E-trading pulls gold into forex units as commodity desks shrink

Reuters 4-22-2014

The increasing use of technology on financial trading floors is driving a trend for banks to roll precious metals operations into their forex businesses as a separate unit from other commodities activities.

Barclays on Tuesday followed similar moves by rivals Deutsche Bank, UBS, JPMorgan Chase & Co and Morgan Stanley by announcing that it would keep its gold trading business while hiving off most of its global commodities operations.

MK note:   The fact that Barclays, Deutsche Bank, UBS, JPMorgan Chase & Co and Morgan Stanley (among others) are putting their commodities divisions to bed, but retaining their gold trading desks, tells us something. If the banks thought gold ‘just another commodity’ as its critics often claim, they would have discarded it with the rest of the commodities spectrum.  By retaining their gold trading desks, they vindicate a belief long professed by its advocates:  It is money first and a commodity second.  The rational investor does not treat a silo full of corn, or a storage tank full of oil, as means to wealth to preservation, but he or she does ten fifty coin rolls of old British sovereigns.

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The Daily Market Report: Gold Remains Defensive, but Cycles Suggest an Opportunity


23-Apr (USAGOLD) — Gold remains defensive amid expectations that the Fed will continue with its taper campaign next week and what seems to be a complete dismissal of the rising geopolitical tensions in Ukraine. Currency markets have been pretty well contained recently, providing little in the way of fresh directional clues for the yellow metal.

Jon Hilsenrath of The Wall Street Journal expects that the FOMC will hold steady on policy after their two-day meeting next week, scaling back asset purchases to $45 bln per month. As for an eventual rate hike, Hilsenrath believes the Fed will remain purposefully vague.

Of growing concern for the Fed has to be the housing market. New home sales plunged 14.5% in March to 384k, missing expectations of 450k homes by a wide margin. Analysts continue to blame the weather, but the Northeast — one of the hardest-hit regions as far as weather goes — actually saw new home sales rise by 12.5%. The more likely culprits are sluggish jobs growth, declining affordability, and rising mortgage rates.

Existing home sales in March, reported yesterday, fell for a third consecutive month. It was the seventh monthly decline out of the last eight and the lowest print since July of 2012.

In gradually tightening policy via the taper, the Fed risks completely derailing the already tepid housing recovery. If home values rotate lower once again, it could threaten to derail the broader economic recovery as well.

In an article yesterday, The Wall Street Journal called the recovery “one of the most lackluster in modern times.” Said “recovery” is also now approaching the mean duration of post-WWII recoveries. We risk falling into the next recession, before the country has fully recovered from the last one.

If that were to happen, arguably all bets would be off with the Fed. They would likely flood the market with dollars yet again, and ramp the QE back up in an effort to underpin asset prices and the economy.

And speaking of cycles: It would seem that the corrective pullback in the gold market is very long in the tooth as well.

The World Gold Council studied the twelve gold price pullbacks of 20% or more, going back to 1970. The average length of those corrections was 18 months. The most recent correction lasted 28-months, assuming that it ended in December 2013. The average rebound after these corrective periods has been 69%.

I encourage you to read our latest Review & Outlook entitled Pullbacks-retracements study points to solid gold buying opportunity to get our own Michael Kosares’ take on the topic, which is summed up in this quote:

“If we apply the 69% average retracement figure to the $1185 bottom that came in December, 2013, it would put the gold price back at the $2000 per ounce level sometime over the next two years.”

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

March new home sales plunge 14.5%

23-Apr (USA Today) — Sales of new single-family homes dropped sharply last month, falling 14.5% to their weakest level since mid-2013, the Census Bureau said Wednesday.

The annual sales rate was 384,000, down from February’s revised pace of 449,000. The original estimate was 440,000.

Economists had predicted an annual rate of 450,000 for March, according to the median forecast in Action Economics survey.

Harsh winter weather helped hold down sales in February and may have in March as well. March sales in the Midwest fell 21.5% from February, 16.7% in the West and 14.4% in the South. They rose 12.5% in the Northeast.

But affordability is also an issue as both sales prices and mortgage rates have ticked up over the past year. The Census Bureau said the median price of new homes sold last month was $290,000 — that’s 13% higher, or $32,500 more, than the median price in March 2013.

[source]

Posted in Economic Data, Economy |

US new home sales plunged 14.5% to 384k in Mar, well below expectations of 450k, vs upward revised 449k in Feb.

Posted in Economic Data |

US Markit flash PMI fell to 55.4 in Apr, below expectations of 56.0, vs 55.5 in Mar.

Posted in Economic Data |

Ukraine’s leaders say have U.S. backing to take on ‘aggressors’

23-Apr (Reuters) — Ukraine’s government relaunched a security operation to crack down on pro-Russian armed groups after an Easter pause on Wednesday and said it had the backing of the United States.

Prompted in part by the discovery of the body of a Ukrainian politician who appeared to have been tortured, officials in Kiev decided to renew what they call an “anti-terrorist operation” against separatist militias who have seized control of about a dozen public buildings in eastern Ukraine.

But it was unclear what steps, in reality, Kiev could take to restore its authority in the mainly Russian-speaking east, without wrecking an international deal, signed last week in Geneva, designed to defuse the stand-off.

[source]

PG View: Recent evidence suggests that the ‘aggressors’ in eastern-Ukraine includes the Russian military. So it seems the deal struck in Geneva has already been wrecked…

Posted in Geopolitical Risks |

Fed Looks Likely to Stick to Policy Path

By Jon Hilsenrath
22-Apr (The Wall Street Journal) — Federal Reserve officials are on track to reduce their monthly bond buying to $45 billion at their policy meeting next week and stick with a communications approach that leaves investors guessing about when the central bank will start raising short-term interest rates.

“While monetary-policy discussions naturally begin with a baseline outlook, the path of the economy is uncertain, and effective policy must respond to significant unexpected twists and turns the economy may take,” Fed Chairwoman Janet Yellen said in a speech at the Economic Club of New York last week, her last comments before the central bank’s one-week quiet period ahead of its April 29-30 policy meeting.

Her emphasis on uncertainty in the speech underscored a shift in Fed communications early in Ms. Yellen’s tenure as chief. For much of the economic recovery, the Fed has tried to provide concrete assurances to investors about the path of short-term interest rates. Officials now are trying to retain some flexibility on the interest-rate outlook as they try to resolve several mysteries about the recovery, which has generated surprisingly slow economic growth, low inflation and faster declines in standard measures of unemployment than expected.

[source]

Posted in Central Banks, Monetary Policy, QE |

US MBA mortgage market index -3.3% in week ended 18-Apr; purchases -2.6%, refis -3.7%.

Posted in Economic Data |

Gold Advances From a 10-Week Low on Ukrainian Tensions

23-Feb (Bloomberg) — Gold rose from a 10-week low in New York, climbing for the first time in four sessions, as the crisis in Ukraine spurred demand for a haven.

Bullion futures reached $1,275.80 an ounce yesterday, the lowest since Feb. 11, as a report showed manufacturing in the region covered by the Federal Reserve Bank of Richmond in Virginia expanded in April. Data due today may show U.S. new home sales increased. Fed Bank of San Francisco President John Williams said this week the central bank will probably continue paring its asset purchases and end them late this year.

While gold’s 12-year bull run ended in 2013 on expectations for less U.S. stimulus, prices have risen 7.1 percent this year, reaching a six-month high in March in part as unrest in Ukraine spurred haven demand. Ukraine resumed operations to oust militants from eastern cities as the U.S. said 600 troops will be sent for exercises in four countries bordering Russia amid signs an accord to reduce tensions in the region was unraveling.

[source]

Posted in Gold News, Gold Views |

Gold steady at 1285.36 (+0.58). Silver 19.45 (+0.031). Dollar easier. Euro higher. Stocks called easier. US 10yr 2.70% (-1 bp).

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US sending 600 troops to Poland, Baltics for drills

22-Apr (AFP, via NBCNews) — The United States is deploying about 600 troops to Poland and the Baltics to underscore its commitment to NATO allies amid tensions with Russia over the crisis in Ukraine, the Pentagon said Tuesday.

A company of 150 soldiers from the US Army’s 173rd Airborne Brigade based in Vicenza, Italy will arrive in Poland on Wednesday and roughly 450 troops are due in Estonia, Lithuania and Latvia in coming days as part of a new series of exercises due to last at least through the end of the year, spokesman Rear Admiral John Kirby told a news conference.

“Since Russia’s aggression in the Ukraine, we have been constantly looking at ways to reassure our allies and partners,” Kirby said.

[source]

Posted in Geopolitical Risks |

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

Posted in Central Banks, Monetary Policy, QE |

The Daily Market Report: Gold Slips to Three-Week Low


22-Apr (USAGOLD) — Gold remains defensive, dropping to a three-week low of 1279.30. The yellow metal is being weighed by outflows from ETFs, as the stock market recoups recent losses and it looks increasingly like the west is not going to take any meaningful action to contain Russia.

Some speculators had moved into gold in recent weeks as a risk-aversion trade, after stocks became volatile and it looked increasingly like Russia might intervene in eastern-Ukraine. These specs regained some risk appetite following the four-party agreement reached in Geneva last week to deescalate the situation in Ukraine.

However, evidence surfaced subsequently that Russian forces are already active in eastern-Ukraine. They are basically following the same plan they used in Crimea. So, while in reality the situation is actually escalating, the market is already losing interest in the story. Many seems to be conceding that more Ukrainian territory will be lost to the Russians.

We noted in yesterday’s comment that gold coming out of the ETFs would likely follow the well-worn path to China. Much of the gold that has come out of the ETF vaults in London went to Switzerland to be re-cast into Asian friendly kilo bars and then went through Hong Kong to the PRC.

Those flows were pretty transparent, thanks to monthly export data reports from Hong Kong. However, Reuters reported yesterday that China is now importing gold directly through Beijing. This may be a purposeful effort to mask how much gold it is buying for official reserves.

China surprised the world in 2009 when it announced its official gold reserves had surged 76% in six short years to 1054 tonnes. Suddenly everyone took an interest in Chinese gold buying. Last year China imported about 1160 tonnes of gold through Hong Kong, with the whole world watching.

Reuters notes that estimates of China’s current gold reserves range from 3000 to 5000 tonnes. However, when and if China announce reserves again, I wouldn’t be surprised if we were all surprised yet again.

The motives behind China’s massive accumulation of gold seem pretty obvious. China wants to diversify its reserve asset holdings. They are over-allocated to dollars and U.S. Treasuries. In diversifying into gold, they not only seek protection from dollar debasement and ridiculously low yields on Treasuries, but they also look to simultaneously solidify their position as a global economic superpower. And possibly one day, the yuan might significantly erode the ‘exorbitant privilege’ the dollar enjoys as the global reserve currency.

The motives of the individual investors we service here at USAGOLD are very similar. They too are seeking to preserve the wealth they have accumulated. In light of dollar risks and the pitiful yields available on bonds and traditional savings vehicles, having some gold just makes sense.

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

Eurozone Consumer Confidence – Flash rose to -8.7 in Apr, above expectations of -9.0, vs -9.3 in Mar.

Posted in Economic Data |

US existing home sales -0.2% to 4.59M in Mar, above expectations of 4.565M, vs 4.6M in Feb.

Posted in Economic Data |

US FHFA home price index +0.6% in Feb to 210.0, above expectations, vs negative revised 208.7 in Jan.

Posted in Economic Data |

Gold recovers from 2-1/2 week low; fund outflows cloud sentiment

22-Apr (Reuters) — Gold recovered from early losses on Tuesday as the dollar gave back some gains, but sentiment among investors continued to be fragile on further outflows from bullion-backed funds.

Geopolitical tensions in Ukraine failed to lift gold’s safe-haven appeal, underscoring bearish sentiment in the market.

[source]

PG View: When gold leaves the vaults of the ETFs in the west, we know where it ends up. It goes to China, and whether some of it is used as collateral in financial transactions or not, the gold is gone and it probably isn’t coming back.

Posted in Gold News, Gold Views |

Gold steady at 1291.15 (+1.66). Silver 19.47 (+0.057). Dollar lower. Euro higher. Stocks called better. US 10yr 2.72% (+1 bp).

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Sluggish Economic Recovery Proves Resilient

20-Apr (The Wall Street Journal) — The recovery from the recession has been nasty, brutish and long. It also is shaping up as one of the most enduring.

The National Bureau of Economic Research, the semiofficial arbiter of business cycles, judges that the U.S. economy began expanding again in June 2009, just over 58 months ago. That means the current stretch of growth, in terms of duration, is poised to drift past the average for post-World War II recoveries.

The recovery from the recession has been nasty, brutish and long. It also is shaping up as one of the most enduring. Josh Zumbrun joins MoneyBeat. Photo: Getty Images.

Yet after almost five years, the recovery is proving to be one of the most lackluster in modern times.

[source]

PG View: The risk here of course is that the next recession strikes before the economy has fully recovered from the last one. If that happens, expect the Fed to step in yet again with another massive dose of money printing.

Posted in Economy |

China allows gold imports via Beijing, sources say, amid reserves buying talk

21-Apr (Reuters) – China has begun allowing gold imports through its capital Beijing, sources familiar with the matter said, in a move that would help keep purchases by the world’s top bullion buyer discreet at a time when it might be boosting official reserves.

The opening of a third import point after Shenzhen and Shanghai could also threaten Hong Kong’s pole position in China’s gold trade, as the mainland can get more of the metal it wants directly rather than through a route that discloses how much it is buying.

China does not release any trade data on gold. The only way bullion markets can get a sense of Chinese purchases is from the monthly release of export data by Hong Kong, which last year supplied $53 billion worth of gold to the mainland.

“We have already started shipping material in directly to Beijing,” said an industry source, who did not want to be named because he was not authorised to speak to the media.

[source]

Posted in Gold News, Gold Views |

The Daily Market Report: Gold Slips in Thin Trading, But Ukraine Tensions Support


21-Apr (USAGOLD) — Gold slipped back below $1300 in thin holiday trading on Monday. The London market was closed in observance of Easter Monday.

ETF outflows seen last week may have weighed on sentiment somewhat. The largest gold back ETF reportedly saw nearly a 10 tonne drop in its holdings. However, we know that gold coming out of the ETF vaults has been making its way to Asia to satisfy seemingly insatiable demand. That flow of physical metal has been well documented over the past year.

The four-party talks in Geneva last week regarding Ukraine may have lessened the geopolitical risks somewhat, but it didn’t take long for the rhetoric to start heating up once again. Russia accused Ukraine of violating the agreement just reached in Geneva, following a weekend shooting in Slavyansk, which prompted the pro-Russian mayor of that Ukrainian city to call for Russian to send ‘peace-keeping’ troops.

Ukraine claims that Russian troops are already operating in eastern-Ukraine, which would be a very clear violation of the four-party agreement. The New York Times and CNN published photos of the so-called “green men.” The Crimean annexation started with the infiltration of Russian special forces.

The Obama administration has acknowledged these photos as being genuine. Things could be heating up again in Eastern Europe, even before they truly cooled. It will now be interesting to see how American and its allies react.

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

QE: New York Fed purchases $3.646 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

US leading indicators +0.8% in Mar, above expectations of +0.7%, vs +0.5% in Feb.

Posted in Economic Data |

Russia steps up rhetoric on potential east Ukraine intervention

21-Apr (Financial Times) — Russia stepped up its angry rhetoric against the Ukraine government on Monday with its toughest warning yet about a possible intervention in the conflict in the east of the country.

“There are more and more calls to Russia for rescue from this lawlessness. That puts us in an extremely complicated situation,” Sergei Lavrov, foreign minister, told reporters. “Those who are deliberately trying to trigger a civil war, obviously hoping to provoke a big, serious, bloody conflict, are engaging in a criminal policy. And we will not only condemn but also stop it.”

[source]

Posted in Geopolitical Risks |

Japan posts largest-ever trade deficit

21-Apr (Financial Times) — Japan suffered its largest-ever trade deficit last fiscal year, underlining a wrenching structural shift for an economy long renowned as an export powerhouse.

The now chronic deficit has widened even during a more than year-long , limiting the impact of Shinzo Abe’s “Abenomics” stimulus policies.

Those policies have helped to weaken the yen – a once reliable way to kick-start the Japanese economy, but one whose effect today is less clear as Japan manufactures less than it once did and buys more energy and other items from abroad.

The gap between the value of Japan’s exports and that of its imports grew by more than two-thirds in the 12 months through March, to Y13.7tn ($134bn), according to government data released on Monday. It was the third consecutive fiscal year of deficits, the longest streak since comparable records began in the 1970s.

[source]

Posted in Debt |

BOJ Recovery Picture at Odds With Cabinet Data

21-Apr (Bloomberg) — Central bank Governor Haruhiko Kuroda says one sign of Japan’s recovery under Abenomics is that a gap between the nation’s actual and potential growth rates has come close to “zero.” A government gauge gives a less optimistic picture.

…“Kuroda appears to be too optimistic,” said Naoki Iizuka, an economist at Citigroup Inc. in Tokyo. “It’s extremely questionable if this output-gap data is pointing to solid inflation and wage growth,” said Iizuka, adding that the central bank is likely to add to its already unprecedented easing in June or July.

[source]

Posted in Central Banks, Economy, Monetary Policy, QE |

US Chicago Fed National Activity index fell to 0.20 in Mar, vs upward revised 0.53 in Feb.

Posted in Economic Data |

Gold falls to 2-1/2 week low in thin trade

21-Apr (Reuters) — Gold fell to a two-and-a-half-week low in choppy and thin holiday trade on Monday, hurt by sharp outflows from the world’s biggest bullion-backed exchange-traded fund (ETF) and a stronger dollar.

The metal was also hurt by a spurt of technical selling after it was unable to hold on to the $1,300-an-ounce level hit early in the trading session.

…”One aspect is that the market is pretty thin today and liquidity is going to be constrained,” said Victor Thianpiriya, an analyst at ANZ.

Australia, Hong Kong and London are closed on Monday for the Easter holiday.

[source]

Posted in Gold News, Gold Views |

Gold lower at 1286.06 (-8.02). Silver 19.39 (-0.24). Dollar better. Euro better. Stocks called higher. US 10yr 2.72% (unch).

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Press’ anti-gold scare tactics largely ineffective

Gallup poll ranks gold second best long term investment after real estate

by Michael J. Kosares

bumpyrideUnder normal circumstances, I might let a rutty headline about gold in the Financial Times pass without much notice. I say “rutty” because the Financial Times has long been stuck in a rut as one of the principle apologists for Keynesian economics — big banks, big deficits, big governments and powerful central banks. It doesn’t think much of gold enthusiasts and gold enthusiasts do not think much of it. (Although I still read it every morning.)

When I took-in the headline — Bumpy ride in store for gold with price forecast to fall 15% — with my morning coffee, my first reaction was to disregard it, as I do most of the day-to-day, routinely negative Financial Times’ reports on gold. Scanning the article (with the hope some nugget of important information might be gleaned), something tugged at the back of my mind with respect to the entities referenced — Gold Fields Mineral Services (GFMS), Goldman Sachs and Credit Suisse. All three obviously were predicting 2014 would be a bad year for gold. What was nagging was their near-term record in the art of gold forecasting.

So I went to the trouble of backtracking some of their most recent predictions on the gold market:

* GFMS, for example, predicted last April that gold would once again visit the $1800 per ounce level before year end. At the time, the metal was trading in the $1600 per ounce range. It promptly revisited the $1200 level instead.

* Goldman Sachs, at the end of 2013, predicted gold would fall to $1050 an ounce in what it called the “slam dunk sell for 2014.” Gold at the time was trading in the $1200 per ounce range. Gold promptly jumped to nearly $1400 per ounce in the first quarter of 2014 and is trading in the $1300 range as this is written — roughly 25% higher than Goldman’s prediction.

* Similarly, Credit Suisse predicted in May of last year that gold would get “crushed” and drop to $1100 per ounce by the end of 2013. Gold did hit $1200 per ounce shortly thereafter, but turned around to trade back at the $1300 level by year end. In that same forecast, the bank’s Ric Deverall observed: “When gold is going up, it looks like a great idea to buy more gold. And when it’s going down, do you really think risk-averse central bankers are going to try and catch the knife? No.” The jury is still out on whether or not China’s secretive central bank endeavored to catch the falling knife in 2013, but central banks in general did purchase 368 tonnes — down from 2012′s record year (545 tonnes). Contrary to Deverall’s assertion, central banks do buy gold when the price is falling.

The first lesson to file for future reference is that major banks with huge balance sheets and big-name consultants do not necessarily have a better crystal ball on the gold price than anyone else. The second is that, when it comes to gold reporting, one should not accept as gospel everything one sees or reads in the mainstream media. Its traditional anti-gold bias bleeds from its pages, so to speak, and should be taken with a grain of salt.

The mainstream media, for whatever reason, continues to believe that it can scare potential gold owners away with its consistently negative coverage, but as a recent Gallup Poll suggests, such tactics no longer work all that well. That poll ranks gold the second best option among long-term investments behind real estate and tied with stocks.

What makes gold’s poll performance interesting is that it reflects public opinion on gold after a more than two year decline that began in 2011 and at a time when real estate and stocks have enjoyed strong performances. In 2011, after ten straight years of annual gains, the public ranked gold the number one investment. Prior to 2011 gold was not included in the Gallup survey.

Polls notoriously reflect the ebb and flow of public opinion and for gold to still rank second after a two year drought indicates a swing in the public’s long-term attitude toward gold. The very fact that Gallup chooses to include gold in its annual survey speaks to a gain in stature since the secular bull market began in 2003.

Of the sample, 24% named gold the top investment and 24% chose stocks. Real Estate topped this year’s poll at 30% and bonds, perennially the least popular long-term investment, again finished last at 6%. When broken down across the political spectrum, gold was named the top investment by 26% of Republicans, 25% of Independents and 10% of Democrats. By contrast, stocks were named first by 26% of Republicans, 19% of Independents and 30% of Democrats.

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If you are looking for a gold-based analysis of the financial markets and economy, we invite you to subscribe to our FREE newsletterUSAGOLD’s Review & Outlook, edited by Michael J. Kosares, the author of the preceding post, the founder of USAGOLD and the author of “The ABCs of Gold Investing: How To Protect And Build Your Wealth With Gold.” You can opt out any time and we won’t deluge you with junk e-mails.  An all-new issue you won’t want to miss will be released shortly.

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