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The Daily Market Report: Gold Choppy On Mixed Data and Mixed Messages


USAGOLD/Peter Grant/05-23-17

Gold was unable to sustain the earlier intraday rebound, falling back into the daily range. The choppy trade comes as a result of a mixed bag of economic data, dovish FedSpeak, much ado about President Trump’s budget proposal and ongoing concerns about his broader economic agenda.

Markit PMI data were mixed with services better than expected and manufacturing missing expectations. The Richmond Fed index tumbled to 1 in May, below expectations of 15, vs 20 in April. New home sales tumbled 11.4% in April, well below market expectations. It was the biggest drop since March of 2015.

Sales fell in every region of the country, led by a 26.3% plunge in the West, the biggest drop since October 2010. — AP

Minneapolis Fed President Kashkari noted today that inflation is going the “wrong way.” Rising inflation and inflation expectations was the main incentive for the Fed’s move to tighter policy. Kashkari wants to see more data before considering a further tightening of monetary policy in June.

Speaking at the Peterson Foundation Fiscal Summit, Treasury Secretary Mnuchin confessed that “we’re not going to get [tax reform] done by August.” While he’s still hopeful that it will get done this year, there are rumblings that the GOP may have to settle for tax cuts, rather than reforms, but even that may be a heavy lift. There is also talk of combining fiscal spending with any tax bill in an effort to garner support from Democrats.

The bottom line is that the economic agenda seems to be losing additional momentum, and the new budget proposal isn’t going to help the cause. President Trump’s $4.1 trillion budget seems to be overly optimistic about the growth prospects of the U.S. economy. While the budget targets 3% growth, some analysts suggest continued sub-2% growth is the more likely reality. Zerohedge also reported that the administration is perhaps overly-optimistic about how long the current expansion will last.

Given the cuts to entitlements, Democrats are already girding for battle. As that battle rages, the clock will continue tick toward the inevitable next recession. Since the Great Depression, the U.S. has suffered thirteen recessions. The periods of economic growth between recessions have been as long as 120-months, and as short as 12-months. The average is just over 59-months.

The time elapsed since the Great Recession “officially” ended in June 2009 presently stands right at 95-months. To think we can go more than another decade without an economic contraction just might be delusional.

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U.S. Markit services flash PMI rose to 54.0 in May, above expectations of 53.1, vs 53.1 in Apr.

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The Daily Market Report: Gold Firms as Dollar Continues Its Slide


USAGOLD/Peter Grant/05-22-17

Gold remains generally well bid, with last week’s high at 1265.01 within striking distance. Above that — given the favorable technical posture — the high for the year at 1295.03 would be looking pretty attractive.

Political and geopolitical tensions are helping to keep the yellow metal underpinned. Continued pressure on the dollar is helping to buoy gold as well. The dollar index has extended to new 6-month lows toda, pushed by euro gains.

In answering a question as to why Germany continued to maintain a high trade surplus, Angela Merkel said that “the euro is too weak,” suggesting that ECB policy was too accommodative. With more hawkish rumblings emanating from the central bank this year, Merkel’s comment may have lent some credence to calls for some movement toward policy normalization later this year.

If Chancellor Merkel thinks the euro is too weak, and President Trump thinks the dollar is too strong, it seems like there may be a path of least resistance for that currency pair. That would bode well for gold, which is priced in dollars.

Uncertainty about U.S. growth prospects could put further pressure on the greenback if the Fed adopts a more dovish tact later in the year. Right now, markets remain fairly convinced that another 25 bps rate hike is coming in June. Fed funds futures put the probability back at 78%, but chances of an additional 25 bps in September at just 24.5%.

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The perils of complacency. . . .

. . . in the age of quants and the madness of machines

Daily Reckoning/James Ricards/5-19-2017

“In recent decades, mainstream economists insisted that markets are highly efficient, and do a near perfect job of digesting available information and correctly pricing assets today to take account of future events based on that information. In fact, nothing could be further from the truth. Markets do offer valuable information to analysts, but they are far from efficient. Markets can be rational or irrational. Markets can be volatile, irrationally exuberant, or in a complete state of panic depending upon the emotions of investors, herd behavior, and the specific array of preferences when a new shock emerges.”

MK note:  I might add that the volatility, irrationality, potential panic and the rest when applied to the markets extends beyond humanity itself to machine-driven algos as well – hence the madness of machines, as I have called it past writings.  We should keep in mind that computer driven trading models mimic human behavior by design.  As a result, the bad behviour necessarily comes with the good.  Computer driven trading is an extension of human psychology, not set aside from it.  After all, the goal in the end is get ahead of the competition, a decidedly human endeavor.

This morning’s Wall Street Journal features an article on algo/quant trading platforms.  In it, the authors bemoan the lockstep trading of the various quant funds and their potential to exacerbate a trend.  The lemmings in short can take the market higher; they can also take it over a cliff.

Quants today comprise 29% of stock market trading volume – a percentage large enough to dictate momentum in either direction depending upon if they are buying or selling.  I agree with James Rickards.  There is a peril in being complacent and thinking that all of this will end well, or that because the trading is dominated by algos and quant platforms that somehow the markets have suddenly become immune to the history of panics, mania, crashes and collapses that frequent economic history.  That quant is every bit as human in the way it acts and reacts as the programmers that gave it cyber-life.

The best way to guard against the power of quants moving against you and your portfolio is to own gold and silver.  The lemming with the parachute owns precious metals.

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The Daily Market Report: Both Technicals and Fundamentals Remain Supportive for Gold


USAGOLD/Peter Grant/05-19-17

The dominant trend in the gold market remains positive, despite the recent multi-week pullback. The yellow metal appears poised to end the week with a 1.8% gain, the biggest in more than a month.

The technical picture remains constructive with gold holding above key moving averages. The 50-day MA remains above the 200-day MA, sustaining the “golden-cross” that occurred late last week. When the 50-day moves above the 200-day moving average, it is typically interpreted as a rather bullish event, hence the name.

Gold is proving quite resilient today in the face of a rebounding stock market. Stocks were lifted by dovish FedSpeak, but heightened political and geopolitical risks are likely to continue underpinning the yellow metal.

St. Louis Fed President James Bullard acknowledged that both growth and inflation data have been pretty soft of late. “FOMC’s contemplated policy rate path is overly aggressive relative to actual incoming data on U.S. macroeconomic performance,” said Bullard.

I have maintained that the primary goals of the Fed’s tightening into weak growth, is to prick the stop market bubble and to replenish the central bank’s ammunition in case of more pronounced growth risks and/or deflationary pressures. Minneapolis Fed President Neel Kashkari warned this week that, “Monetary policy should be used only as a last resort to address asset prices, because the costs to the economy of such a policy response are potentially so large.”

So what is the Fed to do at the June 13-14 FOMC meeting, given still relatively buoyant stocks and the worsening risk that the economy stumbles in the face of the considerable headwinds now facing President Trump’s fiscal policy agenda? Rate hike expectations have ebbed recently, but there’s still several weeks to go before the FOMC convenes.

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Dow finishes down 370 points, dollar hammered, gold surges $17. . . . .

Surprise! Gold up almost 9% on the year.

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Dow drops 250 points, S&P and Nasdaq fall 1% as Trump worries send shivers down Wall Street

CNBC/Fred Imbert/5-17-2017

“This is clearly Washington-driven,” said Michael Shaoul, chairman and CEO of Marketfield Asset Management. “It’s a lot like 1998-99, when the market had to deal with the [Monica] Lewinsky scandal.”

MK note:  Unravelling euphoria + deflating bubble = Gold up $15.

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Morning Snapshot: Gold buoyed by weaker dollar

USAGOLD/Peter Grant/05-16-17

Gold is modestly higher, buoyed by a weaker dollar. The dollar index has fallen to new 6-month lows, mostly on the back of euro strength, but commodity currencies have also gained against the greenback recently.

The dollar has now retraced most of its post-election gains, weighed by uneven economic data, dimmed expectations of further Fed rate hikes and a growing realization that implementing the President’s reflation agenda is not going to be easy. Nonetheless, Mr. Trump has not been shy about saying he prefers a weaker dollar as a means of stoking demand for U.S. exports. Therefore the President may be pleased to see the dollar retreat, but is likely nonplussed about the reasons.

U.S. data this morning were mixed: Housing starts missed expectations, dropping 2.6% in April. Industrial production rose 1.0% in April, above expectations of +0.4%.

Meanwhile the euro is at 6-month highs, buoyed by optimism in the wake of the centrist victory in the French election and growing belief that the ECB is going to start removing accommodations at some point this year. While Q1 GDP was confirmed at +0.5%, the annualized rate of growth eased to 1.7%.

European market seem to be taking heart from German ZEW investor confidence index. While the headline number slightly missed expectations, the overall Eurozone expectations reading jumped to 35.1 from 26.3.

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Of inflationists and swamp creatures. . . . .

“This crowd couldn’t sell gold bars to inflationists.”  – Today’s lead Wall Street Journal editorial with reference to the Trump administration’s handling of Comey’s termination

MK note:  Though the Wall Street Journal confuses use of the term “inflationist,” the point is well-taken.  It is not the perpetrator of inflation (the inflationist) who seeks the safety of gold in most cases.  It is the victims, i.e. ordinary citizens. I say “in most cases” because there is one notable instance of an inflationist taking refuge in the metal. He was one of the most infamous perpetrators of them all, John Law, who in 1720 was ultimately caught in escape mode at the French border with a wagon load of gold and silver booty he had accumulated against the currency hyperinflation he had created.

History aside, as a firm that has placed millions in gold coins and bars over the years with investors hedging an assortment of potential disasters, we can say with confidence that USAGOLD can and does sell gold to “inflationists” under the WSJ definition. . . . . and plenty of it.  If anything, the level of confusion, angst and partisan politics on the loose in Washington DC these days only adds another good reason for the rest of us to own gold.  The swamp, in short, requires hedging.  I am not surprised to see gold moving back to the upside under the current circumstances.  As noted yesterday, the euphoria bubble is in the process of being deflated by events.

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The Daily Market Report: Gold Consolidates at Low-End of Recent Range


USAGOLD/Peter Grant/05-10-17

Gold is consolidating at the low end of the recent range. Risk aversion has ticked up in the past 24-hours as a result of intensified North Korea saber rattling and the firing of the FBI Director Comey by President Trump.

North Korea’s ambassador to the U.K. told Sky News yesterday that the DPRK is ready to conduct another nuclear test. There is speculation that both such a test could illicit a response from either the U.S. or China. “If the U.S. moves an inch, then we are ready to turn to ashes any available strategic assets of the U.S.,” said Ambassador Choe Il

The firing of James Comey is being viewed as another distraction that could further delay the implementation of President Trump’s aggressive economic agenda. Commerce Secretary Wilbur Ross has already conceded that Trump’s 3% GDP target “is certainly not achievable this year.” In a Reuters interview, Ross complained that “The Congress has been slow-walking everything. We don’t even have half the people in place.”

An early read for Q2 GDP saw the Atlanta Fed’s GDPNow model revised lower from 4.2% to 3.6% yesterday. Early GDPNow reads for Q1 were above 3% and was ultimately revised all the way down to 0.2%, before the Commerce Department reported an advance estimate of 0.7%. The blue chip consensus for Q2 is presently around 2.7%.

As growth risks are accentuated, the Fed may be forced to adopt a more dovish tone and perhaps even forgo the broadly anticipated June rate hike. That would reinvigorate interest in gold, but there are certainly a number of fundamental factors that one would expect to offer support to gold.

“I do think that gold is probably a real good buy somewhere around here, maybe as low as $1200. I think we’re going to see much higher prices. I think it’s a great hard asset for people to own anyways,” said strategist Todd Horwitz in a Bloomberg interview.

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Gold vs. Trumponomics

The Alchemist/Dr. Jonathan Butler, Mitsubishi/5-10-2017

“After the dollar and stock market euphoria of late 2016 and early 2017, there are already signs that the Trump reflation trade may be more an expression of hopeful sentiment rather than a new paradigm of actual higher economic growth and inflation. Treasury yields, the dollar, equity valuations and inflation expectations are all reversing their previous gains, to the benefit of gold. Though it remains too early to say with any certainty, bullion may even end up benefiting further from the Trump administration’s changes to the regulatory environment and the promotion of US manufacturing. As Trumponomics, in whatever form it ultimately takes, brings a new set of political, economic and trade uncertainties over the coming four years, gold should have plenty of opportunities to shine as a safe-haven asset and portfolio diversifier.”

MK note:  Somehow this argument seems considerably more credible now than 24-hours ago.  The quote above leaves out another important argument made several times in this Alchemist article.  The Trump administration is likely to have a great deal of difficulty pushing its programs through Congress, a direct blow to the reflation trade.  Slowly, sentiment is beginning to turn from the post-election euphoria that has governed trading in financial markets since the November election.

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Strategist Horwitz Sees Breakout in Oil, Gold Soon

Bloomberg/05-10-17

“I do think that gold is probably a real good buy, somewhere around here, maybe as low as $1200. I think we’re going to see much higher prices. I think it’s a great hard asset for people to own anyways.”

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Gold’s transcendence in the fiat money era

Whenever I am concerned about gold’s price performance, I return to this chart and it restores my faith in the metal without reservations.  I could write many paragraphs about what I see here, but I think the chart speaks for itself. It explains at a glance why gold in the fiat money era, in which we are still firmly esconced, is a good thing to own.  Simply put, it transcends. . . . . . .During the gold standard era, the chart is a flatline.  The day the United States severed the dollar’s tie to gold, it registered a pulse.

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China has now become the biggest fear for markets

CNBC/Patti Domm/5-9-2017

“Stocks are at record highs, the VIX is at a 10-year low, and while investors are relieved the French presidency did not go to an anti-euro candidate, new risks are filling the void. Topping the list of market worries is China, which has been on the back burner for months now. Some weaker-than-expected data, however, has put a spotlight on the country’s economy.”

MK note:  Those wondering why gold didn’t stage one of its quick rebounds following the Fed meeting might want to throw the slowdown in China into the analysis. News of problems in the Chinese economy took on renewed concern almost immediately following the meeting.  Commodities took a hit, particularly copper and some of the other industrial metals, but that bled into the gold and silver markets as well. Simultaneously, however, reports surfaced of strong demand for gold from China.  So maybe the post-Fed-piling-on in the gold and silver markets lacks justification, and more importantly, depth given the fact that gold demand in China went in the opposite direction.

_____________

I’ve written extensively of the madness of machines and the large segment of trading governed by them, i.e., the primary influences in today’s financial markets.  You can either attempt to ascertain the madness and join the fun (while your luck holds out), or you can bet against it with a solid core portfolio position in gold and silver.  Diversification into something real and detached from the paper-based madness makes a great deal of sense.

All of which reminds me of an Ed Stein cartoon. . . . . . .Sometimes the algos simply do not get the reality quite right.

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Credit Suisse goes positive on gold

With the steady drizzle on gold’s parade, it’s nice to see something positive come out of one of the big international banks.  Credit Suisse is calling for gold to hit $1400 an ounce by the end of the year citing ––

a) “surprise” low real rates of return (something we’ve emphasized in past posts + articles),

b) “waning strength in the U.S. dollar” (which we have yet to see),

c) dovish monetary policy (which is commonly misinterpreted as hawkish) and

d) the “probability of a disruptive geopolitical event”

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Druckenmiller, Warsh – Interesting segues at the Sohn conference

Every year the hedge fund and money management elite gather at New York’s Lincoln Center for the Sohn Conference where they elaborate on their view of the markets and the economy.  They also provide insights as to what they are touting these days – a chance to talk their book to a room full of fellow traders.

This year, amidst the otherwise boring touts, a couple interesting tidbits surfaced that I thought worth passing along:

  1.  I did not know that Kevin Warsh, the youngest to ever take a seat at the Federal Reserve’s governors table, was the front runner to take over for Janet Yellen, but according to Forexlive’s Adam Button that is apparently the case.  Warsh is currently an advisor to the Trump administration.  Forexlive reports that Warsh took centerstage last Friday “with a savage assessment of the Fed.”  He believes the Fed should “engage in a fundamental rethink of strategy and how it thinks about the world.”  He says the so-called dot plot that nearly everyone on Wall Street uses to diagnose future Fed direction on rates has been wrong for nine years.  He also says the Fed can fix itself without the help of Congress and that there is considerable waste in its $2.5 billion budget.  All of that might fit in nicely with the mindset at the White House these days.
  2. Warsh also said that “he believes the market is dangerous when measures of risk appear to be so low,” as reported at Bloomberg. He is probably referring to the VIX, i.e. the Volatility Index which is just as subject to speculative pressure as anything else listed and traded on the commodity exchange.  One wonders if it can be viewed as a reliable indicator given those speculative pressures, but that might be precisely why so many believe it to be reliable.  The Wall Street Journal published a front page article on the VIX this morning citing the measure at the lowest level since just before the 2007-2008 financial crisis.  Some see that new low as a major positive while others see it as a contrary indicator.
  3. Stanley Druckenmiller in introducing Warsh at the conference said he sold his gold on election night then bought a bunch of it back after it corrected.

MK

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Daily Market Report: Gold Weighed by Expectations of June Rate Hike


USAGOLD/Peter Grant/05-04-17

Gold has extended to the downside, setting a new 7-week low at 1224.90. The yellow metal is being weighed by revived June rate hike expectations. These losses come despite persistent geopolitical risk and a weaker dollar.

The weaker dollar is more a function of euro strength, which has garnered support from increased confidence that Emmanuel Macron will soundly defeat Marine Le Pen in Sunday’s Presidential run-off election. Polling in the wake of their final debate showed Macron’s lead was widening.

The eurocrats in Brussels are surely breathing a little easier. However, even if Macron wins, people are going to have to address how he will work with Parliament. Macron’s En Marche! movement has precisely zero MPs currently. Even if some converts to En Marche! become MPs in June, he will have nowhere close to a majority.

This may be setting Macron up to be a lame-duck from the get-go. If Macron is unable to affect change, the French people are likely to wind up being very unhappy. But hey, at least nobody will have to worry about a Frexit referendum for a while.

With Italian elections on the horizon however, Italexit might be the next cause for concern for Brussels. Italian elections are expected to occur within the next year.

The Fed seemed inclined to ignore weak Q1 growth yesterday, calling it “transitory”. However, there may have been a little concern expressed about soft core inflation and inflation expectations: “Excluding energy and food, consumer prices declined in March and inflation continued to run somewhat below 2%. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance.”

Inflation expectations had allegedly been a primary driving force behind the recent rate hikes. Nonetheless, the Fed appears to remain on track for another rate hike in June. Fed funds futures now put the odds near 80%.

In an interview with Bloomberg, Jim Rickards reiterated that the Fed is hiking into weakness, because they remain behind curve. Rickards believes they will have to reverse course later this year amid recessionary concerns. That would be favorable for gold.

Rickards notes a pattern of higher highs and higher lows, reflecting that an uptrend remains in place. That would suggest that this pullback is a buying opportunity.

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Today’s gold and silver sell-off

The FOMC meets Tuesday and Wednesday this week.  Today’s downside, in my view, is the standard sell-off that generally accompanies Fed meetings these days – irrespective of the expected meeting results.  From what I’ve read, this particular meeting will focus on the manner and method of reducing the Fed’s balance sheet and skirt the interest rate issue, though one never knows.

On the balance sheet issues, I’m still lingering on first base asking the basic question:  Why does the Fed need to reduce its balance sheet?  Why not simply leave things as is given the potential harm that reduction might have on the bond and stock markets, not to speak of the overall economy?  To me, it appears the Fed, for whatever reason, chooses to drive the streets in a truck full of nitro-glycerine.   It is the Fed’s choice to so so, but one wonders why.

Gold’s appeal will likely be enhanced by the market instability such considerations are likely to generate on a global basis.  Already we are seeing reports of major bond liquidations in Japan.  In doing so, it joins China in the on-going liquidations, and just as importantly, a reluctance to buy bonds at the weekly auctions.  Oddly enough, an absence of buyers of U.S. sovereign debt, should it occur, could ultimately lead to another round of quantitative easing, a process we called printing money in times past, and led to the huge balance sheet position the Fed now says it wants to liquidate.

And if all of that doesn’t confuse you, I don’t know what will.

MK

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Why Everyone Is Talking About This Tiny Canadian Lender’s Woes

Bloomberg/David Scanlan, Doug Alexander & Jeanette Rodrigues/04-30-17

The world is suddenly paying attention to Home Capital Group Inc., the tiny Canadian mortgage lender that’s on the ropes. The stock is plunging, it faces a run on deposits and regulators are probing management’s disclosure of fraudulent mortgages. Its troubles are raising questions: Is this an isolated case of a struggling mortgage company, or early signs of cracks forming in Canada’s red-hot housing market?

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News & Views – Forecasts, Commentary & Analysis on the Economy and Precious Metals

May, 2017 Edition – Weekend Sneak Peak

If you are looking for some engaging weekend reading, you might want to try the May edition of our newsletter.  We think you will find this month’s lead article revealing.  It explores gold’s historic undervaluation at current prices. (You might be surprised at just how undervalued it is in an  historical context.) We cover a lot of ground in our GoldNotes section.  Your interest is welcome. . . . . . Seems to be good reason to feature this  Ed Stein cartoon in our May issue ––

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The Daily Market Report: Gold Firms After First Look At Q1 GDP Disappoints


USAGOLD/Peter Grant/04-28-17

Gold edged higher in the wake of this morning’s advance Q1 GDP disappointment. Silver on the other hand remains on the defense, dropping to a 6-week low of 17.14. That drove the gold/silver ratio to a 10-month high above 73.44.

The BEA reported Q1 GDP at 0.7%, well below expectations of 1.3%. That puts the advance number smack-dab in the middle, between the median expectations and the Atlanta Fed’s GDPNow forecast that was lowered to +0.2% yesterday.

That 0.7% print is the lowest since Q1-14. In this instance, the bad number is largely attributable to a collapsed in consumer spending, which rose just 0.23% in Q1. That’s the smallest increase in spending since 2009. I said it several weeks ago when the March retail sales print was -0.2%:

The FOMC will meet next week, and they are widely expected to hold steady on policy. Focus is really on the June meeting, where the weak GDP data have not had a significant impact on rate hike expectations…yet. Odds of another 25 bps rate hike are holding steady around 67%.

However, in light of 3.5% in Q3-16, 2.1% in Q4-16 and now 0.7% in Q1-17, it sure looks like the Fed is hiking into weakness; just like they did in December of 2015, prompting a year-long pause in the tightening cycle. Additionally, with oil back below $50, price risks have mitigated significantly as well. Does the Fed really have a reason to hike in June?

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The Daily Market Report: Gold Consolidates Within Yesterday’s Range, Silver Falls Further


USAGOLD/Peter Grant/04-27-17

Gold is consolidating within yesterday’s range amid conflicting fundamentals. Silver on the other hand remains defensive, slipping to a 6-week low and driving the gold/silver ratio to a 5-month high near 73.

Heightened risk appetite in the wake of the French election and the roll-out of the Trump administration’s tax plan is being tempered somewhat by geopolitical tensions, as well as concerns surrounding the specifics of the tax proposal.

Senators received “a long and detailed briefing” on the North Korean situation yesterday. “The military is obviously planning for a number of options, as they should — minimal military action to more significant action,” said Senator Ted Cruz of Texas. North Korea was confirmed as the Trump administration’s top foreign-policy priority.

Critics of the President’s tax plan complain that it is woefully short on specifics. “It’s the beginning of a negotiation but the numbers don’t add up, it’s never going to get through Congress in its current form, it’s completely devoid of detail,’ said Jim Rickerts in a SkyNews interview. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, told the New York Times, “[T]here is no golden goose at the top of the tax-cut beanstalk, just mountains of debt.”

Ms. MacGuineas’s group estimates that Mr. Trump’s plan could reduce federal tax revenue by $3 trillion to $7 trillion over a decade. — NYT

The President’s team contends that the tax cuts will stimulate stronger growth, and hence generate more not less tax revenue. But this isn’t the 1980s, and that idea faces a pretty strong headwind from the demographic realities.

The Atlanta Fed slashed their estimate for Q1 GDP yet again, to a scant 0.2%. Goldmann Sachs is now expecting 1.1% growth in Q1, down from its previous estimate of +1.4%.

We’ll see the Q1 Advance Report from the BEA tomorrow morning. If the GDPNow model is closer to the reality than the current median expectations of +1.3%, the March (and December) rate hike(s) are going to look pretty foolish.

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Flash Special: Silver Polar Bear (2013)

Sales of our Canadian Silver Polar Bear 1.5 ounce coins have been brisk, with well over 4000 units sold in just under two days of availability, leaving about 1500 units still available for sale. Silver prices have come down nicely as well, making these an even more attractive entry point than when initially offered.

At just $2.75/oz over the spot price of silver per ounce, these limited run (only 17500 struck), first year of issue (2013) Polar Bears are LESS per troy silver ounce than either a modern Silver Eagle or Silver Maple Leaf. Moreover, at roughly $30.50 per coin, they are a full $4 per coin cheaper than our nearest competitor. At such a great price, it’s no wonder these have been so popular.

Please visit our special offers page link for more details.

• All coins dated 2013, which is the first year these were produced. Only 17,500 total coins were minted in 2013, which means the grouping offered here is roughly 1/3 of all the coins made during that inaugural run.

• Other dealers are charging $35-$36 per coin at best (and in some cases substantially more), making this offer the absolute lowest price for this product in the market right now by a wide margin.

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Gold and NAFTA. . . .A consideration

Quick Update/Michael J. Kosares

Now let’s take a look at gold from the same perspective:

In 2015, the United States imported 265 tonnes of gold for consumption.  Of that, 41% (109 tonnes) came from Mexico and 19% (50 tonnes) from Canada, or 60% of the total consumption.  The United States is in somewhat better shape on gold than silver in terms of domestic availability, i.e., it exports 500 tonnes per year, a somewhat nebulous figure in that it includes outflows from foreign stocks at the New York Federal Reserve. The U.S. produces 200 tonnes per year from domestic mines and holds 8100 tonnes at the Treasury Department.  Nevertheless, Mexico and Canada’s imprint on U.S. gold fundamentals is noteworthy.

U.S. Geological Survey gold statistical overview

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Silver and NAFTA. . . .A consideration

Quick Update/Michael J. Kosares

With reports circulating in the media that the Trump administration is preparing an executive order to withdraw the United States from NAFTA, I thought it might be interesting to review how much of the silver consumed in the U.S. annually comes from Mexico and Canada.  In a nutshell, according to the U.S. Geological Survey, of the 8100 tonnes consumed by the United States during 2015, 6700 tonnes were imported.  Of that, 54% came from Mexico and 26% from Canada.  In tonnes that translates to 3600 tonnes from Mexico and 2100 tonnes from Canada, or over 70% of the silver consumed (5700 tonnes).  The U.S. Treasury strategic stockpile is less than 500 tonnes.

U.S. Geological Survey silver statistical overview

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Past few days a fractal event for the gold market. . . .

OPINION

by Michael J. Kosares

“In the absence of a credible monetary standard, we expect no escape from the treadmill of rising debt, both US and globally, that outpaces economic growth. Income inequality, wage stagnation, overvaluation of financial assets, and speculation instead of productive investment are likely to be prolonged under the current monetary regime. Whether or not policy makers take a proactive approach to address monetary reform, the fact remains that gold is massively underpriced in all paper currencies. It would be preferable if the necessary adjustments could occur without a repeat of a 2008-like financial crisis. We give this possibility a chance, albeit slim. In any event, we expect a significant repricing of gold higher during the current administration, either by design or because of market events. Whenever a repricing happens, we expect broad grassroots support for that outcome.” – John Hathaway, Tocqueville Funds
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The past few days illustrate an important event in the gold market that both beginning and accomplished investors should try to understand thoroughly. I say that because by such an understanding you will become a more educated, patient and successful gold owner.

On April 19th, over $3 billion in paper gold was sold in the London over-the-counter market dropping the gold price by $14 per ounce in a matter of minutes. Just as quickly, the cries of foul play rose among gold punditry across the internet. Just before the “hit,” gold was trading in the $1286 range. It plunged to $1272. Since this morning’s AM London Fix, gold has been in recovery mode and it is now trading again in the $1286 range. Except for those who took the drop as a buying opportunity, these events will be seen essentially as a sound and fury signifying nothing.  At the same time, quietly the notion of gold’s indestructibility has been reinforced – not so much with respect to its physical qualities, but with the place it occupies in the minds of investors across the globe. The recovery today in a certain sense is a fractal event in both amplitude and duration – a hint of a greater manifestation that might be coming down the road in the not too distant future.

More. . . . .

The gold price is determined in the futures markets, but the effects of that determination are in the physical market, i.e., the price for bullion, coins, jewellery, etc. Those who feel that the gold market price is controlled solely by forces within the paper market do not fully understand the constraints on paper imposed by physical supply and demand.

In a nutshell, if the paper market is successful in suppressing the price for too long and at too low a rate, the physical demand globally will eat up the physical supply and threaten the existence of the primary source of the metal – the mines. That is why top-level analysts like John Hathaway (Tocqueville Funds) often talk about the inevitability of one-off repricing events. As long as gold can be freely owned, the market at some point finds the real price of gold, reconciles the books and exposes the power of price manipulators for what it is – a temporary, staying action rather than a successful long-term program. It is the time period before that happens which presents the best buying opportunities – times like the present. The events of April 19th through today illustrate the point in a microcosm.

As it is, annual mine production has leveled out over the past several years and there has not been a major gold find anywhere in the world for decades. Meanwhile global demand for the physical metal has not only sustained itself in recent years, it has grown rapidly, and clearly at a rate that far exceeds the rate of growth in mine production. Just this past week, we have seen reports of renewed strong demand in China and India – two traditional powerhouses when it comes to physical ownership of the precious metals. Generally speaking, the East buys on price while the West buys on momentum, thus one might conclude that anecdotal evidence shows that the price has been “right” in recent months. This time around, as reported here previously, professional money managers have positioned themselves as buyers in concert with the East, something that happens only on occasion. The two together though are currently an imposing presence in the global gold marketplace.


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The only way the gap between mine production and physical demand can be made-up is from above-ground sources, or by trading paper to the extent that it masks the wide gap between physical demand and physical supply. At some point, the paper price will succumb to reality of shortages as it always does. Those short the metal will need to find it and deliver on the price promises made previously, a process that usually excites the price discovery mechanisms in the paper market. If the pressure exerted by the traders of gold paper were powerful enough to overcome these realities in the physical gold market, the price never would have traversed the enormous gap between $250 per ounce in 2000 and $1850 per ounce in 2011, and roughly $1300 per ounce at present.

So no matter how much we lament the impositions of paper traders, i.e., their corruptions of the market and restraints to the upside, gold’s opponents can only win the occasional battle; they will never win the war. As I have said before, the paper traders must equally curse the ever-present power wielded by physical buyers of the metal, and over the years, the true believers in the precious metals, have only viewed episodes of price suppression as buying opportunities.

Ultimately, the end result might be another unprecedented price explosion, as Mr. Hathaway suggests, when the impotence of the controls becomes apparent on a far larger scale than what occurred in the gold market over the past few days. At a time, as has been the case since 1971, when the production of fiat money rules the roost, gold’s natural inclination will always be to rise in price in terms of that currency. In fact, if that were not the case, it would be unnecessary for anyone to attempt controlling the price. That affinity to rise is only compounded in the end by attempts to restrict the natural price level.

USAGOLD –  Celebrating our 43rd year in the gold business and 20th on the world wide web

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Grab Your Pitchforks, America, Your 401(K) May Need Defending from Congress

WSJ/Jason Zweig/04-21-17

The lucky participants in one of the best retirement plans around are coming after yours with a meat cleaver.

In the early stages of negotiating tax reform, Congress is already considering whether to reduce the benefits of contributing to a 401(k) and similar retirement plans — even as U.S. representatives and senators bask in the safety of the pension system that taxpayers fully fund for federal employees.

Alongside several million U.S. government workers, members of Congress participate in the Federal Employees Retirement System, which wraps their current savings and future pensions in a cushion of comfort that most American workers can only dream of.

PG View: The war on saving continues . . .

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Credit Suisse sees $1400 gold by year end

KitcoNews/Allen Sykora/4-18-2017

“Credit Suisse said a global glut of debt suggests dovish future monetary policy by central bankers. Central banks collectively hold a greater percentage of sovereign debt than ever before, and sensitivity towards disrupting markets means that they likely will be cautious in pursuing policies that could disrupt the current low rate environment supporting the economic recovery.”

MK note:   The less-than-well-informed translate rising rates, and rising rates alone, as an indication of tight monetary policy, but the mere act of raising interest rates is not enough to accomplish that goal. Tight monetary policy translates to forcing interest rates above the inflation rate (or even the natural market rate on Treasuries), and neither Yellen nor Trump want that.

So it is that the professional investors are reading negative returns and the potential for inflation in our collective futures. They are buying gold and silver in response as reflected in rising ETF holdings.  Judging from volumes at USAGOLD over the past few days, private individual investors, like their professional counterparts,  are finally catching on.  It will not be long until reports begin to surface that the average investor has joined the new gold buyers club.

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Evidence of big ETF inflows in London

ETF Strategy/George Watson/4-11-2017

“Source has reported that its Source Physical Gold ETP (LON: SGLD) has recorded over $500m of net new assets year to date (5 April), as the gold price has risen 9% during the same period. According to the ETF issuer, the figures show investors are returning “aggressively” to gold. . .

ETF Securities also reported strong flows into gold, with its gold ETPs seeing a combined $42m of inflows in the week beginning 3 April. The largest of these is ETFS Physical Gold (LON: PHAU) which has AUM of $5.9bn and fees of 0.39%.”

MK note:  We have reported consistently over the past several weeks that while retail private investors seem to be either enamored with the stock market or in a quandary as to what they should do next, professional investors, for reasons of their own, are anteing-up decisively in this gold market.  My thinking is that professional investors, i.e., hedge funds, institutional investors, money managers, etc.,  know full well what the impact of Fed policy will be on the gold market (as outlined in my previous post and more extensively in the March issue of our News & Views newsletter). They also understand the growing market risks associated with the build-up of potentially implacable geopolitical tensions since the beginning of the year.  As shown in the chart immediately below, gold and silver, in fact, have already amply rewarded professional investors who have been in this market since January (as well as their equally astute counterparts among private investors).  At this writing, gold is up 10.5% on the year and silver is up a cool 15%.

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Quick observation on gold being up sharply this morning

Many who offer up their analysis on the gold market will attribute today’s sharp rise to the geopolitical environment, which is fraught with danger to say the least and certainly a contributor.  But that’s not the whole of what is driving the gold market in recent days.  A second, and not-to-be-underplayed, factor is the prevailing and publicly well-cultivated policy of the Federal Reserve toward interest rates, up to and including Janet Yellen’s most recent comments.* The first provides momentum to the second – license.

* “Looking forward, I think the economy is going to continue to grow at a moderate pace.  Our job is going to be to try to set monetary policy to sustain what we have achieved.”  Janet Yellen as quoted in New York Times/4-10-2017

The markets will read “accommodation” in those words meaning the Fed will do what it can to make sure the interest rate tracks behind the inflation rate and creates a negative real rate of return on yield bearing assets.  That latter, a negative real rate of return, has underscored, driven and sustained  bull markets for gold in the past.

MK

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