Category: Daily Market Report

Morning Snapshot: Gold Defensive Within Range as Stocks Surge

USAGOLD/Peter Grant/12-04-17

Gold is down in early U.S. trading to start the week, weighed once again by heightened risk appetite in the wake of the Senate’s passage of tax reform legislation over the weekend. Stock futures are up sharply this morning with the centerpiece of the aforementioned bill being a significant cut to corporate taxes.

U.S. yields jumped, dragging the dollar higher, but the greenback has been unable to sustain gains thus far. Perhaps because the tax bill is expected by many to significantly increase deficits and the debt.

The House is expected to vote today to establish a conference committee, where the House and Senate versions will be reconciled. This is anticipated to be a heavy lift in the short period before the Christmas recess.

The U.S. calendar is light today with October factory orders/inventories. The big event of the week comes on Friday with the November jobs report. Median expectations for nonfarm payrolls are +198k. The unemployment rate is expected to hold steady at 4.1%.

The low end of the well established range in gold remains protected at 1260.10. Dips into the low end of that range have been seen as buying opportunities for more than a month.

Offering support to the yellow metal are heightened geopolitical tensions and ongoing political uncertainty here in the U.S. Softness in the dollar is also providing some support.

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The Daily Market Report: Gold Turns Choppy Within Range, Amid Political Uncertainty


USAGOLD/Peter Grant/12-01-17

Gold rebounded on Friday amid heightened political uncertainty, which tempered risk appetite. All of Thursday’s losses — and then some — were recovered, leaving the low end of the well defined range protected. The DJIA was down 350 at one point in the day.

Former Trump administration insider Michael Flynn reached a plea deal with special prosecutor Robert Mueller. Flynn plead guilty this morning to lying to the FBI and is now cooperating with the Mueller investigation.

In a statement issued after he entered his plea in a federal courthouse in Washington, Mr. Flynn, 58, . . . said that he had agreed to cooperate with federal prosecutors, who are examining whether Mr. Trump’s campaign colluded with Russians during the election and whether the president or his aides sought to cover up those efforts. — NYT

There is speculation that Flynn will testify that he was directed to make contact with the Russians by a senior Trump campaign official, possibly even Donald Trump himself. The broader implications of such a revelation are hard to know, but certainly there is risk to the recent momentum on tax reform and the temporary spending resolution that needs to be passed before December 8.

Despite all the Flynn associated turmoil, word from Senate Majority Leader Mitch McConnell that “We have the votes” to pass tax reform legislation out of the Senate sparked a rebound in stocks.

The Senate version of the legislation could clear the upper chamber as soon as today. Democrats tried to force the bill back into committee by way of a procedural measure, but that effort has failed.

Nonetheless, uncertainty remains high and that should at least protect the downside in gold. A definitive rebound above $1300 is still needed to return a greater degree of confidence to the underlying uptrend that has dominated this year.

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Morning Snapshot: Gold Remains Defensive Within Range

USAGOLD/Peter Grant/12-01-17

Gold is down slightly, but still well contained within the range that has dominated for the past 6-weeks. Risk appetite has been on the rise of late as GOP tax reform legislation makes its way through the process.

Stocks have been setting record highs in anticipation of a significant corporate tax cut that will increase profit margins. The dollar has rebounded somewhat as well, keeping the yellow metal under pressure.

Today’s U.S. calendar has manufacturing ISM and PMI, construction spending and auto sales. FedSpeak is due from Bullard, Kaplan, Harker and Quarles.

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The Daily Market Report: Gold Retreats Into Lower Half of Range


USAGOLD/Peter Grant/11-30-17

Gold is down today, slipping to a two-week low within the well defined range. The yellow metal is being weighed by building optimism that tax reform is going to get passed, which has pushed stocks to record highs.

However, the stock market seems to be largely ignoring the very small window to get the Senate and House tax bills reconciled ahead of year-end. There also is the impending threat of a government shutdown at the end of next week, as well as the growing threat of war between the U.S. and North Korea.

Efforts to kick the can on the budget and debt ceiling are already underway. A stop-gap spending bill in the House would keep the government funded through December 22. That would reportedly be followed by a second temporary measure to get the government to the end of January.

One thing is certain, regardless of the outcome on the tax plan, the debt ceiling is going to have to be raised or suspended and the inevitable march higher will continue. That raises the question, who is going to be the buyer of all that new debt? Especially when you consider that the Fed is trimming its balance sheet.

The PCE data that came out this morning was a bit of a mixed bag, but the important core inflation reading rose to 1.4% y/y; still well below the Fed’s target of 2.0%. The spin will be that the uptick portends higher inflation in the months ahead, but the truth is that the trend for the year remains unquestionably negative.

The market still sees a 90.2% probability of a December rate hike. That FOMC meeting is December 12-13.

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Morning Snapshot: Gold Remains Defensive Within Range

USAGOLD/Peter Grant/11-30-17

Gold is down, maintaining a defensive tone within the well defined range. The yellow metal is being weighed by heightened risk appetite, driven by tax cut optimism, which keeps focus on frothy stocks.

U.S. personal income rose 0.4% in October, above expectations of +0.3%. PCE also bested expectations, although moderated considerable from the negative revised +0.9% in September.

Core PCE inflation — the Fed’s preferred measure of inflation — rose to 1.4%, but remains well below the 2.0% target. Inflation has been trending lower this year, which prompted the central bank to pause the tightening cycle in September.

So, does this uptick signal a reversal of that trend, or merely a brief reprieve? That’s a question the FOMC will have to wrestle with in a couple weeks.

The dollar index was unable to sustain a probe above the 100-day moving average in earlier trading, keeping focus on the downside. Continued weakness in the dollar should help protect the low end of the range in gold as well.

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The Daily Market Report: Gold Retreats To Midpoint of the Range


USAGOLD/Peter Grant/11-29-17

Gold fell back into the range in early U.S. trading, driven by heavy selling in the futures market after an upward revision to Q3 GDP. That puts the yellow metal back around the midpoint of the well defined 1260.10/1306.04 range that has dominated for more than a month.

Generally good economic data of late has reinforced expectations of a December rate hike, even though Janet Yellen continues to be surprised by “subdued” core inflation. Supposedly, that’s the main reason that the Fed decided to pause their tightening cycle back in September.

October PCE data are out tomorrow, so we’ll see if the central bank’s preferred measure of inflation picked up at all last month. While Yellen continues to think the weakness is transitory, one has to wonder how long this must go on before she changes her tune.

Also weighing on gold is ongoing strength in the stock market, which has been bolstered by optimism about the GOP tax overhaul, which includes a substantial cut to corporate taxes. If the Senate votes along party lines the legislation will clear the Senate, but the Republicans can ill afford any defectors or abstentions.

Senators Ron Johnson (R-WI) and Steve Daines (R-MT) they oppose the legislation in its present form. There are also at least four Republican Senators that have legitimate concerns about how this legislation will impact deficits and the national debt, and even more on the fence for various other reasons.

Nonetheless, the market likes the fact that the legislation continues to move through the process. Whether something gets to the President’s desk before year-end is still very much in doubt.

Perhaps further complicating the matter is the fact that Congress needs to come up with a budget plan by the end of next week, and raise or suspend the debt ceiling. “I don’t see a deal,” said President Trump via Twitter yesterday. Or of course, they could kick that can yet again.

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Morning Snapshot: Gold Retreats Into Range After Q3 GDP Revision

USAGOLD/Peter Grant/11-29-17

Gold is down in early U.S. trading after Q3 GDP was revised higher. The dollar rose, pushing the yellow metal back into the recent range as stronger growth provides further justification for a rate hike in December.

U.S. Q3 GDP was revised up to 3.3%, in line with expectations, versus 3.0% previously and 3.1% in Q2. However, it is widely expected that growth is slowing in Q4. We saw some downward revisions yesterday on the surge in the trade deficits.

While the uptick in growth is encouraging, Janet Yellen will reiterate today before the JEC that core inflation “has remained surprisingly subdued.” According to her prepared testimony, released earlier this morning, she will go on to say “the recent lower readings on inflation likely reflect transitory factors.”

It seems like we’ve been hearing that for an awfully long time. We’ll get the latest inflation reading tomorrow with the release of October PCE data tomorrow. If inflation remained steady or increased in October, the market will remain convinced that the hike is on. If inflation slowed, rate hike expectations will be tempered.

Later this morning we get the October Pending Home Sales Index and EIA crude stocks for last week.

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The Daily Market Report: Gold Remains Firm Near 6-Week Highs


USAGOLD/Peter Grant/11-28-17

Gold is up slightly, despite some robust economic data and some hawkish FedSpeak from Jerome Powell. The yellow metal remains underpinned and within striking distance of yesterday’s 6-week high at 1299.30 as a result of political and geopolitical uncertainty.

Both consumer confidence and the Richmond Fed index significantly beat expectations. U.S. home prices continued to rise in September as well, as indicated by the Case-Shiller and FHFA indexes. All of this bodes well for the highly anticipated December rate hike.

However, an unexpected surge in the trade deficit in October has prompted some negative revisions to Q4 GDP expectations. Goldman Sachs trimmed their outlook from 2.6% to 2.3%, while BofA cut their forecast from 2.3% to 1.8%.

Fed chair nominee Jerome Powell said, “The case for raising interest rates at our next meeting is coming together,” during testimony before the Senate Banking Committee. I’d say the case hasn’t really been made until there is some real evidence of rising inflation. PCE is out on Thursday.

Powell contends that it’s time for normalizing interest rates, but it’s pretty clear that old concept of “normal” no longer applies. I don’t believe anyone asked him at what level Fed funds would be considered “normalized.” Nonetheless, and largely as expected, this testimony seems to verify that Powell is inclined to continue the gradual tightening cycle started by Janet Yellen.

On the political front, President Trump tweeted this morning that he was pessimistic about reaching a deal with Congressional Democrats to fund the government beyond December 8th (that’s just a little more than a week away!). Chuck Schumer and Nancy Pelosi quickly pulled out of a meeting with the President that was scheduled for today. “We believe the best path forward is to continue negotiating with our Republican counterparts in Congress instead,” they said in a joint statement.

While Rand Paul has said he will vote for the Senate tax overhaul, there are still a couple of Republican holdouts. A vote may happen as early as Thursday, but Goldman Sachs sees passage before year-end as about a 50-50 proposition. Certainly if a funding deal isn’t reached by the end of next week, those prospects are likely to dim considerably.

North Korea has reportedly conducted a ballistic missile test. The Japanese Coast Guard has apparently reported that that the missile fell into the sea near Japan. This news is breaking as I write and there will be further updates.

This latest provocation comes after South Korea Unification Minister Cho Myoung-gyon warned that the DPKR is “developing their nuclear capabilities faster than expected and we cannot rule out the possibility Pyongyang may declare the completion of their nuclear program in a year.” This is rather ominous as both the Trump administration and military leaders have declared such a situation as unacceptable.

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Morning Snapshot: Gold Remains Firm Near $1300

USAGOLD/Peter Grant/11-28-17

Gold is up slightly in early U.S. trading. The yellow metal is holding up pretty well in the wake of yesterday’s push to 6-week highs, just shy of $1300. A firmer dollar and modest stock market gains are perhaps limiting the upside at this point.

U.S. advance trade gap widened to -$68.3 bln in Oct, outside expectations of -$65.5 bln, vs -64.1 bln in Sep. Home prices continue to rise with the FHFA index gaining 0.3% and the Case-Shiller 20-city index gaining 0.4% in September.

Later this morning we’ll see November consumer confidence and the Richmond Fed index. Fed chair nominee Powell appears before the Senate and we’ll hear FedSpeak from Dudley and Harker.

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The Daily Market Report: Gold Jumps To 6-Week High Near $1300


USAGOLD/Peter Grant/11-27-17

Gold is up, having reached a 6-wwek high of 1299.30 in earlier U.S. trading. While gains stalled just shy of $1300, the bias remains to the upside and further challenges of this critical level seem likely.

Gold us being helped by recent weakness in the dollar. The dollar index fell through important support at 92.80 (12-Oct low) to establish fresh 9-week lows. More than 61.8% of the bounce off the September low at 91.13 has now been retraced, making that level a logical target. The DX is now well below the 20-, 50-, 100- and 200-day moving averages, lending credence to the bearish scenario.

Dollar losses gained momentum last week after the FOMC minutes from the November meeting came in more dovish than expected. There also seemed to be heightened concerns about asset valuations.

“In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential buildup of financial imbalances. They worried that a sharp reversal in asset prices could have damaging effects on the economy.” — Minutes of the Federal Open Market Committee, October 31-November 1, 2017

In that respect, the Fed has sort of painted themselves into a corner: The stock market seems to like everything the Fed does these days. Tighter policy and the implications of an improving economy have lifted stocks, while a more dovish Fed (September pause) has also buoyed stock because it means cheap liquidity.

At this point, the market still believes a December rate hike remains baked in the cake. At this point, if the Fed wanted to prick the stock market bubble they would likely have to turn much more hawkish than the market is presently expecting and I think they are disinclined to do so.

With the über-accommodative policy stance over the past decade, the Fed is very much responsible for pushing investors out along the risk curve. Pensions should be of particular concern, because if stocks seriously correct, the already underfunded situation of many public pensions is only going to get worse.

Stocks however will ultimately correct, perhaps as a result of a central bank miss-queue, but more likely due to some external factor outside the control of the central banks. When the next crisis comes, financial writer and publisher John Mauldin believes “central banks and governments will react in ways that are even more unthinkable” than the measures they employed during the financial crisis.

At that time, as the world’s central banks pumped liquidity into the financial system, gold soared to record highs. I suspect the results the next time will be the same.

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Morning Snapshot: Gold Sets 5-Week Highs, Buoyed by Weak Dollar

USAGOLD/Peter Grant/11-27-17

Gold is up to start the post holiday week, setting fresh 5-week highs above 1297.10. The yellow metal is getting a lift from continued dollar weakness in the wake of the more dovish than expected Fed minutes from last week.

While some doubts have been raised about the likelihood of a December rate hike, Fed funds futures continue to show a probability in excess of 90%. Later this week we’ll see the Fed’s preferred gauge of inflation for October, which has the potential to temper rate hike expectations if it remains weak.

Today’s economic calendar is light with October new home sales and the November Dallas Fed index. After the close we’ll hear Fedspeak from doves Kashkari and Dudley. Fed chair nominee Powell will testify before the Senate Banking Committee on Tuesday.

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Morning Snapshot: Gold Firms Within the Range

USAGOLD/Peter Grant/11-22-17

Gold is up in early U.S. trading, lifted by a softer dollar. More than half of Monday’s sharp intraday sell-off has now been retraced, leaving the low end of the recent range well protected.

U.S. initial jobless claims fell 13k to 239k in the week ended 18-Nov, just below expectations of 240k. However, October durable goods orders really missed the mark, tumbling 1.2% on expectations of a rise of 0.5%. Septembers solid gain was trimmed to +2.0%, from +2.2% previously.

Core capital goods orders fell 0.5%. New orders plunged 5.1%. Nondefense aircraft orders -18.6%. Defense aircraft orders -11.3%.

It would seem the boost derived from recent aircraft orders and the hurricanes has come to an end. Look for some downward adjustments to Q4 GDP expectations. Rate hike expectations may get tempered as well, particularly if next week’s PCE data continues to reflect weak inflation.

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The Daily Market Report: Gold Firms Intraday, Leaving Low End of Range Protected


USAGOLD/Peter Grant/11-21-17

Gold is up modestly in U.S. trading, buoyed by a softer dollar and seemingly ignoring the sharp rise in stocks. Yesterday;s low at 1273.90 provides an additional intervening barrier ahead of the range lows in gold at 1263.00/1260.10.

FedSpeak from Yellen after the close may provide some insight into the true prospects for a December rate hike. However, the minutes from the November FOMC meeting out tomorrow will likely be more valuable in that regard.

Decent to good U.S. economic data of late, reinforces market expectations that the Fed will indeed boost the Fed funds rate by another 25 bps on December 13. Fed funds futures indicate a 91.5% probability of such a move.

UBS is predicting that the dollar will have a rough 2018, particularly against the euro. This would be a perpetuation of the trend that developed this year, where the greenback fell more than 10% against the single currency.

If the dollar has a rough year, it bodes well for another good year for gold. The yellow metal is up 11.2% YTD and as we mentioned in Friday’s DMR, this is the first time in 4-years that such resiliency has been seen going into year-end.

Gold has sold off into year-end for the past 4-years, premised largely on expectations of Fed tightening (either QE tapering or actual rate hikes). This year — with another rate hike decidedly on the table — gold remains resilient. The yellow metal is a mere 4.7% off the high for the year at 1357.50.

The ECB has been talking out of both sides of its mouth in recent weeks, making rumblings about tapering and then saying it intends to keep its foot on the gas. The fact that it cut monthly asset purchases, but plans to do them for longer is reflective of these mixed signals.

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Morning Snapshot: Gold Defensive Back in Lower Half of Range

USAGOLD/Peter Grant/11-21-17

Gold is down this morning, back in the lower half of the range after coming under selling pressure during the U.S. session yesterday. The bottom of the range is well defined at 1263.00/1260.10 and remains protected at this point.

The Chicago Fed national activity index for October came in better than expected. Later this morning we’ll get October existing home sales, which are expected to edge higher to a 5.410M pace.

After the close, Fed chair Yellen will speak at NYU along with former BoE Governor Mervy King. The minutes from the November FOMC meeting will be released tomorrow. The latter will perhaps provide a better window into the Fed’s thinking going into year-end. Is soft inflation still a concern? Is the Fed angling for another rate hike, regardless of the inflation outlook?

Thursday is of course the Thanksgiving holiday. Markets are open on Friday, but trading is historically very thin.

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The Daily Market Report: Gold Retreats Into Range After Stalling Ahead of $1300


USAGOLD/Peter Grant/11-20-17

Gold is down in U.S. trading after tests of the upside late last week stalled shy of $1300. Stronger than expected U.S. leading indicators for October buoyed stocks and the dollar, which weighed on the yellow metal.

U.S. leading indicators rose 1.2% in October, well above expectations of +0.5%, versus a positive revised +0.1% in September (was -0.2%). This reading further reinforces expectations for a 25 bps rate hike when the FOMC meets December 12-13. Such a move has been essentially fully priced in by the markets since shortly after the Fed opted to pause the tightening cycle back in September because of soft inflation data.

While inflation data have firmed somewhat since the hurricanes, it remains to be seen whether these price pressures are sustainable. The Fed will get a look at October PCE data a couple weeks prior to the FOMC meeting. This is the Fed’s preferred measure of inflation and hints of renewed weakness could prompt a rather rapid unwind of positioning premised on the all-but assured expectations of a rate hike.

Fed Chair Janet Yellen announced today that she will leave the Fed once her successor is seated. Jerome Powell has been nominated to be the next Fed chair and is expected to get approved by the Senate. That will give President Trump another position to fill at the Fed. We’ll hear FedSpeak from Ms. Yellen tomorrow.

With gold back on the ropes within the range, a breakout in this holiday shortened week is looking unlikely. Recent pullbacks within the range however have been viewed as buying opportunities. Support is well defined at 1263.00/1260.10.

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Morning Snapshot: Gold Easier Within Range

USAGOLD/Peter Grant/11-20-17

Gold is down modestly to start the holiday shortened week, but the tone within the range remains generally favorable after solid gains on Friday. Focus remains on the next tier of resistance at 1306.04/1308.80 (16-Oct high and 50% retracement of the entire move from 1357.50 to 1260.10).

Political and geopolitical tensions, along with recent weakness in stocks and the dollar, are all helping to underpin the yellow metal within the well defined range.

Negotiations in Germany to form a coalition government collapsed last night after the Free Democratic Party (FDP) walked out. The reaction in Europe has been muted thus far, with the euro recovering from initial losses. However, the risks may be considerable.

The U.S. economic calendar is light today with just October leading indicators. Expectations are for a 0.5% rise, after a 0.2% decline in September.

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The Daily Market Report: Gold Surges to Approach $1300 For the First Time in a Month


USAGOLD/Peter Grant/11-17-17

Gold is up significantly heading into the weekend. The yellow metal surged to new 4-week highs 1289.50, bolstering expectations for short-term tests back above $1300.

Support is coming from political and geopolitical tensions, which have generated some risk aversion and weighed on both the dollar and stocks. December rate hike expectations have retreated somewhat, but remain above a 90% probability. While this may be seen as a limiting factor on the upside, that rate hike is fully priced and therefore the risk there arguably one-sided toward steady policy.

Gold has sold off into year-end for the past 4-years, premised largely on expectations of Fed tightening (either QE tapering or actual rate hikes). This year — with another rate hike decidedly on the table — gold remains resilient. The yellow metal is a mere 4.7% off the high for the year at 1357.50.

Since that high was set in September, the market has coiled in an increasingly narrow range. Such price action is typically associated with a continuation pattern, favoring eventual breakout in the direction of the trend. That breakout may have commenced today, and the underlying trend is up. We’ll see if we get upside follow-through above the next significant tier of resistance at 1306.04/1308.80 (16-Oct high and 50% retracement of the entire move from 1357.50 to 1260.10).

There are a number of events upcoming that could spur gold higher. October PCE inflation is slated for release on November 30. This is the Fed’s preferred measure of inflation and if there are signs of continued weakness, it could conceivable tank rate hike expectations rather quickly. The December FOMC meeting is December 12-13.

While Congress is very focused on tax reform right now, a budget agreement and some accord on the debt ceiling is going to be needed in early December. As noted in yesterday’s DMR, Congress is on break next week for Thanksgiving and the Christmas recess starts on December 18. There really aren’t many working days left this year and by kicking the budget/debt ceiling can in September.

Hold onto your hats! The remainder of the year could be really interesting.

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Morning Snapshot: Gold Edges Higher Within the Range

USAGOLD/Peter Grant/11-17-17

Gold is up in early U.S. trade, underpinned by escalating political uncertainty and geopolitical tensions. The dollar and stocks remain somewhat defensive as well, providing additional support for the yellow metal.

The Wall Street Journal reported yesterday that more than a dozen Trump campaign officials were issued a subpoena by Special Counsel Robert Mueller last month, requesting documents and emails “that reference a set of Russia-related keywords.” This comes at a time when the Trump administration is trying to shepherd tax reform legislation through Congress, deemed critical to keeping their broader economic agenda on track.

North Korea has reportedly rejected Chinese overtures to give-up their nuclear program. “[T]here is no way other than standing against the repressive U.S. imperialists only with a nuclear deterrent of justice,” declared the state-run newspaper Rodong Sinmun.

U.S. housing starts for October came in much better than expected, surging 13.7% to a 1.290M pace. That’s the extent of the U.S. data today.

It’s worth mentioning that Canadian CPI slowed in October to 1.4% y/y, versus 1.6% in September. Median core CPI slowed to 1.7% y/y, down from 1.8% in September. These inflation data come in the month after the BoC surprised with a 25 bps rate hike in September.

A breach of the high from earlier in the week at 1289.50 is needed to clear the way for renewed probes above $1300. Key resistance is marked by the mid-October high at 1306.04, which is the trigger for a retest of the 1357.30 high for the year.

Meanwhile, the low end of the range is well defined at 1263.00/1260.10. Intervening barriers are at 1269.60 and 1264.70.

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The Daily Market Report: Gold Little Changed as Softer Dollar/Firmer Stocks Create Opposing Forces


USAGOLD/Peter Grant/11-16-17

Gold is up slightly within the range. While the dollar remains somewhat defensive, stocks have rebounded, resulting in opposing forces acting on the yellow metal.

The House appears poised to advance their version of tax reform legislation; likely without any support from the minority party. However, some GOP opposition to the Senate bill has emerged. Senator Ron Johnson of Wisconsin has already said he can not vote for the bill and there are a number of other key Republicans that have not committed.

Political uncertainty is likely to remain elevated in the coming weeks as tax legislation either advances or stalls. The key being, whether a bill will reach the President’s desk before year-end.

In the interim, and likely complicating matters, will be the budget discussion and the debt ceiling in early December. That can got kicked back in September, averting a government shutdown and allowing the majority party to focus on tax reform. However, that can may not have been kicked far enough.

The debt ceiling is back in play on December 8, which may provide the Democrats leverage to impact the tax legislation if something doesn’t get to the President before then. Congress is on Thanksgiving break all of next week and the Christmas recess starts on December 18. There really is very little time to get anything done.

Even if tax reform does get done, the long-term implications to the national debt are likely to be significant. Be assured, the debt ceiling will get raised, albeit perhaps not in a timely manner. As the debt continues to rise, servicing costs will continue to rise as well.

This is all coming to a head just as the Fed contemplates another rate hike at the December 12-13 FOMC meeting. The prospects at that time for fiscal stimulus will certainly weigh in the decision making process, as will the long-term debt trajectory.

This all sets the stage for potentially heightened volatility going into the holidays. With gold and silver still well contained and off the highs for the year, now is likely a good time to be boosting your protective hedges.

Precious metals research and consultancy firm GFMS believes gold has “formed a base for a more sustainable move above $1,300 later this year and to rise still further in 2018 as it averages $1,360 and hits a 2018 peak of almost $1,450.” They cite growing equity market risks and continued geopolitical tensions as forces that will likely push the yellow metal higher.

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Morning Snapshot: Gold Little Changed After Mixed Data, Tax Reform Concerns

USAGOLD/Peter Grant/11-16-17

Gold is up slightly in early New York trading, underpinned by recent softness in the dollar and mounting doubts about the prospects for tax reform legislation. Geopolitical tensions remain elevated as well, providing additional support to the yellow metal.

Senator Ron Johnson of Wisconsin has vowed not to vote for the Senate version of tax reform. “If they can pass it without me, let them,” said Johnson. There are reportedly some other potential defectors as well.

Today’s U.S. data were kind of a mixed bag. Industrial production for October was better than expected. The Philly Fed index sunk more than expected. Initial jobless claims jumped by 10k. Import and export prices were weaker than expected, dealing perhaps another blow to hopes that inflation is picking up.

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The Daily Market Report: Gold Softens After Reaching 4-Week Highs in Earlier Trade


USAGOLD/Peter Grant/11-15-17

Gold is down modestly midday, but only after setting fresh 4-week highs above 1288.70. After retail sales and CPI came out, the dollar index rose from corresponding 4-week lows, knocking the yellow metal back into the range.

The uptick in core CPI inflation to a 1.8% annualized pace has pushed December rate hike expectations back north of 96%. As I mentioned in the Morning Snapshot, it was the first uptick since January. I would suggest that one uptick does not mean the trend in inflation is now up, but the Fed is pretty desperate for a victory on the policy front.

Risk aversion is also helping to underpin gold, driven by yet another escalation in the rhetoric between the U.S. and North Korea, a Venezuelan default and now an apparent coup in Zimbabwe.

The House has perhaps further complicated the reconciliation process for tax reform legislation with the late addition of language that repeals the Obamacare individual mandate. Getting the legislation across the finish line and to the President’s desk by year end may now be even more difficult.

The Trump administration needs this legislative victory to keep hope alive for their broader pro-business, reflation agenda. Whether they can do that without blowing up the deficit in the process remains to be seen.

That’s something that the Fed should take into consideration come the December FOMC meeting. Further complicating matters will be the reinstatement of the debt ceiling on December 8, just several days prior to the FOMC meeting.

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Morning Snapshot: Gold Hits 4-Week Highs, Remains Firm After Today’s Data

USAGOLD/Peter Grant/11-15-17

Gold is up, reaching new 4-week highs above 1288.70. The yellow metal was being buoyed by a weaker dollar and risk aversion going into this morning’s data, and is sustaining those gains post-data.

Geopolitical tensions remain high, with an apparent coup in Zimbabwe adding to the risk-off mindset.

U.S. CPI for October came in pretty much in line with expectations. Headline CPI slowed to a 2.0% annual pace, down from 2.1% in September. Core CPI on the other hand accelerated to 1.8% y/y, versus 1.7% in September. It was the first uptick since January.

That may keep December rate hike expectations elevated, but one uptick in 9-months does not a trend make. I don’t think it will be enough to sway the more dovish members of the Fed that are leaning toward keeping policy on pause through year-end.

U.S. retail sales rose 0.2% in October, above expectations of +0.1%. However, ex-auto rose just 0.1% on expectations of +0.3%. September was revised higher in both instances, but it appears that hurricane distortions are fading.

While gold remains confined to the range that has dominated for the last month, upticks in more recent weeks bode well for renewed tests above $1300. A breach of resistance at 1306.04 (16-Oct high) is still needed to return attention to the high for the year at 1357.50 (08-Sep high).

The bottom of the range at 1263.00/1260.10. This level was reinforced by unsustained tests of the downside earlier in the week. Yesterday’s low at 1269.60 now provides a good intervening barrier.

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The Daily Market Report: Gold Bounces Off of Short-Term Support, Keeping Range Intact


USAGOLD/Peter Grant/11-14-17

Gold is up slightly ahead of the European close after significant buying interest surfaced in the futures market. The yellow metal bounced from in front of support at 1264.70/1263.10, on what Zerohedge called “massive volume,” leaving the low end of the range at 1260.10 well protected.

Today’s PPI data suggests inflation, at least at the producer level, remains elevated in the wake of the hurricanes. Whether these price pressures are sustainable or not remains to be seen. Additionally, the PPI data may be a harbinger of hotter than expected CPI. Those data are out tomorrow.

While the market sees a December rate hike as a forgone conclusion, although Minneapolis Fed’s Kashkari and St. Louis Fed’s Bullard (non-voter) have expressed opposition. Meanwhile, Philly Fed’s Harker said he has a December hike “lightly penciled in,” suggesting he may be on the bubble.

With Fed funds futures reflecting a 91.5% probability of a rate hike — down slightly from 96%+ recently – arguably the risk is in one direction. If the data disappoints at any point in the next month, there is potential for a pretty significant unwind.

Keep in mind that the Fed went on pause in September because inflation pressures had reversed course. While prices may have firmed back up in September and October, there is some concern that those gains are transitory, even as the central bank would have you believe it is the negative pressures that are transitory.

Gold may be setting up for a win/win situation. If the Fed remains on pause, the dollar will likely come under pressure, boosting gold in the process. If on the other hand, inflation is picking up and is sustainable, gold is of course the classic inflation hedge.

At this juncture, I would suggest the former is the more likely scenario, particularly with the other major central banks maintaining dovish tones. Further policy divergence on the part of the Fed and a continued rise in the dollar would be detrimental to the reflation agenda that is arguably hanging by a thread at this point.

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Morning Snapshot: Gold Pressured Within Range, Despite Weaker Dollar/Stocks

USAGOLD/Peter Grant/11-14-17

Gold is down in early New York trading, still well within the recent range. However, both the dollar and stocks are also weaker this morning, which should limit the downside for the yellow metal.

U.S. PPI came in hotter than expected in October. Both headline and core rose 0.4%, on expectations of +0.1% and +0.2% respectively. If CPI data beat expectations tomorrow, it will go a long way toward validating the exceedingly high expectations for a December rate hike.

However, if inflation really is picking up, that ultimately will be good for gold. The yellow metal is the classic hedge against inflation.

The dollar index is trading at a three week low on euro strength, after German GDP came in better than expected. While the German economy is humming along, it’s worth noting that German investors are hedging their bets by buying a lot of gold. Smart.

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The Daily Market Report: Gold Recovers Modestly Within Range


USAGOLD/Peter Grant/11-13-17

Gold is edging higher within the range and has recouped a little more than half of Friday’s intraday losses. Gold came under pressure ahead of the London close on Friday, when 30,000 futures contracts were dumped in about a minute.

The fact that those losses stalled well shy of the range lows at 1263.00/1260.10 offers some encouragement. However, with gold so narrowly confined, a rebound above $1300 is really needed to stoke optimism and return focus to the high for the year set in early-September at 1357.50.

So what might be the catalyst to get that ball rolling? Weak October inflation data this week might do the trick. That may temper December rate hike expectations, which would weigh on the dollar and buoy gold.

Skepticism that Congress will deliver tax reform legislation to the President’s desk by year-end might prove to be a catalyst as well. Many agree that U.S. stocks are overvalued, but that condition is arguably acute if corporate tax cuts will be significantly delayed; or perhaps not happen at all. If stocks roll-over, gold will likely catch a safe-haven bid.

Finally, there are the geopolitical risks. The inflammatory rhetoric seems to have escalated once again in the waning days of President Trump’s diplomatic tour of Asia.

The President has said there would be a major announcement this week on North Korea. Meanwhile, South Korea is apparently concerned that another DPKR missile test is imminent.

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Morning Snapshot: Gold Edges Up Within Range

USAGOLD/Peter Grant/11-13-17

Gold is up modestly, attempting to retrace Friday’s sharp intraday sell-off. Just about half of those losses have been recovered, but the yellow metal remains well contained within the recent range.

A softer dollar and weakness in stocks are offering support to gold. Focus remains on political uncertainty surrounding the House and Senate versions of tax reform legislation. There are concerns about the reconciliation process; what might ultimately reach the President’s desk and when that might happen.

Not much on the economic calendar today, but we have important inflation data coming out this week. October PPI is out tomorrow, with expectations calling for further slowing to 2.3% y/y. CPI is out on Wednesday. A small m/m increase is expected, which will likely result in a downtick to the annualized rate. Core CPI is expected to hold steady at 1.7% y/y.

The market continues to see a Fed rates hike next month as a given, despite persistently soft inflation. However, those expectations may be tempered if further weakness is evident in the October data. That would likely put the dollar under additional pressure, offering further support to gold.

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The Daily Market Report: Gold Retreats in Repeat of Last Friday’s Price Action


USAGOLD/Peter Grant/11-10-17

Gold is down intraday after a large sell order hit the futures market, knocking the yellow metal back into its well defined range. Zerohedge reported that someone sold 30,000 contracts ($4.2 bln notional value) in just a 1 minute period.

That’s about 10% of the average volume for an entire day. We’ve seen this before though and as we’ve pointed out in the past, it smacks of agenda driven selling.

I’m comfortable saying that because we never see this sort of nonsense on the long side of the gold market. A real trader doesn’t dump 30,000 contracts in a minute if he or she is looking to short at the best price, or close out a big long position at the best price.

Today’s price action prompts me to point you to the Dave Kranzler article I posted yesterday: Gold And Silver: Something Different Is Occurring. Kranzler discusses the open interest situation that has developed that typically has lead to one of these “take-downs.”

Historically this is the signal that the Comex banks will implement what I call a “COT open interest liquidation” take-down of the gold/silver price using Comex paper to trigger hedge fund stop-loss positions. This enables the Comex banks to cover their shorts and print huge profits. It’s also illegal trading activity but that’s for another day.

As I pointed out earlier in the session, today’s price action was eerily similar to what unfolded last Friday around the same time. Kranzler commented on the 03-Nov price action:

Unloading on the price of gold like this on a Friday, after the rest of the trading world – and specifically the physical-buying eastern hemisphere markets – has closed for the weekend, is typical. What is not typical, however, is the reversal of the price of gold which occurred the next trading day (Monday).

Today’s intaday sell-off stalled well shy of last Friday’s low at 1264.70, perhaps lending credence to Mr. Kranzler’s overarching theme that “something different is occurring.” These assaults on the gold price are becoming less effective.

It’s going to be interesting to see what impact today’s selling had on open interest, and perhaps more importantly, if buyers once again view this action as a gift come Monday. With key U.S. inflation data on tap next week, there is some potential for further expansion of at least the range, within the range, within the range.

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Morning Snapshot: Gold Adopted More Positive Tone Within Range This Week

USAGOLD/Peter Grant/11-10-17

Gold is slightly lower after having set 3-week highs in the previous 2 sessions. The yellow metal is garnering support from a modest pullback in the dollar and softer stocks, as doubt arose about the prospects for timely passage of the GOP tax reform legislation.

The Senate version delays the corporate tax cuts until 2019 and has more tax brackets than the House version. There is some concern that reconciliation is going to be contention and may prevent the legislation from reaching the President’s desk before year-end.

If the Trump administration fails to notch a significant legislative victory this year, any remaining momentum they have may be lost. That might put Republican congressional majorities in jeopardy next year, signalling the end of Trump’s pro-business, reflation agenda.

If that is the way things unfold, the U.S. stock market would be vulnerable to a serious correction. Safe-haven assets like gold would come back in favor and one might reasonably expect the Fed to reverse recent policy tightening.

Today’s U.S. calendar includes preliminary consumer sentiment for November and October Treasury budget. Next week’s data has October PPI and CPI. Both are expected to remain soft, which may raise some doubts about the true prospects for a December rate hike.

While gold adopted a more positive tone this week within the well-defined range, a convincing move back above $1300 is still needed to return a measure of confidence to the uptrend that has dominated most of this year. On the downside, support is well defined at 1263.00/1260.10.

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The Daily Market Report: Gold Price Resilient, Despite Soft Demand Data


USAGOLD/Peter Grant/11-09-17

Gold is up modestly, reaching yet another 3-week high, but still well within the broader range that has been in place since early-October. A pullback in the dollar and a sharp drop in stocks are both helping to underpin the yellow metal today.

Further reports today that the Senate version of tax reform will delay the corporate tax cuts until 2019 — along with Democrat election wins earlier this week — have created some doubts that the tax package will get passed at all. If tax reform fails, GOP Congressional majorities are possibly in jeopardy next year.

If the GOP loses one or both houses of Congress in the 2018 elections, the pro-business Trump administration will be severely hamstrung. In which case, stocks are waaaaaaay overvalued.

Additionally, the debt ceiling is back in play a month from today and with everyone focused on tax legislation, the impending threat of a government shutdown is on the back-burner. Bloomberg warns that we should Get Ready for a Washington Train Wreck in December.

If what we’re seeing today is an early indication that volatility is returning to markets, the investor complacency that has held sway in recent years is likely to come to a screeching halt. In that environment, safe-haven assets like gold are going to be back in favor.

This quote from former Fed VC Fischer leapt to mind today, as it speaks to complacency. If these words of wisdom hold true for the world’s central bankers, they certainly hold true for the individual investor as well.

“…if I may be permitted a few final words on my way out the door, the watchwords of the central banker should be ‘Semper vigilans,’ because history and financial markets are masters of the art of surprise, and ‘Never say never,’ because you will sometimes find yourself having to do things that you never thought you would.”

The World Gold Council’s Gold Demand Trends for Q3 are getting a lot of play in the press today. An FT headline blared that it was a “tough quarter for gold as demand slides to 8-year low.”

The third quarter saw a 9% year-on-year (y-o-y) drop in gold demand to 915 tonnes (t). Year-to-date (y-t-d) demand was down by 12%. ETFs had another quarter of positive inflows, but at 18.9t, they fell far short of the 144.3t influx in Q3 2016. A softer quarter in the jewellery sector (-3%) accounted for 17t of the y-o-y decline. Demand from other sectors firmed: central banks bought a healthy 111t of gold (+25% y-o-y) while bar and coin investment strengthened by 17% (to 222.3t), albeit from a low base. — WGC

However, when you look at the price of gold, you wouldn’t necessarily deduce that demand is down. The price of gold is up 11.7% y-t-d and only down 2.7% versus the third quarter of last year. If you go back 8-years, gold ended Q3-09 at $1007.25. That means the yellow metal is up nearly 28% since the last time demand was this “low”.

In the face of recent dollar gains and the persistent march higher for equities, gold has actually proven to be remarkably resilient. The WGC pointed out that “gold remained an important risk-hedge, but the market lacked a catalyst.” While it may be too early to tell for sure, the catalyst that will drive gold through the upside of its range may in fact be emerging.

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Morning Snapshot: Gold Edges Higher to Another 3-Week High

USAGOLD/Peter Grant/11-09-17

Gold is up modestly in early U.S. trading, buoyed by a weaker dollar and a drop in stocks. The yellow metal has set a new 3-week high at 1288.19. Silver remains narrowly confined within the recent range, trading just above $17.

The next minor tier of resistance for gold is at 1291.08. A breach of this level would bode well for further tests above $1300.

Initial jobless claims for last week were higher than expected. Later today we’ll see September wholesale sales. There will also be a $15 bln 30-year bond auction.

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