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Andrew Hecht (SeekingAlpha) Gold Strong Like Bull Gold was over 6.5% higher in this young year at last week’s highs. At the same time, many commodities are lower thus far in 2016, so gold continues to strengthen on a relative basis as well. This is a testament to the strength of gold, the fortitude of its value.
…if gold breaks above the $1200 per ounce level, it will turn the page on a new chapter in an ongoing war. Above that technical level, gold will break a vicious five-year cycle of lower lows and lower highs. Gold makes a statement about the value of all fiat currencies each day. In 2016, it will continue to make that statement. Gold is the ultimate arbiter by virtue of its longevity.
PG Note: Gold ended the week at 1173.69, +5% on the week and +10.6% ytd. While the page hasn’t turned yet in Hecht’s eyes, the reader is at least moistening his finger.
Jonathan Kosares (USAGOLD) The trouble with gold and silver checkbook IRAs A strategy that could sabotage the tax-deferred status of your retirement plan.
“While many believe that checkbook control IRAs are IRS-approved, nothing could be further from the truth. In fact, these accounts appear to be a major concern of the IRS, as evidenced by their repeated inclusion in the agency’s annual ‘Dirty Dozen’ list of tax scams.” – Equity Trust
JK Note: For our part, we at USAGOLD see the checkbook IRA as a risky, problematic approach to precious metals retirement planning and a bad choice for our clientele. The traditional self-directed IRA account placed with a solid trust company is still the safest avenue for the retirement investor and the one most likely to deliver the intended results.
Peter Grant (USAGOLD) Gold has a higher yield than a growing number of government bonds As the major central banks of the world continue to wrestle with sluggish growth and disinflationary pressures, their extraordinary measures are taking away a classic argument against gold: That it carries no yield.
PG Note: Gold carries no yield, because it carries no risk. The same can not be said for government bonds, which means risk is grossly mis-priced in that realm.
(Bloomberg) Chinese Seen Buying More Gold as Investors Seek Haven Assets China’s gold demand will keep expanding as investors seek safe assets and jewelry buying increases, the China Gold Association said.
…Stock market turmoil, a weakening currency and the lowest global prices in almost six years have helped boost bullion buying in China.
PG Note: China is already the biggest consumer of gold. As their citizens look to shelter from stock market volatility and a devaluing yuan, gold consumption could be further amplified.
(KtcoNews, via Forbes) Gold Hits 3.5-Month High; Bullish Momentum Building; Silver Bulls Also Come to Life Gold prices are higher and hit a 3.5-month high in early U.S. trading Thursday. Add the slumping U.S. dollar index to the list of bullish elements helping to drive gold and silver prices north recently.
PG Note: It was a good week indeed for both gold and silver!
05-Feb (MarketWatch) — Gold futures finished barely higher on Friday, but tallied their largest weekly gain since August as overall losses in the U.S. stock market and the dollar over the last five trading sessions drew investors to the perceived safety of the yellow metal.
…“One thing is for sure that interest rate hike by the Federal Reserve will be only in its June meeting or beyond,” said Chintan Karnani, chief market analyst at Insignia Consultants. “This will result in firmer gold prices and a weaker U.S. dollar.”
The metal has already gained more than 9% since the start of the year.
PG View: Gold continued to climb after the futures close, setting more new 14-week highs above $1174.00.
05-Feb (USAGOLD) — Gold jumped to a new 14-week high of 1163.28 in the moments after today’s January jobs report, before retreating into the range. However, most of those intraday losses have already been retraced and the yellow metal is back positive on the day.
The headline payrolls number of +151k was a disappointment, coming in below expectations and well off the negative revised +262k figure from December. However, policy hawks were encouraged by another downtick in the jobless rate to an 8-year low of 4.9%, as well as the 0.5% rise in average hourly earnings.
That got some to thinking just maybe the Fed has room for another 25 bps rate hike after all. Others that had seen nice gains in their long gold and bond, and short dollar positions this week perhaps thought it prudent to book profits ahead of the weekend.
The yellow metal dipped to 1144.90 intraday, before mounting a comeback. Trading around 1157.00 presently, gold is up more than $40 (3.6%) on the week. If we get a close around these levels, that’s a pretty good week indeed!
Gold has benefited since the first of the year, in part from diminished expectations about follow-on rate hikes. The Fed raised rates off the zero-bound on December 16th with guidance suggesting there could be at least four additional 25 bps hikes in 2016. You might recall that many viewed this as a death knell for gold.
However, in the subsequent weeks, market expectations quickly eroded to maybe one additional hike in H2. Then some were talking about no more rate hike at all and now some believe the next move from the Fed will be a rate cut.
When the Fed pulled the trigger back in December, raising rates for the first time in nearly a decade, Jim Rickards was quick to call it a “huge mistake” that “will be one of the great blunders in Fed history.” That sentiment has steadily gained traction — as a result of the weak economic (particularly manufacturing) data unveiled since the first of the year — and is now being echoed by the mainstream financial press.
Wall Street Journal FedWatcher Jon Hilsenrath thinks today’s jobs data leaves the March decision in limbo. Rickards thinks there may be another rate hike still in the cards because the Fed is always the last to know that things in the real world aren’t as good as the central bank’s models suggest.
“Fed officials were expecting a slowdown. Payroll gains averaged 279,000 a month in the fourth quarter, too much for an economy that was barely growing,” said Hilsenrath. Barely growing? There you have it; further confirmation that the Fed tightened into economic weakness.
And not just weakness, but disinflationary pressures as well. Higher rates and expectations of higher rates tend to buoy the dollar, putting further weight on growth prospects and prices. In other words, classic central bank dogma suggests that is not the time to tighten policy. It may prove to be a mighty big blunder indeed.
05-Feb (Reuters) — The Federal Reserve is much more likely to raise interest rates this year, traders bet on Friday, after a government report showed a long-awaited surge in wages in January and an unemployment rate at an eight-year low.
U.S. short-term interest-rate futures contracts slipped on the sign of labor market strength, suggesting traders are now pricing in about a 45 percent chance that the U.S. central bank will next raise rates in December, up from 20 percent before the report.
They had earlier expected the Fed to wait until well into next year before raising rates, on worries that a global market selloff sparked by slowing growth in China could create headwinds to the U.S. recovery and push inflation even farther below the Fed’s 2-percent goal.
05-Feb (USAGOLD) — Gold has come under moderate pressure after establishing a 14-week high at 1163.28 in the initial reaction to this morning’s jobs data. While the headline payrolls number of +151k was disappointing, the jobless rate ticked lower to an 8-year low of 4.9% and hourly earnings rose 0.5%.
In a week where Fed rate hike expectations eroded significantly, the hawks finally had something to grasp at. With hopes for another Fed rate hike somewhat revived, bond yields and the dollar rebounded, pushing gold lower in the process.
Some of this market movement may also be just profit taking ahead of the weekend. Gold in particular has had a great week. Even with today’s $8 drop, the yellow metal remains up about 2.6% on the week.
Today's jobs report keeps the Fed’s March rate increase decision in limbo, Jon Hilsenrath reports https://t.co/tBlkFWkf0C
— Wall Street Journal (@WSJ) February 5, 2016
05-Feb (Reuters) — Venezuela’s central bank has begun negotiations with Deutsche Bank AG (DBKGn.DE) to carry out gold swaps to improve the liquidity of its foreign reserves as it faces heavy debt payments this year, according to two sources familiar with the talks.
Low oil prices and a decaying state-led economic model have weakened the OPEC nation’s currency reserves and spurred concerns that it could default on bonds as it struggles to pay $9.5 billion in debt service costs this year.
Around 64 percent of Venezuela’s $15.4 billion in foreign reserves are held in gold bars, which limits President Nicolas Maduro’s government’s ability to quickly mobilize hard currency for imports or debt service.
In December, Deutsche and Venezuela’s central bank agreed to finalize a gold swap this year, the sources said. The sources did not confirm the volume of the operation in discussion. Neither Deutsche nor the central bank responded to requests for comment.
Gold swaps allow central banks to receive cash from financial institutions in exchange for lending gold during a specific period of time. They do not tend to affect gold prices because the gold is still owned by Venezuela and does not enter the market.
@KoosJansen "the gold does not enter the market?” Of course it does.
— Jan Nieuwenhuijs (@KoosJansen) February 5, 2016
PG View: Choosing to swap gold — rather than just selling it outright to raise the cash they need — reflects Venezuela’s reluctance to completely give up this important reserve asset. They likely feel that if they sell it, they won’t be able to get it back. Certainly not anywhere near the current price level.
U.S. trade deficit widened to -$43.4 bln in Dec, outside expectations of -$42.9 bln, vs -$42.2 bln in Nov.
U.S. nonfarm payrolls +151k in Jan, below expectations of +198k, vs negative revised +262k in Dec. Unemployment dips to 4.9%.
03-Feb (FT) — December 16 2015 may go down as the date of one of the most monumental policy errors in history. The financial markets were nervously anticipating that the US Federal Reserve would raise the interest rate for the first time in nearly a decade — but few grasped the inadequacy of the data driving the decision.
The Fed had never before initiated a tightening cycle when the manufacturing sector was shrinking. Moreover, US corporate borrowers had begun reducing their debts, according to Morgan Stanley; in previous cycles, the Fed had tightened to cool credit cycles.
Of course, the Fed is not obliged to pursue any economic objectives beyond its two formal mandates of stable prices and maximum employment. In late 2012, when a third round of quantitative easing was launched, the unemployment rate was 7.8 per cent. It must have seemed a safe bet to undertake a commitment to stop easing when it fell to 6.5 per cent. Safe, that is, until the target was achieved sooner than the markets were willing to give up their stimulus.
…The bond market, meanwhile, sees no shades of grey in the data; it is shifting rapidly from pricing in one rate hike this year towards pricing in the possibility of the next move being a rate cut, all but ridiculing the Fed’s insistence that four rate hikes would come to pass in 2016.
Gold higher at 1159.36 (+3.85). Silver 14.91 (+0.048). Dollar soft. Euro higher. Stocks called better. US 10yr 1.84% (unch).
04-Feb (USAGOLD) — Gold surged to a 14-week high above 1150.00 today, driven in part by a sharp drop in the dollar. The greenback is taking a hit as more weak U.S. data further erodes Fed rate hike expectations, and makes it look increasingly like our central bank made a big error in raising rates in December.
U.S. factory orders plunged 2.9% in December, marking the fourteenth consecutive monthly decline in orders. The November decline of 0.2% was revised to -0.7%. Perhaps not surprisingly, we’re seeing negative revisions to Q4 GDP this morning that are getting pretty close to zero.
With each passing bit of industrial sector data, expectations for that next rate hike diminishes. The bond market and the dollar had priced in four additional rate hikes for this year, based on Fed guidance. Those trades are now getting unwound. The 10-year yield has tumbled back to 1.85%, a 10-month low. The dollar index has plunged to a 15-week low of 96.26.
Will the Fed have to reverse course and take Fed funds back to the zero-bound? I think the Fed is loath to do that, because of the hit they’ll take to their credibility. However, they may have to pay even more dearly if they are reluctant to move quickly.
ECB President Mario Draghi said today that “the risks of acting too late outweigh the risks of acting too early.” That would seem to suggest that the ECB is prepared to offer further accommodations when they meet next in March. Will that be in the form of rates deeper in negative territory, or more QE? Both?
And today, we come to find that the Fed is testing negative rate scenarios for this year:
If they’re testing a scenario “characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities,” they must view it as possible. If the 3-mo bill yield is negative for nearly three-years — and Germany, Switzerland, Japan, Austria, Sweden, Denmark at al already at negative rates — is NIRP supplanting ZIRP as the ‘new normal’?
That strikes me as an incredibly unhealthy and dangerous situation. Prudent investors are already building their gold positions, in order to be prepared for the worst, should it come to pass.
04-Feb (BusinessInsider) — In 2016, the Fed’s annual stress test on banks will include a scenario in which the interest rate on the three-month U.S. Treasury bill becomes negative in the second quarter of 2016 and then declines to -0.5%, remaining at that level until the first quarter of 2019.
According to the Fed, “The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.”
In other words, including this scenario in its stress test is not supposed to signal that the Fed is contemplating adopting a deliberate policy of negative interest rates. It is simply testing the resilience of big banks in the face of a severe recession that precipitates a “flight to safety” which spontaneously drives rates on short-term Treasury securities into negative territory. Or so they would have us believe.
PG View: If the Fed is testing a scenario where 3-mo bill rates go negative for nearly 3-years, they must view it as plausible. That’s pretty disturbing . . .
U.S. factory orders plunged 2.9% in Dec, below expectations of -2.7%, vs negative revised -0.7% (was -0.2%) in Nov.
PG View: That’s the 14th consecutive monthly decline. With every data point, it looks more and more like the Fed made a huge mistake in December.
04-Feb (Reuters) – Russia has serious grounds to suspect Turkey of preparing for a military incursion in Syria, Russian Defence Ministry spokesman Igor Konashenkov said on Thursday.
“The Russian Defence Ministry registers a growing number of signs of hidden preparation of the Turkish Armed Forces for active actions on the territory of Syria,” he said in a statement.
PG View: Oil seems to like the possibility, pushing back above $33.
Bank of England maintains #BankRate at 0.5% and the size of the Asset Purchase Programme at £375 billion…
— Bank of England (@bankofengland) February 4, 2016
03-Feb (RT) — The United States federal debt has surpassed $19 trillion for the first time in history according to the Treasury Department. However, the real figure could exceed $65 trillion, according to a former US Comptroller General.
The official debt of $19 trillion represents almost $60,000 for every man, woman and child living in America today.
President Barack Obama took office with $10.8 trillion debt that has grown more than $8 trillion in seven years. And such a record tempo is likely to continue, according to the Congressional Budget Office, quoted by the Washington Times.
This equals an additional $70,000 in net federal borrowing for each of the 117,480,000 American households, according to Census Bureau estimates.
About $13.7 trillion makes up public debt, and the rest comes from government borrowing.
The US currently functions without a debt ceiling. Legislation in November suspended it through March 2017 so borrowing can continue without a limit until that time.
“You have to consider not just the public debt; you have to consider the debt we owe to the Social Security and Medicare trust funds, as well as the huge unfunded obligations for our social insurance programs. When you add all those numbers up, the number is over $65 trillion, rather than the lower numbers a lot of the economists want to talk about.” — David Walker, former Comptroller General of the United States [the director of the Government Accountability Office]
04-Feb (MineWeb) — Gold extended its longest rally in five months as the dollar fell on lower US rates expectations. Investors bought holdings in metal-backed funds for the 13th day in a row and miners rallied as precious metals soared.
Bullion climbed as much as 0.4% to $1 147.55 an ounce, the highest since October, while the Bloomberg Dollar Spot Index has sunk more than 2% since Tuesday on bets the Federal Reserve won’t raise interest rates this year.
Investor holdings in exchange-traded products backed by gold posted the longest continuous increase since 2012. Platinum and silver were higher.
Gold has outperformed all other members of the Bloomberg Commodity Index in 2016 as market turbulence spurred demand for haven assets. The odds of a US rate increase by December are now less than 50%, according to data tracked by Bloomberg. Precious metals tend to fare better in a lower rate environment, as they don’t deliver returns other than through price gains.
04-Feb (Splash247) — The Baltic Dry Index has fallen a further five points to reach 298 today, falling below the 300-mark for the first time in its history as dry shipping markets continue to weaken.
The Baltic indices for all dry shipping segments contracted again today, apart from the Baltic Panamax Index (BPI).
The BPI advanced five points and was assessed at 289 on the back of busy chartering activity in the Atlantic basin as a steady stream of cargoes comes out of South America ahead of Chinese New Year. Intra-Asia panamax fixtures, however, have been few and far between.
As the BDI plumbs historic depths, Jeffrey Landsberg, columnist for Maritime CEO and head of Commodore Research, warns Splash readers to keep a lid on their hopes for an upturn.
“Of note to us is that, while on the surface, sentiment for 2016 has become uniformly bearish (analysts are now publishing reports predicting a rally for this year as some were still predicting as recently as in December), rate expectations for this year remain too bullish,” Landsberg told Splash.
PG View: Collapsing shipping suggests collapsing trade, which bodes ill for economies the world-over . . .
04-Feb (CNBC) — Amid the market volatility in 2016, gold futures prices are already up nearly 8 percent this year.
After posting three consecutive years of losses and falling to the lowest level in six years back in November, gold prices are once again on the rise as investors seek shelter from the global volatility in the commodity known for its safe haven appeal.
On Wednesday, bullion hit an intraday high of $1,146 per ounce, the highest level since October.
04-Feb (KitcoNews, via Forbes) — Gold prices are higher and hit a 3.5-month high in early U.S. trading Thursday. Add the slumping U.S. dollar index to the list of bullish elements helping to drive gold and silver prices north recently. Silver prices also scored a 3.5-month high Thursday. Safe-haven and technical buying continue to support the yellow metal amid volatile world stock markets that presently have a downside bias. April Comex gold was last up $8.30 at $1,149.60 an ounce. March Comex silver was last up $0.096 at $14.83 an ounce.
04-Feb (Reuters) — The dollar was back on the defensive in morning trade in Europe after a collapse in expectations of a further rise in U.S. interest rates this year drove its biggest daily fall in over two months on Wednesday.
Against a basket of currencies, the greenback fell another 0.82 percent to 96.49, having earlier hit its lowest since early November. The euro hit a 15-week high of $1.1233, extending its gains from the dollar’s sell-off a day earlier.
The triggers then were a weak batch of U.S. sentiment data and New York Fed President William Dudley’s warning that a weakening outlook for the global economy would have to be taken into account for upcoming rate decisions.
U.S. initial jobless claims +8k to 285k for the week ended 30-Jan, above expectations of +280k, vs 277k in previous week.
U.S. Q4 productivity -3.0%, well below expectations of -1.8%, vs negative revised +2.1% in Q3.; ULCs +4.5% on expectations of +3.8%.
PG View: Can you celebrate higher ULC when it is the result of falling productivity?
Gold higher at 1153.08 (+11.11). Silver 14.87 (+0.191). Dollar lower. Euro higher. Stocks called lower. US 10yr 1.87% (-2 bps).
03-Feb (USAGOLD) — Gold continues to pressure the upside, having established another 3-month high at 1133.09. While stocks and oil seem to have stabilized somewhat, the dollar index has slipped to 5-week lows, underpinning the yellow metal.
The tempering of Fed rate hike expectations has also been a driving force behind gold. This morning NY Fed President Dudley said that financial conditions are considerably tighter now than at the time of the Dec FOMC meeting, when they raised rates for the first time in nearly a decade.
I don’t know that that’s really true. Has there really been some kind of dramatic change over the past 6-weeks? I would argue that it has just been more of the same: Sluggish growth. Disinflationary pressures. Stock market volatility. Oil — and commodities in general — under heavy pressure.
Janus’ Bill Gross chided the central bankers of the world for that very thing. Despite über-accommodative monetary for years and years, all of the aforementioned conditions continue to exist.
Basically it’s not working for them, or anyone else for that matter. The Fed is bucking the trend and has been tightening policy, but pretty evidently they tightened into weakness. That’s not working either.
Such policy had resulted in a marked rebound in the dollar. And guess what? The strong dollar resulted in weaker exports, slower growth and rising trade deficit. Dudley also noted that additional dollar strength could have “significant consequences” for the U.S. economy. Who would have guessed?
So what does the Fed do next? Right now the markets are pushing expectations for the next Fed hike further into the future, but at some point, the Fed may be pressured to undo what they have done. If the Fed cuts back to the zero-bound this year, central bank credibility will be dealt a severe blow.