Category: Gold News

China’s Jan-Sept gold output down 9.98 pct y/y – state media

Reuters/11-01-17

China Central Television said on Wednesday on its website, quoting data from the China Gold Association:

* China’s Jan-Sept gold output down 9.98 percent y/y to 313.09 tonnes

* China’s Jan-Sept gold consumption up 15.49 percent y/y to 815.89 tonnes

PG View: Tighter supply and stronger demand is a recipe for higher prices.

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Germany fears EUROZONE MELTDOWN: German investors rush to buy gold

Express/Simon Osborne/11-01-17

Germany has become the world’s biggest buyer of gold amid fears of economic meltdown across the eurozone.

Figures from the World Gold Council (WGC) reveal the country invested a record £6billion in gold bullion and coins as well as in exchange-traded products.

Analysts say improved availability, low prices and growing demand due to loose monetary policy, economic uncertainty and volatile geopolitical factors are the three key reasons behind the German investors’s gold rush.

PG View: The Germans have real reasons to be concerned, but U.S. investors remain complacent. If the Eurozone melts down, there will be far-reaching implications for the global economy.

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Gold climbs ahead of Fed statement, pick for Yellen replacement


Reuters/Jan Harvey/11-01-17

Gold climbed briefly back above $1,280 an ounce on Wednesday as caution ahead of this week’s confirmation of the new Federal Reserve chair and a policy statement from the bank prompted some to close out bets on falling prices.

Fed Governor Jerome Powell is widely tipped to take over from incumbent Janet Yellen at the head of the U.S. central bank next year. He is seen as a less hawkish and therefore more gold friendly choice than his main challenger John Taylor, a Stanford University economist.

…While the [Fed] is expected to leave rates unchanged, investors will be watching for any indications that it will press ahead with another increase next month.

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Morning Snapshot: Gold firms within range

USAGOLD/Peter Grant/11-01-17

Gold is higher within the range, but remains limited by a firm dollar and stocks. The market is awaiting the Fed’s policy decision later today.

The Fed is expected to hold steady, keeping the December rate hike on the table. However, it might be worthwhile to temper tightening expectations going into year-end, just to give themselves some leeway in the event that inflation fails to pick up.

The ADP jobs survey came in stronger than expected, perhaps creating some upside risk for Friday’s nonfarm payrolls report. Expectations are presently +318k, with the unemployment rate holding steady at 4.2%.

Later this morning we’ll see manufacturing PMI and ISM, construction spending, EIA crude stocks and domestic car and truck sales.

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The Daily Market Report: Gold Weakens Within Range as Dollar Recovers


USAGOLD/Peter Grant/10-31-17

Gold has turned defensive in the range once again, weighed by a rebound in the dollar. Upbeat U.S. data also buoyed risk appetite and stocks today.

U.S. home prices and consumer confidence continue to rise. The employment cost index jumped as well, which inspires hope that wage growth and then inflation might accelerate. However, as we saw yesterday, the Fed’s preferred measure of inflation remained sluggish in September.

Will that be worth mentioning when the Fed announces policy tomorrow? And if they do, will it temper December rate hike expectations?

The ECB came out with more dovish than expected guidance last week, as did the Bank of Canada. The latter likely had an inkling that the economy had contract in August, as the rest of us found out today.

The Canadian dollar came under pressure as hopes for tighter monetary policy evaporated. The yen also dropped today after the BoJ held steady with no mention of any plans for normalization.

As I mentioned in the Morning Snapshot, it might be in the best interest of the Fed to adopt a more dovish tone tomorrow, to better align with the current policy direction of the other major central banks. No change in policy is expected at this meeting and they will likely leave the door open for a December hike, but a tempering of the high expectations of that hike might be warranted.

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Morning Snapshot: Gold retreats back into range as dollar firms on weaker yen

USAGOLD/Peter Grant/10-31-17

The consolidative tone in gold persists as the dollar remains firm and stocks rebound. The yellow metal still needs to climb back above $1300 to ease short-term pressure on the downside.

The BoJ left the policy rate unchanged at -0.1%, kept 10-year JGB rates capped “around zero” and will maintain the QE pace of ¥80 trillion per year. Despite optimism about both growth and inflation, guidance remains dovish. That pressured the yen, buoying the dollar in the process.

The Fed begins their two-day FOMC meeting today. When policy is announced tomorrow, no change is expected. While a December rate hike will remain on the table, it might behoove the central bank to start tempering those expectations; unless they truly believe inflation is on the verge of rebounding.

Expressed concern about the ongoing absence of inflation — which is the reason they paused in September — would likely halt the recent rise in the dollar. With the ECB, BoC and BoJ maintaining their dovish guidance, it might be in the best interest of the Fed to hint that the pause might be perpetuated into 2018.

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Gold Inches Higher to Kick Off Action-Packed Week

WSJ/Amrith Ramkumar & Georgi Kantchev/10-30-17

Gold prices inched higher Monday, with many investors awaiting news later in the week that could swing prices.

On Wednesday, the Federal Reserve is scheduled to release its latest statement following a two-day meeting that could offer clues about its outlook for interest rate increases moving forward. Gold struggles to compete with yield-bearing assets like Treasurys as borrowing costs rise. Additionally, President Donald Trump is expected to announce his nominee to be the next Fed chair this week. The Wall Street Journal reported that Mr. Trump is expected to nominate Fed governor Jerome Powell as his nominee.

Investors will also be paying attention to Friday’s monthly jobs report for the latest reading on the U.S. economy, which could affect expectations for future rate increases. Signs of inflation could also boost gold prices because some investors use the precious metal as a hedge against higher consumer prices.

“There’s some interest coming back into [gold] down at these levels.” — Bob Haberkorn, senior market strategist at RJO Futures.
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The Daily Market Report: Gold Firms Intraday as Busy Week Gets Underway


USAGOLD/Peter Grant/10-30-17

Gold has firmed modestly intraday, but remains well contained within the recent range. A number of important events and data releases are slated for this week, which seems to have tempered risk appetite somewhat.

We’ll get policy announcements from the BoJ, Fed and BoE this week on 31-Oct, 01-Nov and 02-Nov respectively. The BoJ is likely to hold steady on the heels of Abe’s resounding elections victory. The Fed is expected to hold steady. The BoE may hike by 25 bps to at least reverse out the post-Brexit emergency rate cut.

The Fed policy statement will be closely watched for any indication about ongoing concerns about the absence of inflation. Today’s PCE data for September showed that inflation remains below target, which is the precise reason they did not tighten in September.

With a December rate hike fully priced in, arguably the risk is toward a more dovish statement. Will there be verbiage in the statement to rattle the conviction of the hawks? There is no press conference scheduled for this FOMC.

The White House has confirmed that President Trump will be making his nomination for Fed chair this week, reportedly on Thursday. Odds have seemingly shifted in favor of centrist Fed Governor Jerome (Jay) Powell.

The House is also expected to release the details of its tax cut legislation this week. Will those details be sufficient to keep the stock market bubble inflating, or will this be a classic case of ‘buy the rumor, sell the fact?’ And perhaps most importantly, what will be the implications for the national debt, bearing in mind that the debt ceiling comes back into play on December 4.

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Gold steadies ahead of raft of central bank news

Reuters/Jan Harvey/10-30-17

Gold steadied on Monday as traders stayed on the sidelines before this week’s central bank meetings and policy news, including President Donald Trump’s expected announcement of the next Federal Reserve chair.

The U.S. central bank kicks off a two-day policy meeting on Tuesday, while the Bank of Japan and Bank of England also meet this week to discuss interest rate policy.

…”The front end of the U.S. rates curve doesn’t seem to have priced in a Taylor Rule Fed … which means that a surprise would send yields and the dollar higher, and risk assets down,” SG Forex said in a note on Monday.

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Morning Snapshot: Gold remains range bound to begin busy week

USAGOLD/Peter Grant/10-30-17

Gold starts the week as it ended, consolidative within the recent range. The dollar is a little easier, as are stocks, with risk appetite tempered somewhat ahead of this rather busy week.

The first indictments in the Russian collusion investigation are occurring today. Former Trump campaign chairman Paul Manafort and his aide Rick Gates are supposed to turn themselves in to the FBI today.

The Fed’s two-day FOMC meeting commences tomorrow. No change to policy is anticipated, but markets will be looking for further clarification of the central bank’s intentions for December. The BoJ and BoE meet this week as well.

Today’s U.S. data are a mixed bag. Personal income and consumption jumped in September. However, core PCE inflation was up a scant 0.1%. The Fed still has an inflation problem, which was the primary reason they paused the tightening cycle in September.

Politico is reporting that President Trump will make his nomination for the next Fed chair on Thursday. They reported last week that the field had narrowed to John Taylor and Jerome Powell.

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DOW To Lose 97% Against Gold

Matterhorn Asset Management/Egon von Greyerz/10-27-17

Little did I know in 1969 that Nixon two years later would change the destiny of the world for decades to come as the US came off the gold standard. By throwing off the shackles of a gold backed currency, there was no longer anything stopping the US government and the financial system from creating unlimited credit and printing infinite money.

The consequences have been a US and global credit expansion of gigantic proportions. Just in the US, credit has grown 47X from $1.5 trillion to $70 trillion.

…One thing is certain, gold will continue to preserve wealth and maintain purchasing power as it has done in the last few thousand years.

…if we take the next 10 years, gold (and silver) is likely to vastly outperform most conventional assets like stocks, bonds and property. The Dow is now the most overbought it has been in over 60 years with gold and silver depressed by a fake paper market.

…The Dow / Gold ratio crashed by 87% from 1999 to 2011. After a weak correction, the ratio is still down 60% since 1999.

…The current correction up of the ratio could go slightly higher but it is now very stretched and the downside risk is massive.

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The Daily Market Report: Gold Range-Bound Ahead of Weekend


USAGOLD/Peter Grant/10-27-17

Gold appears poised to end the week on a consolidative note, well within the range that has dominated so far in October. That range is defined by the 1260.10 low from 06-Oct and the 1306.04 high that was set 10-days later.

Dollar gains and risk appetite continue to limit the upside for gold. Additional optimism about the U.S. economy was garnered from today’s better than expected 3.0% advance GDP print. That lends an additional measure of confidence to expectations that the Fed will indeed raise rates again in December.

The Catalan parliament votes to declare independence from Spain today. Spanish PM Rajoy quickly moved to invoke Article 155, dissolving the Catalan parliament, moving to fire Carles Puigdemont and his cabinet and calling for a regional election.

Tensions are high and there are risks for unrest over the weekend. Headlines following the initial independence referendum several weeks ago suggested Spain was on the verge of a civil war. That is probably even more true today.

Will Spain send in the national police and army troops to enforce direct rule? How will the people of Catalonia react?

Now that the budget has passed both the House and Senate, the GOP is obliged to release the specifics of their tax proposal. That should come next week and that will allow analysts to calculate the debt implications and I suspect they will be significant.

With the national debt and household debt at record levels, it’s reasonable to wonder just how much more debt this economy can tolerate. That in turn begs the question, why would the Fed raise rates into this situation; especially when inflation remains so subdued.

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Gold catches a bit of a bid, leaving the near-term range low at 1260.10 intact.

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Gold slips as dollar benefits from ECB bond-buying extension

Reuters/Zandi Shabalala/10-27-17

Gold prices touched their lowest point in nearly three weeks on Friday as the euro slipped against the dollar following the European Central Bank’s extension of its bond-buying programme.

Currency investors played a diverging monetary policy outlook, with the U.S. expected to raise interest rates again before the end of 2017 while Europe is not now expected to do so in the coming years.

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Morning Snapshot: Gold remains defensive at low end of recent range

USAGOLD/Peter Grant/10-27-17

Gold remains defensive at the low end of the recent range, weighed by heightened risk appetite and a stronger dollar. Support in the yellow metal is well defined by the 1260.10 (06-Oct low).

U.S. advance Q3 GDP came in better than expected at 3.0%, essentially unchanged from +3.1% in Q2. This will help justify persistently elevated expectations for a December rate hike, even though the absence of inflation continues and that’s the “mystery” that prompted the Fed to pause in September.

The BoJ faces the same problem with October CPI coming in at +0.7% y/y. Don’t expected any move toward tighter policy anytime soon.

The dollar is rallying based on anticipated widening of interest rate differentials. Most of the world continues to lean toward easier policy, while the U.S. is in the midst of a tightening cycle (Sep pause notwithstanding). These dollar gains are keeping a lid on gold for now.

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The Daily Market Report: Gold Falls Within Range as Dovish ECB Lifts Dollar


USAGOLD/Peter Grant/10-26-17

Gold has turned more defensive within the range, dropping to fresh 3-week lows. The yellow metal is being pressured by strength in the dollar after a dovish ECB pushed the euro lower.

The ECB held steady on policy as was widely expected. While QE was extended by 9-months, the monthly purchases were halved to €30 bln.

Mario Draghi maintained a dovish bias during his presser, stressing that an “ample degree of monetary stimulus remains necessary.” He also said that QE remains “open-ended” and could be extended. There is some speculation that cutting the size of the monthly purchases was a necessary reaction to an absence of supply.

News that the U.S. $4 trillion 2018 budget narrowly passed the House, is further stoking risk appetite. This is seen as another significant hurdle toward advancing tax cuts.

Politico cited an unnamed source, said to be close to the President, as saying that the field of potential replacements for Janet Yellen has been narrowed to Jerome Powell and John Taylor. The former being a centrist, the latter thought to be a hawk.

While this may be modestly moving the policy expectations needle toward hawkish, the White House has said that no final decision has been made. The President is likely to make the nomination before he leaves for Asia on November 3.

Another unnamed senior source that Politico described as very close to the process said it was not safe to assume Trump will nominate Powell or Taylor for the top spot at the central bank, saying he “changes his mind about it every day.” — Reuters

On the support side of the equation are geopolitical tensions regarding Catalonia and North Korea. And political tensions associated with various ongoing investigations and the recent discord among GOP Senators.

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Gold dips as dollar gains versus euro after ECB decision

Reuters/Maytaal Angel/10-26-17

Gold dipped on Thursday as the dollar gained versus the euro after the European Central Bank said it would cut back its bond purchases but hedged the move by also extending the lifespan of its bond-buying programme.

The ECB’s decision to cut back bond purchases was widely expected and factored into gold prices and the dollar, with the move to extend the bond-buying programme’s lifespan taking the wind out of the euro’s rally versus the dollar.

…Also weighing on gold and boosting the dollar was fresh speculation that the next Federal Reserve chair could be a policy hawk following reports that current Fed chair Janet Yellen is out of the race.

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The Morning Snapshot: Gold remains consolidative below $1300

USAGOLD/Peter Grant/10-26-17

Gold continues to consolidate below $1300 after ECB policy came in as expected: Steady on rates and smaller QE for longer. Mario Draghi’s press conference is ongoing.

U.S. initial jobless claims rebounded 10k last week, but the print was still below expectations. The trade gap widened in-line with expectations.

There are reports circulating this morning, citing Politico, that Janet Yellen and Kevin Warsh are out of the running for Fed chair. That may mean that the field has narrowed to John Taylor and Jerome Powell.

The dollar index is probing back above 94.00, buoyed by a dovish ECB and the resulting weaker euro. That is keeping gold defensive. Political and geopolitical tensions continue to provide support.

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The Daily Market Report: Gold Consolidates, Awaiting Clarity on Several Fronts


USAGOLD/Peter Grant/10-25-17

Gold continues to consolidate in the recent range as the market seeks some clarity on Fed succession and ECB policy. The former is reportedly unlikely to happen this week, while the ECB will announce policy tomorrow.

The short list for the next Fed chair includes John Taylor, Jerome Powell and a reappointment of Janet Yellen. If these are really the only three in contention, then Janet Yellen is President Trump’s best bet for furthering his reflation agenda. Whether she would stay on or not is an open question. I wrote in great detail on this topic in yesterday’s DMR.

Tomorrow the ECB is expected to hold steady on policy, as the BoC did today. As for the QE question, there seems to be an expectation that the ECB will signal that it will buy fewer assets for a longer time. Sort of a taper, but not really, as Draghi may be hoping for signs that better growth prospects are taking hold before he really moves the central bank toward tighter policy.

Just a week after the Senate passed a budget proposal — a key step in advancing proposed tax cuts — the President’s support in the Senate has been rattled. Arizona Sentaror Jeff Flake said today that “a lot more” Republicans are poised to speak-out against Mr. Trump.

If the President is losing the support of the GOP, yet another key piece of his agenda may be in jeopardy. I would also point out that tax reform has been a primary driving force behind the stock market rally. If the tax cuts are not passed before year-end, there is some risk that equities could rollover.

Capital coming out of shares would find its way to safe-haven assets, including gold. If the yellow metal pushes back above 1308.80 in the near term, a resumption of the uptrend that has dominated this year would become likely.

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Fed succession talk pushes gold to 2-1/2 week low

Reuters/Peter Hobson/10-25-17

Gold touched a 2-1/2 week low on Wednesday after reports that Republican senators favoured John Taylor to become the next head of the U.S. Federal Reserve drove U.S. bond yields to multi-month highs.

Taylor, a Stanford University economist, is seen as someone who could put the Fed on a path of faster interest rate increases compared with current Fed Chair Janet Yellen, whose term expires next February.

Upbeat U.S. durable goods and home sales data also bolstered the case for interest rate rises, helping push U.S. 10-year Treasury yields to the highest since March and yields on 30-year bills to the highest since May.

PG View: Subsequently, gold rebounded to trade higher in the range, leaving the range low from early-Oct well protected as the dollar index stalled ahead of important resistance at 94.00.

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Morning Snapshot: Gold steadies as dollar gains stall

USAGOLD/Peter Grant/10-25-17

Gold is maintaining a generally consolidative tone within the recent range, as gains in the dollar index stalled ahead of head of important resistance at 94.00/14. The yellow metal needs to reclaim $1300 to ease short term pressure on the downside and return confidence to the dominant uptrend.

A better than expected Q3 GDP print for the UK sparked a rebound in Sterling, amid reinvigorated hopes that the BoE will raise rates next week, for the first time in more than a decade. This has weighed on the dollar.

U.S. data today were generally positive with durable goods orders, new home sales and home prices all beating expectations. The Bank of Canada will announce policy today (steady expected) and the ECB is up tomorrow.

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The Daily Market Report: Gold Pulls-Back Within Range as Dollar and Stocks Rally


USAGOLD/Peter Grant/10-24-17

Gold pulled back within the range, weighed by risk appetite and a firm dollar. On the other side of the coin, are political and geopolitical risks offering support. These opposing forces have kept the yellow metal fairly well contained of late.

While the underlying trend remains positive, a definite push back above $1300 is needed to return focus to the high for the year at 1357.50. That high was established back in early-September.

President Trump’s impending choice for Fed chair is also weighing somewhat on gold, with a couple of policy hawks in contention. While the Fed chair does not set policy alone, a vocal hawk at the head of the table, would give the impression that rates are more likely than not to head higher.

My contention is that if “reflation” is the goal of the President, why hamstring yourself by appointing a hawk? It would seem that Janet Yellen might be the ideal choice. She is both a dove and a know commodity to the markets. However, there are considerable doubts as to whether the President will reappoint her, and whether she’d accept if asked to serve again.

At the other extreme is economist John Taylor, whose Taylor Rule suggests that the Fed funds rate should be closer to 4% than 1%. It would be difficult to convince the current FOMC to move away from the slow/steady tightening regime instituted by Yellen, but he would also be under constant external pressure to institute the rule that bears his name.

And it’s worth remembering that the Fed opted to hold steady on rates in September. The pause was largely inspired by the Fed’s inability to generate 2% inflation. While there have been some indications of hotter inflation more recently, it is largely thought to be associated with higher energy prices in the wake of the recent hurricanes. The situation with regard to inflation probably really hasn’t changed much since September, so why is the market fully pricing in a December rate hike?

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‘Real’ Gold Bull Market Is Coming, It Just Needs This First – Pierre Lassonde


KitcoNews/Anna Golubova/10-24-17

Gold prices will only go up, rising as high as $1,400 next year, but the “real” bull market won’t get going until it sees an actual pickup in inflation, said mining magnate Pierre Lassonde.

…inflation could accelerate soon enough, with both reconstruction following the damage caused by hurricanes Irma and Harvey in the U.S. as well as a recovery in Europe moving the needle in the right direction, he said.

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Gold slips on nerves ahead of Fed chair decision

Reuters/Eric Onstad/10-24-17

Gold dipped on Tuesday as investors nervously awaited news on the new head of the U.S. central bank while strong share markets and a calmer geopolitical environment sapped safe-haven demand.

“The hawkish speculation about a new Fed chair has added some downside pressure,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

President Donald Trump told reporters on Monday he is “very, very close” to making his decision on who should chair the U.S. Federal Reserve.

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Morning Snapshot: Gold retreats into range as stocks lurch higher

USAGOLD/Peter Grant/10-24-17

Gold has retreated into the range once again as stocks lurch higher. The dollar is firmer this morning as well, but solid resistance in the dollar index at 93.99/94.14 remains intact.

Political and geopolitical tensions continue to be seen as supportive for the yellow metal. The government of Catalonia is expected to respond to Spain’s demands on Thursday. Japan’s Defense Minister categorized the North Korea threat as having “grown to the unprecedented, critical and imminent level.”

Today’s U.S. economic calendar is light today with Markit PMIs for October and the Richmond Fed index. Tomorrow the BoC will announce policy, followed by the ECB on Thursday.

Both policy decisions and the guidance will be interesting, as recent data — particularly weak inflation — may have derailed tightening plans. If easier policy prevails, the Canadian dollar and euro may come under further pressure.

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Gold Price Fighting Stronger Dollar


KitcoNews/Peter Hug/10-23-17

Gold continues to weaken in the face of a stronger US$. Dollar strength, especially against the yen, remains the main headwind for gold in the short term.

…Buying should re-emerge if gold can break up through $1,279.

PG View: Gold is already above that $1279 level intraday. We’ll see if there is upside follow-through in the sessions ahead . . .

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The Daily Market Report: Gold Recovers from 2-Week Lows


USAGOLD/Peter Grant/10-23-17

Gold slipped to a two-week low in earlier trading amid heightened risk appetite springing from the recent advancement of the 2018 budget proposal and the positive implications for tax reform. However, these losses could not be sustained and the yellow metal is now trading higher on the day.

The dollar also got a boost today, but it was primarily associated with yen and euro weakness. The former being weighed by rising concerns about the Catalonia crisis, the latter as a result of Shinzo Abe’s landslide victory.

Abe’s snap election gambit payed off, consolidating his power. This likely means that Abe-nomics will be perpetuated for some time to come, which bodes ill for the yen. Additionally, Abe is expected to ramp up military spending to address North Korean and Chinese provocations. There is a legitimate concern that an Asian arms race may be in the offing.

While markets seem to have latched on to the tax cut story, political and geopolitical risks are still likely to limit the downside for gold. In fact, the yellow metal has proven to be quite resilient in the face of both dollar and stock gains.

If either of those markets roll-over, gold should reclaim $1300. The 1308.80 resistance level is still seen as the key to unlocking a retest of the high for the year at 1357.50.

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Gold hits two-week low as Abe election victory lifts dollar

Reuters/Jan Harvey/10-23-17

Gold hit a more than two-week low on Monday as expectations that Japan’s ultra-loose monetary policy would stay in place after Prime Minister Shinzo Abe’s election victory at the weekend lifted the dollar to a
three-month high versus the yen.

Abe’s win also fed into positive sentiment in equity markets that were buoyed last week by fresh optimism about tax cuts in the United States, curbing interest in gold as an alternative asset.

…”(Gold) is just following what the dollar is doing,” said Natixis analyst Bernard Dahdah. “People are also getting more excited about the stock markets, and that removes a bit of business from gold.”

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Morning Snapshot: Gold remains defensive to start week

USAGOLD/Peter Grant/10-23-17

Gold remains under pressure as risk-appetite remains elevated, driving global shares higher. Last week’s passage of a 2018 budget resolution by the Senate further stoked hopes for President Trump’s proposed tax cuts.

Spanish Prime Minister Mariano Rajoy said over the weekend that he would seek to dissolve the Catalonian government under Article 155, thereby ending the region’s autonomy. The EU fell in line with Spain’s central government. However, Catalan foreign affairs spokesman Raul Romeva said, “the people and the institutions in Catalonia will not let this happen.” It would appear that a showdown is brewing.

Shinzo Abe has consolidated power as a result of the weekend snap election. Abe-nomics will continue, but he is also expected to modify Japan’s pacifist Constitution so that he can “deal with North Korea.” Japan needs to be able to defend itself, but this could mark the beginning of a new Asian arms race.

The U.S. calendar is very light today. The highlight of this week will be the ECB rate decision on Thursday.

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The Daily Market Report: A Fed Hike in December May Lead to Intolerable Policy Divergence/Stronger Dollar


USAGOLD/Peter Grant/10-20-17

Gold has retreated to the low end of the recent range after passage of the 2018 budget blueprint stoked optimism that the tax cuts will get passed as well. The prospects for lower corporate taxes is spurring risk appetite, sending shares higher.

As the stock bubble continues to inflate, the Fed may indeed be compelled to raise rates again in December, regardless of persistently weak inflation. The inflation that the Fed so desperately wants is occurring in asset prices, rather than in PCE, which they have identified as their primary benchmark.

As we’ve noted in previous commentary this week, PCE inflation has actually been declining since the central bank first started hiking rates in December of 2016. The Fed did do a one-off rate hike in December 2015, which proved to be a big mistake. That may still prove to be the case this time around as well.

The Fed also needs to consider the implications of a December rate hike if the rest of the world continues to lean toward easier policy:

With Fed quantitative tightening (balance sheet normalization) already underway, arguably the Fed is being plenty hawkish relative to the other major central banks. A December rate hike would result in greater and intolerable policy divergence, likely leading to a stronger dollar. Certainly appointment of someone like John Taylor to chair the Fed would have that effect.

However, President Trump has made it clear that he is not in favor of a stronger dollar. If reflation is the goal, via tax cuts, borrowing and spending. A weak dollar becomes all-but essential to pull that off successfully. The rest of the world maintaining easier policy may provide the necessary cover to maintain the pause in the current tightening cycle through year-end.

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