Deutsche Bank Shares Drop on Fears of Capital Raising

26-Sep (WSJ) — Deutsche Bank AG shares fell sharply Monday on investor concerns about the German lender’s capital position ahead of an anticipated legal settlement with the U.S. Justice Department.

The shares closed down 7.5% in European trading, at €10.55, their lowest price in decades, according to FactSet. They have declined 53% this year, whittling Deutsche Bank’s market value to $16.4 billion.

European bank stocks broadly fell Monday. The Stoxx Europe 600 Banks index declined 2.3%. The index is down 24% this year.

The Wall Street Journal reported this month that the U.S. Justice Department proposed Deutsche Bank pay $14 billion to settle a set of mortgage-securities investigations. In response to the report, Deutsche Bank said it had no intention of paying “anywhere near” that figure and said that negotiations were just beginning. Investors and analysts expect any settlement ultimately would be much lower than $14 billion.

On Monday, a Deutsche Bank spokesman, Jörg Eigendorf, said the lender is “fundamentally strong” but is suffering from “pure speculation” in the market, which is fueling uncertainty.


PG View: As you know from recent commentary and last week’s Week in Review video, DB is on our radar as a potential crisis flashpoint for the European banking system. Given the interconnectivity in banking today, there is certainly risk to the broader global financial system (ala Lehman Bros) as well.

Posted in all posts |

Fed will seek more capital from largest U.S. banks: Tarullo

26-Sep (Reuters) — The Federal Reserve will seek significantly more capital from the largest U.S. banks and give some relief to smaller banks as it considers reforms to its annual ‘stress test,’ Fed Governor Daniel Tarullo said on Monday.

The reforms will include a new capital ‘buffer’ to better protect the financial system from a shock at the nation’s largest lenders like JPMorgan Chase, Bank of America and Wells Fargo.

“In pulling this package of modifications together, we have consciously shaped them in accordance with the principle that financial regulation should be progressively more stringent for firms of greater importance,” Tarullo said in a speech at Yale University in New Haven, Connecticut.

Under the plan, some regional banks would face less scrutiny during the annual stress test. Those lenders will only undergo a ‘quantitative’ review of their systems.

More details of the capital plan for large banks will be offered next year, said Tarullo, who added that the proposal will not impact the 2017 stress test.


Posted in Central Banks |

The Daily Market Report: Gold Modestly Higher Within Recent Range

26-Sep (USAGOLD) — Gold is trading modestly higher this morning, buoyed by a softer dollar and weaker stocks to start the week. The yellow metal remains generally consolidative, but still within striking distance of the highs for the year set at 1375.15 in early-July.

Today’s U.S. data were lackluster, doing little to bolster the odds of a rate hike before year-end. U.S. new home sales fell 7.6% in August and the Dallas Fed index rose to -3.7 in September. The latter was below expectations of -3.0, versus -6.2 in August.

Some financial pundits are looking to tonight’s Presidential debate to possibly trigger some market volatility:

…financial markets braced for volatility that could be stirred by the evening debate between Democratic presidential candidate Hillary Clinton and her Republican rival Donald Trump. — MarketWatch

Quite honestly, I’d like the market to shift focus to something other than the Fed. However, I don’t know that either of the Presidential candidates are likely to have a materially different impact on gold.

Whomever takes the oath of office in January, we’re still going to be mired in the same low growth, low inflation environment. The national debt is going to continue its unstoppable march to $20 trillion and beyond. Any meaningful reforms on the fiscal front are going to have to wend their way through a divided and partisan Congress.

This all translates into a reality where the central bank remains charged with keeping all the plates spinning, with little help from lawmakers. If there are going to be rate hikes — to borrow and adjective from Jon Hilsenrath — they will be at a “glacial” pace. And that should continue to bode well for gold.


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

Dallas Fed index rose to -3.7 in Sep, below expectations of -3.0, vs -6.2 in Aug.

Posted in Economic Data |

U.S. new home sales -7.6% to 609k in Aug, above expectations of 597k, vs positive revised 659k in Jul.

Posted in Economic Data |

U.S. Bond Market’s Biggest Buyers Are Selling Like Never Before

25-Sep (Bloomberg) — They’ve long been one of the most reliable sources of demand for U.S. government debt.

But these days, foreign central banks have become yet another worry for investors in the world’s most important bond market.

Holders like China and Japan have culled their stakes in Treasuries for three consecutive quarters, the most sustained pullback on record, based on the Federal Reserve’s official custodial holdings. The decline has accelerated in the past three months, coinciding with the recent backup in U.S. bond yields.

…The amount of U.S. government debt held in custody at the Fed has decreased by $78 billion this quarter, following a decline of almost $100 billion over the first six months of the year. The drop is the biggest on a year-to-date basis since at least 2002 and quadruple the amount of any full year on record, Fed data show.


PG View: “Homegrown demand has helped pick up the slack,” but what if that stops being the case? That could change the “gradual” rate hike dynamic significantly.

Posted in Debt |

Gold steadies as focus switches to U.S. presidential debate

26-Sep (Reuters) — Gold steadied on Monday as last week’s rally ran out of steam, with markets awaiting a U.S. presidential debate later in the day for pointers on the outcome of November’s election.

The metal ended Friday little changed but was up 2 percent week on week, its biggest weekly gain in nearly two months. That was driven chiefly by the U.S. Federal Reserve’s cautious tone on interest rates after its policy meeting on Wednesday.

…”Gold remains stuck in a relatively tight range for a third day,” said Saxo Bank’s head of commodity research, Ole Hansen.

“Demand from hedge funds and investors … has been absent in recent weeks. This despite a benign U.S. rate outlook, (Donald) Trump gaining in the polls and a weaker dollar and stock market weakness today, driven by losses in the banking sector.”


Posted in Gold News, Gold Views |

Morning Snapshot: Gold edges higher to begin the week

26-Sep (USAGOLD) — Gold starts the week modestly higher, underpinned by a softer dollar. Today’s light economic calendar will provide little impetus as markets are already anxiously awaiting data to start assessing the prospects of a December rate hike.

Posted in Gold News, Gold Views, Snapshot |

Gold better at 1338.71 (+1.08). Silver 19.50 (-0.158). Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 1.60% (-2 bps).

Posted in Markets |

Treasury market’s biggest buyers are selling as never before

Bloomberg/Liz McCormick, Andrea Wong, Wes Goodman/9-25-2016

“The amount of U.S. government debt held in custody at the Fed has decreased by $78 billion this quarter, following a decline of almost $100 billion over the first six months of the year. The drop is the biggest on a year-to-date basis since at least 2002 and quadruple the amount of any full year on record, Fed data show.”

(Emphasis added)



Posted in all posts |

Financial Times reports that “Nine out of ten US equity funds failed to beat the market over the past year”

Financial Times/Stephen Foley/ 9-15-2016

“The semi-annual report on fund manager returns, produced by S&P Global, has long been depressing reading for professional stockpickers, but the scale of the disappointment in the latest figures is likely to fuel further outflows from an industry that is already under pressure.”

MK note:  It is amazing what can be achieved by the simple expedient of diversification. . . . .





Posted in all posts |

Seven ages of gold

Official Monetary and Financial Institutions Forum/9-19-2016

Queen Elizabeth II And The Duke Of Edinburgh Visit The Bank Of England“The OMFIF research document – the ‘Seven Ages of Gold’ – contains detailed statistics plotting long-run changes in central banks’ policies on buying and selling gold over seven distinct periods during the past two centuries, each lasting an average of around 30 years. The latest ‘Rebuilding’ Period VII has been underway since the financial crisis in 2008. In these eight years, central banks in both developed and developing countries have shown a new fondness for the yellow metal, rebuilding gold’s importance as a bedrock of most countries’ foreign reserves.”

MK note:  We should keep in mind that changes in central bank behavior in the aggregate with respect to gold accompanies times of fundamental change in the global monetary system.  As such, the change to central banks becoming net buyers of the metal (and one should not discount the importance of official sector sales abstinence in the equation) signals something important might be in progress. If we are eight years into an average thirty year process, as OMFIF asserts, that is something that needs to be filed for future reference.  OMFIF attributes central bank demand as a “factor in the price recovery since 2015.”

Posted in all posts |

UN fears third leg of the global financial crisis – with prospect of epic debt defaults

The Telegraph/Ambrose Evans-Pritchard/9-22-2016

“If the global economy were to slow down more sharply, a significant share of developing-country debt incurred since 2008 could become unpayable and exert considerable pressure on the financial system. . .There remains a risk of deflationary spirals in which capital flight, currency devaluations and collapsing asset prices would stymie growth and shrink government revenues. As capital begins to flow out, there is now a real danger of entering a third phase of the financial crisis which began in the US housing market in late 2007 before spreading to the European bond market.” –– UN Conference on Trade and Development (UNCTAD)

MK note:  The UNCTAD report buttresses a long-held opinion among skeptical analysts  that in reality we never exited the crisis that began 2007-2008. By referencing the developing situation as the “third phase of the financial crisis,” the UN puts matters in their proper perspective. This could be a good omen for gold. Its rally thus far this year has been the direct result of capital flight from the global financial system.

Posted in all posts |

Week in Review (Video) – September 23, 2016

Posted in all posts, USAGOLD TV |

Optimism Fades for Economic Boost By Year-End

23-Sep (WSJ) — Cautious consumers, retrenching manufacturers and scant signs of inflation are diminishing optimism about a breakout in economic growth in the final stretch of the year.

Retail sales declined last month for the first time since March and manufacturing production slipped, government data released Thursday showed. Meanwhile, prices businesses receive for their goods and services were unchanged last month, a sign of still-soft demand at home and abroad. Companies also remain cautious about building up too much inventory, new figures showed.

Recent economic gauges, including evidence of a slowdown in August hiring, suggest the economy could be constrained for the rest of the year to a growth rate only slightly above the expansion’s overall 2% pace—the weakest of any since World War II.

Forecasters long expected an acceleration in the economy starting in the summer after nine months of economic growth around a 1% rate. The uptick was expected to deliver firmer wage growth and price gains, and put Federal Reserve policy makers in a position to lift the central bank’s benchmark interest rate by this month.


Posted in Economy |

The Daily Market Report: Gold Steadies Into Weekend, Holding Midweek Gains

23-Sep (USAGOLD) — Gold is maintaining a consolidative tone headed into the weekend, but gains recorded midweek after the announcement of BoJ and Fed policy are being sustained. It would be nice to see some upside follow-through within the wedge pattern to put the high for the year at 1375.15 back in play.

FedSpeak is back underway today and thus far it’s been a bit of a mixed bag: Boston Fed’s Rosengren favors “modest, gradual tightening” now, lest we put the duration and sustainability of the recovery at risk; so sooner rather than later would be better. On the other hand, Minneapolis Fed’s Kashkari is more worried about raising rates too fast than too slowly; so later rather than sooner. Dallas Fed’s Kaplan is appearing at Texas Oil and Gas Association event today, but I haven’t seen any quotes yet.

I’d expect the overall bias of FedSpeak in the weeks ahead to be focused on attempting to build expectations for a December rate hike. We’ve played that game many times over at this point and folks are perhaps finally getting wise. Savvy investors will hopefully be paying much more attention to incoming economic data versus Fed’s jawboning. Talk is cheap!

As for the data, I’d be watching August durable goods orders on Wednesday and the third report on Q2 GDP on Thursday. Another negative print is expected for the former and while an upward revision in Q2 GDP to 1.4% (from 1.1%) is anticipated, that’s still going to leave the annualized rate of growth below 2%.

Recent economic gauges, including evidence of a slowdown in August hiring, suggest the economy could be constrained for the rest of the year to a growth rate only slightly above the expansion’s overall 2% pace—the weakest of any since World War II. — WSJ

Personal income and PCE for August is out next Friday. Both are expected to remain tepid at best.

So, with hopes for more robust growth into year end fading and inflation in check as well, arguably there is little reason for the Fed to really be considering a rate hike. Of course the situation was very similar into year-end 2015 and they did nudge rates off the zero-bound in what was likely a credibility play.

Is the Fed worried about their credibility again? They should be . . .



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

Gold slips on firm dollar; set for best weekly gain in 2 months

23-Sep (Reuters, via CNBC) — Gold edged lower on Friday, backing off the two week high struck in the previous session as the dollar stayed firm, but the yellow metal was still on track for its biggest weekly gain in nearly two months.

Spot gold was slightly down 0.2 percent to $1,340.40 an ounce by 8:41 AM ET, but was set for a weekly gain of nearly 2 percent, the highest since end-July.
Why should investors invest in gold?

U.S. gold futures is flat at $1,344.30 an ounce.

“Gold’s move could be closely tied to the dollar. We expect gold to be mostly range-bound for the next few weeks,” said Ronald Leung, chief dealer, Lee Cheong Gold Dealers in Hong Kong.

“People will try to push up the prices between now and the next U.S. Federal Reserve meeting. We don’t think the Fed would act before the presidential elections in November.”


Posted in Gold News, Gold Views |

Morning Snapshot: Gold Holding Gains

23-Sep (USAGOLD) — Gold is trading within the confines of yesterday’s narrow range. While consolidative, the yellow metal is holding the central bank inspired gains from earlier in the week.

The U.S. economic calendar is light today with just September Markit manufacturing PMI (Flash) out later this morning at 9:45ET. Median expectations are 51.9, versus 52.0 final read in August.

We’ll also get our first post-FOMC FedSpeak from Dallas Fed President Kaplan who will take questions before the Texas Oil and Gas Association Forum that gets underway at 11:30 ET. Kaplan is a moderate, but we’ll see if he attempts to push the ‘December rate hike is on the table’ narrative.

Posted in Gold News, Gold Views, Snapshot |

Gold better at 1339.60 (+2.03). Silver 19.89 (-0.003). Dollar and euro steady. Stocks called easier. U.S. 10-year 1.61% (unch).

Posted in Markets |

Deutsche Bank Woes Sparks Concern Among German Lawmakers

22-Sep (Bloomberg) — Deutsche Bank AG’s finances, weakened by low profitability and mounting legal costs, are raising concern among German politicians after the U.S. sought $14 billion to settle claims related to the sale of mortgage-backed securities.

At a closed session of Social Democratic finance lawmakers this week, Deutsche Bank’s woes came up alongside a debate over Basel financial rules, according to two people familiar with the matter. Participants discussed the U.S. fine and the financial reserves at Deutsche Bank’s disposal if it had to cover the full amount, according to the people, who asked not to be identified because the meeting on Tuesday was private.

While the participants — members of the junior party in Chancellor Angela Merkel’s government — didn’t reach any conclusions on the likely outcome, the discussion signals that the risks have the attention of Germany’s political establishment.


PG View: If I had to lay odds on the next likely crisis flashpoint, DB would be my front-runner. It’s their massive derivatives book that is most concerning to me — much more so than low profitability and legal costs — although the latter two could certainly trigger an unwind of the former . . . with disastrous and far reaching implications . . .

Posted in all posts |

PM Snapshot: Gold Poised For 4th Consecutive Daily Gain

22-Sep (USAGOLD) — While gold backed off its intraday high in late trading on Thursday, the yellow metal appears poised for a fourth consecutive daily gain. The market is being underpinned by a weaker dollar after the the Fed opted to keep monetary policy on hold yesterday. While some pundits are once again saying that a December hike now seems more likely . . . you have to wonder “more likely” than what? Because if they’re thinking it’s more likely than March, June or September . . . that’s not very likely at all!

Posted in Gold News, Gold Views, Snapshot |

Plummeting Faith in Central Banks Bodes Well for Gold

22-Sep (Energy&Capital) — The price of gold had its biggest increase in two weeks yesterday following policy statements from the Bank of Japan and the Federal Reserve.

And after what’s been a two-month lull in prices following Brexit, gold is ready to once again begin the climb to $1,400 and beyond for one simple reason…

Faith in the world’s central banks is rapidly eroding.

More and more people are becoming aware that central bank policies simply don’t work as promised. This is clear in the rising number of mainstream financial publications questioning the abilities of the world’s central banks, with headlines like:

• “A Clear Message That Central Banks are Not All-Powerful” (Financial Times, September 20, 2016)
• “Central Bank Tools Are Losing Their Edge” (Wall Street Journal, September 21, 2016)
• “Japan’s Central Bank Experiments At The Wrong Time” (Bloomberg, September 21, 2016)

The U.S. Federal Reserve itself has been dealing with a decline in public confidence for over 15 years now. A Gallup poll in April found 38% of Americans “had a great deal or fair amount of confidence” in Janet Yellen, while 35% had little or none. In the early 2000s, confidence in Chairman Alan Greenspan exceeded 70%.


Posted in Central Banks, Gold News, Gold Views |

The Daily Market Report: Gold Extends Gains After Policy Decisions

22-Sep (USAGOLD) — Gold is extending to the upside, building on yesterday’s solid gains. Silver has probed back above $20 for the first time in two-weeks.

After throwing everything AND the kitchen sink at their moribund and deflationary economy, the BoJ is now just flailing about in search of something — anything — that will generate growth and inflation. “Yield curve control” is not the answer, but at least it gives the illusion that they’re doing something.

The Fed held steady yesterday, but many of the headlines are saying the table is set for a December rate hike. Let’s remember that the table was also reportedly set in March, June and September. I’m not sure why any investor would believe them this time around. If you dare short bonds you risk being crushed.


Meanwhile the European Central Bank is fighting it’s own battles. An FT piece I posted earlier this morning points out that the ECB is seeking to “expand the pool of assets eligible for QE so as to overcome shortages of the safest government debt, such as German Bunds.” They also face a legal challenge that contends that QE “already violates rules on the prohibition of monetary financing [of eurozone governments] by the ECB.”

BullionStar’s Koos Jansen points out that there are some assets the ECB absolutely can buy and sell with impunity. Their right to do so is enshrined right in the ECB statutes:

18.1.  In order to achieve the objectives of the ESCB and to carry out its tasks, the ECB and the national central banks may:

— operate in the financial markets by buying and selling outright (spot and forward) or under repurchase agreement and by lending or borrowing claims and marketable instruments, whether in euro or other currencies, as well as precious metals;


23.  The ECB and national central banks may:

— acquire and sell spot and forward all types of foreign exchange assets and precious metals; the term ‘foreign exchange asset’ shall include securities and all other assets in the currency of any country or units of account and in whatever form held;

Yep, foreign exchange assets and precious metals are fair game. Of course there would probably be a backlash if the ECB started buying Swiss francs and Scandinavian currencies in an effort to drive down the value of the euro. That’s just not cricket! But what about gold?

One of the main hurdles faced by central banks has been their inability to stoke inflation expectations. It seems a big rally in gold would certainly nudge those expectations in the desired direction . . .

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

ECB fears legal action will rein in scope for QE

22-Sep (FT) — Officials at the European Central Bank fear they could be hemmed in by legal action as they look for ways to extend their quantitative easing programme to help fuel the eurozone’s fragile recovery.

The €80bn-a-month bond buying plan is already the subject of a legal challenge and officials fear that its problems in court will increase if the ECB relaxes the conditions of the scheme — a move staff are considering.

Peter Gauweiler, a conservative German politician who has sued the ECB in the past, told the Financial Times that changes to QE would “increase the chances of success” of a case he and others are trying to bring against the asset purchase programme.

Committees of eurozone central bankers this month started work on ways to expand the pool of assets eligible for QE so as to overcome shortages of the safest government debt, such as German Bunds. Their task is particularly important if — as the markets expect — the ECB extends QE beyond the scheduled end date of March 2017.

Mr Gauweiler believes that QE “already violates rules on the prohibition of monetary financing [of eurozone governments] by the ECB” — even before any alteration of its conditions. He said that softening the rules could redistribute the risk of a member state default, “which is clearly incompatible with European law”.


PG View: Koos Jansen notes that articles 18 and 23 of its statutes the ECB is fully authorized to buy and sell precious metals. There are no doubts about the legality of that.

Hey, if central banks really want to stoke inflation expectations, nothing would achieve that goal like a big rally in gold!

Posted in Central Banks, Monetary Policy, QE |

U.S. existing home sales -0.9% in Aug to 5.33M pace, below expectations of 5.45M, vs negative revised 5.38M in Jul.

Posted in Economic Data |

U.S. leading economic indicators -0.2% in Aug, below expectations of unch, vs positive revised 0.5% in Jul.

Posted in Economic Data |

Russia Targets China for Gold Sales as VTB, Sberbank Expand

22-Sep (Bloomberg) — Russia’s gold sales in China are set to expand as VTB Capital boosts sales and Sberbank PJSC prepares to enter the market, chasing demand in the world’s biggest consumer of bullion.

Sberbank CIB plans to register on the Shanghai Gold Exchange, the investment arm of Russia’s largest bank said in an e-mailed response to questions. VTB Capital, a unit of the second-biggest lender, is targeting sales of as much as 20 metric tons (643,000 ounces) of gold in China in 2017, Sergey Nenashev, head of precious metals at the bank, said by e-mail. Supplies may reach an annual 100 tons “towards the end of 2018,” he said.

Russian banks, which act as intermediaries between the country’s gold producers and the market, aim to tap into Asian growth. Rising incomes and few investment options in China are driving demand for gold jewelry, bars and coins in China. In July, Shanghai Gold Exchange volumes almost doubled from a year earlier to 1.7 trillion yuan ($255 billion), figures compiled by the bourse show.

Banks have been looking at China for a while as it’s the “largest ultimate, paying customer” for gold, Sergey Kashuba, head of the Union of Gold Producers of Russia, said by e-mail on Tuesday. This year, they may ship several tons of gold to China in pilot sales, he said.


Posted in Gold News, Gold Views |

U.S. FHFA home prices +0.5% in Jul to 236.1, above expectations of +0.3%, vs positive revised 235.0 in Jun; +5.8% y/y.

Posted in Economic Data |

2 Reasons Gold Is Setting Up for a Historic Bull Market

22-Sep (MotleyFool Canada) — The price of gold has risen about 27% since the start of the year—recently closing at $1,318 per ounce—and while it has pulled back slightly, analysts at Royal Bank view any pullback as a buying opportunity. According to Royal Bank, gold has entered into a new bull market and predict gold will rise to $1,500 per [ounce] in 2017, 14% above current levels.

This is in line with the vast majority of gold analysts. Bank of America and Credit Suisse see gold at $1,500 in 2017, and firms like Natixis and UBS see gold rising to $1,400 per ounce by the end of this year. The bullish consensus on gold can be explained by a few key factors, and, combined, these factors will support the next run-up in gold prices.

While there has recently been news of prominent investors adding exposure to gold (George Soros and Stan Druckenmiller come to mind) there has been an even more significant buyer of gold over the past several years—central banks. Central banks are a key source of gold demand, and since 2010 the central bank portion of total gold demand has risen from under 2% to over 14% at the end of 2014.

…This source of demand will coincide with a diminishing supply outlook. Chuck Jeannes, Goldcorp.’s CEO, sees gold as hitting peak supply in the next year or two, which means that gold production will decline annually going forward. Goldcorp sees global mined production falling 13% by 2022. The demand for gold, however, is only set to strengthen.

…With average global bonds having yields of only 0.67%, gold will only seem more attractive compared to bonds.


PG View: Heightened demand and tightening supply . . . the perfect recipe for higher prices . . .

Posted in Gold News, Gold Views |

Morning Snapshot: Gold Extends Gains

22-Sep (USAGOLD) — Gold has build modestly on yesterday’s solid gains, setting a new 2-week high at 1338.20. The dollar is under pressure on the heels of yesterday’s monetary policy decisions from the BoJ and Fed.

Despite three FOMC members that were inclined to tighten this month, the Fed decided to hold steady and await “further evidence of continued progress toward its objectives.” The Chicago Fed’s national activity index fell back into negative territory in August, adding to the evidence that their objectives are getting further away. That grim reality is reflected in the Fed’s own dot-plot that was released yesterday.

Posted in Gold News, Gold Views, Snapshot |