Falling Yen Is Weaker Tonic for Japan

19-Sep (The Wall Street Journal) — Japan is getting less bang from the rising buck.

That is the message investors are sending after a month in which the yen broke out of a tight trading range and slipped to a six-year low against the dollar. The Nikkei Stock Average has risen in tandem, gaining 1.1% on Thursday to stand at an eight-month high.

The moves in currencies and stocks look considerably different from the market jolt that started in late 2012, shortly before Shinzo Abe became prime minister on an antideflation platform.

Then, stocks surged 80% in six months and investors celebrated a 23% drop in the yen, triggered by the monetary easing of Mr. Abe’s handpicked Bank of Japan governor, Haruhiko Kuroda.

Now, the yen’s moves depend more on decisions made by the American and European central banks, the Nikkei’s moves are more subdued and investors are split over whether Japan will offer still more stimulus. The policy consensus of 18 months ago has been replaced by a spreading view that as the yen falls further, the upside looks smaller—and could be swamped by new costs.

A weakening yen might help Japanese exporters and the economy, but the benefits might also be fleeting, as the rest of the world is racing to compete with Japan’s deflation-fighting strategies—devaluing currencies and cheapening their own exports,” said Daniel Arbess, a partner and hedge-fund manager at Perella Weinberg Partners.

[source]

PG View
: Japan is getting less bang with other countries also “devaluing currencies and cheapening their own exports.” Sounds like a currency war to me…

Posted in Central Banks, Currency Wars, Economy, Monetary Policy |

Super-rich rush to buy ‘Italian Job’ style gold bars

18-Sep (Telegraph) — The super-rich are looking to protect their wealth through buying record numbers of “Italian job” style gold bars, according to bullion experts.

The number of 12.5kg gold bars being bought by wealthy customers has increased 243pc so far this year, when compared to the same period last year, said Rob Halliday-Stein founder of BullionByPost.

“These gold bars are usually stored in the vaults of central banks and are the same ones you see in the film ‘The Italian Job’,” added David Cousins, bullion executive from London based ATS Bullion.

[source]

Posted in Gold News, Gold Views |

US leading indicators +0.2% to 103.8 in Aug, below expectations of +0.4% vs positive revised +1.1% in Jul.

Posted in Economic Data |

Gold holds above 8-1/2 month low; poised for third weekly drop

19-Sep (CNBC) —  Gold held above its lowest in 8-1/2 months on Friday but was headed for a third straight weekly drop on fears that a rate hike in the United States and a strengthening economy could dim the metal’s appeal.

Bullion came under pressure after the Federal Reserve indicated on Wednesday it could raise borrowing costs faster than expected when it starts moving, though it renewed its pledge to keep interest rates near zero for a “considerable time.”

[source]

Posted in Gold News, Gold Views |

Scotland Votes No, Stays in the U.K.

18-Sep (The Wall Street Journal) — Voters in Scotland chose to remain in the U.K. in an Independence referendum on Sept. 18.

Yes: 45% 1,617,989 votes
No: 55% 2,001,926 votes

[source]

Posted in Politics |

Gold easier at 1222.30 (-2.48). Silver 18.41 (-0.091). Dollar higher. Euro lower. Stocks called higher. US 10yr 2.60% (-1 bp).

Posted in all posts |

Outside the Box: “Finest Worksong”

by Ben Hunt
17-Sep (MauldinEconomics) — There is one great mystery in the high falutin’ circles of the Fed, ECB, and IMF today. Why is global growth so disappointing? There are different variations on this theme – why aren’t businesses investing more? why aren’t banks lending more? – but it’s all one basic question. First the Fed, then the BOJ, and now the ECB have taken superheroic efforts to inflate financial asset prices in order to bridge the gap between the output shock of 2008 and a resumption of normal economic growth. They’ve done their part. Why hasn’t the rest of the world joined the party?

The thinking was that leaving capital markets to their own devices in the aftermath of the Great Recession could result in a deflationary equilibrium, which is macroeconomic-speak for falling into a well, breaking your leg, at night, alone. It’s the worst possible outcome. So the decision was made to buy trillions of dollars in assets, forcing all of us to take on more risk with our money than we would otherwise prefer, and to jawbone the markets (excuse me … “employ communication policy”) to leverage those trillions still further. All this in order to buy time for the global economic engine to rev back up and allow private investment activity to take over for temporary government investment activity.

It was a brilliant plan, and as emergency intervention it worked like a charm. QE1 (and even more importantly TLGP) saved the world. The intended behavioral effect on markets and market participants succeeded beyond Bernanke et al’s wildest dreams, such that now the Fed finds itself in the odd position of trying to talk down the dominant Narrative of Central Bank Omnipotence. But for some reason the global economic engine never kicked back in. The answer? We must do more. We must try harder. And so we got QE2. And QE3. And Abenomics. And now Draghinomics. We got what we always get in the aftermath of a global economic crisis – a temporary government policy intervention transformed into a permanent government social insurance program.

But the engine still hasn’t kicked in.

[source]

Posted in Central Banks, Economy, Monetary Policy |

The Daily Market Report: Gold Firms After Initially Slipping to 8-month Lows Post-Fed


18-Sep (USAGOLD) — Gold is firming intraday after eking out a new eight-month low in overseas trading. While gold has been under pressure for the past two-months, key support at 1182.10/1179.80 remains protected.

Much of the retreat in gold is being attributed to a rising dollar associated with expectations that that the Fed is going to hike rates sooner, rather than later. The dollar index is in fact up 5.6% since early-July. The yield on the 10-year Treasury note bottomed at 2.31% in mid-August and has since risen 32 bps.

And yet, yesterday the Fed not only announced that they were holding steady on policy, but they also announced a less optimistic growth expectations for both this year and 2015.

The Fed now forecasts real GDP of 2.0 – 2.2% in 2014, down from the 2.1 – 2.3% they projected in June. That’s down even further from the projections of 2.8 – 3.0% they made in March.

The Fed’s latest forecast for 2015 dropped to 2.6 – 3.0%, versus 3.0 – 3.2% forecast in June. The Fed projected 3.0% – 3.2% growth back in March.

Despite a weaker growth outlook, expectations that inflation will remain below target and perhaps only a negligibly better forecast for employment, the FOMC still thinks that the first rate hike will still come in H1-2015. In fact, the dot-plot is suggestive of a slightly more hawkish outlook on rates.

Based on what? If we are to believe that monetary policy will be data-driven — as chair Yellen has been adamant about — how can the Fed be more hawkish on weaker growth expectations, and the continued inability to achieve the dual mandate?

I think the tightening we are seeing — in the form of the ongoing taper — has been a function of the Fed’s acknowledgement that broad-based asset purchases don’t work. “Declining efficacy” is the verbiage they used.

With QE3 widely expected to be completely wound-down in October, rates will be the only tool remaining. With Fed funds at zero, the central bank will be severely hamstrung if the economy continues to refuse to gain momentum.

I’m not saying the Fed won’t revive QE is push comes to shove. In fact, I would expect them to do that very thing if the economy takes a turn for the worse in the first half of 2015. In doing so though, they will do considerable damage to their own credibility.

It is interesting too that the ECB seems to be heading inevitably toward their own version of QE, even as the Fed has noted the “declining efficacy” of such measures and the seeming abject failure of Abenomics.

Monetary policy and extraordinary measures are very much on trial right now. If investors lose faith in central banks’ ability to manage crises, we could find ourselves in a new financial crisis of epic proportions.

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

QE: New York Fed purchases $0.289 billion in Treasury coupons.

Posted in Central Banks, Monetary Policy, QE |

A Dangerous Sign That Argentina’s Economy Is Going Off The Rails

18-Sep (BusinessInsider) — The exchange rate for Argentina’s black market dollar, the ‘dolar blue’, has hit its highest rate in history at 15.10 dolar blue to one U.S. dollar.

The official rate, fixed by the government, has been set at 12 pesos to the U.S. dollar since the country devalued its currency in January.

…The list of economic problems with Argentina is long. Economic activity is in recession, the inflation rate is at almost 40%, and the country’s Central Bank dollar levels are at a 4 and a half month low of $28.2 billion.

Additionally, the prices of Argentina’s commodity exports, like the soy bean, have gone down this year resulting in a balance of payments issue. Swiss bank UBS expects GDP growth to come in completely flat for 2014.

“All these things are together with a fiscal policy that is very irresponsible,” said Loser. “All the signals… are wrong, in my view, in therms of trying to draw foreign investment.”

[source]

Posted in all posts |

Philly Fed index tumbled to 22.5 in Sep, below expectations of 22.8, vs 28.0 in Aug.

Posted in Economic Data |

Japan exports fall in August but beat expectations

18-Sep (CNBC) — Japan’s exports fell in August as U.S. shipments contracted, dashing hopes that external demand can prop up an economy dragged down by weak consumer spending.

Exports declined 1.3 percent in August from the year-ago period, following July’s 3.9 percent rise, but it was better than a Reuters poll forecasting a 2.6 percent drop.

Imports fell an annual 1.5 percent, versus an expected decline of 1.2 percent and after rising 2.3 percent in July.

[source]

PG View: Evidence of the failure of Abenomics continues to mount.

Posted in Economy |

China Opens Gold Market to Foreigners Amid Price Ambition

18-Sep (Bloomberg) — China will give foreign investors direct access to its gold market for the first time today as the biggest-consuming nation seeks to exert more influence over prices while boosting the yuan’s global use.

The Shanghai Gold Exchange will start trading contracts in the city’s free-trade zone that will be linked to its domestic spot market and available to about 40 international members including Goldman Sachs Group Inc. and UBS AG. Access was previously limited to some Chinese subsidiaries. Gold in China this year cost as much as $31 an ounce more and $42 less than the London spot price, according to data compiled by Bloomberg.

China, which overtook India as the biggest bullion buyer in 2013, wants to establish a benchmark price in Asia by opening up trading to a larger pool of investors. It’s also pushing to reduce controls over the movement of capital across its borders after policy makers pledged last year to carry out the widest expansion of economic freedoms since the 1990s.

[source]

Posted in Gold News, Gold Views |

Gold Falls to 8-Month Low in New York on Fed Rate Outlook

18-Sep (Bloomberg) — Gold declined to an eight-month low in New York as the Federal Reserve increased estimates for interest rates. Platinum touched the lowest level this year.

The dollar reached a 14-month high against the euro today after Fed policy makers raised their median estimate for the key rate to 1.375 percent at the end of 2015 versus June’s forecast for 1.125 percent. Higher rates reduce gold’s allure because the metal only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value.

[source]

Posted in Gold News, Gold Views |

US housing starts plunged 14.4% to 0.956M in Aug, well below expectations of 1.035M, vs positive revised 1.117M in Jul. Permits -1.1%.

Posted in Economic Data |

US initial jobless claims -36k to 280k in the week ended 13-Sep, well below expectations of 305k, vs upward revised 316k in previous week.

Posted in Economic Data |

Gold easier at 1218.55 (-1.11). Silver 18.37 (-0.141). Dollar slips. Euro higher. Stocks called higher. US 10yr 2.63% (+1 bp).

Posted in all posts |

It’s not the Fed taking gold down, but the vote in Scotland [OPINION]

Some of you might be wondering what happened to gold at the 4pm (MDT) open, particularly in light of the rather benign, steady-as-she-goes Fed announcement.  This looks like it might have to do with the Scotland independence vote in the UK tomorrow. [One man's opinion]  A late poll has the vote closing to 51% (No) – 49% (Yes).  In other words a complete toss-up with the Yes vote gaining momentum going into tomorrow’s proceedings.

The pound is tanking (see chart), so is the euro and Swissie. There has to be market concern about others in Europe perhaps getting ideas.  Mainstream media are focused on Catalonia, Norther Italy, etc, but the real concern on the continent might be Greece, Italy, even France and the United Kingdom (the Tories appear dominant if Scotland breaks away and there is a clear movement within that party toward putting UK’s European Union attachment to a vote).

As a result the dollar’s on a crazy ride pushing gold south – with algos doing most of the damage.  In my view this is all very temporary as far as gold goes.  The monetary and financial market risks for all, including the United States, look much like the dump after the 2008 meltdown.  That was temporary with respect to the gold price if you will recall (and an incredible buying opportunity).

There will be much discussion on all this starting tomorrow. . . . . . . . .Though the dollar looks to be an early beneficiary, in the long run the ensuing turmoil in financial markets is likely to cause a flurry of gold buying, particularly in Europe, once the smoke clears.  There is much more to the vote in Scotland than meets the eye and the real dangers are within transnational financial institutions, just as they were in 2008.  MK

sterling-gold

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Posted in all posts |

Fed Cuts GDP Forecasts

17-Sep (USAGOLD) — The Fed cut it’s real GDP forecasts for this year, next year and the long-run.

Central tendencies for 2014 dropped to 2.0 – 2.2%, versus 2.1 – 2.3% in June. That’s down from their 2.8 – 3.0% forecast in March.

Central tendencies for 2015 dropped to 2.6 – 3.0%, versus 3.0 – 3.2% in June. The Fed forecast 3.0% – 3.2% in March as well.

[source]

Posted in Central Banks, Economy |

House passes bill to audit the Federal Reserve

17-Sep (TheHill) — The House on Wednesday passed legislation to audit the Federal Reserve System.

Passed 333-92, the bill would require the comptroller general to conduct an audit of the Federal Reserve’s board of governors and banks within one year and submit a report to Congress on the findings. A total of 106 Democrats joined all but one Republican in support of the measure.

A version of the bill sponsored by then-Rep. Ron Paul (R-Texas) passed in 2012 by a vote of 327-98. Paul’s son, Sen. Rand Paul (R-Ky.), has introduced companion legislation in the Senate.

Rep. Paul Broun (R-Ga.), who failed to advance in a Senate GOP primary earlier this year, said the measure would increase transparency at the Federal Reserve.

“This is a vital piece of legislation that will help to usher in a new era of transparency in this nation’s monetary policy,” said Broun, the bill’s sponsor. “The Federal Reserve is a creation of Congress, and it must therefore be subject to the oversight and regulation of Congress.”

[source]

PG View: Interesting that this happened on Fed policy statement / Yellen presser day.

Posted in Central Banks, Monetary Policy |

Fed Keeps ‘Considerable Time’ Pledge as Growth Is ‘Moderate’

17-Sep (Blomberg) — The Federal Reserve said the economy is expanding at a moderate pace and inflation is below its goal while maintaining a commitment to keep interest rates near zero for a “considerable time” after asset purchases are completed.

“Labor market conditions improved somewhat further” while “significant underutilization of labor resources” remains, the Federal Open Market Committee said today in a statement in Washington. “Inflation has been running below the committee’s longer-run objective.” In July, the Fed said inflation was “somewhat closer” to its goal.

[source]

PG View: Ever-so-slight nudges to optimism on jobs, but a bit of a retreat in the inflation front.

Posted in Central Banks, Monetary Policy, QE |

Fed holds steady on rates, tapers by an additional $10 bln per month, in line with expectations. Maintains “considerable time” language.

FOMC Policy Statement: http://www.federalreserve.gov/newsevents/press/monetary/20140917a.htm

FRB Policy Normalization Principles and Plans: http://www.federalreserve.gov/newsevents/press/monetary/20140917c.htm

Dallas Fed’s Fisher joins Philly Fed’s Plosser in dissent.

Posted in Central Banks, Monetary Policy |

The ‘colossal imbalance’ in global gold reserves unlikely to be addressed through West liquidations

September 11th, 2014, Bejing, China:

“It is clear that western central banks over time will be reducing their reserves and China and other Asian countries will be increasing. Gold will become more traded amongst central banks in the next 30 years because there are colossal imbalances in world gold holdings as a percentage of overall asset reserves.” David Marsh, managing director at the Official Monetary and Financial Institutions Forum

As quoted in Bloomberg article:   China may boost gold reserves amid imbalances in holdings

MK note:  What this article does not mention is that Western central banks would need to be willing sellers in order for Asia to become willing buyers. I disagree with David Marsh’s assumption that “gold will become more traded among central banks.”  In fact, I would counter that gold is likely to become less traded among central banks in the years to come and for good reason — the global dollar-based monetary system is in the process of breaking down, or at least in the process of becoming fundamentally altered.

As a result central banks and nation states, not just in Asia but all over the world, have decided to use gold in their reserve holdings in much the same way that the individual investors use it in their investment portfolios.  The good news is that over time the reinstatement of gold among central banks and nation states will have a positive effect on the price.  The bad news is that the private sector finds itself in competition with the official sector for the available bullion.

At the moment, the trend among Western nation states is to repatriate foreign-held gold reserves and limit or halt sales and leases entirely as a matter of economic self defense. The only way Asian nation states can address the “colossal imbalance” Marsh mentions is through stepped up domestic gold production.   That is why China, Russia and others are channelling domestic production to national or central bank reserves and keeping it off international markets.  There is no other practical or effective way to build reserves.

To me, this is the elephant in the gold market’s room and its single most important dynamic with respect to long term pricing.  No one is going to dampen Asia’s interest in gold — either among the nation states or the citizenry itself — and no one is going to alter the fact that chronic gold bullion shortages (imbalances between supply and demand) are a long term fact of life.

Marsh is right when he suggests it will take many years to correct the imbalance, but in the process market-ready bullion is likely to become more and more scarce with each passing year.  For these reasons, we counsel our clientele to set a goal for accumulation and then move as quickly as possible to achieve it.   There is no way to know when this process is going to manifest itself in outright shortages, higher prices and limited acquisition options.

Posted in all posts |

Germany Secures Record Low Funding Cost at Bond Auction

17-Sep (The Wall Street Journal) — Investors paid a hefty price tag for the privilege of buying German government debt on Wednesday, in a fresh sign of how the European Central Bank’s monetary easing policies are upending the region’s bond markets.

The German Finance Agency sold €3.341 billion ($4.33 billion) of a September 2016-dated treasury note at a record low average yield of -0.07%, the Bundesbank said. That effectively means investors have paid to buy the debt for the first time since December 2012. At its previous similar sale in August, Germany sold debt for a 0% yield.

“Negative auction yields even in the two-to-three-year part of the German curve are a good illustration of the current depressed interest rate environment,” said Jan von Gerich, chief strategist at Nordea. The decline in yields is likely to continue as the full range of ECB easing measures emerges over time, he added. Bond yields drop when prices rise.

[source]

Posted in Debt |

Fitch Warns That Europe Could Be Facing A ‘Doom Loop’

17-Sep (BusinessInsider) — If you weren’t already convinced about what a nightmare deflation would be for the Eurozone, credit ratings agency Fitch has a grim report out, showing the sort of issues the struggling bloc could be hit by.

“A classic debt deflation feedback loop could ensue,” according to the authors. Among economists, that’s better known as the “doom loop.”

A total lack of growth and inflation could put huge pressure on national budgets, and cripple the ability of governments to assist struggling banks, with credit ratings slashed all round.

[source]

Posted in Economy |

The Daily Market Report: Gold Better as Tame CPI Hints at Steady Fed


17-Sep (USAGOLD) — Gold is modestly better ahead of the FOMC policy statement, economic projections and Janet Yellen’s presser. That all begins at 2:00ET today.

August CPI missed expectations, coming in at -0.2%. That dropped the annual pace of inflation to 1.7%, from 2.0% in July. Core CPI was unchanged, on expectations of +0.2%.

Stocks and Treasuries firmed on the tepid inflation print amid hopes that it will provide the doves on the FOMC the necessary cover to not temper the guidance at all today. The boost to gold has been limited thus far.

As you know from yesterday’s DMR, I think the Fed already had the necessary cover to not move toward a more hawkish bias. As the WSJ’s Jon Hilsenrath also noted yesterday that nothing has changed since the July FOMC meeting, so he also thinks the Fed will hold steady and not significantly change the language in the statement.

If that is indeed the case, we could see further unwinding of the positioning in recent weeks that was premised on expectations of a more hawkish Fed. This could spark a rebound in gold. On the other hand, if the statement and Yellen come off as more optimistic, there is really good support just below the market.

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

Gold Little Changed Near 8-Month Low as Fed Ends Meeting

17-Sep (Bloomberg) — Gold was little changed near an eight-month low in New York as investors waited for the outcome of the Federal Reserve’s policy meeting to gauge the outlook for borrowing costs.

The Fed concludes the meeting today as officials consider the timing of interest-rate increases and whether to revamp their public guidance on the path of borrowing costs. Bullion rose the previous two days, partly as the metal’s 14-day relative-strength index held below 30, signaling to some traders who study charts that prices may be poised to rebound. The gauge was at 30.3 today.

[source]

Posted in Gold News, Gold Views |

US CPI -0.2% in Aug, below expectations of unch, vs +0.1% in Jul; +1.7% y/y, down from +2.0% in Jul. Core unch on expectations of +0.2%.

Posted in Economic Data |

Gold steady at 1235.77 (+0.74). Silver 18.64 (-0.076). Dollar and euro consolidate. Stocks called mixed. US 10yr 2.58% (-2 bps).

Posted in all posts |

China Launches CNY500 Billion In “Stealth QE”

16-Sep (ZeroHedge) — It has been a while since the PBOC engaged in some “targeted” QE. So clearly following the biggest drop in the Shanghai Composite in 6 months after some abysmal Chinese economic and flow data in the past several days, it’s time for some more. From Bloomberg:

• CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
• PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
• PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA

[source]

Posted in Central Banks, Monetary Policy, QE |