Category: Daily Market Report

The Daily Market Report: Gold Recovers from Flash-Crash as Dollar Weakens


USAGOLD/Peter Grant/06-27-17

Gold rebounded to within about $3 of last Friday’s closing price, retracing nearly all of yesterday’s so-called mysterious flash crash. A weaker dollar and heightened risk aversion are providing additional underpinnings to the gold market.

In an interview with KitcoNews, Canadian mining mogul Frank Giustra said that be believes the gold price is “managed” by policymakers because it is essentially the canary in the coal mine: A rising gold market makes it harder for those policymakers to stoke confidence. And that gentle reader is why the gold price is never managed, manipulated or fat-fingered higher.

So the next question was a good one: Why stay in the gold space if the price is “managed?” Giustra responded, “ultimately when everything else goes wrong — which it will — gold will be the only real asset left.” He believes that every portfolio should have some physical gold, “It’s your hedge against the world going bonkers; and the world is going bonkers.”

There seem to be some cracks forming is the manufactured confidence. There seems to be heightened concern about the frothy stock market and some analysts seem worried that we may be on the cusp of another crisis. Even Janet Yellen said today that she could not rule out another crisis, but she doesn’t think it will happen in our lifetime. That statement simply drips with hubris.

Philly Fed President Harker said today that he sees balance sheet normalization and one more rate hike this year, unless “inflation continue to deteriorate.” If that happens, he will have to reevaluate his position.

Fed Vice-Chair Fischer said the Fed must remain vigilant in monitoring financial stability risks. He conceded that the central bank lacks insight in the shadow banking system and expressed specific concern about subprime auto loans and student loans.

Peurto Rico’s legislature passed it’s $9.6 bln budget with no provisions for debt servicing. That seems like a pretty clear indication that they have no intentions of making those payments. I suspect another downgrade is in the offing.

Illinois is in similar straits: If the Land of Lincoln fails to pass a budget by month end, they will be the first state o see its debt rated as junk. It seems very unlikely that Governor Rauner and the Democrat controlled legislature will be able to strike a deal by Friday.

We’ll see if the Fed can maintain the confidence charade as the summer wears on. If confidence fades, gold will look increasingly attractive as a safe-haven trade.

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Morning Snapshot: Gold recovers from “mysterious” flash crash

USAGOLD/Peter Grant/06-27-17

Gold is recovering from yesterday’s “mysterious” flash crash. The yellow metal is now nearly $15 off of yesterday’s intraday low and has come within $4 of a full retracement of the plunge.

What of course is really mysterious is that there is never a flash rally in the paper market. Whether by accident or with intent, it’s always a massive sell order that hits the market. Invariably though, such losses can not be sustained.

Today we’ll see the April Case-Shiller home price index, along with June consumer confidence and the Richmond Fed index. We’ll hear FedSpeak from Yellen and Harker in London and Kashkari is speaking at a townhall this evening.

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The Daily Market Report: Gold Remains Defensive After Big Sell Order Drives Price Lower


USAGOLD/Peter Grant/06-26-17

Gold remains defensive after getting slammed in early European trading by a huge $2 billion notional sell order in the futures market. Some are speculating that this was a “fat-finger” trade, but why are there never any “fat-finger” buyers in the gold market? The yellow metal is already more than $10 off the intraday low.

While the trendline off the mid-December low was temporarily violated, the 200-day moving average has successfully contained the downside thus far. Zerohedge quotes Citi analysts as saying, “we have confirmed triple weekly momentum divergence on Gold and as a reminder, this is one of our favorite indicators to suggest that a trend (downtrend in this case) is running out of steam.” In short, they seem to be suggesting that this pullback is a buying opportunity.

I’m inclined to agree based on this morning’s soft U.S. economic data and the resulting downgrades to Q2 GDP expectations. Weak yields and a weak dollar suggest that the market remains skeptical about the September rate hike, despite persistent hawkish FedSpeak.

Fed funds futures put the odds of a September hike at a meager 12.8%. Therefore, I expect the hawkish tone to persist as the Fed works to put the September hike back on the table. Janet Yellen will have her opportunity to try and set that table when she speaks on global economic issues tomorrow in London.

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Morning Snapshot: Gold forced lower by big sell order

USAGOLD/Peter Grant/06-26-17

Gold sold off sharply in Europe as big sell orders hit the market. Reportedly 18,000 gold contracts ($2 bln notional) were dumped in a 1-minute period. However, the 1241.30/1235.82 support zone we were watching has contained the downside thus far.

According to Zerohedge, “With no clear driver for the move, Bloomberg has suggested it may be a “fat-finger” mistake, although many are skeptical and see either algo or central bank intervention…” If it was indeed a mistake, one might expect retracement over the short-term.

Weaker than expected durable good orders and a miss on the Chicago Fed’s national activity index should help the cause as these data perpetuate concerns about the true health of the U.S. economy. Today’s sell-off may prove to be a great buying opportunity.

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The Daily Market Report: Gold Edges Higher on the Week


USAGOLD/Peter Grant/06-23-17

Gold is modestly higher after bouncing from in front of important trendline/moving average support at 1241.30/1235.82 midweek. At this point, the yellow metal is slightly higher on the week. A higher close today would break the string of lower weekly closes in the two previous weeks and confirm a simple hook reversal on the weekly chart.

Dovish comments from St. Louis Fed President James Bullard, show that Minneapolis Fed dissenter Neel Kashkari is not a lone voice in the wilderness calling for a pause in the tightening schedule. Expressing particular concern about waning inflation pressures, Bullard said “The Fed can wait and see how the economy develops before making any further adjustments to the policy rate.”

Bullard is a nonvoter, so he can’t really bolster Kashkari’s dissent. However, his concerns further highlight the fact that the FOMC as a whole is ignoring the data.

In the video we shot yesterday, I suggested that investors are confused by the Fed’s confidence; what do they see that the rest of us are missing? ECB President Mario Draghi may have provided the answer by telling EU leaders that he expects the economy and wages to grow and that “confidence is the cheapest stimulus”.

Zerohedge rightfully pointed out that that sentiment does not explain the ECB’s €4.2 trillion balance sheet. The Fed is clearly doing the same thing, trying to foment confidence despite the realities evident in the data.

At some point though, reality is likely to overcome this fake confidence and not only will confidence in the economy fail, but confidence in the Fed itself will fail. In that respect, confidence becomes a very, very expensive form of stimulus.

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Morning Snapshot: Gold trades higher on the week

USAGOLD/Peter Grant/06-23-17

Gold is trading higher on the week, thanks to a rebound from Wednesday’s low. There was actually a key reversal on Wednesday (lower low, close above the previous session’s high), which is generally a pretty reliable technical signal.

That seems to be playing out, although a push above the 1261.78 retracement level is needed to lend credence to the belief that the low is in. The series of higher highs and higher lows prevails.

I don’t post a lot of Canadian economic data, but I did put up CPI this morning. Canada is facing the same inflation dilemma that the U.S. is facing. CPI fell 0.2% in May, slowing to 1.3% y/y. The Canadian dollar immediately sank as expectations for a BoC rate hike evaporated.

On the U.S. calendar, we’ll see May new home sales and Markit flash PMIs.

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The Daily Market Report: Gold Firms Modestly


USAGOLD/Peter Grant/06-22-17

Gold is modestly higher, having stabilized above the 1241.30/1235.82 support zone (trendline/200-day moving average). Some additional upside follow-through above the 1261.78 retracement level would be encouraging and help confirm that the pattern of higher-highs and higher-lows that has been evident so far this year, is still intact.

The Senate rolled out their secret healthcare reform legislation this morning. The accompanying headlines immediately indicated it did not have the votes to pass. The CBO hopes to score the legislation by next week, right before the Independence Day recess. That will give them just 3-weeks to negotiate and pass the reform before the month-long August recess.

There is talk about forgoing the August recess, but as long as this major piece of the President’s agenda is unresolved, everything else is probably on the back-burner. If that’s the case, markets are likely to get pretty restless by the final quarter of the year is there is no real progress on the fiscal front.

The DJIA is up about 17% since election day, based largely on expectations of deregulation, healthcare reform, tax reform and infrastructure spending. If none of that is actually happening by the end of summer, arguably a 15% decline to those election-day levels would make a lot of sense. That would put the Dow near bear market territory.

Failure to advance President Trump’s economic agenda would likely make the Fed rather nervous as well. They’re talking like they really want to raise rates again in September, but the market is just not buying it. If fiscal policy remains bogged down, I would expect the Fed to soften their hawkish tone.

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Morning Snapshot: Gold edges higher

USAGOLD/Peter Grant/06-22-17

Gold is modestly higher after the recent string of losses stalled shy of trendline support and the 200-day moving average. A slightly lower dollar and a host of uncertainties in the the economic, political and geopolitical realms are all helping to underpin the yellow metal.

Initial jobless claims edged higher last week. FHFA home price index rose in April. We’ll see leading indicators for May and M2 for last week later this morning, as well as FedSpeak from Governor Powell.

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The Daily Market Report: Gold Eying Support Just Below the Market


USAGOLD/Peter Grant/06-21-17

Gold has turned more consolidative, having perhaps found support ahead of trendlines and the 200-day moving average. After closing lower in 8 out of the last 10 sessions, the yellow metal was arguably oversold on a short-term basis and is due for a bounce.

Despite continued firmness in the stock market and assurances from the Fed that all is well, there remains an underlying air of uncertainty that is helping to underpin the yellow metal with some safe-haven interest. That uncertainty may be springing from an economy that simply is not firing on all cylinders. Or perhaps it’s the heightened geopolitical tensions or a President that has been hamstrung in forwarding his economic agenda. Maybe all of these factors are weighing on sentiment.

Some heavy hitters in the market are issuing their own words of caution:

Oil prices remain a significant area of concern as well. WTI continues to tumble, reaching new 7-month lows below $42.50, despite bigger than expected inventory draws. Crude remains on track for a drop back to $40. Below that, the 13-year low from last year at $26.06 would have to be considered back in play.

Historically, lower energy prices were thought to be a boon for the economy. In recent years however, that effect has been muted at best and nonexistent at worst. And that too suggests there is some underlying systemic weakness that simply can not be reversed with easy money and cheap energy.

When that systemic weakness manifests into a recession, it may end up being far worse than the Great Recession of 2007/2008. The severely frothy stock market may indeed end in tears. Prudent investors might consider legging out of equity exposure and moving into undervalued gold.

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Morning Snapshot: Gold maintains defensive tone

USAGOLD/Peter Grant/06-21-17

Gold is maintaining a generally defensive tone, edging once again to 5-week lows on weak momentum. A firm dollar and stocks are weighing on the yellow metal, while a myriad of economic, political and geopolitical risks provide underpinning to the market. I’m watching support marked by the 200-day moving average at 1236.12.

With recent FedSpeak echoing the hawkish tone of last week’s policy statement, traders are still unwinding some of their short dollar exposure. Those short positions were predicated on an expectation that the Fed would take a more dovish tone in the wake of recent weak data.

That didn’t happen. If fact, the Fed arguably turned more hawkish in an effort to keep a September hike on the table.

May existing home sales and EIA crude data are on the calendar for later today.

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The Daily Market Report: Gold Edges Lower As FedSpeak Dismisses Concerns Over Waning Inflation


USAGOLD/Peter Grant/06-20-17

Gold edged to a new 7-week low, but the tone today is broadly consolidative. The yellow metal is underpinned, despite continued gains in the dollar.

The dollar index pushed to a 6-week high, as recent FedSpeak has struck a hawkish tone that is consistent with last week’s more hawkish than expected Fed policy statement. They are clearly trying to boost rate hike expectations for September; if for no other reason, to keep that option on the table.

Right now, the market is not buying it. Fed funds futures put the probability of a September rate hike at just 12.8%. The yield on the the 10-year note is 2.15%, down 30 bps from the beginning of the year amid mounting concerns about waning inflation pressures.

“I will say that the most recent inflation data made me a little nervous,” Chicago Fed President Charles Evans conceded today. However, most recent FedSpeak has been rather dismissive about inflation, even as oil prices continue to tumble.

Today’s drop in WTI below $43 clears the way for a challenge of $40. Given that energy prices are such a major input into the broader economy, the Fed should be more than a little nervous.

Evaporating inflation pressures may be providing some of the recent weight on gold, as the post-election reflation trade continues to get unwound. One should however keep in mind that gold is also a very effective hedge in times of disinflation, deflation and stagflation as well. Please see our special report on this topic by clicking HERE.

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Morning Snapshot: Gold better, despite firmer dollar, stocks

USAGOLD/Peter Grant/06-20-17

Gold is modestly higher to start the U.S. session. The yellow metal is better today, despite a higher dollar and another rise in stocks. These are factors that weighed on gold yesterday.

With political and geopolitical risks elevated, we may be seeing an uptick in demand for safe-havens. Firmer bonds offer some confirmation.

The U.S. Q1 current account gap widened to -$116.8 bln, inside expectations of -$123.6 bln, versus -$114.0 bln in Q4-16. That’s it for today’s economic calendar.

Boston Fed hawk Rosengren speaking at the Riksbank in Sweden warned that low rates put economies at risk and make fighting future recessions more difficult. This is reflective of my own explanation as to why the Fed is tightening policy into economic weakness. They are preparing for the next recession, that we all know is coming.

We’ll also hear Fedspeak from Fischer, Evans, Kaplan and Powell. I suspect the general theme will center on an effort to bolster confidence in at least one more rate hike this year.

This tweet from yesterday caught my eye. This too is consistent with my own views of FedSpeak. Don’t believe a word they say. The truth is in the data . . .

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The Daily Market Report: Gold Defensive on Firmer Dollar and Stocks


USAGOLD/Peter Grant/06-19-17

Gold is edging lower, weighed by a firmer dollar and revived risk appetite, which has driven stocks higher. However, a number of factors continue to offer fundamental underpinnings to the market.

While NY Fed President Dudley reiterated today the optimism expressed in last week’s FOMC statement, one has to wonder if the central bank can really continue tightening with the anticipated fiscal stimulus stalled in Congress.

Senate republicans are acknowledging they are not even close to a deal on healthcare reform. “That impasse has held up work on a budget resolution, which is necessary to move tax reform and the annual appropriations bills,” according to The Hill.

GOP policymakers are reportedly considering cancelling the August recess in the hope of breaking the log-jam. However, the staunch political opposition and the ongoing investigations will continue to generate significant headwinds to the so-called reflation trade.

If the President’s agenda is well and truly dead in the water, and the Fed is committed to their tightening agenda, it seems like the stock market in particular is underestimating the risks to growth. “This is the most hideously overvalued market in history,” said David Stockman in an interview last week. Stockman sees potential for a 35% correction in the S&P 500.

“You want to pay twenty-five times earnings going into a world where the Fed yesterday said ‘we’re going to shrink the balance sheet by $2 trillion over the next several years?’ Where we have a government that is in total chaos. A president that they’re trying to unseat. A debt ceiling that can’t be raised. A tax bill that will never pass…” — David Stockman

Given the risks, it might be prudent to lighten-up on exposure to a grossly overvalued stock market, and reallocate that capital to an undervalued safe-haven. That haven is of course gold.

On top of all that, a U.S. fighter shot down a Syrian MiG yesterday. The Russian Defense Ministry called it a “massive violation of international law” and severely escalated the geopolitical risks in the region by saying they would start viewing U.S.-led coalition jets flying west of the Euphrates River in Syria as “targets.” If a U.S. plane is fired on by Russia or the Syrian military, all heck could break out in a big hurry.

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Morning Snapshot: Gold starts the week under modest pressure

USAGOLD/Peter Grant/06-19-17

Gold is modestly lower to start the week, eking out a new 3-week low. The yellow metal is being weighed by a firmer dollar, and improved risk appetite that has lifted stocks.

Hawkish comments from NY Fed President Dudley, suggest that the Fed will continue on the tightening path. Despite recent soft data, Dudley said that “halting (the) tightening cycle would imperil the economy.”

Dudley believes that inflation will pick-up as the labor market continues to improve. However, the jobless rate hit a 16-year low in May at 4.3%. How much room for improvement is there really?

If Dudley’s comment are indicative of FedSpeak moving forward, it means they are trying to keep a September hike on the table. We’ll hear from Chicago Fed’s Evans this evening.

The U.S. economic calendar is empty today. In fact, this week is pretty quiet.

Brexit negotiations began today. In light of the recent political weakening of Theresa May, an event that was already fraught with uncertainty is now even more uncertain. This should help limit the downside in gold.

Additional underpinning for gold is found in the broad political and geopolitical uncertainty. With the Trump economic agenda foundering and the Fed proceeding with the removal of accommodations, the U.S. economy may be in considerable jeopardy.

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The Daily Market Report: Gold Remains Underpinned by Ongoing Uncertainty


USAGOLD/Peter Grant/06-16-17

Gold heads into the weekend on a defensive footing, still reeling — albeit modestly so — from the Fed’s surprise hawkishness on Wednesday. I think the market is still trying to ascertain what the Fed might be seeing that nobody else seems to see. That being said, gold is only down 0.7% on the week.

In the meantime, the economic picture continues to deteriorate, quickly undermining that Fed optimism. Housing starts tumbled 5.5% in May, and permits fell 4.5%. Consumer confidence eroded in June as well.

Former Treasury Secretary Larry Summers charged yesterday that, “The Fed has been highly unrealistic in its forecasts for several years.” As a result, “The Fed is not credible with the markets at this point.”

Well, the Fed caused just enough uncertainty to give the market pause. However, the underlying uptrend in gold that has dominated this year remains intact. The yellow metal is up just over 9% YTD.

While the FOMC nudged their 2017 GDP forecast higher to 2.2% from 2.1% in March, regional Federal Reserve bank forecasts are moving in the other direction. The Atlanta Fed’s GDP Now model for Q2 moved lower to 2.9% today. That model was predicting 4% growth as recently as early-June.

The New York Fed’s NowCast revised its Q2 growth forecast to 1.86%, down from 2.25% on June 9. Their Q3 forecast was dropped to 1.54%, versus 1.8% on June 9.

What’s going to be really interesting is how growth expectations may continue to evolve if the Trump administration’s economic agenda remains mired in political uncertainty. Gold is presently trading about $20 lower than where it closed on election day. If hopes of the reflation trade continue to evaporate, gold is likely to appreciate further.

If the realities of our weak growth prospects and diminishing inflation pressures ultimately deflate the Fed optimism, to the point where the tightening cycle is paused (or even reversed), yields and the dollar will drop. When that happens, gold will finally reclaim the $1300 handle, which will then shift focus to the $1500 zone.

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Morning Snapshot: Gold firms modestly

USAGOLD/Peter Grant/06-16-17

Gold has firmed modestly ahead of the weekend, but appears poised to close lower for the week. At this point, the yellow metal is only down about 0.7% on the week.

U.S. housing starts plunged 5.5% to a 1.092M pace in May, below expectations of 1.218M, vs negative revised 1.156M in April. It was the third consecutive monthly decline, which has happened since January 2009. Permits tumbled 4.5% to 1.168M, which was well below expectations as well.

The preliminary University of Michigan consumer sentiment read for June comes out later this morning. A slight rise to 97.2 is expected. While consumer sentiment seems to remain fairly robust, the retail sales print from earlier in the week suggest they’re disinclined to actually consume anything.

Political and geopolitical risks remain elevated, which has helped underpin gold, despite this week’s more hawkish than expected Fed. Once the market starts discounting the Fed’s unfounded optimism, the yellow metal is likely to recover.

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The Daily Market Report: Gold Remains Defensive, But Market is Skeptical of Fed Optimism


USAGOLD/Peter Grant/06-15-17

Gold remains defensive in the wake of yesterday’s more hawkish than expected Fed. However, the downside may prove limited as the markets assess what the Fed might know that they don’t.

The market’s conclusion is likely to be that the Fed is overly optimistic about the economy. Fed funds futures put the probability of a September rate hike at just 18%. The flattening of the yield curve portends heightened risk of a recession.

“The Fed is not credible with the markets at this point.” — Larry Summers

This week’s CPI data showed annualized consumer price pressures eased for a third consecutive month in May. Core CPI slowed for the fourth month in a row. Combine that with today’s weak import and export price data for May and it becomes pretty apparent that the lack of inflation should probably have been featured. While “the Committee is monitoring inflation developments closely,” they clearly see the issue as transitory, although they don’t use that word.

On a 12-month basis, inflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent…Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. — FOMC Statement

I think the market is going to be somewhat skeptical here, wondering what the Fed sees that they do not. That should help limit the downside in gold as the market awaits additional data.

Additionally, the political and geopolitical uncertainty remains elevated. The recent turnaround is unlikely to sway safe-haven minded owners of gold to abandon their hedges. In fact, some may view it as an opportunity to bolster those hedges.

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Morning Snapshot: Gold extends lower to 3-week lows

USAGOLD/Peter Grant/06-15-17

Gold extended to the downside after the Fed maintained that they’re on track for at least one more rate hike this year. This has prompted a rebound in the dollar and pushed the yellow metal low.

However, any economic optimism the Fed has seems to be unfounded. I think at best, you could call the data uneven, at worst it is reflective of a moribund economy that may be moving toward a tipping point.

The Empire State Index and Philly Fed Index both beat expectations. Initial jobless claims for last week came in below expectations. Industrial production was unchanged in May, below expectations. Both import and export prices came in significantly below expectations, adding credence to the argument that the Fed should really be worried about waning inflation pressures.

While the Fed did indeed lower their inflation projections for this year, they continue to expect the 2% target to be achieved in 2018 and 2019. I wouldn’t be so sure about that . . .

Beyond the economic data, considerable political and geopolitical uncertainty prevails. That suggests the downside in gold is likely limited from here.

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The Daily Market Report: Gold Jumps on Weak Data Ahead of FOMC Policy Decision


USAGOLD/Peter Grant/06-14-17

Gold jumped to new highs for the week, following weaker than expected retail sales and consumer inflation. The shootings in Alexandria, Virginia may have also lifter haven assets as the markets awaited details.

Today’s data, particularly CPI, poses a bit of a conundrum for the Fed. The central bank is still widely expected to lift rates by 25 bps later today, but I don’t think they can easily dismiss the recent weak data as “transitory” anymore.

I have maintained that in continuing the tightening cycle in December 2016, the Fed was hiking rates into economic weakness, just as they did in December 2015. The data seem to reflect that this theme is indeed playing out, which raises serious doubts about whether additional hikes later in the year are warranted.

Today’s guidance and the dot plots are going to be important. Will the Fed acknowledge that growth is slowing, that inflation pressures have disappeared and that even the 4.3% jobless rate belies a fundamental underlying weakness in the labor market?

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Morning Snapshot: Gold surges following more weak data

USAGOLD/Peter Grant/06-14-17

Gold has surged in the wake of this morning’s soft economic data. The shooting in Alexandria, Virginia at a Congressional baseball practice may be contributing a safe-haven bid as well.

U.S. retail sales fell 0.3% in May, below expectations of +0.1%. It was the biggest drop in 16-months. Retail sales excluding autos fell 0.3%, on expectations of +0.2%.

U.S. CPI fell 0.1% in May, below expectations of unchanged. More importantly, the pace of consumer inflation slowed to a 1.9% annual pace, down from 2.2% in April. Core inflation slowed to 1.7% y/y, from 1.9% y/y in April.

These weak data raise serious doubts about further monetary tightening beyond today’s FOMC decision, and markets are reacting accordingly. Gold is up more than $10. The dollar index has tumbled to fresh 7-month lows. U.S. yields have plunged.

This adds an additional level of drama to today’s policy statement. It will also be really interesting to see if the Fed’s dot plots even remotely reflect the recent reality, particularly with regarding to inflation.

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The Daily Market Report: Gold Eases Along with Dollar as Markets Await Fed


USAGOLD/Peter Grant/06-13-17

Gold remains modestly defensive, setting a 2-week low at 1258.60. The yellow metal is trading lower, despite further retracement of the corrective rally in the dollar index.

While a 25 bps Fed rate hike is fully priced in for tomorrow, recent data and most likely the Fed’s own economic projections are likely to warrant a more dovish tenor for the remainder of the year. If that comes to pass, the dollar is likely to resume the downtrend that has dominated so far this year. That would bode well for gold.

As Politico pointed out today, “The U.S. economy has been growing for 96 straight months, its third longest expansion on record.” That sounds great, until you realize that the average annual growth rate since the end of the Great Recession has been just a tick over 2%. The most recent quarter saw just 1.2% growth.

On top of that, policymakers have been unsuccessful in generating targeted inflation. In fact, the Fed’s preferred measure of inflation has declined in recent months.

[T]he Fed’s preferred measure of annual inflation has actually declined for three months in a row, hitting 1.7 percent in April. If you exclude volatile food and energy prices, inflation is even lower, at 1.5 percent. — Politico

Adding insult to injury is the reality that since the financial crisis began, trillions and trillions of dollars have been spent in an all-out effort to reinvigorate growth, and stoke inflation. While it is reasonable to ask whether it has been worth it, it is truly water under the bridge at this point. So will will be policy moving forward?

I think to a large degree, the Fed’s more recent movements toward policy normalization are a tacit acknowledgement that they’re not getting the results that hoped for. At the same time, I think the Fed is desperately trying to reload in an effort to give themselves some maneuvering room for when that next recession arrives. In a delicate balancing act, the central bank is assuredly hoping that in cautiously tightening policy, they don’t trigger the recession we all know is coming.

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Morning Snapshot: Gold defensive as 2-day FOMC meeting begins

USAGOLD/Peter Grant/06-13-17

Gold remains modestly defensive as the Fed’s 2-day FOMC meeting begins. The policy decision, economic projections and Janet Yellen’s presser are scheduled for tomorrow, beginning at 14:00ET.

U.S. PPI slowed to a 2.4% annualized pace in May, down from 2.5% y/y in April. This will add to the Fed’s worries about waning inflation pressures. Tomorrow before the Fed, we’ll get May CPI and retail sales. Expectations are unch and +0.1% respectively.

Despite generally soft economic data, the Fed is fully expected to hike rates by 25 bps. Focus tomorrow is going to be on the forward guidance and how it relates to the economic projections. Will the Fed continue on it’s tightening path, despite mounting evidence that the economy is slowing? Or does the preponderance of the data now warrant an additional degree of caution beyond June?

Be aware that the last several rate hikes have closely marked lows in gold. And each of those lows have been higher than the previous low.

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The Daily Market Report: Gold Consolidates Ahead of Wednesday’s FOMC Decision


USAGOLD/Peter Grant/06-12-17

Gold is consolidating at the low end of the recent range with focus this week squarely on the FOMC meeting. The Fed begins their two-day meeting tomorrow with the policy statement, economic projections and Janet Yellen’s press conference occurring on Wednesday.

The Fed is fully expected to raise rates another 25 bps this week, despite slowing growth, diminished inflationary pressures and even some heightened concern about the labor market in the wake of the soft May jobs report. Market will be paying particular attention to the forward guidance and the economic projections in an effort to assess the likelihood of further rate hikes later in the year.

Last week’s UK election created even more uncertainty surrounding Brexit. Gold remains underpinned versus the British pound above the £1000 level, with scope for additional tests of the upside.

Sterling weakness however is providing some support to the beleaguered dollar. The dollar index hit a new 7-month low last week, before rebounding modestly.

Amid ongoing political uncertainty in the U.S., the greenback is likely to remain defensive. That in turn should help limit the downside in gold.

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Morning Snapshot: Gold better as markets look ahead to Fed decision

USAGOLD/Peter Grant/06-12-17

Gold is slightly higher, buoyed by an easier dollar. The yellow metal is likely to be well contained early in the week as markets look ahead to Wednesday’s Fed decision.

Silver is defensive after being rejected from above the 17.47/65 resistance zone last week. Nearby support is well defined at 17.00/16.98.

Today’s economic calendar is very light with just the May Treasury budget. There will also be a $24 bln 3-year note auction and a $20 bln 10-year note reopen.

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The Daily Market Report: Gold Retreats, But Risks Abound


USAGOLD/Peter Grant/06-09-17

Gold is poised to close lower on the week, after eking out a new high for the year on Tuesday. Yesterday’s raft of risk events drove safe-haven interest early in the week, but now that all that is behind us, some of those haven trades are getting unwound.

Make no mistake though, risk still abound, on the economic as well as the political and geopolitical fronts. In fact, some of the events that markets seem to be considering safely behind us have generated additional associated risks.

The ECB rather significantly downgraded their inflation outlook through 2019. That is consistent with our Fed’s own rising level of concern about waning inflationary pressures, which undermines one of the central bank’s key tenets for raising rates in the first place. And yet, the Fed is (nearly) fully expected to raise rates further next week, which will arguably amplify price pressures even more.

The Fed’s forward guidance and economic projections are going to be important next week, particularly as they pertain to inflation. Hints of dovishness, whether ascribed to May’s labor market weakness or heightened worries about inflation, could add further weight to the dollar and support for gold.

While the Comey testimony was largely in line with expectations, it did dissipate the cloud over the administration. If anything, President Trump’s political opponents seem to have redoubled their calls for further investigations and hearings.

With that ongoing distraction, there is considerable doubt as to whether the President will be able to meaningfully advance his economic agenda. That suggests that the stock market in particular, may be vulnerable to a retracement of its post-election gains.

When Theresa May called for the snap-election back in April, she declared that “Every vote for the Conservatives will make me stronger when I negotiate for Britain with the prime ministers, presidents and chancellors of the European Union.” The results of the election now in fact put her in a decidedly weaker position. Her conservative party lost 12 seats in Parliament and their majority. The opposition labour party on the other hand gained 29 seats.

The resulting hung Parliament is going to make governing in general more problematic. They may have to entirely rethink their Brexit negotiating strategy, with just 10-days before those talks are slated to begin. I suppose there is some risk that they won’t even have formed a government by then, amid rumblings of possibly another snap-election.

Arguably there is even more uncertainty now than there was on Wednesday. On top of that, legendary investor Jim Rogers is predicting the “worst crash in our lifetime” sometime within the next year-and-a-half!

Rogers suggests such crashes start where you’re not looking. “It could be an American pension plan that goes broke,” said Rogers as a possible example of a flashpoint. I think he would concede that any of the aforementioned situations are potential flashpoints as well.

I encourage gold investors to be proactive rather than reactive. If Rogers is right, and another major market crash is coming within the next 18-months, gold may get really expensive, real quick. That is, if you can get it at all.

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Morning Snapshot: Gold retreats with passing of risk-events

USAGOLD/Peter Grant/06-09-17

Gold remains under pressure as the “super-Thursday” risk events came and went. Additional position squaring ahead of the weekend has pushed the yellow metal down more than 1%, notching new lows for the week.

An additional degree of uncertainty was created by the UK election, where the Tories lost there majority. Theresa May has declared that she will form a coalition government and get on with the business of governing the country; including progressing with Brexit. What headwinds she may now face remains to be seen.

That uncertainty has weighed on Sterling and the euro, which is helping to underpin the dollar. The gains in the greenback are putting additional pressure on the metals.

Today’s economic calendar is light with only April wholesale sales and inventories out later this morning.

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The Daily Market Report: Gold Slips to New Lows for the Week


USAGOLD/Peter Grant/06-08-17

Gold fell to a new low for the week after two of today’s major events slipped into the rear-view mirror without any major surprises. The outcome of the UK general election is the last major hurdle of the day.

The ECB took a very subtle baby-step toward policy normalization by dropping the easing bias reference for rates. However, the QE schedule through the end of the year was reaffirmed and there remains scope for an extension.

This seems reflective of Mr. Draghi’s belief that the European economy remains in need of considerable monetary support, while throwing the hawks the smallest of bones. The central bank edged their GDP forecast slightly higher, but also lowered inflation expectations.

The inability of global central banks to achieve their general price inflation expectations, despite trillions and trillions in asset purchases is in my opinion a damning indictment of the monetary policies that have been perpetuate for a decade. The only place they have really generated inflation are in asset prices.

In fact, Bill Gross of Janus said yesterday that risks are the highest they’ve been since before the financial crisis. He lays this squarely at the feet of central banks:

“If there’s a common factor it’s the expansion of credit,” Gross said on Bloomberg TV Wednesday. “And the credit that’s being generated by central banks. Money is being pumped out into the system and money that is yielding less than nothing seeks a haven not only in bonds that are under-yielding but in stocks that are overpriced.” — Bloomberg

The Comey testimony got a great deal of attention, but there were no startling revelations. Nonetheless, I doubt the President’s opponents will lesson their efforts at thwarting advancement of his agenda.

Results from the UK election won’t start filtering in for several hours yet, but last minute polling suggested the Tories were poised for a victory, albeit not as convincing as was originally anticipated. Of course, polls on the Brexit referendum were notoriously off the mark, so we’ll have to be patient.

Once we have those results, the market will shift its attention to next week’s FOMC meeting. The ECB’s diminished inflation outlook may exert some influence on the Fed, which has already expressed some concerns about waning price pressures.

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Morning Snapshot: Gold Slightly Defensive as ECB Policy Tweaks Buoys Dollar

USAGOLD/Peter Grant/06-08-17

Gold remains slightly defensive as ECB policy tweaks helped lift the dollar. Silver on the other hand is up about a dime, within striking distance of the 6-week high established earlier in the week.

The ECB announced steady policy, as was widely expected. The easing bias was dropped from the statement, but the QE schedule was reaffirmed. In fact, the door remains open for an extension of QE beyond year end.

The ECB nudged their GDP forecasts higher, but inflation expectations were cut, as was leaked earlier in the week. Since the global financial crisis, the ECB has more than doubled their balance sheet to €3.7 trillion with the expressed intent of achieving at least 2% inflation. And now, inflation seems to be going the wrong way . . .

Up later today we have the Comey testimony and the results of the UK election.

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The Daily Market Report: Gold Consolidates Within Yesterday’s Range Ahead of Action-Packed Thursday


USAGOLD/Peter Grant/06-07-17

Gold has eased intraday, but remains within the confines of yesterday’s range. There may be some position squaring occurring as markets look ahead to tomorrow’s rather action packed day.

Speculation that the ECB will lower its inflation expectations tomorrow created some volatility in FX markets. That initially put the euro under pressure, but ECB sources then apparently leaked that any adjustment would be small. The euro then recovered those losses.

The ECB is widely expected to hold steady on rates tomorrow. Mario Draghi has recently reiterated that the European economy remains in need of extraordinary support, a weaker inflation outlook would lend credence to that assertion. Nonetheless, the central bank has been under pressure to start at least talking about normalization plans. Draghi will likely view that as counter-productive at this point, so I don’t expect any change in that guidance.

The UK election is tomorrow and polls remain mixed. Ms. May is likely to be returned as PM, but polls suggest there is some risk to her Conservative Party’s majority in Parliament. If the result of the election is a hung parliament, her snap election gambit – which seemed so promising at the time — will have been a failure. If that majority is lost, concessions will likely have to be made to the Labour party, resulting in a softer Brexit.

Also on the agenda for tomorrow is the testimony before the Senate Intelligence Committee of former FBI Directory James Comey. Markets are somewhat concerned he will say something damaging to the Trump administration that might further forestall advancement of Mr. Trump’s economic agenda.

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Morning Snapshot: Gold slips as euro weakness boosts dollar

USAGOLD/Peter Grant/06-07-17

Gold is under modest pressure, but remains within close proximity of the 7-month high that was established yesterday. The yellow metal has been pressured by a firmer dollar, which was buoyed by a pullback in the euro.

Bloomberg reported this morning that the ECB will lower its inflation forecast through 2019, largely as a result of suppressed energy prices. Such a move would temper tightening expectations, which has put the single currency under pressure.

Today’s U.S. calendar has April consumer credit and EIA crude inventories from last week. Tomorrow is a big day with the ECB decision, the UK election and the testimony of former FBI director Comey before Congress. The risks associated with these events has sapped risk appetite, helping to keep gold underpinned.

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