Prospect of higher-rates dog gold

24-May (MarketWatch) — Gold futures dropped on Tuesday for a fifth straight session, sending prices to their lowest settlement in more than a month.

The precious metal’s decline comes as upbeat U.S. economic data fueled expectations the Federal Reserve will nudge interest rates higher, dulling demand.

June gold dropped $22.30, or 1.7%, to settle at $1,229.20 an ounce. Prices marked the lowest settlement since April 14. Month to date, prices have lost about 4.8%.

New U.S. home sales surged by 16.6% in April to a seasonally adjusted annual rate of 619,000, the Commerce Department said on Tuesday. That was the biggest monthly jump in 24 years.

Gold’s selloff Tuesday is “directly related to the blockbuster new home sales report and what that might portend for a June Fed rate hike,” said Brien Lundin, editor of Gold Newsletter. “Fed presidents seem eager to find sufficiently positive economic data to justify a June hike, and this new input from the residential real-estate market is more supporting evidence for the hawkish case.”

A flurry of Fed speeches this week is expected to do little to knock back the slightly higher odds for a June rate hike that financial markets have priced in, although gold prices would also be vulnerable to any surprise rhetoric from the speakers.

[source]

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Posted in Gold News, Gold Views |

Why the Fed might not be able to put a stop to gold’s run

CNBC/Annie Pei/5-24-2016

“‘If you look at gold on a very long-term basis, there is literally very little correlation between interest rates and gold,” Boris Schlossberg said Monday on CNBC’s ‘Power Lunch.’ ‘Basically, gold rose when interest rates rose in the ’70s, gold rose when interest rates declined in the ’90s,’ so the likely effect of Fed rate rises isn’t straightforward.”

2010_06hedgefundMK note:  One of the lessons I can pass along from many years watching the gold market, and working within it as a purveyor of the metal, is that none of the well-worn mantras and correlations carry much value in predicting short-term prices.  For the most part, they are simply fodder to fill the trough of journalists charged with the responsibility of providing an explanation, realistic or not, for any given day’s market performance.  In that respect, Mr. Schlossberg breaks down in one neat sentence the relationship between gold and interest rates, i.e., there isn’t one.  That will not keep the Fed from jawboning, nor will it curtail market speculation on the prospective results – whatever course the central banks ultimately takes.

Only the wisdom meted out by the market itself in countless situations down through the centuries carries any real value with respect to gold and gold ownership. In the end, the most enduring lesson history teaches us about gold is that it will protect its owners over the long run no matter what the central banks and governments dish out in the way of failed, or even successful, economic policy. It really gets down to a simple notion:  One either believes in the transcendence of gold when it comes matters economic, or one does not.

That is why the quote on our home page from Thomas Bailey Aldrich has been enshrined there nearly from day one of this website:  “The possession of gold has ruined fewer men than the lack of it.”  That simple bit of advice has not only protected our clientele over the years; it has built significant wealth.  The Fed might attempt to put a stop to gold’s run in terms of the price, but it cannot put an end  to global demand, or dislodge the metal of kings and the king of metals  from the place it holds in the human heart. 

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U.S. new home sales surged 16.6% to a 619k in Apr, well above expectations of 520k, vs positive revised 531k in Mar.

Posted in Economic Data |

U.S. Richmond Fed index tumbled to -1 in May, well below expectations of 8, vs 14 in Apr. Biggest drop on record.

Posted in Economic Data |

Gold lower at 1246.66 (-5.69). Silver 16.38 (-0.189). Dollar firm. Euro lower. Stocks called higher. U.S. 10-year 1.84% (+1 bp).

Posted in Markets |

The Daily Market Report: Gold Moves Off of Range Low as Soft Data Offsets Rate Hike Expectations


23-May (USAGOLD) — Gold continues to consolidate at the low end of the recent range as FedSpeak continues to propagate the potential for a rate hike at the June FOMC meeting. The dollar index remains well bid above the 95.00 level, keeping the yellow metal suppressed.

Since the release of the FOMC minutes last week, the central bank has done a pretty good job of fostering expectations of a rate hike. The odds of a June hike based on Fed funds futures have risen from 4% to 30%. Kind of makes you wonder why they didn’t convey the message contained in the minutes when they issued the official statement back in April . . .

Perhaps this is why the market remains somewhat skeptical with gold hovering around 5% off its recent highs. You may recall that as the Fed continued to ramp-up expectations for the first rate hike in nearly a decade, gold was pushed to nearly a 6-year low of 1046.00. When they actually pulled that trigger in December, gold launched on a nearly 25% rally marked by the 1303.80 high set earlier in the month.

We’re not seeing anywhere close to the same anticipatory selling in gold this time around. In fact, the only U.S. economic data out today, moved gold off the range lows: Markit flash manufacturing PMI came in at 50.5, below expectations of 51.0, versus 50.8 in April. It was the lowest print since September 2009, suggesting that the U.S. manufacturing sector continues to struggle.

If the Fed does in fact raise rates — and indicate that further hikes are in the offing — the dollar index could continue it’s rebound. That would put further pressure on manufacturers and the broader U.S. economy.

You may recall that the quarter following the Fed’s December rate hike saw meager 0.5% growth. While that number may be revised higher next week (+0.9% median), it should still be below 1%. So the stronger growth expectations that the Fed is using as the reason the economy could withstand another rate hike, may in fact be diminished by that very rate hike.

It is that conundrum that I think will factor heavily in the FOMC’s June deliberation, weighed against the Fed’s own credibility. If the second look at Q1 GDP misses expectations, I think we’ll quickly see June come off the table again.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

U.S. Market manufacturing PMI (flash) fell to 50.5 in May, below expectations of 51.0, vs 50.8 in April. Lowest read since Sep 2009.

Posted in Economic Data |

Gold near three-week lows on Fed rate expectations

23-May (Reuters) — Gold dipped on Monday to a near three-week low on expectations the U.S. Federal Reserve will hike interest rates as early as June. Bullion has been under pressure since the Fed last week released the minutes of its April meeting, which showed officials believe the U.S. economy could be ready for another interest rate increase next month.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

Eric Rosengren, president of the Federal Reserve Bank of Boston, said on Friday that conditions for a rate increase are “on the verge of broadly being met”.

“The Fed minutes were clearly more hawkish than expected and this has resulted in some change in sentiment and there is now an increased likelihood that they may raise rates in June or
July,” ABN Amro analyst Georgette Boele said.

[source]

PG View: Remember what happened when the Fed hiked last December? Gold launched on a 20%+ rally . . .

Posted in Gold News, Gold Views |

Greek Parliament Approves Fresh Austerity Measures to Secure Bailout Cash

22-May — Greece’s parliament approved a raft of fresh taxes and austerity measures that the country must legislate to unlock further rescue loans, as the country’s most influential creditors—Germany and the International Monetary Fund—remain deadlocked over debt relief.

The measures were backed by the 153 lawmakers from the ruling Syriza party and its junior coalition partner, the Independent Greeks, securing the majority in the 300-seat parliament late Sunday.

But Syriza lawmaker Vasiliki Katrivanou voted against two of the measures included in the bill. Early Monday, Mrs. Katrivanou announced her resignation from parliament. Another Syriza candidate from the prior elections, George Kyritsis, will run in her stead.

Parliamentary approval could pave the way for eurozone finance ministers meeting on Tuesday to clear the next disbursement of funds to Greece. But that could be complicated as the IMF and eurozone governments and especially Germany remain at odds over when Greece should get debt relief and how deep it should be.

“European leaders get the message tonight that Greece meets its obligations,” Prime Minister Alexis Tsipras told lawmakers ahead of the vote. “Starting from tomorrow it remains that the other side meets its own and I think this will happen.”

[source]

PG View: Remember when Tsipras and Syriza got elected on the platform of no more austerity? Good times . . .

Posted in Debt, European Debt Crisis |

Gold lower at 1246.66 (-5.69). Silver 16.38 (-0.189). Dollar higher. Euro lower. Stocks called mixed. U.S. 10-year 1.86 (-1 bp).

Posted in Markets |

Gold favored as Fed may have to backtrack, Mideast bank says

Bloomberg/Ranjeetha Pakiam/5-23-2016

“Gold may rally to $1,400 an ounce in the near term and go on hit $1,800 by the end of next year as the world’s central bankers err, according to the largest lender in the United Arab Emirates, which is advising clients to hold up to 10 percent of portfolios in bullion and buy recent dips.”

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Week in Review (Video) – May 20, 2016

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Look For Helicopter Money, Not Rate Hikes Says Marc Faber

20-May (Kitco News) – One famed economist, known for his usually “gloomy” economic outlook, says he doesn’t see the Fed’s tightening cycle continuing this year.

Marc Faber, publisher of the Gloom, Boom, & Doom report, outlined his views as markets await Wednesday’s Federal Open Market Committee minutes. Despite hawkish comments recently coming from Fed officials, the marketplace is not sure if the central bank can tighten just yet.

“My impression is that the Fed will not increase rates any further this year – my impression is that the economy is actually weaker than the statistics would suggest,” Marc Faber, publisher of the Gloom, Boom, & Doom report, told Kitco News Wednesday.

“My impression will also be that eventually there will be some type of helicopter money in the U.S, or the launch of QE4.”

The contrarian investor also chimed in on gold’s rise so far in 2016, which he expects will continue as the Fed delays tightening.

“I feel that the gold price and gold miners still have a significant upside potential,” he noted.

[source]

Posted in Gold News, Gold Views |

The Daily Market Report: Gold Remains Defensive on Rate Hike Expectation Shift


20-May (USAGOLD) — Gold is maintaining a defensive posture in the wake of midweek losses associated with the shift in Fed rate hike expectations. The dollar remains firm near 7-week highs, which is weighing on the yellow metal.

In the wake of Wednesday’s release of the minutes from the April FOMC meeting, rate hike expectations have surged to 30% for June and 55% for July. However, it leaves one wondering why the economic optimism expressed in the minutes was not conveyed in the policy statement immediately following that meeting.

My guess is that uncertainty continues to reign. As the Fed tries to walk that fine line between optimism and caution, guidance becomes completely clouded. The allows the market to latch on to specific — often contradictory — verbiage in the statement or minutes and speculate on the central banks underlying intentions. That’s no way to run monetary policy as you continue to tout transparency and clarity.

It’s on us to communicate [forward guidance] as effectively as possible, and I think we’re trying to do that. The Federal Reserve today is much more transparent than it was even seven or eight years ago in terms of statements, press conferences, testimony, interviews like this one. So I think we’re trying to communicate as clearly as possible. Unfortunately the world is uncertain, the outlook changes in relationship to a lot of developments that are hard to anticipate, and so the world is a little bit messier than what we would like it to be, but that’s the world we live in. — William Dudley, the president of the Federal Reserve Bank of New York (May 09, 2016)

If the goal truly is clarity, there’s lot’s of room for improvement. If the goal is really to keep markets off-balance and confused . . . mission accomplished.

The market will be closely watching growth and inflation data in the coming weeks, ahead of the June FOMC meeting and the end of Q2. In the data one can hope to find the clarity that the Fed can’t quite seem to get a handle on. Remember that the despite all the words surrounding it, the key phrase in all Fed communications has to do with ‘data dependence’.

While gold is poised to notch its third consecutive weekly decline, losses since the high was set early in the month have been less than 4%. That leaves the yellow metal up about 18% YTD and nearly 20% since the cycle low was hit last December. The indication being that recent losses are a reasonable correction within the dominant uptrend.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

U.S. existing home sales +1.7% to 5.45M in April, above expectations of 5.39M, vs positive revised 5.36M in Mar.

Posted in Economic Data |

The Fed Has Something to Prove to Wall Street

fedbldg
20-May (Bloomberg) — It’s hard to fault investors for being complacent when the Federal Reserve says it’s on the brink of raising interest rates again.

Policy makers have been delivering that message since the start of last year, only to later back off when the data showed they overestimated the strength of the U.S. economy. This scenario is playing out again in global markets. Even after the Fed’s minutes Wednesday sent a strong signal that an increase may come as soon as June, the bond market is only pricing in a 28 percent chance of that happening.

“The Fed and other central banks can get hawkish trying to manipulate the direction of rates, but the market says we don’t believe you,” said Steve Major, the London-based head of fixed-income research at HSBC Holdings Plc, which is one of the 23 primary dealers of U.S. government securities that trade with the Fed. “Structural headwinds to growth and the international backdrop are limitations on how far U.S. rates can go.”

While minutes from the Fed’s April meeting indicated policy makers considered a rate hike likely next month if the economy continued to improve, investors see plenty of obstacles. A referendum in Britain on June 23 will decide whether the country remains a member of the European Union. Growth momentum in China is fading following a credit-fueled rebound earlier this year and the dollar is rising again.

…So far, the markets have been right to call the Fed’s bluff. The Fed officials have cut their median forecast for the long-term fed fund rates to 3.25 percent, from as high as 4.25 percent in 2012.

[source]

Posted in Central Banks, Monetary Policy |

Can gold keep rising?

20-May (MarketExclusive) — Gold appeared to behave well in Asian trading on Friday following Thursday’s pullback. The growing possibility of the Fed raising interest rates doused appetite for gold as investors turned attention to yield-bearing assets. The gold market generally flourishes when interest rates are low and that explains why gold prices recently got hit following the release of the Fed’s minutes for their April meeting at which officials set sight on June and July for possible rate increases.

…The Fed’s April meeting discussed possible interest rate hikes in the second half of 2016. According to the minutes, the officials appeared to favor making a rate increase move in either June or July if economic data showed that the U.S. economy was picking up pace. The release of the minutes strengthened the dollar, making dollar-priced commodities such as gold expensive in the eyes of buyers holding currencies other than the USD. Additionally, the minutes generated appetite for equities and other yield-bearing assets, thus leaving gold in the cold.

…Despite the recent pressures on gold owing to a growing possibility of interest rate hikes and recovery of oil prices, gold prices remain up 19% so far in 2016. A missed Fed interest rate hike in July could once again trigger interest in gold.

[source]

PG View: Gold has indeed bee pretty resilient in the face of this marked shift in rate hike expectations . . .

Posted in Gold News, Gold Views |

Gold easier at 1255.78 (-1.23). Silver 16.54 (+0.013). Dollar easier. Euro higher. Stocks called higher. U.S. 10-year 1.87% (+2 bps).

Posted in Markets |

Dollar Holds Key to Whether Fed Has Scope to Raise Rates in June

19-May (Bloomberg) — As soon as the Federal Reserve released meeting minutes describing a weaker dollar, the currency surged to a seven-week high.

That’s the dilemma facing U.S. central bankers, who are weighing economic data to determine when next to raise interest rates. The Fed’s signals of a potential June move may backfire if the resurgent greenback undermines growth and weighs on stocks and oil prices, ultimately eroding the case to boost borrowing costs.

The dollar’s surge since mid-2014 hurt the outlook for growth and inflation, and contributed to the Fed delaying to December its liftoff from near zero, according to strategists. Officials from Janet Yellen to Stanley Fischer have warned that the dollar’s appreciation will limit the pace of tightening.

“The Fed’s in a bind,” said Douglas Borthwick, the New York-based head of currencies at Chapdelaine & Co., a unit of the British interdealer brokerage Tullet Prebon Plc. “The Fed can’t raise rates because it means a stronger dollar, and it means deflationary pressure in the world. The Fed’s under pressure to talk a mighty game, but it can’t actually do a lot.”

…“The Fed’s very thought of a June increase — much less the signals it may have been trying to convey to decrease the risk of complacency — could reverse some of the very trends they liked so much,” said Jim Vogel, head of interest-rate strategy at FTN Financial in Memphis, Tennessee.

[source]

Posted in Central Banks, Monetary Policy, U.S. Dollar |

Riksbank Deputy Governor Cecilia Skingsley Discusses Potential for Helicopter Money

19-May (Riksbank) — Now that Swedish inflation is starting to approach the target, it may be time to think about the conditions for monetary policy over a longer perspective, according to Skingsley. If it has become more difficult to conduct monetary policy, what can the Riksbank and other central banks do?

Skingsley says that it will not be possible, in the future, to conduct monetary policy in the way and with the impact we have previously been accustomed to. And this is something for which we need to prepare ourselves. She notes that, alongside cutting the policy rate to below zero and purchasing securities, so-called helicopter money could provide a hypothetical path to take to increase scope for monetary policy.

“It is probably something that should not be tried until other possibilities have been exhausted. However, considering the difficulties that are weighing many of the world’s economies down, I think that it is wise to discuss the different possibilities, without closing any doors,” says Skingsley.

She also examines the possibilities of raising the inflation target to create a greater degree of freedom in monetary policy.

[source]

Posted in Central Banks, Monetary Policy, Negative interest rates |

The Daily Market Report: Gold Retreats, But Confusion Over Fed Intentions Should Limit Downside


19-May (USAGOLD) — Gold extended lower, weighed by a firmer dollar and the recent spike in Fed rate hike expectations. The yellow metal slipped intraday to a three week low of 1242.90, which is less than 5% off the early May high of 1303.80.

Yesterday’s release of the minutes from the April FOMC meeting suggested that a June hike would be appropriate if data are consistent with GDP pickup in Q2. The Atlanta Fed’s GDPNow model is presently tracking at 2.5% for Q2. Other forecasts are not as high. While it may seems likely now that Q2 will be an improvement over the dismal Q1 print, there’s still six-weeks left in the quarter in which the data can deteriorate and undermine these expectations.


source: tradingeconomics.com

You may recall that the GDPNow model was calling for growth around 2% late in March. When the Commerce Department released the preliminary Q1 number, it was a mere 0.5%. The annualized growth rate has been trending gradually lower since Q3-14.

Investors seemed to gloss right over this sentence within the minutes:

I would suggest that the jury is still very much out on whether the economy has improved enough to warrant another rate hike. However, the rise in market expectations of a hike certainly reduces the likelihood of unwanted market volatility if they were to pull the trigger.

Prior to the April FOMC meeting there were hints from the Fed that they would be looking to clarify their guidance. There have been periodic claims of such intent over the years, but in the past month, the Fed’s intentions have become ‘clear as mud.’

“The Fed has changed the goal posts so many times, everyone is confused. No one knows when they’re going to raise rates and no one knows what’s going to be the key thing to trigger the decision.” — T. Rowe Price Group’s Randal Jenneke

The moving of the goal posts goes all the way back to the Fed’s 6.5% unemployment target. As this level was approached in 2014, the Fed pulled it, and the goal posts have pretty much been on the move ever since.

The June FOMC meeting is also just nine-days ahead of the Brexit referendum date. They’d have to be pretty confident the citizens of the UK were going to vote in favor of staying in order to initiate a second rate hike.

There are a myriad of risks still looming over global markets. I suppose one could count a Fed rate hike among those risks: The stock market certainly seems less than enthusiastic.

Recent price movement in gold may prove to be just another temporary setback within the dominant uptrend. The lower prices have certainly resulted in higher call-volume at our offices.

Posted in all posts, Daily Market Report, Gold News, Gold Views |

U.S. leading indicator +0.6% in Apr, above expectations of +0.3%, vs +0.2% in Mar.

Posted in Economic Data |

Gold Falls As Fed Rate Rise Speculation Boosts Greenback

19—May (WSJ) — Gold prices were slightly weaker in London Thursday, as growing expectations of a Fed interest rate increase supported the dollar.

Spot gold was down 0.3% at $1,254.84 a troy ounce in morning European trade, having hit a three-week low earlier in the session at $1,252.50 an ounce.

“Commodities, including gold and oil, took a hit from the repriced Fed odds,” said ANZ Research in a note.

The Federal Open Market Committee released the minutes from its last meeting late on Wednesday, with the market interpreting the tone as hawkish in its indication of the month of June as a strong possibility for the next increase in U.S. rates.

Markets are now pricing a 30% chance of a Fed hike by June, said ANZ.

The greenback firmed in the aftermath, as rate rises tend to boost the dollar and weigh on dollar-denominated gold. The WSJ Dollar Index was recently up 0.02% at 87.52, making the metal more expensive to buy for those holding other currencies.

Looking ahead, profit-taking could further chip away at the gold price.

“We would be wary in case fund longs start to take profits as their long positions have become quite extended in recent weeks,” says William Adams, head of research at Fastmarkets.

[source]

Posted in Gold News, Gold Views |

U.S. Chicago Fed National Activity Index rose to 0.10 in Apr, vs negative revised -0.55 in Mar.

Posted in Economic Data |

U.S. Philly Fed Index slips to -1.8 in May, below expectations of 3.0, vs -1.6 in Apr.

Posted in Economic Data |

U.S. initial jobless claims -16k to 278k in the week ended 14-May, above expectations of 275k, vs 294k in previous week.

Posted in Economic Data |

Gold lower at 1249.00 (-11.45). Silver 16.48 (-0.43). Dollar higher. Euro lower. Stocks called lower. U.S. 10-year 1.86% (+1 bp).

Posted in Markets |

China’s Govt controlled gold reserves already 4,500 tonnes plus

Sharps Pixley/Lawrence Williams/5-18-2016

“Back in February it appears that the figure quoted then may have significantly underestimated the amount of gold held by the Chinese commercial banks.  At today’s Bloomberg event, Roland Wang, the World Gold Council’s Managing Director for China, put the gold holdings of the Chinese commercial banks at the end of 2015 at 2,690 tonnes – which will presumably have risen further during the first four months of the current year. China’s ‘official’ gold holdings as reported to the IMF, plus its own reported 9 tonne gold purchase in April stand currently at around 1,808 tonnes. If we add in the commercial bank numbers we come up with a combined total of just short of 4,500 dragonchinatonnes, plus any accumulations by the commercial banks since the start of the year, which would put it comfortably in second place behind the USA with its 8,133.5 tonnes.”

MK note:  China’s dollar holdings stand at roughly $1.24 trillion.  Its total foreign exchanged reserves are estimated at $3.2 trillion.  If the 4500 tonne figure is correct, gold represents about  15% of its dollar reserves and about 6% of its total reserves.  At current prices, its 4500 tonne gold holding is valued at about $183 billion. No one knows what China’s long term goals are with respect to its top figure. When you consider, though, that China is actively pursuing the purchase of gold mining properties that become available around the world, one might presume that it really doesn’t have a top target, i.e., that its acquisition program is part of longer-term commitment to the value of gold as a means to long-term asset preservation.

“This emphasis,” says Lawrie in the column linked above, “perhaps [shows] how important gold is in the Chinese psyche and in the firm belief by the government that building its gold reserves is diversification insurance against any potential deterioration over time in the value of the U.S. dollar and the feeling that a bigger gold reserve would enhance its positioning in the country’s aspirations for the yuan as a global reserve currency.”   China’s commitment to gold, in short, appears open-ended, elastic and firmly positioned in its economic policy.

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Banking industry fears hackers can too easily attack the global financial system

18-May (CNNMoney) — In February, computer hackers stole $101 million from Bangladesh’s central bank. In a potentially disastrous move, they gained access to SWIFT, the worldwide interbank communication network that settles transactions.

Hackers performed that attack a second time recently, on what is believed to be a commercial bank in Vietnam.

On Monday morning, those attacks were discussed in stark terms by bankers present at a special meeting of President Obama’s Commission on Enhancing National Cybersecurity.

They expressed frustration about the futility of fighting hackers: Large American companies spend millions of dollars defending their computer networks from data breaches and potentially destructive digital bombs. But hackers can simply target smaller, less defended banks to gain access to the global banking system.

That’s how bank robbers successfully made five transfers out of Bangladesh Bank’s account at the Federal Reserve Bank of New York in early February. They broke into a less-defended bank, then posed as that legitimate institution to pull money out of a bigger bank.

“The weakest link in the chain is where exposure happens. I’m deeply concerned about the fact that smaller banks could be broken into,” said MasterCard CEO Ajay Banga, who sits on the commission.

[source]

PG View: Prudent savers are moving a portion of their wealth out of that vulnerable system and putting it in physical gold.

Posted in investments |

Does the merry-go-round stop here?. . . . . . .We’ll see. . . .

That June meeting everyone is talking about is scheduled for June 15th. . . .nearly a full month away. That’s an eternity in global economic terms.  Anything can happen. . . . .

BofA chart_0

 

 

Posted in all posts, Author, MK |