earlier today, as gold was setting new highs, Zerohedge tweeted the following:

This is no surprise to our reader, nor those of the Zerohedge blog. However, I suspect it would come as a shock to many that only get their financial news from CNBC for example. Those investors that are still heavily allocated to shares, despite the frothiness of that market, are playing with fire. They could have diversified their portfolio with some gold this year and not paid any price in terms of performance to have that insurance.

Portfolios with a gold component tend to perform better over time anyway. It’s never too late to start building a hedge.

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Morning Snapshot: Gold rallies to new highs for the year

USAGOLD/Peter Grant/08-18-17

Gold extended to the upside driven by risk aversion. Yesterday’s terror attack in Spain further sapped risk appetite that has been weighed recently by heightened geopolitical, political and economic risks.

The yellow metal eked out new highs for the year above 1296.06. A convincing push above $1300 would shift focus to last summer’s peak at 1375.15.

The dollar has eased as well, offering additional support for gold. The corrective uptick in the greenback over the past two-weeks never amounted to much. Critical support defined by the 91.92 low from May of 2016 is considered vulnerable.

Canada continues to struggle with low inflation as well. July CPI was unchanged. While annualized inflation ticked up to 1.2%, this is well below the BoC target.

The U.S. calendar is light with just preliminary Michigan consumer sentiment for August. We’ll also hear FedSpeak from Dallas Fed President Robert Kaplan.

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The Daily Market Report: Gold Firms as Fed and ECB Lean Dovish


USAGOLD/Peter Grant/08-17-17

Gold remains generally well bid after once again nearing the high for the year at 1296.06 in earlier trade. Last week’s high at 1292.05 provides an intervening barrier.

The yellow metal rebounded strongly after the FOMC minutes from the July meeting revealed heightened concern over dimming inflation prospects. Former Fed insider Danielle DiMartino-Booth categorizes the minutes as “very dovish,” which further erodes the prospects for another rate hike this year. Ms. DiMartino-Booth added that the Fed has pulled back from recent hawkishness and “the bond market should sit-up and pay attention.” So too should gold.

The more dovish than expected Fed, put the dollar back under pressure yesterday, but the retreat was short-lived as today the ECB minutes revealed their own concern about euro strength (or should we say dollar weakness). If the ECB adopts a more dovish tone as well, it might be considered an escalation of the long-simmering currency war.

If yields turn lower and the dollar resumes its downtrend — ultimately negating the 91.92 support level in the dollar index from May of 2016 — it may well prove the impetus to finally push gold definitively back above $1300. With little in the way of support below 91.92 in the dollar index, gold could really run if that level gives way.

We’ve noted the headlines in recent weeks proclaiming that household debt had exceeded the previous record high set in 2008. We also are keenly aware of the impending debt ceiling debate that will rage once Congress returns from August recess. Debt is an anchor around the neck of the economy that is unquestionably a contributing factor to the weakest recovery since the 1930s.

A Bloomberg article warns that we shouldn’t be shocked if consumers run out of spending money:

We should certainly be concerned, as 70% of U.S. GDP is derived from consumption. For all too many U.S. families, the “money” runs out shortly after the paycheck arrives. Hence they are saving less and borrowing more. The death knell for the U.S. economy will ring when they run out of credit . . . or interest rates rise and they can no longer service the existing balances.

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Morning Snapshot: Gold remains firm on dovish Fed

USAGOLD/Peter Grant/08-17-17

Gold remains well bid in the wake of yesterday’s more dovish than expected FOMC minutes, even as the dollar has recovered. Last week’s high at 1292.05 was pressured, but has capped the upside thus far.

Heightened concern about the lack of inflation evident in the FOMC minutes was interpreted as being dovish. However, changes in Fed funds futures have been limited thus far. A September rate hike remains off the table, while December is still a toss-up.

Initial jobless claims fell 12k last week to 232k. The Philly Fed Index fell to 18.9, which was better than expectations of 18.0. Later this morning, we’ll get July industrial production, which is expected to rise 0.3%.

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The Daily Market Report: Gold Consolidates Awaiting FOMC Minutes


USAGOLD/Peter Grant/08-16-17

Gold is consolidating within yesterday’s range, awaiting the FOMC minutes from July’s Fed confab. Earlier tests of the downside were limited and short-lived and the yellow metal is now trading modestly higher on the day.

It will be interesting to see if the level of concern about waning inflation pressures was elevated beyond that which was expressed in the July policy statement. I suspect that the minutes will do nothing to mitigate the expectation that the Fed is on hold through November. They may have tried to bolster the prospects for a December hike, but those chances will rise and fall based on incoming data; the last of which being July PPI and CPI, which were pretty disappointing.

The Martin Wold piece that I posted earlier today about the Bank of England is pertinent to Fed policy as well. Massive accommodations were made, both in terms of record low interest rates and massive balance sheet expansion, all with the goal of stoking inflation. Those measures failed miserably, but are certainly not going to be achieved with tighter policy.

Throughout this prolonged recent period of ultra-easy monetary policy, the concern has never been one of runaway inflation, but rather of the opposite. This time really has been different. What does it mean for the future? Nobody knows. — Martin Wolf

It’s the ‘not knowing’ that is so troubling. Almost assuredly, the Fed will have to ease policy again at some point in the future. As we covered in yesterday’s DMR, economist Kenneth Roghoff believes we need to be preparing for negative rates.

We know that historically the Fed cuts rates by at least 300 bps in reaction to recessions. From the present level, such cuts would take the Fed funds rate to -1.50%! As unlikely as that seems, there was a time when I would have never expected any central bank to offer negative deposit rates. However, in recent years, plenty of precedence has been set.

The results have been dubious at best, but again the uncertainty perpetuated by such an unnatural state is the most troubling. As Wolf point out, nobody knows how this will all shake out, which is a really good reason to protect yourself with some gold.

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Morning Snapshot: Gold remains defensive at the low end of yesterday’s range

USAGOLD/Peter Grant/08-16-17

Gold is narrowly confined at the low end of yesterday’s range. Diminished geopolitical risks are putting modest pressure on the yellow metal, inciting investors to move back into ricks assets. However, a host of other risks underpin and nobody really believes the North Korean situation is anywhere close to being resolved.

U.S. housing starts tumbled 4.8% in July to a 1.155M pace, below expectations of 1.220M, versus a negative revised 1.213M in June. Minutes of the July FOMC meeting come out later today and markets will be looking for any clues about the likelihood of another rate hike this year. It’s pretty much baked into the cake that won’t happen in September, but December remains a toss-up.

The U.S. Air Force conducted training exercises with Japanese Self Defense Force pilots. “These training flights with Japan demonstrate the solidarity and resolve we share with our allies to preserve peace and security in the Indo-Asia-Pacific,” the U.S. Air Force said.

A large U.S./South Korea military exercise begins later in the month. There are plenty of opportunities for this situation to spin back out of control.

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The Daily Market Report: Gold Retreats on Heightened Risk Appetite, but Finds Support


USAGOLD/Peter Grant/08-15-17

Gold came under additional corrective pressure in early U.S. trading, weighed by a further easing of geopolitical tensions, along with some better than expected U.S. economic data. While the yellow metal set new lows for the week, buying interest resurfaced well ahead of last week’s low.

While North Korea may have walked back an imminent threat to Guam, I don’t believe anyone really thinks that the Korean crisis has been resolved. “Though North Korea is signaling its restraint at the moment, fiery rhetoric and further missile tests are far from over,” concludes geopolitical intelligence firm Stratfor. They seem to think North Korea may still fire a missile before or during the joint U.S.-South Korean military exercises that begin August 21.

While risk appetite may have rebounded somewhat, there is still buying interest on dips. The next bout of “fiery rhetoric” will likely push the safest of all the safe-havens back toward $1300.

Today’s better than expected retail sales print for July comes even as the Fed issued a warning about the new record highs in household debt, which exceeded the previous high set in 2008. The New York Fed noted a “persistent upward movement” in credit card delinquencies “not seen since 2009.” While consumers may have bought more stuff in July, there ability to pay-off those credit card balances is looking increasingly dubious.

An economy saddled with that much debt is going to have a hard time growing beyond the current rather tepid 2% pace. In addition, the current expansion is already quite long in the tooth.

Another recession is coming. It may not be today. It may not be tomorrow, but it is coming.

Harvard economist Kenneth Rogoff says global central banks should be preparing plans to implement negative rates in advance of that next recession

“It makes sense not to wait until the next financial crisis to develop plans and, in any event, it is time for economists to stop pretending that implementing effective negative rates is as difficult today as it seemed in Keynes’ time.” — Kenneth Rogoff

The Fed has been desperate to get rates higher in recent years so that they have room to cut in the future; to the point of tightening policy into economic weakness. Here too though, the magnitude of the national, household and corporate debts are seen as major obstacles to that plan. Each basis point of higher rates makes those debts more expensive to service, bringing us closer to the the next debt crisis and recession they so desperately hope to avoid.

If U.S. rates are ultimately taken negative in the U.S., as they have in other major economies, the long-term uptrend in gold is likely to be reestablished. For even Rogoff concedes that such extraordinary monetary policy hasn’t really worked.

“But these policies have now been deployed for some years – in the case of Japan, for more than two decades – and at least so far, they have not convincingly shown an ability to decisively overcome the problems posed by the zero bound.” — Kenneth Rogoff

Don’t think for a second though that the lack of efficacy will prevent central banks from throwing good dollars, yen, euros, pounds and francs after bad. In that eventuality, you are definitely going to want some gold.

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Morning Snapshot: Gold comes under additional corrective pressure

USAGOLD/Peter Grant/08-15-17

Gold came under additional corrective pressure on diminished geopolitical risks and following better than expected retail sales data from July. However, price action remains confined to last week’s range.

North Korea walked back its threat to launch missiles on the U.S. territory of Guam. Although North Korea is prepared for such an attack, they said they would watch what “the foolish Yankees” do before making a decision.

U.S. retail sales rose 0.6% in in July, above expectations of +0.4%, versus a positive revised +0.3% in June. Retail sales excluding autos rose 0.5%, on expectations of +0.3%. The Empire State Index also bested expectations. U.S. export prices were hotter than expected, while import prices rose slightly, inline with expectations.

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The Daily Market Report: Gold Recoups Half of Earlier Losses


USAGOLD/Peter Grant/08-14-17

Gold is trading modestly lower, having recovered about half of the losses off of Friday’s high at 1292.05. While the North Korean situation did not escalate over the weekend, it certainly is not going away, so the uptick in risk appetite to start the week is unlikely to be sustainable.

The rebound in the dollar has been tentative at best, suggesting the bias there remains to the downside. The greenback faces some serious headwinds with the Fed’s tightening cycle on hold for the time being — and perhaps even over — along with some fairly significant challenges to the Trump economic agenda.

When Congress gets back from the August recess, the debt ceiling is going to have to be dealt with in fairly short-order. Treasury Secretary Mnuchin has warned that the debt ceiling will have to be raised (or suspended) by September 29 to avoid a default on some payments.

That will leave the House and Senate just a dozen joint working days to hammer out a deal. However, Mnuchin’s hope for a clean debt ceiling bill seems like a long-shot. That will certainly contribute to risk aversion in the weeks ahead.

July retail sales comes out tomorrow with a 0.4% rebound anticipated. If this proves overly optimistic, there would be negative implications for Q3 GDP revisions.

Gold remains just off the highs for the year, as it moves into its seasonally strong period. With geopolitical, political, growth and price risks all highlighted, the last four months of the year could prove exciting for the yellow metal indeed.

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Morning Snapshot: Gold eases along with North Korean tensions

USAGOLD/Peter Grant/08-14-17

Gold eased in overseas trading to begin the week as U.S. and South Korean officials played-down the possibly of war. The retreat from in front of 1296.06/1300.00 leaves the upside protected for the time being, but thos morning’s dip already seems to be attracting buying interest.

“I am certain the United States will respond to the current situation calmly and responsibly in a stance that is equal to ours,” said South Korean President Moon Jae-in. U.S. National Security Adviser H.R. McMaster said, “I think we’re not closer to war than a week ago, but we are closer to war than we were a decade ago.”

This talk is much more tempered than some of the fiery rhetoric from both sides heard last week. However, things could escalate again if North Korea conducts another missile test, as some are anticipating.

The U.S. calendar is quiet today. July retail sales along with import and export prices are out tomorrow. Later in the week we’ll see industrial production and LEI.

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The Daily Market Report: Gold Hits Nine-Week High, Just Shy of High for the Year


USAGOLD/Peter Grant/08-11-17

Gold popped to a new 9-week high of 1292.05 in early New York trading, following more disappointing inflation data. While the yellow metal has been unable to breakthrough to new highs for the year above 1296.06, both the technical and fundamental biases remain to the upside.

U.S. CPI rose just 0.1% in July, below expectations of +0.2%, versus unchanged in June. The annualized pace of consumer inflation ticked up to 1.7%. Core CPI also rose 0.1% on expectations of +0.2%, versus a 0.1% rise in June. That left core consumer inflation unchanged at +1.7% y/y.

As expected, Fed rate hike expectations eroded further. September remains off the table, but the probability of a December hike tumbled to 35.9%. In an interesting twist, the CME’s FedWatch Tool is now showing a chance — albeit slight — for a 25 bps rate CUT!

Obviously the heightened geopolitical tensions have been the big driver in gold this week. Deescalating the situation is likely to prove difficult, with both sides seemingly digging in their heels. While the AP reports that back-channel communications between the U.S. and North Korea have been ongoing for several months, the risk of an unintended military confrontation remains very real.

We talked earlier this week about U.S. credit card debt exceeding $1 trillion again and surpassing the previous record high from 2008. It’s also worth noting that similarly, total household debt outstanding — inclusive of mortgages, credit cards, student and auto loans — has also reached a record high $12.7 trillion. Here too, the previous high occurred in 2008 just as the global financial crisis was unfolding.

This level of debt is of particular concern in light of wage stagnation. The average American is increasingly indebted, while not earning additional income to service that debt load. A rise in interest rates would be devastating, so the Fed must tread very cautiously here. However, even if rates stay steady, at some point this situation is going to take its toll on on our consumption driven economy. We are past due for the next recession.

Since the Great Depression, the U.S. has suffered thirteen recessions. The periods of economic growth between recessions have been as long as 120-months, and as short as 12-months. The average is right around 60-months. The time elapsed since the Great Recession ended in June 2009 presently stands at 97-months.

If growth collapses under the strain of this massive debt burden, the implications for the asset bubbles in equities and and housing could be dire indeed. While geopolitical risks may have started the flows toward more balanced portfolios this week, the economic realities that are coming into focus may sustain said flows, to the benefit of gold.

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Morning Snapshot: Gold jumps to 9-week high on weak CPI

USAGOLD/Peter Grant/08-11-17

Gold continues to march higher, reaching a new 9-week high of 1292.05 and bringing the high for the year at 1296.06 within reach. Silver remains firm above $17.

Geopolitical tensions remain elevated, with President Trump tweeting this morning that “Military solutions are now fully in place,locked and loaded,should North Korea act unwisely.” China has cautioned both sides about the sabre-rattling, but also reportedly have told North Korea that they are on their own if they start a fight with the U.S.

U.S. CPI rose 0.1% in July, below expectations of +0.2%, versus unchanged in June; 1.7% y/y. Core CPI rose 0.1% on expectations of +0.2%, versus +0.1 in June; 1.7% y/y. This latest evidence of waning inflation pressures is likely to further erode rate hike expectations through year-end. It may also give the Fed pause when it comes to beginning the balance sheet unwind this year.

A short-term move in gold above 1296.06/1300.00 would signal that the uptrend this year is back underway. Beyond that level, the next significant tier of resistance is marked by last year’s high at 1375.15.

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The Daily Market Report: Gold Higher on Mounting Risk Aversion


USAGOLD/Peter Grant/08-10-17

Gold moving within $10 of the high for the year set in June, buoyed by mounting risk aversion centered on the geopolitical situation. Silver traded above $17 for the first time since June as well.

North Korea’s quest for nuclear weapons has been an ongoing issue for decades, dating back to the Clinton-era “Agreed Framework” and beyond. Successive administrations (and the UN) repeatedly watched the DPRK successfully develop and test nuclear devices as well as missiles. Yet this week, we were seemingly surprised to find out that they may have successfully miniaturized a nuclear device that could be paired with their improving missile technology.

This diplomatic failure now threatens to further destabilize the region and the world. While markets clearly don’t like the mounting uncertainty — as reflected by recent safe-haven flows — the level of concern is quite limited at this point. However, as the situation continues to escalate, investors are likely to hunker down into more defensible positions that would assuredly include more gold.

There once was a time when heightened geopolitical tensions would have prompted safe-haven flows into the dollar. That doesn’t seem to be the case anymore, with the yen and the Swiss franc garnering most of the currency inflows. And the former is in the eye of the storm; just 649 miles across the Sea of Japan to the DPRK.

The dollar is facing some serious domestic headwinds, perhaps most notably the political risks. The geopolitical situation certainly does not improve the prospects for advancement of President Trumps economic agenda, even as a debt ceiling crisis looms.

Weaker than expected PPI data for July adds to the Fed’s worries that disinflationary pressures are mounting. As a result, December rate hike prospects were trimmed modestly. A miss on July CPI tomorrow would further erode the likelihood of another rate hike this year, while also raising doubts about when balance sheet normalization would begin.

Any signal that the Fed’s tightening cycle is coming to an end would add additional weight to the greenback, which might suggest potential back to pre-election levels in the dollar index. That could mean an additional 4-5% in losses are in the offing. That was surely push gold well above $1300, with even more bullish longer-term implications.

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Morning Snapshot: Gold and silver add to gains

USAGOLD/Peter Grant/08-10-17

Gold extended to the upside, bringing the high for the year at 1296.06 from June within striking distance. Silver is trading with a 17 handle for the first time in 8-weeks.

The precious metals continue to be buoyed by heightened geopolitical tensions between the U.S. and North Korea. Serious talk about a potential nuclear exchange is understandably unnerving, which is inciting investors to move into safe-havens. And the safest of all safe-havens is gold.

North Korea’s state-run news agency reiterated the threat of a nuclear strike on Guam this morning. KCNA reported that the military is “seriously examining the plan for an enveloping strike at Guam through simultaneous fire of four Hwasong-12 intermediate-range strategic ballistic rockets in order to interdict the enemy forces on major military bases on Guam and to signal a crucial warning to the U.S.”

July PPI came in at -0.1%, below expectations of +0.1%; slowing to a 1.9% annualized pace. Core PPI was -0.1%, below expectations of +0.2%, bringing the annualized rate down to 1.8%.

This additional evidence that price pressures are on the wane will further erode rate hike expectations for the remainder of the year. It may also give the Fed pause when it comes to beginning balance sheet normalization.

CPI is out tomorrow. Headline and core CPI are both expected to come in at +0.2%. Misses will be just another nail in the tightening cycle’s coffin.

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The Daily Market Report: Gold Jumps on Rising Geopolitical Tensions


USAGOLD/Peter Grant/08-09-17

Gold extended to the upside, establishing a new 8-week high of 1276.30, within $20 of the 1296.06 high for the year from June. The yellow metal was boosted by safe-haven buying amid rising geopolitical tensions between the U.S. and North Korea.

After President Trump said yesterday that North Korean threats will be “met with fire and fury like the world has never seen,” the state-run news agency of the DPRK suggested that the military was considering a strike on the U.S. Air Force base on Guam. Secretary of State Rex Tillerson responded that U.S. Pacific Air Forces are “ready to fight tonight.”

That all constitutes a pretty stark escalation of the rhetoric from both sides within the past 24-hours. While hopes remain for a diplomatic solution, the potential reality that North Korea has miniaturized a nuclear weapon that could be delivered great distances with a missile, changes the geopolitical dynamic in the region and the world.

A misstep by either side at this point could prove catastrophic. Investors are being shaken from their recent complacency, prompting flows out of risk assets and into safe-havens like gold.

I’ve written a great deal lately about the frothy stock market, but I heard a great analogy recently that bears repeating: Barry James of James Advantage Fund likened the stock market to one of his favorite places, Yellowstone National Park. “It’s beautiful, but it has a volcano underneath it,” quipped James on CNBC.

A cataclysmic financial eruption may not happen today, and it may not happen tomorrow, but you certainly want to be prepared for that eventuality. The best protection you can get is physical gold.

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Morning Snapshot: Gold jumps as sabers rattle

USAGOLD/Peter Grant/08-09-17

Gold jumped to new 8-week as geopolitical tensions between the U.S. and DPRK ratchet higher. Flight to safety positioning not only lifted gold, but U.S. Treasuries as well.

After “intelligence sources” told the Washington Post on Tuesday that North Korea had likely miniaturized a nuclear devise that could be fitted to a missile, President Trump responded by saying, “They will be met with fire and fury like the world has never seen.”

This morning, North Korea’s state-run news agency KCNA stated that the military is “examining the operational plan” to strike Andersen Air Force Base on the U.S. territory of Guam “to send a serious warning signal to the U.S.” That prompted a twitter response from the President:

With the sabers rattling ever-louder, gold has resumed its uptrend with focus back on the high for the year at 1296.06. A convincing move above this level would have rather bullish technical implications.

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The Daily Market Report: Gold Gives Back Overseas Gains, But Worries Abound


USAGOLD/Peter Grant/08-08-17

Gold gave back overseas gains after the dollar rebounded on news of record jobs openings in June. The dollar index slightly exceeded Friday’s post-NFP high, before dipping back into the range.

JOLTS jobs openings surged to a record high 6.163 million in June and based on the reactions of stocks and the dollar, that number was initially interpreted as being a positive. In reality, the inability of companies to find suitable employees for so many jobs is suggestive of a systemic problem in the labor market.

If there is that much competition for quality employees, it seems wages should be rising rapidly. “Are you really struggling to find workers? If so, the proof for me is you are raising wages. If you are not raising wages, then it just sounds like whining,” said Minneapolis Fed President Neel Kashkari yesterday. If businesses are disinclined to pay-up to lure employees, and immigration is going to be curtailed as well, it seems like this is likely to become a growing headwind for the economy.

Another troubling record was hit in June as well: Outstanding credit card debt in the U.S. reached $1.021 trillion in June. The previous record was set in April 2008, just 5-months before Lehman Brothers collapsed and the global financial crisis reached its zenith.

Not to worry though, everyone who wants a job has a job and if they need another one in order to service their credit card debt, there are more than 6 million job openings to choose from! Americans are more leveraged than ever and I’m afraid this is not going to end well.

And speaking of debt, word from Washington is that the House is unlikely to pass a “clean” debt ceiling bill. “Most Republicans want to do something to lower the trajectory of the debt,” said Rep Representative Tom Cole (R-OK). That’s going to rankle both Democrats and the Trump administration, adding fuel to the already contentious situation in our nation’s capitol.

Congress will only have about 3-weeks to come to terms on some sort of deal to raise the debt ceiling, once they return from the August recess. They will of course raise the debt ceiling. They always do.

However, as the competing camps thrash it out, there may well be some period of market upheaval. With the solvency of our federal government hanging in the balance, gold would benefit from a safe-haven bid.

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Morning Snapshot: Gold firms as dollar comes under renewed pressure

USAGOLD/Peter Grant/08-08-17

Gold firmed overseas as the dollar came under renewed pressure. While price action for the yellow metal remains confined to last Friday’s range for now, the underlying technical and fundamental biases remain to the upside.

Softer stocks are providing an additional boost for gold, but here too, the trend remains unquestionably positive. Global shares are being weighed today by a more pronounced than expected slowdown in Chinese export growth, which is indeed cause for concern.

The NFIB Small Business Optimism Index rose to 105.2 in July. Chain store sales rose 2.4% in the week ended 05-Aug. JOLTS Job Openings for June and IBD/TIPP Economic Optimism Index for August come out later this morning. There is also a $45 bln 4-week bill auction and a $24 bln 3-year note auction.

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The Daily Market Report: Gold Consolidates at Low-End of Friday’s Range


USAGOLD/Peter Grant/08-07-17

Gold is consolidating at the low end of Friday’s range. The yellow metal is being underpinned by the dollar’s inability to build on the rebound triggered by Friday’s better than expected headline jobs numbers for July.

However, wages remain sluggish and there continues to be some troubling data under the surface: The broader U6 unemployment rate was 8.6% in July. While that’s down significantly from the post-recession highs, it’s still higher than the pre-recession lows. The labor market participation rate has been unable to rebound. The participation rate for the key 25 – 54 year-old demographic is 81.5%, well below the 83.2% reading from before the recession.

The article from BusinessInsider I posted earlier today is a nice summary of these data.

As an aside, Janet Yellen’s favored Labor Market Condition Index for July was supposed to come out today. It did not. With no fanfare, the Fed announced in a note last week that the series had been discontinued.

Notice: As of August 3, 2017, updates of the labor market conditions index (LMCI) have been discontinued; the July 7, 2017 vintage is the final estimate from this model. We decided to stop updating the LMCI because we believe it no longer provides a good summary of changes in U.S. labor market conditions. Specifically, model estimates turned out to be more sensitive to the detrending procedure than we had expected, the measurement of some indicators in recent years has changed in ways that significantly degraded their signal content, and including average hourly earnings as an indicator did not provide a meaningful link between labor market conditions and wage growth.

I find myself wondering if the data that was to come out today would have taken LMCI negative. One thing is for certain, the indicator never confirmed the Fed’s contention that the U.S. labor market is gloriously near or at full employment. Consequently, it has been kicked to the curb.

Make no mistake though, jobs are the least of the Fed’s worries at this point. Rather they are focused on inflation; more specifically the absence there-of.

“Recent inflation outcomes have been unexpectedly low, below the inflation target of 2 percent,” said St. Louis Fed President James Bullard today. According to Bullard, the Fed is having a hard time finding an explanation for the low inflation era. That must be particularly troubling for the central bank, which ran up their balance sheet to more than $4 trillion with the expressed goal of generating 2% inflation. Hint: They should look at stocks, bonds and housing for the inflation they don’t see elsewhere…

The Fed is almost assuredly going to hold steady at their meeting next month. While the odds of a rate hike in December remain around 50%, the rumblings of a pause for the remainder of the year are growing louder.

That would keep the dollar under pressure, as markets reverse out the rate hike expectations fostered by the Fed through the June meeting. That will be good for gold. As worries about disinflation and even stagflation mount, gold will get an additional boost from safe-haven buying.

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Morning Snapshot: Gold starts the week modestly lower

USAGOLD/Peter Grant/08-07-17

Gold starts the week modestly lower in the wake of Friday’s better than expected jobs report. However, the firm headlines numbers did nothing to alter market perceptions that the Fed is on pause through September.

The central bank’s primary concern is inflation, which remains illusive. With the Fed on hold, the downtrend in the dollar is likely to persist, which bodes well for the uptrend in gold.

The July Labor Market Conditions Index and June consumer credit come out later this morning. We’ll also hear FedSpeak from Bullard and KaskKari. Canadian markets are closed today in observance of Civic Holiday.

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The Daily Market Report: Gold Corrects After Solid Jobs Data, But Underlying Fundamentals Remain Supportive


USAGOLD/Peter Grant/08-04-17

Gold retreated from 7-week highs after better than expected July jobs data finally gave the dollar something to smile about. The nearly 1% rise in the dollar index today, knocked gold down by a similar amount, resulting in new lows for the week.

However, jobs are the least of the Fed’s worries; at least what is revealed by the headline numbers. If they paid any attention to the quality of those jobs, they might be a little concerned on that front as well. For now though, the absence of inflation is the far greater concern.

Hence today’s data did nothing to put September back on the table for a rate hike. Fed funds futures put the probability at 1.4% and December remains near a 50/50 proposition.

The OECD reported this week that consumer prices across the G20 are at their lowest level since 2009, when the world was first climbing out of the global recession. That is particularly concerning given the trillions of dollars, yen, euros, francs and pounds that were pumped into the system over the past decade.

“The massive global QE liquidity went somewhere, as money always does. The liquidity did not go where the central bankers wanted. It went into asset bubbles,” says analyst Mike “Mish” Shedlock. So not only do they not have the kind of inflation they desire, but they have asset bubbles to boot.

Stocks, bonds and housing are all looking very frothy at this point and it’s feeling very similar to the pre-financial-crisis days. “Every day more evidence mounts that almost exactly the same debt excesses that caused The Global Financial Crisis (GFC) in 2008, are present today,” warned Societe Generale strategist Albert Edwards.

I think the excesses extend far beyond just “debt excesses,” although the additional global debt accumulated since the financial crisis is probably the biggest single concern. That concern is likely to escalate early next month when the U.S. Congress is faced with having to raise the debt ceiling once again.

The fact that the DJIA is only up about 40 points today, despite the robust jobs data, may warrant some level of concern. Frank E. Holmes, Chairman/CEO/CIO of U.S. Global Investors provides a little perspective and perhaps a thinly veiled allocation suggestion:

[T]he price of gold has outperformed the S&P 500 Index so far this century, returning 86 percent more than the market if we index both asset classes at 100 on December 31, 1999. Over the past 17 years, the S&P 500 has undergone two major contractions, both of them resulting in a loss of around 40 percent. Gold, meanwhile, has held its value well, boosting its appeal as a portfolio diversifier.— Frank E. Holmes

His accompanying chart is illuminating:

What is startling to me is, despite the last 18-years of comparative performance, so few investors actually own gold. There may well come a day when they come to realize the advantages of a gold allocation as part of a well diversified portfolio. At that point, the rally in the yellow metal will likely be impressive indeed.

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Morning Snapshot: Gold corrects into the range

USAGOLD/Peter Grant/08-04-17

Gold has retreated into the recent range following this morning’s better than expected jobs report for July. The low for the week at 1256.50 remains protected at this point.

Nonfarm payrolls rose 209k in July, above expectations of +181k. June was adjusted higher as well to 231k. The unemployment rate edged lower to 4.3%. Hourly earnings rose 0.3%, in line with expectations.

That’s a good jobs report, but it does not improve the odds of a September rate hike. The anticipated pause in the Fed’s tightening cycle is based exclusively on the absence of inflation.

Nonetheless, gold posted solid gains over the previous 3-weeks and the dollar has fallen significantly. The jobs numbers is perhaps a good excuse to take some profits ahead of the weekend.

However, I suspect downticks in gold will attract buying interest, and upticks in the dollar will attract sellers. The fundamentals continue to favor the respective trends.

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The Daily Market Report: Gold Keeps the Pressure on the Upside


USAGOLD/Peter Grant/08-03-17

Gold has firmed intraday to keep pressure on the high end of the recent range. A weak dollar continues to offer a solid underpinning to the yellow metal.

The World Gold Council reported that investment demand, in the form of bars and coins, rebounded 13% in Q2 from low levels for the same period last year. Demand for the first half of the year was up 11%.

That’s encouraging, given that “ETF inflows slowed dramatically from last year’s record pace.” While the demand for paper gold has slowed, the price action remains constructive, helped by improving physical demand.

Jewelry demand has improving as well, from a weak 2016, driven primarily by India. Global jewelry demand rose 8% y/y, but Indian demand was up a whopping 41% between Q2-16 and Q2-17.

Central banks continue to be net buyers of gold. Official sector demand rose 20% y/y from 78.4 tonnes in Q2-16 to 94.5 tonnes in Q2-17.

Russia added more than 100 tonnes of gold to reserves in the first half of the year. The yellow metal now accounts for 17% of total reserves.

Turkey bought 21 tonnes of gold in Q2. IT was the “first significant addition to reserves since the 1980s.”

Commodity funds saw big outflows last week, as hopes for inflation continue to dissipate. This typically would weigh on gold, as nearly every commodity fund has a gold component. However, gold was up 1% last week, suggesting that those that bought gold in anticipation of reflation are already out of the market.

They buyers we see now are more worried about dollar weakness, disinflationary pressures along with political and geopolitical instability. Historically gold has performed very well in times of disinflation, stagflation and deflation.

See Black Swans, Yellow Gold: How gold performs during periods of deflation, chronic disinflation, runaway stagflation and hyperinflation

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Morning Snapshot: Gold firm as dollar losses pause

USAGOLD/Peter Grant/08-03-17

Gold continues to trade near the high end of the recent range. Even modest downticks have been attracting buying interest, which bodes well for additional gains.

Initial jobless claims fell 5k last week to 240k, in line with expectations. Later this morning, we’ll see factory orders for June and services PMI/ISM for July.

The BoE held steady on rates, in line with expectations, while downgrading both its growth and inflation outlooks. Sterling came under pressure as the market pushed back expectations of an initial rate hike.

Weakness in the pound may actually provide a little bit of support to the dollar. The dollar index is in fact consolidating in a narrow range after falling to a 14-month low yesterday. This year’s tumble in the dollar has provided a stiff tailwind for gold, which is expected to continue.

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The Daily Market Report: Gold Firm, Despite Record Stocks


USAGOLD/Peter Grant/08-02-17

Gold is firmer intraday, keeping the pressure on the 6-week high set yesterday. The yellow metal continues to garner support from a weak dollar, which edged to a new 14-month low today.

The dollar index has lost nearly 11% from the high set in January at 103.82. If support marked by the 91.92 low from May of last year, an additional 10% downside extension would not be surprising, which would have the greenback flirting with a bear market.

Eroding prospects for higher interest rates, along with eroding confidence in the ability of President Trump to advance his reflationary economic agenda are both weighing heavily on the dollar. With Congress on recess until after Labor Day, nothing is going to get done for the next 4-weeks. That does not however preclude political volatility given the President’s penchant for tweeting, recent turnover within his inner-circle and the ongoing investigations.

Despite all the uncertainty, stocks continue to rise with the DJIA achieving a record high above 22,000 today. The New York Times attributes the recent gains to “a rush of perhaps less discerning money into stocks, propelling stock market indexes past one historical milestone after another.”

“Less discerning money” is a polite reference to the retail investors who are always the last ones to pile into a frothy market. They are all-too-often the “greater fools” that provide liquidity to the exiting institutional investors at market extremes.

That does not mean that stocks are at a peak necessarily, but it is often a warning sign that we are getting close. Savvy investors know that picking a top is nearly impossible and so they tend to gradually reallocate out of risk assets into safer assets as a means to lock-in their equity gains.

As far as hedging goes, it’s better to be weeks or even months early than a minute late. Investment powerhouse PIMCO agrees that the time to tend to your hedges is now, echoing a similar set of concerns:

• There is a high level of economic uncertainty around the world, as represented by the Global Economic Policy Uncertainty Index.

• Geopolitical tensions are increasing (e.g., North Korea, Qatar, Syria).

• Prospects for much of the Trump administration’s policy agenda are unclear.

“The combination of fully valued equity markets, relatively high economic uncertainty and historically low long S&P 500 Index option prices suggests that now could be a good time for investors to consider fortifying their defenses,” said PIMCO derivatives strategist Michael Connor. I think that fortification process is providing additional support for gold.

When stocks ultimately correct — and they assuredly will — interest in safe-havens like gold will only accelerate. This may be the last opportunity to tend to your gold hedge with a 12-hadle…

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Morning Snapshot: Gold firm as dollar remains weak, and stocks continue to gain

USAGOLD/Peter Grant/08-02-17

Gold starts the U.S. session slightly lower, but generally firm within the recent range. Persistent weakness in the dollar continues to underpin the yellow metal.

The ADP employment survey came in at 178k for July, below expectations of +182k. However, June was revised up to +191k, from +158k previously. Median expectations for July nonfarm payrolls are +182k. That critical report comes out on Friday.

Amid rising talk about the stock bubble, the DJIA reached 22,000 this morning. As we noted in yesterday’s DMR, former Fed Chairman Alan Greenspan says the real bubble is in the bond market. Former Fed insider Danielle DiMartino-Booth had a smart response to Greenspan’s contention:

The risks of a correction are arguably considerable. Gold may be garnering some support from investors hedging that growing risk.

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The Daily Market Report: Gold Extends to the Upside


USAGOLD/Peter Grant/08-01-17

Gold extended modestly higher in early U.S. trading, establishing new 6-week highs above to the 1270.68 high from last week. At this point there is little in the way of intervening resistance ahead of the high for the year at 1296.06.

More soft economic data continues to raise doubts about the Fed’s tightening cycle. Pretty much everyone concedes that a September rate hike is off the table. While a December hike continues to hover around a 50/50 proposition based on Fed funds futures, many are starting to talk about the central bank being done for this year.

Personal income was unchanged in June, well below expectations of +0.4%, versus a negative revised +0.3% in May. Personal consumption expenditures (PCE) rose just 0.1% in June, in line with expectations. The PCE chain price index — the Fed’s favored measure of inflation — was unchanged. The chain price index excluding food and energy edged up 0.1%.

If inflation remains elusive and below target, it makes little sense to tighten monetary policy, whether in September or December. That goes for the quantitative tightening (QT) associated with balance sheet normalization as well.

Despite the weak economic data and the rising level of political uncertainty in Washington, stocks continue to rally. When equities hit new highs on both good news and bad news, one should be worried and perhaps start taking some money off the table. We have featured a number of articles in recent weeks suggesting stocks have reached bubble territory.

Interestingly, former Fed chairman Alan Greenspan believes the bubble we really need to be worrying about is in the bond market. However, that spells trouble for stocks as well.

“The real problem is that when the bond-market bubble collapses, long-term interest rates will rise. We are moving into a different phase of the economy — to a stagflation not seen since the 1970s. That is not good for asset prices.” — Alan Greenspan

There is one asset that performed exceedingly well during the stagflation of the 1970s. The yellow metal began that decade at $35.08 and ended it at $512.00, a gain of 1,360%!

According to the Fed Model referenced by Greenspan, “If rates start rising quickly, investors would be advised to abandon stocks apace.” As for where to reallocate a portion of that capital, I think the choice is pretty obvious. In fact, it may worthwhile to start the reallocation process sooner, rather than later.

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Morning Snapshot: Gold continues to consolidate near 6-week high set last week

USAGOLD/Peter Grant/08-01-17

Gold remains well bid, within striking distance of the 6-week high established last week at 1270.83. Fresh 6-week highs would return focus to the high for the year set in early-June at 1296.06.

June personal income disappointed, coming in unchanged, against expectations of +0.4%. May was revised lower to +0.3%. With incomes continuing to languish, it is not surprising that inflation pressures remain weak.

Personal consumption expenditures (PCE) rose a scant 0.1%, in line with expectations. Prices were unchanged, while prices excluding food and energy edged up 0.1%. Inflation remains elusive, which further solidifies expectations that the Fed is on hold for September.

Later this morning we’ll get manufacturing PMI and ISM, along with construction spending and domestic auto sales.

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The Daily Market Report: Gold Consolidates at High-End of Recent Range


USAGOLD/Peter Grant/07-31-17

Gold is consolidating at the high end of the recent range, underpinned by continued dollar weakness. With the dollar index plumbing 14-month lows, the yellow metal appears poised for further tests of the upside.

Key support in the dollar index is defined by the 91.92 low from May of last year. If this level is ultimately violated, there’s not much in the way of meaningful additional support until the band of congestion between 84.79/78.59 from 2012/2014.

If incoming data continues to suggest the Fed is on pause beyond September, the dollar may well indeed be vulnerable to more significant losses. If that is the case, a definitive move in gold above the $1300 threshold would seem likely.

June PCE data — which includes the Fed’s favored measure of inflation — comes out tomorrow. The chain price index is expected to be unchanged for June, confirming persistent price weakness that we saw as part of Friday’s Q2 advance GDP report. A downside miss could further erode December rate hike expectations and send the dollar reeling. And by extension, gold would continue its trend higher.

June factory orders and services PMI and ISM come out later this week and will give an indication of growth prospects. However, the big report will be the July jobs report out on Friday.

Nonfarm payrolls are expected to be 181k and the unemployment rate is expected to tick lower to 4.3%. Jobs however are the least of the Fed’s worries. Inflation and growth are their two primary areas of concern.

At some point however, they will need to reconcile why such a tight job market — at least as measured by the traditional data — has failed to generate wage inflation and by extension broader price inflation. One thing seems certain, the central bank may well have jumped the gun with their tightening campaign. Unless of course, the sole purpose was to gain a little clearance above the zero-bound so they have room to cut without going negative . . .

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Morning Snapshot: Gold remains well bid after solid gains over the previous 3-weeks

USAGOLD/Peter Grant/07-31-17

Gold remains well bid after gaining 1% last week, and more than 4% over the previous 3-weeks. A number of key technical levels have been exceeded in recent weeks, shifting focus to the 1296.06/1300.00 level.

The Fed blinked last week in the face of slowing inflation and persistent tepid growth. After a rather dovish FOMC statement, September rate hike prospects crashed to zero-percent. More recently, they edged back up to 1.4%, but I think we can call September off the table at this point.

While advance Q2 GDP met expectations last week, the negative revision to Q1 growth added further weight to those rate hike expectations and therefore the dollar. Ongoing weakness in the greenback should continue to provide a tailwind to the gold market.

Today’s U.S. calendar has July Chicago PMI, June pending home sales, June ag prices and the Dallas Fed index for July. PCE comes out tomorrow and will likely confirm inflation weakness seen in the advance GDP report. On Friday we’ll get the July jobs report. Expectations for nonfarm payrolls is +181k. The jobless rate is expected to tick down to 4.3%.

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