The Daily Market Report: Gold Eases Within Range on 4-Party Talks to Deescalate Ukraine Crisis

17-Apr (USAGOLD) — Gold is a little easier below $1300 today following reports of a possible deescalation of tensions between Ukraine and Russia. The four-party talks in Geneva reportedly garnered an agreement that all sides of the conflict would work toward deescalation and refrain from violence.

According to a CNN article, the agreement “calls for all illegal armed groups to be disarmed, all illegally seized buildings to be returned to legitimate owners, and for all occupied public spaces to be vacated.”

Such an agreement is certainly a step in the right direction, but U.S. Secretary of State John Kerry was quick to caution that the agreement was just words at this point. He then immediately threatened Russia with “further costs,” if they don’t take the steps laid out in the agreement.

Perhaps most significantly, there is apparently no call for Russia to pull its troops back from the Ukrainian border. Additionally, Russian President Putin admitted in a radio interview today that Russian troops did indeed secretly invade Crimea to assist pro-Russian forces with the overthrow of the province. It seems tensions will remain high as long as Russian troops remain on the border.

With a long holiday weekend approaching, the yellow metal is likely to remain range bound. U.S., Canadian, UK, most European and the Japanese markets are all closed tomorrow in observance of Good Friday. The UK and some European markets are also closed on Easter Monday.

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

US Philly Fed index rose to 16.6 in Apr, well above expectations of 10.0, vs 9.0 in Mar.

Posted in Economic Data |

Gold Trades Near $1,300 as U.S. Economy, Ukraine Weighed

17-Apr (Bloomberg) — Gold, set for a weekly drop, traded near $1,300 an ounce as investors weighed signs of U.S. economic recovery against tensions in Ukraine.

Prices have rebounded 8.3 percent this year amid haven demand linked to the unrest in Ukraine. Diplomats from the Eastern European country, Russia, the U.S. and the European Union met for talks on the crisis in Geneva today. Jobless claims increased less than forecast in the U.S. last week, a Labor Department report showed today, after industrial production beat economists’ estimates yesterday. Assets in the largest gold-backed exchange-traded product dropped the most this year.

“Markets are on one hand expecting the U.S. economy to do better and are looking for higher Treasury yields down the road which are a negative” for gold, Bart Melek, an analyst at TD Securities in Toronto, said by e-mail. “On the other hand, nobody wants to go into the weekend short with the Ukraine issue still very active.”


Posted in Gold News, Gold Views |

US initial jobless claims +2k to 304k in week ended 12-Apr, below expectations of 315k, vs upward revised 302k in previous week.

Posted in Economic Data |

Gold steady at 1301.87 (-1.70). Silver 19.64 (-0.001). Dollar lower. Euro higher. Stocks called mixed. US 10yr 2.65% (+2 bps).

Posted in all posts |

Out of Ammo? The Eroding Power of Central Banks

16-Apr (Der Spiegel) — Since the financial crisis, central banks have slashed interest rates, purchased vast quantities of sovereign bonds and bailed out banks. Now, though, their influence appears to be on the wane with measures producing paltry results. Do they still have control?

…But ever since many central banks lowered their interest rates to almost zero, bought up sovereign debt and rescued banks, a new, critical undertone has crept into the dinner conversations. Monetary experts from emerging economies complain that the measures taken by Europeans and Americans are pushing unwanted speculative money their way. Western central bankers say they have come under growing political pressure. And recently, when the host of the meetings — head of the Basel-based Bank for International Settlements Jaime Caruana — speaks in one of his rare public appearances, he talks about “chronic post-crisis weakness” and “risk.” Monetary institutions, says Caruana, are at “serious risk of exhausting the policy room for manoeuver over time.”

…Growth is limping along in the world’s major economies; banks, households and governments are deeply in debt; and the bankers’ so-called unconventional monetary policy is running up against its limits everywhere.


PG View: That’s a pretty startling comment from the head of the BIS, considered to be the central bank for central banks.

Posted in Central Banks, Monetary Policy |

SGE Withdrawals Equal Chinese Gold Demand, Part 3

15-Apr (InGoldWeTrust) — On April 4, 2014 Alasdair Macleod published an extensive analysis on the Chinese gold market. I felt obligated to respond to it by sharing my point of view and explain where I disagree with his analysis. I think his estimates are largely overstated because he double counts certain demand categories. He states Chinese gold demand in 2013 was 4843 metric tonnes, according to me it was 2197 metric tonnes (my estimate excludes some hidden demand and PBOC purchases on which I have no hard numbers). Setting out our differences was incidentally a good occasion for me to write another in-depth analysis on the Chinese gold market.

I highly respect Macleod, who was probably working in finance when I was in diapers, and I’m very grateful he has been using my findings about SGE withdrawals and the structure of the Chinese gold market. I see very little commentators stepping into this realm, though it’s truly the most important economic event happening in our time.

…it’s safe to say there is now more than 14000 metric tonnes of gold in China mainland. Divided by 1.3 billion people that’s 10.7 grams of gold per capita.


PG View: Mr. Jansen’s post is a nice addendum to today’s DMR: Chinese demand for gold is alive and well.

Posted in Gold News, Gold Views |

The Daily Market Report: Gold Stabilizes Around $1300

16-Apr (USAGOLD) — Gold has stabilized around the $1300 level following Tuesday’s retreat. Intensified rhetoric between the Ukrainian government and pro-Russian protesters in eastern-Ukraine are keeping geopolitical tensions elevated, which should limit downside potential in gold.

Yesterday’s sell-off in gold was attributed to a World Gold Council (WGC) report entitled China’s gold market: progress and prospects that suggested the Middle Kingdom may have up to 1,000 tonnes of gold tied to financial deals. I made the point in yesterday’s DMR, that this WGC report was in actuality very bullish for the yellow metal.

Tim Iacono, of Iacono Research, had a similar reaction. He notes in a SeekingAlpha post that a Reuters report on the WGC paper “misrepresented gold being used for financing deals in China’s shadow banking system…” Iacono makes the case that, “Traders were quick to sell, but sentiment may change after looking more closely at these reports.”

I agree, but one doesn’t really need to look more closely at all. Everything you need to know about Chinese gold demand can be found in the report’s ‘key facts’, which I reproduced in yesterday’s comment.

And while it may indeed be difficult for Chinese gold demand in 2014 to match the record demand seen last year, the overall trend will remain unquestionably positive.

Iacono says:

“The Shanghai Gold Exchange delivered over 2,000 tonnes of gold last year, yet both the WGC and the China Gold Association put the nation’s gold demand at a little over half that amount.

Other gold market analysts put 2013 China gold demand at well over 2,000 tonnes, meaning that even if the 1,000 tonnes of gold for financing deals over the last few years is accurate, it would have been just a fraction of total gold demand.”

My primary take-away from the WGC report was that they expect Chinese gold demand to increase nearly 20%, from 1132 tonnes in 2013 to 1350 tonnes in 2017. That should continue to provide support to the market, but even if some of those collateralized financial deals are unwound, I think the PBoC is a ready and willing buyer.

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

QE: New York Fed purchases $1.018 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

Bank of Canada held overnight rate steady at 1%, in line with expectations. Ongoing concerns about “downside risks to inflation.”

Posted in Central Banks, Monetary Policy |

US industrial production +0.7% in Mar, above expectations of +0.5%, vs upward revised 1.2% in Feb; cap use rises to 79.2%.

Posted in Economic Data |

Gold steadies above $1,300, supported by Ukraine crisis

16-Apr (Reuters) — Gold prices steadied on Wednesday after falling nearly 2 percent in the previous session, underpinned by escalating tensions in Ukraine but still under pressure from a weak chart picture and concerns over a slowdown in Chinese demand.

Ukrainian government forces and separatist pro-Russian militia staged rival shows of force in eastern Ukraine amid escalating rhetoric on the eve of crucial four-power talks in Geneva on the former Soviet country’s future.

That helped gold steady after the metal broke through a 200-day moving average at $1,300 an ounce on Tuesday, unleashing stop-loss selling that took spot prices to a low of $1,290.34.


Posted in Gold News, Gold Views |

US housing starts rebound 2.8% to 946k in Mar, below expectations of 970k, vs positive revised 920k in Feb.

Posted in Economic Data |

Gold steady at 1301.96 (-0.77). Silver 19.62 (+0.088). Dollar easier. Euro higher. Stocks called higher. US 10yr 2.65% (+3 bps).

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Here’s proof the housing bubble is about to burst

15-Apr (HousingWire) — Many housing industry experts and economists (especially “celebrity economists”) have been touting their belief that the housing recovery has been very real over the past year to 18 months, and see things only getting better.

We, on the other hand, have seemingly been a rare contrarian.

For many months we have privately and publicly stated that the current housing “recovery” is an illusion – a false recovery built upon a sandy foundation above a slippery slope.

But the truth is, things are even worse.


Posted in all posts |

The Daily Market Report: Gold Weighed by Demand Concerns, Firmer Dollar

15-Apr (USAGOLD) — Gold dropped sharply on Tuesday, trading briefly back below the $1300 level on worries that Chinese physical demand might be waning. The rebound in the dollar this week was also cited as a factor weighing on gold, although the rise in the greenback has been very limited this far.

A World Gold Council report on China’s gold market came out today. Here are the “key facts” from China’s gold market: progress and prospects:

• China’s continuing urbanisation means that it now has 170 cities with more than one million inhabitants – within these cities, the middle classes currently number 300million and are set to grow to 500million by 2020. Demand for gold amongst those with a greater disposable income and limited investment opportunities will continue to grow.

• Chinese savings levels remain high – there is an estimated US$7.5 trillion in Chinese bank accounts and household allocations to gold remain small, around $300bn. Gold is seen as a stable, accessible investment by consumers, particularly in the light of rising house prices and a lack of alternative savings options. Chinese investors have a preference for physical gold over paper, with investment focused on small bars, gift bars or Gold Accumulation Plans (GAPs). New gold investment products mean that medium term demand for bars and coins could reach close to 500t by 2017 – a rise of nearly 25% above its record level last year.

• China has become the world’s number one jewellery market, nearly trebling in size over the past decade – at 669t in 2013, it accounts for 30% of global jewellery demand. Estimates suggest that demand will continue to grow and reach 780t by 2017. There are now over 100,000 retail outlets selling 24k gold and thousands of manufacturers nationwide.

Consumer sentiment toward gold is unwavering – although 40% of jewellery consumption relates to weddings, the appetite for gold in China goes beyond occasions and gift giving. 80% of consumers surveyed for this report planned to maintain or increase their spending on 24-carat gold jewellery over the next 12 months believing that gold will hold its long-term value and because they expect to have a higher level of disposable income.

• Chinese electronics demand for gold will see small gains in the next four years – industrial demand has grown with electronics being the key driver (climbing from 16t in 2003 to 66t in 2013. China is also the leading market for gold related patents such as the use of nanogold in healthcare.

• Official gold holdings in China totalled 1,054t at the end of 2013making the country the world’s sixth largest holder of bullion- based on this declared stock, gold represents 1% of China’s total official reserves (down from a peak of almost 2% in 2012) due to the rapid growth of the country’s foreign exchange holdings which reached around US$3.8 trillion at the end of 2013. Speculation continues as to whether the Chinese government has increased its gold holdings.

• China has gone from being a minor producer to the world’s largest source of mined gold – in the past ten years production has doubled from 217t to 437t.

Pretty darn bullish, right? However, the market was worried by the WGC’s opinion that Chinese demand in 2014 might fall short of the “exceptional” demand seen in 2013. The WGC expects 2014 to be “a year of consolidation”.

While speculators might view a protracted period of consolidation as a reason to look for yield elsewhere, most buyers of physical gold are not speculators. They buy gold for the purpose of long-term wealth preservation. In that frame of reference, steady or even lower prices are a gift, allowing one to accumulate gold weight without chasing ever-rising prices.

An additionally point of concern was the revelation that Chinese companies may have accumulated 1,000 tonnes of gold for use as collateral in financing “business investment and speculation.” You may recall that copper sold off sharply several weeks ago when it became apparent that the industrial metal was being used as collateral: The concern being that if the Chinese economy slowed, these deals might have to be unwound.

Even if some of this collateralized gold were to be sold, I suspect the corporations might find a willing and able buyer in their own government. In fact, China saw their forex reserves jump by 3.4% to $3.95 trillion in Q1 and their quest for reserve diversification in the form of gold is a pretty well established trend at this point.

Bottom line: The WGC expects nearly 20% growth in Chinese gold demand from 1132 tonnes in 2013 to 1350 tonnes in 2017. All-in-all, a pretty favorable outlook.

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

QE: New York Fed purchases $2.204 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

China companies hoard gold for collateral

15-Apr (Financial Times) — Chinese companies may have accumulated up to 1,000 tonnes of gold for use as collateral in financing deals rather than to meet consumer demand in recent years, a new study says.

The report by the World Gold Council said imported bullion was being used “to raise low-cost funds for business investment and speculation”, and was part of the wider growth in shadow banking in China.

Other metals, including copper, have been used extensively as collateral by Chinese traders affected by tight credit conditions, raising concerns of a sudden fall in prices should the financing deals unwind.

…However, the traditional appeal of gold to Chinese consumers and their optimistic outlook for prices should result in private sector demand from all sources climbing to at least 1,350 tonnes by 2017.


Posted in Gold News, Gold Views |

US CPI +0.2% in Mar, above expectations of +0.1%, vs +0.1% in Feb; +1.5% y/y. Core +0.2%, on expectations of +0.1%; +1.7% y/y.

Posted in Economic Data |

US NY Fed Empire State index tumbled to 1.3 in Apr, well below expectations of 8.0, vs 5.6 in Mar.

Posted in Economic Data |

Gold Tumbles Most In 4 Months On China Demand Slowdown Fears

15-Apr (ZeroHedge) — Gold prices are down almost 2% this morning (over $25) as last night’s slowdown in Chinese money-supply growth and fears that China’s insatiable gold demand has become less insatiable send the barbarous relic back towards $1300. Slowing GDP expectations, increasing restrictions on shadow-banking commodity-backed financing, and a need for liquidity are all factors weighing on the precious metal this morning.


PG View: Worth noting, however, that China’s foreign exchange reserves rose by 3.4% in Q1 to $3.95 trillion from $3.82 trillion in Q4-13. This is likely to keep China’s ‘official’ reserve diversification gold buying campaign on track. Additionally, a World Gold Council report released today called Chinese consumer sentiment toward gold “unwavering”.

Posted in Gold News, Gold Views |

Gold lower 1293.74 (-31.88). Silver 19.34 (-0.605). Dollar better. Euro lower. Stocks called higher. US 10yr 2.65% (+1 bp).

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This could be the moment for Greece to default

13-Apr (Financial Times) — While the financial world is celebrating the Greek return to the bond markets, I am asking myself this question: is this a good time for Greece to default on its foreign debt? It is not a subject of polite conversion in Brussels or Athens. Nor does it appear to be a popular subject for investors’ conferences.

For the first time since the crisis Greece is in a position to default. It has a primary budget surplus – before interest payments. The European Commission has forecast the primary surplus to reach 2.7 per cent of gross domestic product this year, rising to 4.1 per cent in 2015. The Greek current account registered a first surplus. Greece is no longer dependent on foreign investors.

Of course, just because you are in a position to default does not mean that you should.


Posted in European Debt Crisis |

ECB policy makers plot QE road map

14-Apr (Financial Times) — A European Central Bank policy maker has offered hints on how the eurozone’s monetary guardians would embark on an asset-buying, or quantitative easing, programme to stave off low inflation.

Benoît Cœuré, a member of the ECB’s executive board who is seen as one of the officials closest to president Mario Draghi, indicated at the International Monetary Fund’s spring meetings in Washington that the central bank could buy a broad range of assets with maturities of up to 10 years.

While the ECB has used the US meetings to signal that eurozone policy makers would cut interest rates before resorting to QE, further falls in inflation would force the central bank to buy bonds outright.

At 0.5 per cent, European inflation is now about a quarter of its target of just below 2 per cent.


Posted in Central Banks, Monetary Policy, QE |

The Daily Market Report: Gold Gains on Geopolitical Tensions, Threats of ECB Policy Reaction to Stong Euro

14-Apr (USAGOLD) — Gold jumped to a new three-week high of 1329.87 in overseas trading, amid rising geopolitical tensions between Russia and Ukraine. Fresh threats by the ECB to halt the rising euro via easier policy is also helping to support the yellow metal.

Pro-Russian protesters that are occupying government buildings in Slaviansk have ignored the Ukrainian governments deadline to vacate. The government has threatened to remove them by force, and the protesters have called on Russia to intervene on their behalf. Russian president Putin has expressed “concern” about the situation. With Russian troops massed near the Ukrainian border, there remains considerable tension that those concerns might illicit action.

Breaking: Russian fighter jet buzzes U.S. Navy destroyer in Black Sea: Ship commanders considered the actions provocative…

Months of jawboning and no action by the ECB has precipitated an uncomfortable rise in the euro, which has exacerbated deflationary pressures. ECB president Draghi warned over the weekend that a further rise in the single currency would trigger a policy response. “A strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for our price stability,” said Mr. Draghi.

Time will tell if this nothing more than more talk, or if ECB action is at hand. The euro slipped modestly against the dollar, but the market is probably going to want to test the ECB’s resolve and find the point where the central bank will stop talking, and actually act.

Despite the firmer dollar, stemming from pullback in the euro, gold remains well bid. Nearly 50% of the recent drop in the gold price from 1387.87 (14-Mar high) to 1277.00 01-Apr low) has already been retraced. There have been two consecutive higher weekly closes as well.

Recent volatility in the stock market may be another contributing factor to the rebound in gold. A risk-off environment typically increases the appeal of safe-haven assets such as gold. But before you roll you equities into some paper gold product, be sure to read Alasdair Macleod’s latest article entitled Gold and bail-ins.

Macleod worries that “anyone with an unallocated gold account is at risk.” So, buy physical gold and take possession. We here at USAGOLD would be happy to answer any questions you might have about that process.

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

QE: New York Fed purchases $1.018 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

US business inventories +0.4% in Feb, below expectations of +0.5%, vs +0.4% in Jan; sales +0.8%.

Posted in Economic Data |

Beef Prices Soar To Highest Level Since 1987

14-Apr (Time) — The price of beef has reached its highest level in almost three decades, $5.28 per pound in February, and is expected to stay that way for some time amid growing demand in some Asian countries and droughts that have plagued some U.S. farmers

The price of beef has reached its highest level in almost three decades and is expected to stay high in the near future.

Declining cattle supply and increased demand from China and Japan caused the average retail cost of beef to jump to $5.28 a pound in February, the Associated Press reports. That’s almost 25 cents higher than the average cost in January and the highest price since 1987.


Posted in inflation |

Can The ECB Really Drive Down The Euro?

14-Apr (The Wall Street Journal) — The signals coming from European Central Bank policymakers are that persistent euro strength is pushing the central bank towards pumping more liquidity into the single currency’s economy.

A rising currency has put downward pressure on consumer price inflation, which has been moving ever further from the central bank’s target of just under 2%.

But how effective are any ECB measures likely to be given that the region’s governments are pursuing policies that tend to drive the currency ever higher?

It seems that a consensus has been built in the ECB for more policy.

ECB executive board member Benoit Coeure was the latest to offer a case for extraordinary policy in a speech over the weekend, following on from ECB President Mario Draghi’s warning that any further gains in the euro would trigger a policy response.

Mr. Coeure made it clear that “targeted asset purchases” are well within the ECB’s mandate. What’s more, the ECB would aim these purchases at the longer end of the yield curve and would focus on a mix of assets, depending on which are primary drivers of interest rates in each jurisdiction.


PG View: Looking more and more like the ECB is going to join the QE party…

Posted in Central Banks, Monetary Policy, QE |

Central Bankers To World: Take Our Currencies, Please

14-Apr (The Wall Street Journal) — Mario Draghi drew a line in the sand this weekend against a rising euro.

“A strengthening of the exchange rate requires further monetary stimulus. That is an important dimension for our price stability,” the European Central Bank president said at a news conference Saturday. The European currency bought $1.39 at that moment, up from $1.22 in July 2012.

These are striking words from a central banker, especially in the developed world. They usually shy away from drawing their currencies into monetary policy debates for fear of stoking currency wars with other finance officials.

These days, nobody seems to want a stronger currency. The U.S. has taken note that Chinese officials have actively sought to devalue their currency in recent weeks.

…Japan, trying to march out of decades of deflation, wants a weaker yen.

…All of this points towards weak global demand and a continuation of the easy money policies that mark this post financial crisis era.


Posted in Central Banks, Currency Wars, Monetary Policy |