Category: Today’s top gold news and opinion

Turkey’s collapse sinks emerging markets on Manic Monday

Bloomberg/Rita Nazareth, Ben Bartenstein and Giulia Morpurgo/8-13-2018

“Turkey’s market carnage rippled across emerging markets, sending both stocks and currencies toward their lowest levels in a year.”


Australia DollarBrazil RealIndia Rupee
Mexico PesoRussia RubleSouth Africa Rand

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This time is different – No. Really.

Daily Reckoning/Brian Maher/8-9-2018

“‘Experience keeps a dear school,’ said Ben Franklin, ‘but fools will learn in no other.’ The wise man remembers. The fool forgets. The wise man listens. The fool talks. He ignores both the living and the dead… the immemorial dead, whose whispers carry the distilled wisdom of history. No — this time is different, comes the fool’s eternal cry. The past is of no use to me.”

USAGOLD note:  Timely message. . . . .The right portfolio strategy keyed to diversification across asset classes, including precious metals, forgives a lot of wrongs, in fact, often rights the wrongs and allows the investor to live another day.  The point is that not every lesson need be learned from experience.

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Damage Report

Headlines sample courtesy of TradingEconomics.com

 

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DMR–Gold plunges below $1200 as contagion spreads

DAILY MARKET REPORT

This morning gold went below the $1200 mark in European trading as the threat of a systemic contagion spread among emerging countries. It is now down $9 as New York trading opens at $1202.  Silver is down 7¢ at $15.23.

“Volatility is likely to remain higher in the week ahead amid a lack of liquidity,” says Investopedia’s Mark Clayton, “and emerging-market fears will likely underpin gold. Positioning data should increase the potential for strong support near $1,200 per ounce, with sharp gains if the U.S. administration talks down the dollar.”  One thing is certain: If something is not done to bring the greenback to heel, we are going to have a major mess on our hands.  I suspect that the White House will be a busy place this morning with a potential global currency crisis at the top of the agenda.

The fact that emerging country investors are flocking to gold in record numbers speaks volumes about its safe haven reputation. There are circumstances under which price performance takes a back seat to the simple act of insuring one’s assets.  A spreading contagion is one of them.

Quote of the Day
“Problems are likely to continue in emerging markets, compounded by rising interest rates and the US Fed’s monetary policy which has drained global dollar liquidity. We have already seen the impact on the Turkish and Argentinian currencies. We remain concerned about geo-political problems including Brexit, North Korea and the Middle East, at a time when populism is spreading globally. The resolution of these problems in this unpredictable era will surely be difficult. In 9/11 and in the 2008 financial crisis, the powers of the world worked together with a common approach. Co-operation today is proving much more difficult. This puts at risk the post-war economic and security order. In the circumstances our policy is to maintain our limited exposure to quoted equities and to enter into new commitments with great caution.” – Lord Jacob Rothschild, RIT Capital Partners, Half-Yearly Financial Report, June 30, 2018

Chart of the Day

Chart note: When the United States abandoned the gold standard in 1971 and freed currencies to float against one another, the fiat money era began. We are still in that era today. This chart shows the performance of gold from the early 1900s to 1971 when gold backed the dollar, and the era from 1971 to present when it did not. Gold has had its ups and down since 1971, but clearly, over the long run, in the absence of an official gold standard, individual investors have been well-served by putting themselves on a private gold standard.

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Not just Turkey’s problem. . .

Financial Times/Editorial/8-11-2018

“This is not just Turkey’s problem. The collapse of the Turkish economy would carry substantial risks of contagion in Asia and Europe, where equity prices of banks exposed to Turkish debt tumbled too on Friday. The lira’s meltdown is already hitting emerging market currencies across the board.”

USAGOLD note:  Much of the analysis that emerged over the weekend points to a crisis with much more at stake than originally believed.  In this same editorial, FT calls for Erdogan to either assure markets with a promise to introduce IMF-style austerity measures or appeal for an IMF loan directly. As mentioned here last week, it is difficult to see how Turkey could repay an IMF loan under the imposition of U.S. sanctions meant to cripple its economy – an unusual, and perhaps unprecedented, set of circumstances for an ally of the United States. . . . . .With contagion and a general collapse of currencies in motion across the globe, one wonders if the IMF coffers are anywhere deep enough to deal with the problem at hand.

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Alan Greenspan on the effect of cheap imports on interest rates and inflation – November, 2005

“Over the past decade or more, the gradual assimilation of these new entrants into the world’s free-market trading system has restrained the rise of unit labor costs in much of the world and hence has helped to contain inflation.

As this process has unfolded, inflation expectations have decreased, and accordingly, the inflation premiums embodied in long-term interest rates around the world have come down. The effective augmentation of world supply and the accompanying disinflationary pressures have made it easier for the Federal Reserve and other central banks to achieve price stability in an environment of generally solid economic growth.

But this seminal shift in the world’s workforce is producing, in effect, a level adjustment in unit labor costs. To be sure, economic systems evolve from centrally planned to market-based only gradually and, at times, in fits and starts. Thus, this level adjustment is being spread over an extended period. Nevertheless, the suppression of cost growth and world inflation, at some point, will begin to abate and, with the completion of this level adjustment, gradually end.

These global forces pressing inflation and interest rates lower may well persist for some time. Nonetheless, it is the rate at which countries are integrated into the global economic system, not the extent of their integration, that governs the degree to which the rise in world unit labor costs will continue to be subdued. Where the global economy is currently in this dynamic process remains open to question. But going forward, these trends will need to be monitored carefully by the world’s central banks.” – Alan Greenspan, NPR interview, 11-3-2005

USAGOLD note:  For more than a decade after Greenspan’s remarks, cheap imports continued to act as a brake on inflation.  Now courtesy of tariffs and sanctions, that brake has been released at least for the interim.  Whether or not it extends into the medium and long term depends upon the situation outlined in the previous post and note.

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China could yet win Trump’s trade war

Reuters/Opinion/David A. Andelman/8-6-2018

“While the Chinese stock market has taken more of a beating than the American, Trump seems to think that the United States can stand the pain longer than China and tightening the screws will bring Beijing to the negotiating table. But that reflects little understanding of either the Chinese mindset or the underlying strength of the Chinese economy which, though weaker than a year ago, is still growing nearly twice as fast as the American.”

USAGOLD note:  Andelman is not alone in this assessment.  Both sides believe themselves to be dealing from a position of strength,  an attitude that could lead to what neither side wants – a protracted economic war of attrition.

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Turkey contagion spreads to South Africa, Mexico

Bloomberg/Cormac Mullen/8-12-2018

“South Africa’s rand plunged the most in almost a decade and Mexico’s peso slumped as financial turmoil in Turkey sapped demand for emerging-market assets.”

USAGOLD note:  South Africa’s rand down almost 10% in Asia trading. . . . .Asian stocks down sharply.

 

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Why is the Turkish lira tumbling?

Financial Times/Daniel Dombey/8-10-2018

“The country has prospered from an influx of often short-term foreign funds, partly due to ultra-loose monetary policy in the US and Europe, which encouraged investors to seek higher returns in Turkey and other emerging markets.”

USAGOLD note: As Turkey unravels we need to take into consideration the long list of other emerging nation states in similar straits as outlined above.  The contagion effect is not coming from one direction but from multiple sources from one end of the globe to the other.  Turkey is simply the most visible at the moment. Unintended consequences abound.  If you would like to gain a deeper understanding of the forces at work, the Financial Times article linked above is a good source of background information.

 

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Core inflation in July was the hottest of the cycle, CPI shows

MarketWatch/Greg Robb/8-10-2018

The increase in the CPI over the past 12 months was 2.9%, unchanged from June. After stripping out volatile gas and food, the more closely followed core rate of inflation rose 0.2% last month. The 12-month rate of core inflation rose to 2.4%, the highest rate since September 2008.”

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Euro becomes collateral damage as Trump amps up Turkey pressure

Bloomberg/Katherine Greifeld/8-10-2018

“Turkey’s lira plunged to a record low Friday amid escalating tension over the detention of an American pastor, with Trump ordering some tariffs on Turkish metals to be doubled. The carnage quickly spread from emerging to developed markets: The euro sank as much as 1 percent to the weakest in more than a year, extending a drop triggered earlier by a Financial Times report that the European Central Bank raised concern about European banks’ exposure to Turkey.”

Chart courtesy of TradingEconomics.com

Related:  Dow drops more than 100 points on geopolitical concerns as Turkish lira plunges/CNBC

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China’s commodity imports stay resilient, but U.S. trade dispute looms

Reuters/Clyde Russell/8-9-2018

“It’s tempting to look at China’s imports of major commodities in July and conclude that the strength is a sign that the escalating trade dispute with the United States isn’t having much of an impact.”

USAGOLD note:  This article paints a surprisingly different picture of China’s economy than the one we got from the Trump administration over the past few days – describing it as “resilient.”

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Gold’s seasonality. . . The best time to buy gold is when everything is quiet.

USAGOLD note:  The reality of gold’s seasonality is evident in this chart.  In the past, there has been a clear change of direction in sentiment annually from the 185-195 day mark – midway in the year.  Much has been written about gold’s seasonality as well as the annual summer doldrums.  We thought it might be interesting to show the phenomena in a chart. The best time to buy gold is when everything is quiet and, even better, when the market happens to be presenting a buying opportunity. Last year at this time, gold was priced in the area of $1250 per ounce. By early September, it was on the move and trading at $1350 mark. Presented with thanks to Jason Goepfert at SentimenTrader.

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USAGOLD’s Mobile Website

Who says you can’t take it with you?
In fact, you can take the gold market everywhere you go.

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DMR–Gold warms; its third day on the plus side

DAILY MARKET REPORT

Gold is warming a bit as we head into the second half of summer having spent the past three days in positive territory, though modestly so.  The yellow metal is trading in the $1216  range – up $2.50 on the day. Silver is up 7¢ at $15.49.  It is still too early to call the positive pricing in recent days a turnaround, but at least we can say the metals are steady at current prices, even if the support seems somewhat tenuous.  In a bit of a surprise given widespread anecdotal reports of price increases from various manufacturers and wholesalers over the past couple of weeks, producer prices came in unchanged this morning.  Some among the financial commentariat will see the timid showing as supporting the secular stagnation argument and cause for the Fed to go easy on its interest rate plans.  Others will see it simply as the lag between the reporting framework and reality.  That, in a small way, might be adding to gold’s performance thus far today.

Quote of the Day
“One thing that might even be most disturbing of all, is that no real crisis ever ultimately expresses itself, which actually, oddly enough, may be the worst outcome of all. That is to say, everything we see about our world today, the rich getting richer, the poor getting poorer, democracy sort of ebbing away, people feeling powerless over their political lives, people feeling less and less a sense of civic participation or belonging, and we have kind of turned that up. There is an interesting book by Tyler Cohen. He is a very popular writer now, he wrote Average is Over and The Great Stagnation. He wrote a recent book called The Complacent Class. If you want to read a book about America’s future in the absence of a fourth turning, read that book. The real rate of return gets lower and lower, we kind of approach the stationary state, productivity growth kind of ebbs to nothing, we become a kind of nominal market society, but one in which all the markets are dominated by a few very large companies with enormous market power and concentration. In that kind of society, highly stratified, not feeling at all like what we think of as being America, is, I think, the scariest one, one in which global problems, problems of global order are not rectified. And it is one that disturbs me the most.” – Neil Howe, McAlvany Weekly Commentary, 7/7/2017

Chart of the Day

Chart note: During that 18-year period from 2000 to present, the one-year Treasury provided a positive real rate of return in only six years.  The rest of the time, the real rate of return was negative.  The real rate of return is also important in the context of Federal Reserve interest rate policy in that it signals the performance of the dollar against other currencies and gold.  At the moment, the consensus opinion is that the Fed will keep interest rates below the inflation rate in order to keep the economy from swinging into a downturn, a situation causing some analysts to question the longer-term staying power of the recent rally in the dollar.

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Italy budget drama may derail bond market’s September sales rush

Bloomberg/Emma Haslett/8-6-2018

“‘If we have something that resembles what we saw in May, the primary market should basically come to a halt,’ said Marco Stoeckle, a credit strategist at Commerzbank AG. ‘If we have the Italian government curve inverting, anything like that would be enough to significantly hamper issuance volumes. I guess the market would be closed.'”

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Why Japan is an unexpected threat to financial stability

Financial Times/John Plender/8-8-2018

“To American or British investors, a yield on 10-year Treasuries of just under three per cent looks pretty threadbare by historical standards. However, to yield-starved investors in Frankfurt or Tokyo, it looks more of a gift horse. Minimal or zero yields on Japanese government bonds have caused a huge exodus of capital into US Treasuries. You can see it most graphically in the latest annual report of Japan Post Bank, the biggest deposit taker in the world.”

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Turkey’s cratering markets stoke speculation over extreme measures

Bloomberg/Constantine Courcoulas, Onur Ant and Tugce Ozsoy/8-7-2018

“Desperate measures are in the air in Turkey: trading rooms are awash with talk of a bailout by the International Monetary Fund and potential capital controls. But there’s a vacuum at the core of economic policy making. The central bank and government have remained largely silent as the currency plummeted to record lows and the U.S. imposed sanctions and threatened more.”

USAGOLD note:  One thing is clear about the meltdown in Turkey:  Those who own gold have weathered the destruction of the lira thus far and are likely to survive future debasement.  Meanwhile those who own Turkey’s sovereign debt are in the process of getting wiped out. Turkey’s sovereign debt is now the worst performer on the planet according to this Bloomberg article – down 38% thus far this year and worse than Argentina’s debt at a 36% loss.  As might be expected, the calls for an IMF bailout have risen in concert with Turkey’s demise.  We have to ask a couple questions:  How does the IMF go about structuring a bailout for a country under sanctions imposed by the United States? And what is the contagion effect elsewhere if it isn’t?

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DMR–Gold stages strong recovery in overnight markets, China yuan policy and Iran sanctions major influences

DAILY MARKET REPORT

Gold staged a strong recovery overnight bouncing off lows at $1207 to trade as high as $1216 in overnight markets. It has since backed off a bit in early New York trading – now at $1213.50 on the day and up $4.50. Silver is also up trading at $15.  Gold is supported by two ongoing influences this morning – China’s reinforcing of intentions to stabilize the yuan and the America’s imposition of sanctions on Iran.  The first sends a signal to speculators to tread carefully shorting the yuan.  The second drives home the reality of oil supply disruptions and the heightening of tensions throughout the Middle East.

Quote of the Day
“It doesn’t matter where the crisis begins. Once the tsunami hits, no one will be spared. The stock market is going to correct in the face of rising credit losses and tightening credit conditions. No one knows exactly when it’ll happen, but the time to prepare is now. Once the market corrects, it’ll be too late to act. That’s why the time to buy gold is now, while it’s cheap. When you need it most, once the crisis hits, it’ll cost a fortune.” – James Rickards, Daily Reckoning

Chart of the Day

Chart note:  This chart illustrates Rickards’ point made in our Quote of the Day about the escalating cost of gold during crisis periods.  During the 1970s, an inflationary crisis moved prices radically higher with 1980 registering the greatest increase right at double the previous year. The disinflationary crisis of the 2000s also instigated significant year over year increases with 2006 posting the largest at nearly 36%.  For those who understand the inevitability of business and economic cycles, the time to buy gold is when everything is quiet – in times like the present.

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Complacency over low-inflation world risks biting bond investors

Financial Times/Karen Ward/8-7-2018

“We should think carefully about how this populist shift will affect the investment landscape. It is unlikely to prove transitory. It calls into question the low and stable inflation of recent decades and it threatens to expose government bond markets in particular — vulnerable as they are to a shift in perceptions of inflation risk.”

USAGOLD note:  This opinion piece from JP Morgan’s chief market strategist for the UK and Europe lays out the shifting tides affecting the market view on inflation globally.  Tariffs are only one factor in the rising populist tide (both left and right)  affecting market psychology. Ward does a good job of outlining the grounds for a major shift in perception on inflation – one that is already affecting not just bonds (her area of concentration) but the financial market as a whole.

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China is asking banks to avoid yuan market ‘herd behavior’

Bloomberg/Ran Li, Heng Xie, and Tian Chen/8-7-2018

“Any pressure building on the yuan will need to be released in a timely manner and China will not work against market forces, the official told the lenders, according to the people, who asked not to be named as they weren’t authorized to speak publicly. Cross-border capital flows are balanced overall, and China’s fundamentals will provide support for a stable yuan, even though the currency weakened since June, according to the official.”

USAGOLD note:  All of that is carefully worded warning that China will act to defend the yuan and that Chinese banks would be ill-advised to act against the government’s stated objectives with respect to the currency.

 

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Wait until you see the price of gold in Venezuela right now

Gold Eagle/Frank Homes/8-7-2018

“My point in bringing this up is to reinforce the importance of gold’s Fear Trade, which says that demand for the yellow metal rises when inflation threatens to destroy a nation’s currency—as it’s doing right now in Venezuela. A Venezuelan family that had the prudence to store some of its wealth in gold would be in a much better position today to survive or escape President Maduro’s corrupt, far-left regime.”

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The USAGOLD Website – A guiding light for current and would-be clientele since 1997

Welcome newcomers!  We invite you to kick back, stay awhile, do some interest-driven browsing

When the USAGOLD website was established in 1997, there was no Google, no Facebook, no I-Tunes, no Amazon. Instead there was just a handful of scattered websites trying to figure what this new technology was all about and how it could be used to some advantage.  We were among that group.  Our idea of innovation in those early days was two spinning globes on either side of the USAGOLD logo.  We marveled at it; considered it state of the art.  If you would like to witness that piece of technology in action, you can see it here at the WaybackMachine.  (Don’t laugh.)

But being among the first on the internet to have spinning globes was not our only achievement. We were also among the first to sponsor a Daily Market Report (1996), a Discussion Group (1997), Live Prices and Charts (2007) and a Mobile Website (2011) – to mention just a few of our ground-breaking internet ventures.  We await the next wave of innovation so that we can offer even more value to our regular visitors.

Through our 22-year presence on the world wide web, the philosophy underlying our website has always been a simple one – to act as a guiding light for our current and prospective clientele by providing a state of the art information portal coupled with a reliable and competitive brokerage service.  We had and still have no aspirations beyond that, and that pinpoint focus has paid dividends beyond anything we would have imagined in 1996.

From a humble beginning (When you visit the WayBackMachine, take special note of the number of visitors registered on our counter!) we have grown to over 600,000 visitors per month currently and there have been times when that count has been significantly higher. USAGOLD today remains one of the most highly referenced and visited web portals in the gold business. We once had a client tell us of visiting the Gold Souk in Dubai and being surprised that so many merchant stalls had USAGOLD on their computer screens. 

If you would like to gain a better understanding of what USAGOLD has to offer to you as a current or prospective client, the menu at the top of the page is good place to start.  For a full site outline including links and page descriptions. . . . . .

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Renminbi resumes decline as Chinese stocks fall

Financial Times/Emma Duckley/8-6-2018

“The renminbi resumed its drop on Monday, as the downward pressure on the Chinese currency overwhelmed the first effort from China’s central bank to at least temper its four-month slide.”

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DMR–Gold tumbles in Asia, Europe; stages minor recovery in U.S.

DAILY MARKET REPORT

Gold took a bit of a tumble in Asian and European markets overnight trading at one point just below $1208 before staging a minor recovery. It is now trading at the $1211.50 level in U.S. markets – down $2.00 on the day – as China’s yuan and Japan’s yen stubbornly track lower.  Currency traders, at this juncture, seem poised to test China’s support of the yuan signaled late last week.  Silver is down 5¢ this morning at $15.33.  The markets in general seem to be off to a tenuous start for the week with stocks on the downside and bond yields steady ahead of a heavy issue of Treasuries through mid-week and inflation numbers on Thursday and Friday.

Quote of the Day
“Meanwhile, China instability and trade fears see EM markets take another leg lower, with particular market concern for the highly levered Asian economies. De-risking/de-leveraging dynamics attain self-reinforcing momentum, as contagion effects engulf the global ‘periphery.’ Fears of global financial fragility and economic vulnerability see risk aversion begin to gravitate toward the ‘core.’ Fears of EM central bank and Chinese selling of U.S. Treasuries overwhelm safe haven buying, as de-risking/de-leveraging dynamics see a widening of Credit spreads and illiquidity begin to impact ‘core’ fixed-income markets. In such a problematic global scenario, I ponder whether Beijing might perceive it’s playing with a relatively stronger hand than their U.S. adversary. Meanwhile, contagion effects would set their sights on the ‘periphery of the core.’ This just doesn’t seem all that far-fetched.” – Doug Noland, Credit Bubble Bulletin

Chart of the Day

Chart courtesy of TradingEconomics.com

Chart note: If you follow the on-going trade war between the United States and China with even passing interest, you have no doubt come across references to China selling U.S. Treasuries as its ultimate hole card.  This chart shows something that few, including many financial journalists, acknowledge:  China has been unloading exchange reserves since 2014 when they peaked at nearly $4 trillion.  Most of those reductions, which have taken China’s reserves to a little over $3 trillion (a 25% reduction) came as part of its policy to smooth the yuan exchange rate against the dollar and prevent wholesale capital flight. It is unclear at this juncture to what extent China would be willing to drain reserves in defense of the yuan in the future. Trading Economics, as the chart shows, projects further reserve reductions in the future.

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China Gold bar and coin demand advance sharply during Q2: WGC

Scrap Register/8-2-2018

“China, the world’s largest gold bar and coin market, saw demand rise 11% to 69.5 tons as gold benefited from a flight to safety amidst increasingly tense trade-war rhetoric, according to the World Gold Council. The yuan weakened drastically against the US dollar, falling 5% over the quarter. And the stock market slumped: the Shanghai Stock Composite index dropped 14% in the first six months of the year.”

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Iran’s gold demand at four-year high days before sanctions

Bloomberg/Mohammed Sergie and Golnar Motevalli/8-2-2018

“Iran’s demand for gold bars and coins may remain strong for the rest of the year and even increase as the U.S. reimposes sanctions, pummeling the value of the rial. The Islamic Republic’s bar and coin sales tripled to 15.2 tons in the second quarter, the highest in four years, the World Gold Council said Thursday. The country accounted for about three-quarters of Middle Eastern demand for bars and coins in the quarter. . .

USAGOLD note:  Iran’s central bank is encouraging citizens to import gold coins and bullion.

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Speculative U.S. 5-year, 10-year T-note net shorts hit record highs -CFTC

Reuters/Staff/8-3-2018

“Speculators’ net bearish bets on U.S. five-year and 10-year Treasury note futures rose to a record high earlier this week, according to Commodity Futures Trading Commission data released on Friday.”

USAGOLD note:  Gold is not the only asset being shorted at a record rate.  The massive shorting of the bond market comes at a time when the U.S. government is issuing new debt like never before. The market might move rates higher before the Fed gets the opportunity.  Jamie Dimon came out over the weekend predicting a 5% yield on the 10-year Treasury.  The Treasury Department will place a heavy $78 billion of U.S. sovereign debt this week in three, 10– and 30–year Treasuries.

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There is ‘zero’ engagement between US and China as trade tensions escalate, official says

CNBC/Kayla Tausche and Tucker Higgins/8-4-2018

“A senior administration official told CNBC on Friday that there was ‘zero’ engagement between the Trump administration and China as the two countries ratchet up trade tensions. The official said that there had been ‘one call in the past few days,’ and that it resolved nothing. Earlier in the day, Larry Kudlow, director of the National Economic Council, told reporters that there had been communications between the two countries at the ‘highest levels,’ but that talks had ‘stalled’ in recent days.”

USAGOLD note:  The Wall Street Journal reports this morning that both China and the United States have publicly threatened to lay heavy tariffs on nearly all the other’s exports.

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PBoC makes shorting yuan more expensive, hopes to curb speculation

Reuters/Saqib Iqbal Ahmed/8-3-2018

“The Chinese currency rebounded from a 15-month low hit earlier in the session, after China’s central bank said it would set a forward reserve requirement ratio of 20 percent – up from an earlier zero – from Monday for financial institutions settling foreign exchange forward yuan positions.”

USAGOLD note:  Details on PBoC’s move to curb speculation in yuan. . . . . .

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