Category: Daily Market Report

Morning Snapshot: Gold starts the week on defensive footing

USAGOLD/Peter Grant/09-25-17

Gold starts the week in a defensive posture, but still within last Thursday’s range. No significant escalations of the North Korean situation has heightened risk appetite somewhat, and a firmer dollar has weighed on the yellow metal.

The Chicago Fed National Activity Index sank to -0.31 in August. The Dallas Fed index comes out later this morning. We’ll also hear FedSpeak from Dudley, Evans and Kashkari.

Japanese PM Shinzo Abe announced that he will dissolve the lower house of parliament this week and consolidate his political power amid the looming North Korean threat. “We must not give into the threat of North Korea. I hope to gain the confidence of the people in the upcoming election and push forward strong diplomacy,” said Abe.

Here in the States, Republicans are scrambling to revise their latest healthcare bill in order to avoid yet another defeat on that front. Another legislative failure would further undermine the majority party and the President, making it increasingly unlikely that the economic agenda will be advanced this year in any meaningful way.

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Morning Snapshot: Gold steady ahead of Fed

USAGOLD/Peter Grant/09-20-17

Gold begins the U.S. sessions slightly higher, as the consolidation ahead of this afternoon’s Fed policy announcement continues. Despite the past week of corrective/consolidative activity, the underlying trend remains positive.

The Fed is expected to hold steady on policy today, but announce some details about balance sheet normalization. The FOMC will also provide their economic projections and Janet Yellen will hold a press conference.

After President Trump’s fiery speech at the UN General Assembly, there is speculation that North Korea will respond with more missile tests. The longer and louder the sabers are rattled, the more likely it becomes that they are drawn.

The rest of the calendar is light today, with August existing home sales and EIA crude stocks.

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The Daily Market Report: Gold Consolidates as Fed Considers Balance Sheet Normalization


USAGOLD/Peter Grant/09-19-17

Gold is consolidating near its two-week low with the two-day FOMC meeting now underway. Expect trading to be relatively subdued until the Fed announces policy tomorrow at 2:00ET.

The yellow metal remains calm, despite a rather significant escalation of of the geopolitical rhetoric at the UN General Assembly this morning. “The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North Korea,” said President Trump. The DPRK will almost assuredly respond in some manner, further escalating an already extremely tense situation.

Jim Rickards was asked what brought gold down yesterday, he responded by tweeting, “Chatter about higher inflation, rate hikes, momentum, etc. None of it will come to pass, but it’s the flavor of the month.” Someone else asked how many rate hikes he saw for the rest of the year. “Zero” was the reply.

As the Fed ponders policy and whether to start winding-down it’s massive $4 trillion balance sheet, a Fed economist raised questions as to whether the build-up of that balance sheet via quantitative easing (QE) did any good at all.

“With respect to QE, there are good reasons to be skeptical that it works as advertised, and some economists have made a good case that QE is actually detrimental.” — St. Louis Fed economist Stephen D. Williamson

That assessment begs the question, did global central banks really need to go more than $20 trillion down the QE rabbit-hole in order to reach such a conclusion? I mean the BoJ had been at the QE game for nearly a decade, with little to show for it, before the Fed launched QE1 in late-2008. Perhaps there was a lesson to be learned there.

One thing a world awash in liquidity did accomplish was to inflate asset prices, particularly the stock market. If central banks take the monetary punch-bowl away, is that party about to end?

The ECB is apparently already having doubts about their plan to start tapering asset purchases, particularly with the euro reaching near three-year highs. Some at the central bank are in favor of keeping their options open to expand QE into 2018.

According to Reuters, “Hawks see the currency’s strength as testament to the euro zone’s strong economic growth, while doves fear it reflects weakness in the United States and Britain.” If the reality is ultimately revealed to be closer to the latter, easier Fed policy and a weaker dollar will prevail. And that should be bullish for gold.

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Morning Snapshot: Gold consolidates at low end of recent range

USAGOLD/Peter Grant/09-19-17

Gold is consolidating at the low end of the recent range as the FOMC begins their two-day meeting. Heightened risk appetite and profit taking ahead of the Fed meeting has weighed on the yellow metal since last week.

Meanwhile, geopolitical and political tensions are seen as underpinning the market. While the dollar has firmed against the yen, driven by the risk-on attitude, the broader dollar remains weak.

Import and export prices rose more than expected in August, providing further evidence that inflation may finally be picking-up. I remain skeptical.

Housing starts dipped to 1.18M pace in August, just above expectations of 1.175M. Meanwhile, the U.S. Q2 current account gap widened to -$123 .1 bln, outside expectations of -$112.6, versus a revised -$113.5 bln (was -$116.8).

When the Fed announces policy tomorrow, they are widely expected to hold steady on policy. Markets are very interested to hear specifics on balance sheet normalization and to glean any clues as to the Fed’s intentions for December. That evidence might be found in the economic projections and Ms. Yellen’s press conference.

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The Daily Market Report: Gold Remains Corrective as Focus Shifts to Fed Meeting, Balance Sheet Unwind


USAGOLD/Peter Grant/09-18-17

Gold remains defensive as investors seem inclined to shrug-off the political and geopolitical worries and return favor to risk assets. Focus this week is on the FOMC meeting, which begins tomorrow, as well as the general debate at the UN.

The Fed is expected to hold steady on policy this month, amid persistent concerns over weak inflation. While the August inflation data were slightly warmer, the overall trend remains troubling.

“I’m not convinced the Fed is going to say the scare is over on the basis of one number,” said Tim Duy, a professor of economics at the University of Oregon. “It looks like there are persistent disinflationary trends in the data.” — FT

Despite the inflation concerns — and perhaps some mounting concerns about growth — the Fed is expected to announce they will begin normalizing their massive $4 trillion balance sheet. That process may begin as soon as October. That decision may be particularly interesting in light of what the dot-plots may say.

The Atlanta Fed’s GDPNow projection for Q3 growth was slashed to 2.2% last week, down significantly from 3.0% in the previous week. A number of banks and brokerage house have slashed their Q3 forecasts in the wake of recent soft data and in light of the economic effects of the recent hurricanes.

Continued weakness in the dollar against most currencies is still seen as a limiting factor on the downside for the yellow metal. While we’re hearing about dollar gains today, they are localized to the yen, as the risk-off trade from recent weeks gets unwound. The dollar index, which measures the greenback against a basket of currencies (including the yen), is looking decidedly less bullish.

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Morning Snapshot: Gold remains defensive ahead of Fed meeting

USAGOLD/Peter Grant/09-18-17

Gold remains in corrective mode. The yellow metal slipped in overseas trading to a fresh two-week low amid heightened risk appetite carried over from last week.

With the dollar still generally defensive and geopolitical tensions still elevated, downticks in gold seem to be position squaring ahead of this week’s FOMC meeting. While the Fed is expected to hold-pat, they may make an announcement about balance sheet normalization. A December rate hike remains a 50/50 proposition.

The two-day Fed meeting begins tomorrow. Also, tomorrow will be the General Debate at the UN General Assembly. North Korea will certainly be a hot topic.

The economic calendar is light today with the NAHB Housing Market Index for September and TIC data.

The Atlanta Fed’s GDPNow index for Q3 tumbled from 3.0% to 2.2% last week as hurricane effects take hold. Private GDP forecast are under pressure as well. All of this will give the Fed pause when it comes to further tightening this year.

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The Daily Market Report: Gold Retreats Within The Range Ahead of Weekend


USAGOLD/Peter Grant/09-15-17

Gold has returned to a short-term defensive posture going into the weekend, seemingly ignoring the latest North Korean provocation and a softer dollar. However, these two items should in fact limit the downside in the yellow metal.

North Korea launched another missile early on Friday that overflew Japan. The recent missile launches, along with the nuclear test and bellicose rhetoric has heightening calls for the re-militarization of Japan. South Korea responded to the DPKR missile launch by test firing missiles of its own.

The UN passed increased sanctions on North Korea earlier in the week. The Security Council is meeting again today. U.S. ambassador to the UN Nikki Haley said she has “no problem kicking [the North Korean issue] to General Mattis because I think he has plenty of options.” General James Mattis is the U.S. Secretary of Defense and Haley’s statement may reflect a belief that more direct action may be warranted, rather than more talk and more sanctions.

The dollar index has retraced more than 61.8% of this week’s corrective rally, returning focus to the downtrend. If the dollar is destine to trend lower, beyond the multi-year low set last Friday, it should have a bullish impact on gold.

Today’s round of weak economic data adds to the expectations that the Fed will hold steady on policy next week. Whether or not the Fed will announce details on balance sheet normalization at the end of this FOMC meeting remains to be seen. Prospects for a December rate hike remain a coin-toss.

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Morning Snapshot: Gold retreats, but remains within yesterday’s range

USAGOLD/Peter Grant/09-15-17

Gold is trading lower, but within the confines of yesterday’s range. The yellow metal shrugged off North Korea’s latest missile launch, perhaps as such expectations had been previously priced in by the market.

South Korea test-fired missiles of its own in response to the latest provocation. The DPKR missile was the second to overfly Japan in less than a month. This, along with the recent bellicose threats to “sink” Japan, is driving conversations about increasing Japan’s military capabilities.

If Japan and South Korea were to increase military spending, China would likely respond in kind. That may result in an Asian arms race. And when a country has a lot of high tech weaponry, there’s always some faction that wants to use them . . .

Disappointing U.S. economic data should limit the downside for gold as well. Both August retail sales and industrial production missed expectations by significant margins. The Empire State Index for September, but not as much as was expected. The initial University of Michigan consumer sentiment reading for September comes out later this morning.

The dollar index has now retraced more than 61.8% of its recent correction, returning focus to the downside. The weaker dollar should underpin gold as well, suggesting the dip in gold is a buying opportunity.

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The Daily Market Report: Inflation Ticks Up, But Is That Good or Bad?


USAGOLD/Peter Grant/09-14-17

Gold is consolidating within the recent range, having rebounded from earlier intraday downticks. Persistent political and geopolitical tensions continue to offer support to the yellow metal.

Slightly warmer than expected consumer inflation data for August pushed gold briefly to new 2-week lows. However, hopes that higher inflation may insight the Fed to raise interest rates one more time this year seems to be negligible.

The probability of a rate hike when the Fed meets next week remains virtually nonexistent. The odds of hike in December have returned to about a 50/50 proposition.

Greg Ip of the Wall Street Journal wrote an article yesterday that says that trend inflation is now 1.5%. It’s the new “normal” and the Fed has created asset bubbles by maintaining the 2% target.

Ip contends the Fed has two options: They can continue to force the issue and let the bubbles in stocks and real estate continue to inflate, or they can “ditch the 2% target and accept 1.5% as the new inflation trend.”

Both options are unappetizing, but the second distinctly more so. If Ms. Yellen eventually concludes lower inflation reflects a trend rather than noise, prepare for unemployment to drop much more and interest rates to stay low for a lot longer — with an attendant rise in financial and economic volatility. — Greg Ip

“Lower trend inflation has much graver implications for the economy than appreciated,” Ip warns. Giving up on the 2% target would also deal a rather severe blow to Fed credibility.

The Fed has essentially painted themselves into a corner. Getting out of that corner is likely to have dire consequences.

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Morning Snapshot: Gold dips on CPI beat, but quickly bounces back

USAGOLD/Peter Grant/09-14-17

Gold dipped briefly to a new low on the week after CPI for August came in just above expectations. The pickup in inflation, albeit slight, perhaps breathes a little life back into the prospect for one more rate hike before year-end.

U.S. CPI rose 0.4% in August, above expectations of +0.3%, versus +0.1% in July; +1.9% y/y. Core CPI was up 0.2%, in line with expectations; +1.7% y/y.

The BoE held steady on rates, as was widely expected. However, there were two dissents and the MPC believes “some withdrawal of monetary stimulus is likely to be appropriate over the coming months.” The prospect of tighter policy ahead pushed Sterling to new one-year highs.

North Korea let loose with another salvo of bellicose rhetoric in the wake of the latest UN sanctions, threatening to “sink” Japan and turn the U.S. into “ashes and darkness.” Amid speculation of another impending missile test, the yellow metal should remain underpinned by elevated geopolitical tensions.

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The Daily Market Report: Gold Remains Defensive, But Downside Seen as Limited


USAGOLD/Peter Grant/09-13-17

Gold slipped deeper into the range as the GOP leaders talked about a path forward on tax reform. Though absent specifics, the prospect of some legislative advancement on this front further stoked risk appetite, which weighed on the yellow metal.

It would be the “the beginning of the process . . . to achieve for the first time in a generation, overhauling our tax system and giving middle class families a much deserved break,” said House speaker Paul Ryan. However, details of that plan won’t be out until September 25. At that point, the political wrangling will begin in earnest.

According to Politico, completing a budget with tax language included won’t happen until mid-October. It’s worth noting that the new fiscal year starts October 1. Of course we now have a fairly long history of tardy budgets; and in some recent years, no budget at all.

Mike posted an excellent interview earlier today with economist William White, who contends that we face
“more dangers now than in 2007.” That’s a pretty startling — and candid — admission from a establishment policymaker. As Mike suggests, it is a warning that should be taken seriously.

White’s main area of concern is the rapid accumulation of debt in various countries around the world. This is something we’ve written about ad nauseam, both in the years leading up to the financial crisis and in the years following.

The financial crisis at its core was a debt crisis and you don’t extract yourself from a debt crisis by going deeper into debt, which is exactly what we’ve done. It bought some time to be sure, but we’ve squandered that time by failing to address the underlying issues.

Politicians are loathe to address the debt, because you need to either cut spending or increase revenue (taxes). Neither is terribly popular with voters.

By doing nothing, the politicians pushed the problem off on central bankers who crafted extraordinary monetary policy to support massive debt burdens. Low rates and weak currencies. However, there is only so much they can do once rates are at — or slightly below — zero and their balance sheets become bloated.

There is another day of reckoning coming and the time to begin building your protective hedges is as far in advance of that day as possible. If as White suggests, the dangers are greater today than they were a decade ago, the time to buy gold is now.

As a reference, note that the price of gold in the second week of September 2007 was $707. Over the next 4-years, the price of gold rose 172% to 1920.84 before the smoke cleared.

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Morning Snapshot: Gold consolidates within range established early in the week

USAGOLD/Peter Grant/09-13-17

Gold is consolidating corrective losses seen earlier in the week. Heightened risk appetite is applying the pressure, while persistent political and geopolitical risks underpin the yellow metal.

U.S. PPI rose 0.2% in August, below expectations of +0.3%, versus -0.1 in July. Core PPI rose just 0.1%, also below expectations. Tomorrow we’ll get July CPI. The ongoing absence of inflation is going to make it difficult for the Fed to further tighten policy this year.

Further unwinding of December rate hike expectations will keep pressure on the dollar. This week’s correction in the greenback has already lost momentum, with the bias definitely to the downside. Further retracement of Monday’s gains in the dollar index would shift focus back to the multiyear low set last week at 91.13. A weak dollar will continue to provide a tailwind for gold.

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The Daily Market Report: Gold Recovers From Intraday Downticks


USAGOLD/Peter Grant/09-12-17

Gold is recovering intraday from earlier corrective pressures stemming from this week’s revival of risk appetite. While stocks remain elevated, the dollar seems to have quickly lost upside momentum, which is helping to underpin the yellow metal.

The Treasury Department reported yesterday that the national debt quickly vaulted the $20 trillion mark last week, following the most recent suspension of the debt ceiling. This allowed Treasury to borrow once again with abandon; no longer dependent on the off-book “extraordinary measures” that had prevented a sovereign default for the past several months.

As focus shifts to next week’s FOMC meeting, the previous paragraph tells you everything you need to know about why rates need to remain low and why the long-term trend in the dollar will remain bearish. A September rate hike remains off the table and steady policy in December remains more likely than not.

As for the plan to normalize the balance sheet, that remains to be seen . . . It is most certainly a form of tightening, that many are anticipating will begin this year. However, it will most assuredly begin small and can be easily halted or even reversed if inflation remains weak and/or risks to growth intensify.

With political uncertainty in Washington elevated, economic help from the fiscal side is still very much in doubt. This will weigh on the decision making process of the FOMC as well.

The reality is that since the financial crisis, our central bank has been financing the national debt at rates that don’t truly reflect the risk. They seem to have some perhaps unfounded hope that growth will eventually reignite and and they will be able to walk-back the extraordinary accommodations that they instituted.

Are we really at that point? It doesn’t feel like it; and with the national debt on the rise again (believe me, the debt ceiling will be raised or suspended in December as well) one has to wonder who will buy all this new debt if not the Fed . . .

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Morning Snapshot: Gold defensive on heightened risk appetite

USAGOLD/Peter Grant/09-12-17

Gold remains defensive amid renewed stock market optimism as Irma weakens and North Korea remains quiet in the face of fresh UN sanctions. U.S. yields are higher, underpinning the dollar amid heightened risk appetite.

The U.S. calendar is light today with JOLT job openings for July and the NFIB Small Business Optimism Index for August, which ticked higher. Focus remains on inflation data later in the week and then next week’s FOMC meeting.

“We are done trying to prod the regime to do the right thing, we are now trying to stop it from having the ability to do the wrong thing,” said U.S. ambassador to the UN Nikki Haley yesterday. She did rattle the saber some as well by saying, “[I]f the North Korean regime does not halt its nuclear program, we will act to stop it ourselves.”

The new sanctions cap oil imports, but did not go so far as to completely block imports. Perhaps that’s a chip to still be played if the DPKR continues to advance their nuclear and missile programs.

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The Daily Market Report: Gold Corrects from Multiyear Highs


USAGOLD/Peter Grant/09-11-17

Gold has turned corrective on rebounding risk appetite after North Korea didn’t further escalate tensions over the weekend and hurricane Irma — while certainly devastating — proved less destructive than initially predicted. Stocks rebounded as yields and the dollar rose, putting the yellow metal under pressure.

While North Korea did not test a missile this past weekend as many had expected, they did take the opportunity to threaten the U.S. with “pain and suffering” should the UN vote to intensify sanctions. The U.S. apparently did pull calls for an oil embargo and a freeze on Kim Jong-un’s assets in an effort to get buy-in from China and Russia.

President Trump’s deal with the the Congressional minority on the debt ceiling has exposed riffs within the GOP, which may make it even harder to secure much needed legislative victories before year-end. The debt ceiling legislation was nothing more than a very short-term kick of the can. The President encouraged members of his party to “start the Tax Reform/Tax Cut legislation ASAP.” We’ll see how it plays out, but I’m guessing the politics will remain contentious in DC.

With political and geopolitical tensions expected to remain elevated, investors are likely to view the dip in gold as a buying opportunity. Similarly, the longer-term outlook for the dollar looks terrible, so it’s just a matter of time before the sellers return.

When the FOMC meets next week, they are widely expected to hold steady on rates. Markets will be hoping to glean clues as to their intentions for December. Inflation data out later this week may help refine those expectations.

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Morning Snapshot: Gold corrects as anticipated DPKR missile test fails to happen

USAGOLD/Peter Grant/09-11-17

Gold came under pressure in overseas trading after North Korea abstained from the much anticipated missile test over the weekend. Make no mistake though, the geopolitical drama is not over.

North Korea did celebrate there recent nuclear test on the occasion of the 69th anniversary of the communist government. With the UN expected to vote on new sanctions as early as today, the DPKR has warned that would “cause the US the greatest suffering it has ever gone through.”

There is nothing on the economic calendar today. Focus will be on 9/11 remembrances and hurricanes. Later this week, we’ll see PPI and CPI for August. Modest gains in both are expected, but inflation will remain below target.

With both political and geopolitical tensions high, and the corresponding correction in the dollar muted, this pullback in gold is likely to attract buying interest. First support is noted at 1330.60/1325.99.

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The Daily Market Report: Gold Up 1.7% This Week as Dollar Slides


USAGOLD/Peter Grant/09-08-17

Gold remains generally well bid after setting fresh 13-month highs in overseas trading. The yellow metal is being supported by lower U.S. yields, a weaker dollar and persistent political and geopolitical uncertainties.

Fed uncertainty is certainly playing a role as well. With the resignation of Stanley Fischer, it seems increasingly likely that Janet Yellen will not continue on as Fed chair. Her direct challenge of President Trump’s assault on Dodd-Frank regulations at Jackson Hole suggests she may no longer want the job.

Suddenly too, there are some cracks in the Fed’s messaging on persistently low inflation. FedSpeak in recent years has steadfastly maintained that these price pressures are transitory. Yesterday, NY Fed President William Dudley conceded that “fundamental structural changes may also be playing a role.”

If more than $4 trillion in asset purchases — dating back to December 2008 — fails to achieve your stated goal of 2% inflation, yeah it might go beyond transitory. The time to acknowledge that and preserve some semblance of credibility is long-past.

Doubts about another rate hike this year are on the rise. Fed funds futures put the probability of a December rate hike around 37%. Additionally, the timing of the balance sheet normalization has been called into question.

Treasury yields have tumbled in recent weeks, dragging the dollar lower in the process. As we’ve noted in recent weeks, there is very little in the way of support below the current market level. As the greenback continues to slide in value, it’s going to take more dollars to buy an ounce of gold.

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Morning Snapshot: Gold sets 13-month highs before easing into range

USAGOLD/Peter Grant/09-08-17

Gold continues to power higher, establishing a new 13-month high at 1357.50 before easing modestly intraday. A push through the 1375/15/1388.46 would put the yellow metal at levels last seen in 2013.

Today’s economic calendar is light with July wholesale sales and consumer credit. We’ll also hear FedSpeak from Philly Fed centrist Patrick Harker.

Saturday is the anniversary of the founding of the DPRK. North Korea likes to mark such milestones with demonstrations of their nuclear might, so there is speculation that there will be another missile test this weekend.

How the U.S. might respond to yet another provocation remains to be seen, but tensions are likely to remain high. President Trump has expressed some reticence about military action in recent days.

While the debt ceiling issue has been kicked down the road to December, Congress still needs to hammer out a budget before the end of the fiscal year. Failure to do so — or at least pass a CR — may result in a government shutdown.

The dollar continues to lose ground, plumbing levels last seen in January 2015 and with little support below the market. If the greenback continues to fall, gold should continue to march higher.

Markets seem on edge heading into the seasonally volatile fall period for all the aforementioned reasons, which is piquing interest in gold. There is room for the yellow metal appreciate further on safe-haven demand.

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The Daily Market Report: Gold Continues to Trend Higher, Near 1-Year Highs


USAGOLD/Peter Grant/09-07-17

Gold continues to trend higher, reaching 1349.51, its highest level in nearly a year. The peak from July of last year at 1375.15 defines the next major level of resistance.

The yellow metal continues to be driven by a weak dollar and a host of political and geopolitical uncertainties. While the imminent concern about the debt ceiling has apparently been deferred for several months, make no mistake, this is nothing more than a very short kick of the can.

In that discussion yesterday, President Trump reportedly suggested scrapping the debt ceiling altogether. While that would do away with these periodic uncomfortable votes, where a sovereign default hangs in the balance, the longer term implications would be dire.

Let’s be honest, the debt ceiling always gets raised. We’ve never met a debt ceiling that we didn’t ultimately reach and need to exceed. We are addicted to debt and it is the only thing that keeps our country moving forward. We must constantly borrow prosperity from the future, because our policymakers within the beltway are loathe to meaningfully cut spending, or raise taxes.

It’s a worthwhile exercise to occasionally force the national debt into the consciousness of those politicians — and more importantly the American public — whenever we approach the debt ceiling. I shudder to think where the national debt is headed when the President and Congress no longer need to justify the raising of a debt ceiling.

If we are indeed following in the footsteps of Japan, and destined for a 200% (or more) debt to GDP ratio, the Fed is going to need to maintain interest rates well below what might have at one time be considered “normal”. That bodes ill for the dollar.

Fed Vice Chair Stanley Fischer tendered his resignation yesterday (effective mid-October). That adds to my conviction that Janet Yellen will not be reappointed.

Former Goldman Sachs president and current Director of the National Economic Council Gary Cohn had been seen as a front-runner to replace Yellen. “Like President Trump, Mr Cohn is a self-avowed backer of low interest rates. He is also no fan of a strong US dollar,” reported the FT recently.

Just the kind of guy you want in charge of the Fed if the national debt is about to explode. If you’re a saver though, he will continue to destroy your wealth.

U.S. “strong dollar policy” is already a complete charade, but if all of this comes to pass, I don’t think they even bother trying to perpetuate that charade. They’ll try and force you into the stock market, but if that’s not your cup of tea, your best defense will be to save in gold.

However, in recent weeks, the probability of a Cohn appointment has dimmed. A GOP source close to the White House told CNN’s Jake Tapper yesterday that Cohn is “more likely to get electric chair than Fed Chair.” Besides his criticism of the President’s response to events in Charlottesville, maybe it was determined that he’s not dovish enough on policy.

We’ll see who emerges as the next front-runner for the Fed Chair position, but I’d bet it’s a dollar negative event. And that should keep the wind in gold’s sails.

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Morning Snapshot: Gold surges to 11-month highs as dollar tumbles

USAGOLD/Peter Grant/09-07-17

Gold surged to new 11-month high of 1348.47 in early New York trading as the dollar index tumbled to new 33-month lows. Political and geopolitical tensions continue to offer support as well.

Weakness in the dollar is being primarily driven by euro strength, despite a rather dovish vibe from the European Central Bank. The ECB held steady on policy as was widely expected. Discussion of tapering specifics won’t occur until October, but it was reiterated that QE could in fact be extended if warranted. The central bank also expressed concerns about euro strength and further trimmed inflation expectations for 2018 and 2019.

Again, rather dovish, but the market seems to think that the ECB is more hawkish than the Fed. At some point the strong euro is going to start weighing on the prospects for recovery and Draghi and company will have to start jawboning it down.

Relief associated with the 3-month kick of the can on the U.S. debt ceiling seems to have been short-lived. While focus can now shift to a budget, nothing has been resolved and we’ll be right back in the same mess in about 12-weeks with a potential default looming.

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Morning Snapshot: Gold well bid near 11-month highs

USAGOLD/Peter Grant/09-06-17

Gold remains well bid, near the 11-month high established yesterday at 1344.33. Geopolitical and political tensions continue to dominant the headlines, driving haven flows.

U.S. yields have reached levels not seen since the U.S. election back in November. This is obviously weighing on the dollar and providing an additional tailwind for gold.

The North Korean nuclear test over the weekend reportedly has enraged Chinese leaders. Hawkish rhetoric is on the rise in Beijing, calling for heightened sanctions and potentially cutting off oil supplies.

Additionally, the Chinese military staged a demonstration of its ability to shoot down missiles near the North Korean border. According to the South China Morning Post, the test was intended as a warning to Pyongyang.

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The Daily Market Report: Gold is Well Bid as Geopolitical Tensions Ratchet Higher


USAGOLD/Peter Grant/09-05-17

Gold rebounded from modest intraday downticks after filling the gap that was left yesterday. The yellow metal remains elevated by geopolitical tensions that continue to ratchet higher, as well political uncertainty here at home.

Gold set another new high for the year yesterday at 1338.82 after North Korea tested a rather larger nuclear device. It was reportedly an order of magnitude greater than previous tests and there is speculation it may have been a hydrogen bomb.

“Any threat to the United States or its territories including Guam or our allies will be met with a massive military response, a response both effective and overwhelming,” responded U.S. Secretary of Defense Jame Mattis. According to Foreign Policy magazine, the threat makes war “more likely than ever.”

President Trump tweeted that the “The United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea.” In addition, the President has apparently green-lighted the sale of a “substantially increased amount of highly sophisticated military equipment” to both Japan and South Korea.

Reports today center on North Korean movement of a missile toward the coast, presumably for another test flight. If that missile ultimately heads toward Guam, the risk of a U.S. military response is substantial.

We seem to be hurdling along a rather ominous path at an ever-increasing rate of speed. Unless calmer heads prevail, this has the potential to devolve into a global catastrophe.

Jeff Currie, Goldman Sachs chief commodities strategist, reminds us that gold is the true “geopolitical hedge of last resort.” ZeroHedge summed it up thusly:


Currie’s conclusion: if buying gold, don’t buy futures or ETFs – buy the real thing: “The lesson learned was that if gold liquidity dries up along with the broader market’s, so does your hedge—unless it is physical gold in a vault, the true “hedge of last resort.”

The distinction of “electronic” or paper gold versus physical may be one the cryptocurrency community will soon be forced to learn, especially if North Korea does carry out, as it threatened over the weekend, an attack using an Electro Magnetic Pulse which could promptly empty all those bitcoin “vaults.”

If war should break-out, physical may become very difficult to get, which would push prices up dramatically. The time to lay in your hedge is before the black swan takes wing.

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Morning Snapshot: Gold firm as North Korean tensions escalate yet again

USAGOLD/Peter Grant/09-05-17

Gold remains well bid as U.S. investors return from the long holiday weekend. The yellow metal posted solid gains yesterday on escalating tensions with North Korea.

North Korea conducted a nuclear test on Sunday. Speculation is that it was a hydrogen bond in the range of hundreds of kilotons, far larger than all previous tests. Obviously the U.S. and its allies have taken notice and the saber rattling has ramped up considerably.

North Korea is reportedly moving a missile, which has further raised concerns. The South Korean defense minister has said it’s worth considering redeploying U.S. tactical nuclear weapons to counter recent aggressive moves by the DPRK.

Congress returns to work today after the month-long summer recess. They will begin trying to hammer out a budget and a resolution to the the debt ceiling as the country hurdles toward a possible government shutdown and/or default. A number of other contentious pieces of legislation are being forwarded in the weeks ahead, which may further muddy the waters.

The heightened geopolitical and political tensions will continue to keep gold underpinned. Last year’s high at 1375.15 is the next significant level of resistance.

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The Daily Market Report: Gold Firm Heading Into Holiday Weekend


USAGOLD/Peter Grant/09-01-17

Gold extended to new 9-month highs in early New York trade, following disappointing jobs data this morning. However, follow-through gains were limited ahead of the long Labor Day weekend.

Nonetheless, the yellow metal remains generally well bid with favorable fundamental and technical backdrops. Short-term setbacks will likely be viewed as buying opportunities.

The weaker than expected rise in nonfarm payrolls in August, along with negative revisions to previous months and continued softness in hourly earnings raises additional doubts about another rate hike this year. Fed funds futures indicate there is only a 1.4% chance of a September rate hike, while the potential for a December hike is steady around 38.2%.

I’ve also sensing a little more skepticism about the timing of the initial move on balance sheet normalization. The Fed had indicated that reduction of the massive $4.5 trillion balance sheet would likely begin in September. Today’s jobs data, along with rising concerns about a U.S. default and government shut down may give the Fed pause, even given how minimal those initial sales are expected to be. It’s just another level of uncertainty in an already very uncertain environment.

The rest of the data out today were mixed: University of Michigan consumer sentiment was revised lower to 96.8 in August, from the 97.6 preliminary read. but was still higher than the 93.4 final print in July. Markit’s manufacturing PMI fell in August, while U.S. manufacturing ISM rose. Construction spending was down 0.6%, where a 0.6% rise was anticipated.

Congress returns to work next week and they’ll have their work cut out for them to come to terms on a budget and avert a breach of the debt ceiling. It seems rather likely that those processes will be contentious.

Reuters reported today that the looming debt ceiling debate is pushing some fund managers out of stocks and into cash. However, given the current trajectory of the dollar, they might actually be better served going into gold. Sometimes that ends up being the second step in the reallocation process.

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Morning Snapshot: Gold sets new highs for the year on soft jobs data

USAGOLD/Peter Grant/09-01-17

Gold pushed to new highs for the year above 1326.00 in the wake of this morning’s nonfarm payrolls miss. The yellow metal subsequently retreated into the range, perhaps on profit taking ahead of the long holiday weekend, but dips are likely to be seen as buying opportunities.

U.S. nonfarm payrolls rose 156k in August, below expectations of +183k, versus a negative revised 189k rise in July (was +209k). The unemployment rate ticked up to 4.4%. Expectations were for steady at 4.3%.

Hourly earnings rose just 0.1%, below expectations of +0.2%, versus a negative revised +0.1% in July (was +0.3%). The average workweek ticked down to 34.4 hours, on expectations of 34.5 hours.

The weakness of these data further erode the likelihood of another rate hike this year. It may also give the Fed pause when it comes to beginning the balance sheet unwind, signaled to start as early as this month.

The dollar initially retreated, along with U.S. yields, providing a boost for gold. The dimmed prospects for tighter monetary policy are underpinning stocks. For that market, good news is good news and bad news is good news . . . until it isn’t . . .

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The Daily Market Report: Gold’s Dip Below $1300 Attracts Fresh Buying


USAGOLD/Peter Grant/08-31-17

Gold ticked briefly below 1300.00 in overseas trading, before renewed buying interest emerged. The yellow metal is now up nearly 1% on the day; $20 off the intraday low.

Geopolitical tensions continue to ratchet higher: The U.S. conducted live-fire bombing runs on the Korean Peninsula yesterday, along with South Korean and Japanese planes. Some of the planes were reportedly nuclear capable B1s from Andersen Air Force base on Guam.

Treasury Secretary Mnuchin contends that the debt ceiling will be raised, but also warned that Hurricane Harvey relief legislation could further trim the already small September window for Congress to resolve the impending issue.

The Freedom Caucus is already warning that the debt ceiling increase should not be attached to any Harvey relief legislation. Some in the GOP are talking about linking Medicaid reform to the debt ceiling. That would assuredly be a nonstarter for Democrats, as would any link to tax reform that favors corporations or the wealthy.

This is going to be a contentious fight any way you slice it, for a White House that has already lost considerable post-election momentum. A potential default and/or a government shut down hangs in the balance. The next 4-weeks are going to very interesting indeed, with significant implications for risk appetite.

Jim Rickards posited an interesting theory yesterday on Mnuchin’s recent visit to Ft. Knox. “The answer may lie in the fact that the Treasury is running out of cash and could be broke by September 29 if Congress does not increase the debt ceiling by then. But the Treasury could get $355 billion in cash from thin air without increasing the debt simply by revaluing U.S. gold to a market price,” Rickards told Kitco News’ Daniela Cambone.

U.S. gold reserves remain on the books at $42.22 per ounce. If Treasury were to mark those reserves to market — like the ECB does for example — they could buy themselves another 4-months or so.

The downside of doing that is it gives considerable legitimacy to a reserve asset that both Treasury and the Fed are probably loathe to bolster. However, a default may be the greater of two evils.

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Morning Snapshot: Gold underpinned, shrugging off dollar gains

USAGOLD/Peter Grant/08-31-17

Gold continues to consolidate near the high end of this year’s range, shrugging-off further gains in the dollar. Clearly, political and geopolitical risks continue to underpin the yellow metal.

U.S., South Korean and Japanese warplanes staged a live-fire bombing exercise on the Korean Peninsula yesterday. It was a direct response to North Korea’s missile launch that flew over Japan earlier this week. The sabers continue to be rattled.

President Trump attempted to reinvigorate the push for tax cuts and tax reform before year-end. Emphasis seems to be on a corporate tax cut, but apparently the President is going to leave the details to Congress.

Congress is going to have a full slate when they return next week from the month-long summer recess. And everything is going to be hotly contended, with default and a government shutdown hanging in the balance.

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The Daily Market Report: Gold Consolidates Recent Gains as Dollar Corrects


USAGOLD/Peter Grant/08-30-17

Gold is consolidating above the $1300 level, showing good resilience in the face of a stronger dollar today. Political and geopolitical risks continue underpin the yellow metal.

The dollar index is up more than 1% from yesterday’s 32-month low. Today’s better than expected revision to Q2 GDP is helping to buoy the greenback, but another rate hike this year remains a long-shot. September remains off the table and even with the GDP beat, Fed funds futures put the probability of a December hike at just 36.4%.

Given the broader fundamental picture, the bounce in the dollar is likely to prove short-lived. If corrective upticks are met with further selling interest, given the breach of a key support level yesterday, a significant downside extension into the mid-80s is possible.

That would push gold to more new highs as well. The yellow metal continues to garner additional support from ongoing saber-rattling by the U.S. and North Korea.

On the heels of this week’s missile shot over Japan, the DPKR state-run new agency declared it a “a meaningful prelude to containing Guam.” The suggestion being that the launching of a missile toward Guam is still very much on the table. President Trump tweeted this morning that “talking is not the answer” to dealing with North Korea.

The President pledged early in the month to respond with “fire and fury” if North Korea threatened the U.S. One has to imagine that firing missiles toward Guam would be a very direct threat, warranting some type of response.

Domestically, the President is going to try and reinvigorate his campaign pledge for tax cuts and tax reform. With Congress returning next week after the summer recess, their agenda is going to be pretty packed with Texas obviously deserving of immediate attention. Our policymakers will have their work cut out for them, coming up with a budget before the end of the fiscal year and addressing the debt ceiling before the Treasury runs out of money at the end of September.

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Morning Snapshot: Gold dips on GDP beat, but underpinned by political/geopolitical risks

USAGOLD/Peter Grant/08-30-17

Gold dipped briefly on this morning’s Q2 GDP beat. However, downticks have been limited thus far amid persistent political and geopolitical risks.

U.S. Q2 GDP was revised up to 3.0%, above expectations of 2.8%, versus a 2.6% preliminary read and 1.2% in Q1. This may lead to a rise in December rate hike expectations, but September remains off the table.

President Trump tweeted this morning that “Talking is not the answer!” when it comes to North Korea. It’s unclear at this point what the President thinks might work, but this might easily be interpreted as a threat of military action.

The dollar has rebounded after setting 32-month lows yesterday, which is weighing on gold. However, the correction in the greenback will likely be sold as a selling opportunity. If the dollar remains in a downtrend, it will continue to provide a tailwind for gold.

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The Daily Market Report: Gold Sets Another New High for the Year in Earlier Trade


USAGOLD/Peter Grant/08-29-17

Gold jumped to another new high for the year, spurred by the latest North Korean provocation and a corresponding rise in risk aversion. While a rise in U.S. consumer sentiment tempered gains, the current fundamentals remains broadly supportive.

North Korea fired a ballistic missile that passed over Japan, further amplifying already high geopolitical tensions. Japan’s Abe called it “a most grave threat.” U.S. Ambassador to the U.N. Nikki Haley warned that North Korea has “violated every single U.N. Security Council resolution that we’ve had and so I think something serious has to happen.” President Trump says that “all options are on the table.”

While the North Korean tensions have been dominating the headlines recently, let us not forget geopolitical tensions remain elevated in the middle east as well:

A senior Israeli official warned the Russian government that if Iran continues to extend its reach in Syria, Israel will bomb Syrian President Bashar Assad’s palace in Damascus, according to reports in Arab media. — Jerusalum Post

The geopolitical tensions and the post-storm recovery in Texas are going to take up a great deal of time when policymakers return to the Beltway next week after their summer recess. This may make finding some common ground on the budget and the debt ceiling even more difficult.

Congress has a very small window between September 5th and the 29th to resolve some pretty serious issues. The agenda is now even more packed, which increases the risks that not everything gets done in time.

The dollar index broke a critical support level today at 91.92, which has some rather bearish longer term implications. There is very little in the way of additional support until well into the 80s.

I’ve mentioned this before, but it’s worth repeating today: The dollar is clearly no longer a safe-haven currency. Investors would rather buy yen as a haven, the currency of a country that was just overflown by a North Korean missile.

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