Category: Daily Market Report

The Daily Market Report: Gold Rebounds From 8-Week Low


USAGOLD/Peter Grant/10-06-17

Gold has rebounded after falling to an 8-week low in the wake of this morning’s jobs report. The yellow metal is now higher on the day and more than $10 off the intraday low.

Nonfarm payrolls for September saw the first loss of jobs in 7-years. The NFP print was -33k, well below expectations of +87k, versus a positive revised +169k in August (was +156k). That low expectation was already deemed to have taken into consideration hurricane distortion, so today’s miss was pretty significant.

Nonetheless, the market was quick to dismiss the bad number as hurricane “noise” and latch on to the better than expected 0.5% rise in average hourly earnings. However, there is perhaps some reason to be suspicious.

Additionally, the trend in payrolls had rolled-over long before today’s negative print and long before this hurricane season.

Today’s intraday rebound in gold — and retreat in the dollar — may just be profit-taking ahead of the weekend, but it could also indicate that investors are taking a more discerning look at today’s data and eschewing that initial spin.

Speculation this morning that North Korea may stage another missile test as soon as next week has heightened risk aversion. A Russian diplomat recently returned from the DPRK told reporters that the mood in North Korea was “rather belligerent” and that they may have a missile capable of reaching the west coast of America.

With the additional risk that Catalonia may declare independence from Spain on Monday, risk appetite seems to be evaporating. How Spain might react to that declaration of independence and the broader implications for the EU present considerable uncertainties. I don’t believe Spain can allow this to happen, so I envision the police or military moving to block access to the Catalonian parliament or even detaining key politicians.

At this point, the Fed funds futures market sees a December rate hike as all-but a sure thing. However, December is still a long way off and those expectations can only be trimmed from here.

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Morning Snapshot: Gold defensive as markets shrug-off weak jobs data as weather distortion

USAGOLD/Peter Grant/10-06-17

Gold remains defensive, edging to a new 7-week low as the market seems inclined — at least initially — to shrug off the weak headline jobs data as hurricane distortion. The dollar index reached a 10-week high, modestly exceeding the August high at 94.15.

U.S. nonfarm payrolls fell 33k in September, well below expectations of +87k, versus a positive revised 169k in August (was +156k). July was revised down to 138k, from 189k previously.

While the hurricanes clearly affected the data in September, payrolls began trending lower earlier in the year, before the bad weather rolled in. This may in reality not be transitory at all. So the question now is, how will the Fed view the data? They will likely be encouraged by the beat in earnings.

There is FedSpeak from Kaplan, Bostic, Dudley and Bullard today, so we won’t have to wait long for the central bank’s initial spin. In fact, Dalls Fed hawk Kaplan has already indicated on CNBC that he’s “not there yet” with regard to a December hike, but is open minded.

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The Daily Market Report: Gold Consolidates at Low-End of Range as Stocks/Dollar Gain


USAGOLD/Peter Grant/10-05-17

Gold is maintaining a consolidative tone at the low of the recent range, weighed by a firmer dollar and the risk-on mindset that continues to drive stocks higher. Look for price action to be limited ahead of tomorrow’s important release of September jobs data.

The dollar index has eked out a new 7-week high at 93.96, but the August highs at 94.15 remains intact at this point. Dollar strength is being driven primarily by weakness in the euro, amid uncertainty as to the broader implications for Europe if Catalonia declares its independence from Spain on Monday.

Interest rate differentials continue to favor the dollar as well. While Janet Yellen laid out a number of concerns in a speech last week that could warrant easier monetary policy, the market now sees an 81% probability of a rate hike in December.

There does seem to be some optimism about growth, but inflation remains persistently weak. Those rate hike expectations may be tempered somewhat if the jobs report is weaker than expected. At this point, median expectations are looking for 87k new payrolls added in September and the jobless rate to hold steady at 4.4%.

If the real underlying purpose of tighter policy is to let some of the air out of asset bubbles, clearly the Fed is going to have to get more aggressive. At this point, good news is good news and bad news is good news for stocks. That however can not go on forever and gold is displaying good resilience in the face of this solid risk appetite.

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Morning Snapshot: Gold consolidates ahead of tomorrow’s NFP data

USAGOLD/Peter Grant/10-05-17

Gold is consolidating within yesterday’s range as the market looks ahead to tomorrow’s jobs report. Solid resistance in the dollar index has capped the upside thus far, which is helping underpin gold as well.

U.S. initial jobless claims fell 12k last week as hurricane affects work there way through the system. However, a soft 87k rise in nonfarm payrolls is anticipated for September, with perhaps some downside risk based on the ADP jobs survey miss yesterday.

Recent strength in PMI data has pushed December rate hike expectations back above 80%, but weak jobs data could reverse that bias. If rate hike expectations dim again, look for the greenback to retrace recent gains, shich should bolster gold.

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Morning Snapshot: Gold firms as dollar retreats from resistance

USAGOLD/Peter Grant/10-04-17

Gold firmed in overseas trading after the dollar backed off its recent highs. While some of the yellow metal’s gains have already been retraced, the dollar is up against a formidable resistance level and is quite overbought.

The U.S. ADP jobs survey came in below expectations, weighed by weather affects. This sets up some downside risk for the already weak September nonfarm payrolls expectations.

Reuters is reporting that Catalonia will declare independence from Spain on Monday. Does Mariano Rajoy and the government of Spain allow that to happen? Given the violence already used in an effort to squelch the referendum, will they go so far as to shut down the Catalonian Parliament?

Jeff Gundlach is predicting that Neel Kashkari will be the next Fed chair. “He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win,” said Gundlach. That’s the exact reason that I thought he might seek to reappoint Yellen and why Kevin Warsh was an unlikely candidate. Easy policy and a weak dollar would certainly make execution of President Trump’s economic agenda more likely to be successful.

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The Daily Market Report: Gold Firms Slightly as Dollar Meets Resistance


USAGOLD/Peter Grant/10-03-17

Gold firmed slightly intraday after eking out a 7-week low in overseas trade. The yellow metal continues to be pressured by heightened risk appetite associated with the President’s tax cut proposal and a firmer dollar.

The greenback has garnered support both from the proposed tax cut and rising expectations that the Fed will lift rates one more time this year, despite persistently weak inflation. The dollar index also set a 7-week high today, shy of good resistance at 94.14.

The overall trend remains unmistakably negative since peaking 103.82 early in the year. That means the dollar index is still down about 10% year-to-date, even after the last 3-weeks of gains.

As noted in this morning’s snapshot, the next big event will be the release of September jobs data on Friday. Expectations are running at just +87k for nonfarm payrolls, factoring in a significant weather related hit. Even if NFP misses expectations, the market may quickly discount the news as temporary hurricane fallout, but will the Fed discount a bad number as well?

North Korea threatened to “bring nuclear clouds to the Japanese archipelago,” while mocking PM Abe as a “headless chicken.” Japan is definitely within missile range and Pyongyang says they will be “the first victim of nuclear disaster in the world.”

Japan called the latest threats outrageous and provocative. I imagine they, along with South Korea, wish President Trump would quit poking the hornet’s nest via Twitter.

Until the U.S. evacuates not essential military personnel and family members from the region, it seems unlikely that the U.S. will initiate any action against the DPKR. However, the constant goading from each side makes the situation inherently unstable and provides an underpinning to the gold market.

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Morning Snapshot: Gold remains soft near 6-week lows

USAGOLD/Peter Grant/10-03-17

Gold is trading in a narrow range, having edged to a new 6-week low overseas. Heightened risk appetite and December rate hike expectations have sparked a rebound in the dollar over the past three-plus weeks, which has weighed on the yellow metal.

Today’s economic calendar is very light with just September auto sales. Traders may already be looking ahead to Friday’s jobs data. Median expectations for nonfarm payrolls is just +87k. The unemployment rate is expected to hold steady at 4.4%.

Additionally, Chinese markets are closed this week for the Golden Week holiday, which is likely sapping Asian demand. This year they are calling it a “Super” Golden Week because the Mid-Autumn Festival coincides with the National Day holiday. China’s tourism administration says they expect about half of the 1.3 billion population to be on the move this week.

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The Daily Market Report: Gold Remains Defensive Amid Heightened Risk Appetite


USAGOLD/Peter Grant/10-02-17

Gold retreated further to begin the week, setting a new 6-week low at 1271.15 amid heightened risk appetite and a firmer dollar. There has also been no significant heightening of geopolitical tensions of late, which may be also weighing on the yellow metal.

December rate hike expectations have eased somewhat in the wake of last week’s soft inflation data, but investors still seem to be thinking the Fed is more likely to tighten than not. Mixed data today didn’t offer any clarity on that point.

Minneapolis Fed dove Kashkari thinks the central bank should be cautious until inflation gets back to 2%. However, later today Dallas Fed hawk Kaplan will likely offer the contrary opinion.

Further stoking risk appetite is the GOP tax plan, which includes a significant cut to corporate taxes. While stocks are perhaps understandably optimistic about the likely impact on profits, there is also a reasonable concern that the lower tax revenue is going to lead to bigger deficits and a bigger national debt.

Amid the initial euphoria of lower taxes for some, little attention is being paid to the downstream implications for deficits, the debt, Treasuries, the dollar and by extension monetary policy. Can the Fed really pursue tighter policy if the tax plan is going to blow a hole in the budget?

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Morning Snapshot: Gold maintains defensive posture to begin the week

USAGOLD/Peter Grant/10-02-17

Gold remains on the defensive after Friday’s soft close. The yellow metal is being weighed by a rebound in the dollar to challenge last week’s highs and revived risk appetite amid investor hopes for U.S. tax cuts.

Dollar gains are primarily associated with euro weakness in the wake of the Catalonia referendum that has thrown Spain — and the broader EU — into crisis.

Today’s calendar includes Markit manufacturing PMI and U.S. manufacturing ISM for September, as well as construction spending for August. We’ll also hear FedSpeak from Dallas Fed hawk Kaplan.

While the geopolitical rhetoric between the U.S. and North Korea is still flying, the recent absence of new DPKR missile and nuclear tests has pushed the still percolating conflict off the front page. South Korea is anticipating that fresh North Korean provocations are in the offing for this month.

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The Daily Market Report: Gold is Defensive Heading into Month-End/Quarter-End, but Trend Remains Positive


USAGOLD/Peter Grant/09-29-17

Gold heads into the weekend, month-end and quarter-end on a defensive footing. In light of the last three-weeks of downticks, some short-covering could be seen ahead of today’s close.

The latest inflation data draws attention back to Janet Yellen’s speech earlier this week, where she acknowledged that she and her colleagues may have misjudged the fundamental forces driving inflation. With core PCE falling to a 2-year low in August, investors should heed the following line from that speech:

“… achieving our 2 percent inflation goal over the medium term may require a more accommodative stance of monetary policy than might otherwise be appropriate.” — Janet Yellen

Perhaps not surprisingly, December rate hike expectations have been further tempered to 73.9%, from more than 80% midweek. So the question becomes, is the Fed abandoning the 2% inflation target? If they are, they may very well hike rates before year-end. If on the other hand they remain committed to a higher level of inflation, further tightening policy — via balance sheet normalization and/or rate hikes — is the absolute wrong prescription.

The ECB is facing the same conundrum. With European inflation just 1.5% y/y in September, they have to decide whether to start tapering asset purchases ahead of year-end. “October’s meeting is likely to be one of the greatest balancing acts in the ECB’s history,” wrote analysts at ING according to the FT.

No central bank has more experience with ZIRP and QE than the BoJ. They’ve been at it for nearly two-decades and have the massive balance ¥514 trillion to prove it. The latest nationwide core CPI reading was 0.7% y/y in September.

At this point, I would think the cumulative brain-trust of central bankers would be able to conclude that their policies to specifically boost inflation have been an abject failure. I get that they can’t really admit that, although Yellen came pretty darn close this week.

If that’s the true motivation for initiating measures to normalize the balance sheets, that would at least make sense. However, I fear that such measures are going to tip the economy into recession.

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Morning Snapshot: Gold firms as core PCE inflation hits 2-year low

USAGOLD/Peter Grant/09-29-17

Gold is modestly firmer as the dollar continues to retrace recent gains. In the wake of yesterday’s simple hook reversal (lower low, higher close), some upside follow through would be expected as shorts take profits ahead of the weekend.

U.S. personal income rose +0.2% in August in line with expectations, tempering optimism that sprang from the +0.4% print in July. PCE rose 0.1%, also in line with expectations. Core PCE — the Fed’s favored measure of inflation — fell to 1.29% y/y, a two-year low.

The PCE data further erodes the weak inflation is “transitory” meme, bolstering Janet Yellen’s self-assessment that she and her colleagues may have “misjudged” on inflation. Today’s data should temper December rate hike expectations, helping gold.

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The Daily Market Report: Gold Stabilizes Above 5-Week Lows


USAGOLD/Peter Grant/09-28-17

Gold is trading modestly higher after dipping to new 5-week lows in overseas trading. The yellow metal has caught a bit of a bid as the dollar retreats from its recent 6-week high and December rate hike expectations edge lower.

Fed funds futures now show December rate hike probability of 76%, down from 81% yesterday. Nonetheless, FedSpeak today continues to tow the ‘gradual rate hikes are appropriate’ party line.

Stanley Fischer, on his way out the door essentially, said the importance of reversing temporary policy stimulus measures should not be “underestimated.” Realize that those “temporary” measures have been ongoing for about a decade. Rates will remain well below what was previously considered normal and the balance sheet will remain massive for some time to come, even if the normalization goes off exactly as planned.

Maybe investors are re-reading Janet Yellen’s speech from earlier in the week and realizing it’s not as hawkish as their initial interpretation. Yellen admits that her and her colleagues may have been “misjudged” the labor market and inflation. One traders said it was an admission that the Fed is clueless!

In the very same speech, she said that gradual rate hikes remains appropriate, but also said “achieving our 2 percent inflation goal over the medium term may require a more accommodative stance of monetary policy.” Which is it? Because it can’t be both . . .

“QE didn’t work, and Janet knew it was unlikely to work, from the start,” said John Mauldin in his introduction to an article entitled Low Inflation Is No “Mystery”

So forgive us for asking, but after unprecedented expansion of banking reserves and the Fed balance sheet, with little inflation, is it really a “mystery?” Or, is it proof of what we believed all along: QE didn’t work? — Brian S. Wesbury & Robert Stein of First Trust

It seems to me that forging down the same policy path that has failed to yield the desired results is ill-advised. That goes for the start of QE and it will likely to be true for the unwind of QE as well. Damned if you do and damned if you don’t.

Geopolitical tensions seem to have eased somewhat as China ramped-up pressure on North Korea. All North Korean firms and joint ventures in China must close within the next several months.

With even their closest ally aligning with the U.S. and dialing up the santions, the hope is that the DPRK will back down. Whether they do or not, remains to be seen and South Korea is still expecting more missile tests and perhaps another nuclear test in October.

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Morning Snapshot: Gold stabilizes, but remains defensive

USAGOLD/Peter Grant/09-28-17

Gold extended to the downside in overseas trading before stabilizing near unchanged. The dollar has eased somewhat after eking out a 6-week high in earlier trading, helping to buoy gold.

U.S. Q2 GDP (3rd report) was revised up to 3.1%, in line with expectations, versus 3.0% previously and 1.2% in Q1. The U.S. advanced goods trade gap narrowed to -$62.9 bln in August. U.S. initial jobless claims rose 12k to 272k last week, above expectations of 268k.

Later this morning we’ll get August agriculture prices and M2 for the week ended 18-Sep. FedSpeak is due from George, Fischer and Bostic.

China has ordered that all North Korea connected business be shut down within 120-days. This forceful move by the DPKR’s closest ally may move the ball on a diplomatic solution. However, more provocative actions by North Korea are still anticipated, which is an underpinning of the gold market.

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The Daily Market Report: Gold Pressured as Market Adjusts to Rate Hike Expectations


USAGOLD/Peter Grant/09-27-17

Gold extended to the downside in early, establishing new 5-week lows as the dollar continued to rebound amid heightened rate hike expectations for December. The yellow metal subsequently garnered some support after more disappointing housing market data.

U.S. NAR pending home sales sank 2.6% in August. Low supplies have sapped momentum from the market and the NAR’s chief economist concedes that the the housing market has essentially stalled. Housing makes up nearly a fifth of GDP, but drives an even larger segment of consumption (think furniture, appliances, law care products etc.).

If Janet Yellen really believes gradual rate hikes are still appropriate, think about the implications for the already slowing housing market. Higher mortgage rates, higher carry rates on construction and bridges loans are unlikely to reinvigorate this critical segment of the economy. Such policy is also unlikely to stoke the inflation that the Fed so desperately wants.

Currently the market believes the odds for a December rate hike are about 80%, based on Yellen’s comments yesterday. However, the Fed is still very much data dependent and I imagine the probability will be pared in the weeks ahead if incoming data disappoint.

If that is indeed how things unfold, the dominant downtrend in the dollar should re-exert itself, providing support for gold in the process. Certainly any escalation of the tensions with North Korea will provide an underpinning for the yellow metal as well.

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Morning Snapshot: Gold remains under pressure as yields, dollar rise

USAGOLD/Peter Grant/09-27-17

Gold remains defensive in the face of a rising dollar and the rising belief that the Fed will hike rates in December, regardless of weak inflation and growth risks. The yellow metal is slipped to new 4-week lows below 1287.50.

Fed Chair Yellen said yesterday that gradual rate hikes remain appropriate, despite misjudgements on the labor market and inflation. While she opened the door for a possible reversal of course, the market ignored that and prospects for a December rate hike jumped. Yields and the dollar rose as well, putting gold under pressure.

Todd ‘Bubba’ Horwitz, writing for KitcoNews, contends that Yellen essentially admitted that the Fed is “clueless”.

The real story is simple — all markets are on edge and looking to make big moves in one direction or the other. Looking into my crystal ball, I would expect equities, bonds, the euro currency and oil to break to the downside while gold, the U.S. dollar and commodities go higher. — Todd ‘Bubba’ Horwitz

U.S. durable goods order rebounded more than expected in August, although the overall trend remains troubling. The August pending home sales index and EIA crude data for last week are out later this morning. We’ll also hear FedSpeak from Bullard, Brainard and Rosengren.

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The Daily Market Report: Gold Turns Choppy as Yellen Speaks


USAGOLD/Peter Grant/09-26-17

Gold retreated back below $1300 as Janet Yellen spoke on “Inflation, Uncertainty, and Monetary Policy” before the NABE in Cleveland. However, losses stalled well shy of Friday’s low at 1287.50, before prices began to recover.

Ms. Yellen reiterated that gradual tightening of monetary policy was appropriate, despite persistent weakness in inflation. However, she acknowledged that “My colleagues and I may have misjudged the strength of the labor market, the degree to which longer-run inflation expectations are consistent with our inflation objective, or even the fundamental forces driving inflation.”

Yellen went on to say that there could be a course correction to “a policy path that is somewhat easier than that now anticipated.” Nonetheless, the market at least initially interpreted her comments as being hawkish.

“… achieving our 2 percent inflation goal over the medium term may require a more accommodative stance of monetary policy than might otherwise be appropriate.” — Janet Yellen

The Fed has been trying to manufacture 2% inflation for five years now. Clearly there is something going on that can not be addressed by their standard policy options. Tighter policy is certainly not going to get them there.

The probability of a December rate hike jumped to 81%, pulling the dollar higher. That put additional pressure on gold, but it seems like this speech actually opens the door for a reversal in the policy course, more-so than anything we’ve heard recently. That would make this dip in gold a buying opportunity.

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Morning Snapshot: Gold probes back below $1300 as dollar gains

USAGOLD/Peter Grant/09-26-17

Gold has retraced some of yesterday’s North Korea inspired gains, ticking back below $1300. The dollar index is testing 3-week highs, putting additional pressure on the yellow metal.

While markets seem increasingly inclined to quickly shrug-off the bellicose rhetoric and aggressive provocations from both North Korea and the U.S., the threat of an accidental conflict is very real. “The North Koreans assume that the threats will be enough to restrain US action but the US might be thinking the same thing, so you end up in a situation where a provocation from one side is seen by the other as an actual move towards war,” said Rodger Baker of Stratfor.

Today’s U.S. calendar has the Case-Shiller home price index for July, new home sales for August, consumer confidence for September and the Richmond Fed index. We’ll also hear FedSpeak from Brainard and Bostic. Janet Yellen will speak on “Inflation, Uncertainty, and Monetary Policy” this afternoon in Cleveland. That should be interesting . . .

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The Daily Market Report: Gold Jumps Back Above $1300


USAGOLD/Peter Grant/09-25-17

Gold rebounded smartly back above the $1300 level in early New York trading, after North Korea accused the U.S. of declaring war on them. The yen and bonds rose and stocks fell as investors rotated back to a risk-off footing.

“Since the United States declared war on our country, we will have every right to make countermeasures, including the right to shoot down United States strategic bombers even when they are not inside the airspace border of our country,” said DPRK Foreign Minister Ri Yong Ho. So while the situation was deemed to have calmed over the weekend, it seems such periods are destined to be short-lived.

Gold had been defensive since last week’s Fed policy decision lifted prospects for one more rate hike before year end. With inflation still tepid and Q3 GDP expectations ratcheting lower, I continue to have my doubts.

If we are to believe the Fed paused in September, mainly as a result of weak inflation, it seems unlikely that things will change materially over the next 3-months.

Higher prices for gasoline and some other items in the aftermath of the hurricanes will likely boost inflation temporarily; apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. — FOMC Statement

Additionally, the Fed projects GDP to remain soft near 2% through 2020. The central bank’s longer-run growth projection remains 1.8%. The Fed tends to be overly-optimistic on both growth and inflation, so their current projections just don’t seem to warrant tighter policy.

Somehow the Fed is clinging to their credibility, but I suspect gold and the dollar have overreacted to the perceived hawkishness implicit in the announcement of balance sheet normalization and the dots that suggest that the members of the FOMC see rates continuing to ratchet higher.

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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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