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09-Dec (WSJ) — Gold prices posted their fifth straight weekly decline Friday, as money continued to flow out of exchange-traded funds that invest in the precious metal.
Gold for February delivery closed down 0.9% at $1,161.90 a troy ounce on the Comex division of the New York Mercantile Exchange. A settlement at these levels would be the metal’s lowest close since February.
The metal has suffered since Donald Trump was elected president as surging stock markets and rising bond yields have reduced its allure.
PG View: The paper sellers were active last year too ahead of the December rate hike as well, allowing physical buyers to acquire gold on the cheap.
09-Dec (USAGOLD) — Gold turned defensive once again within the range after upbeat U.S. data this morning further buoyed the dollar. The greenback was already being driven higher by recent weakness in the euro.
U.S. wholesale sales rose more than expected in October and preliminary consumer sentiment in December looks pretty robust. The latter may translate into a solid holiday shopping season, but we’ll have to wait for more data.
All eyes are on next week’s FOMC meeting. A 25 bps rate hike is broadly expected, although I think the point made by Danielle DiMartino Booth that I noted in yesterday’s DMR is a good one:
“If [Janet Yellen] wants to be truly apolitical, she holds off in December. Because we’ve already seen tightening.” — Danielle DiMartino Booth
That is very true. The 10-year note is up a whopping 40 basis points since election day. Mortgage rates are at levels not seen in 2-years. Does the Fed dare hike rates in such an environment? Last year’s tightening was a credibility play and they hiked into weakness, this year they have better data, but the markets have already provided considerably tighter monetary conditions. I still think they pull the trigger, but I think there will need to be a discussion about the potential implications.
09-Dec (FT) — The European Central Bank’s supervisory arm has rejected a request from Rome to delay a private sector-led rescue for Monte dei Paschi di Siena, leaving Italy little option but trigger a government bailout and impose losses on creditors.
University of Michigan consumer sentiment (prelim) rose to 98.0 in Dec, above expectations of 94.5, vs 93.8 in Nov.
U.S. wholesale sales +1.4% in Oct, above expectations of +0.6%, vs positive revised +0.4% in In Sep; inventories -0.4%.
09-Dec (USAGOLD) — Gold is under pressure within the recent range as renewed euro weakness pushes the dollar back toward its recent highs. The single currency is plumbing critical support as risks escalate within the EU in the wake of last weekends Italian referendum and the ECB’s interesting decision to extend QE and then early next year reduce the amount of monthly asset purchases. If support in EUR-USD at 1.0461 gives way, the likely result will be a move toward parity.
U.S. wholesale sales for October (+0.6% expected) and the preliminary University of Michigan consumer sentiment read for December (94.5 expected) come out at 10:00ET. And then of course next week we have the December FOMC meeting.
Gold easier at 1168.78 (-1.71). Silver 17.10 (+0.028). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.40% (-1 bp).
08-Dec (USAGOLD) — Gold softened within the range as the euro reacted negatively to today’s ECB policy decision, pushing the dollar sharply higher. While the dollar index is up more than 1% today, the yellow metal is displaying some resiliency, down less than 0.4%.
The ECB held rates steady today, as was widely expected. They decided to extend QE through the end of 2017, but the market was confused by the decision to cut monthly purchases after March from €80 bln to €60 bln. The market screamed “taper!” Mario Draghi was clear that because there was no discussion of taking QE to zero, it was NOT a taper.
Watch again: Draghi on tapering (which isn't on the table) and its definition https://t.co/E82qCC1aHf
— ECB (@ecb) December 8, 2016
The markets still seem a little confused, but I’m guessing the reduction is monthly purchases is likely a function of the diminished supply of qualified assets available to buy. I mean, once you throw in bonds that yield below the deposit rate — as they did today — what else is there? Well, there’s always stocks . . . and gold . . .
And what of our own central bank’s plans? A look at the market suggests that a rate hike next week is all-but a sure thing.
Former Fed insider and President of Money Strong, Danielle DiMartino Booth told Grant Williams of RealTV that “If [Janet Yellen] wants to be truly apolitical, she holds off in December. Because we’ve already seen tightening.” Wouldn’t that be a kick in the pants?!
The bond market has gotten shellacked since Donald Trump’s surprise election exactly a month ago. The magnitude of the tightening is likely far in excess of what the Fed might have expected from a 25 bps rate hike earlier in the year. So, do they go through with it next week anyway and push rates higher yet? Or do they hold pat and watch the great unwind of current positioning?
One thing seems certain, next week’s Fed policy decision may not be the lay-up that everyone was expecting. Given the uncertainty, gold might be a good place to be.
MK note: CNBC interviews Robert Schiller, the economist who created that indicator.
08-Dec (MarketWatch) — Gold futures traded lower Thursday, and were set to give back much of the gains seen a day earlier as the dollar strengthened against the euro after a European Central Bank decision to pare its bond-buying program.
Gold remains confined to relatively tight trading ranges with one closely watched central-bank meeting down but another, the Federal Reserve’s latest interest-rate gathering, coming next week. Gold has been tracking the dollar and Treasury yields ahead of these interest-rate policy decisions, with a downside tilt.
08-Dec (USAGOLD) — Gold is modestly lower within the range as the dollar gains on euro weakness. The ECB held steady on policy this morning, but extended the QE program through the end of next year. However, after March the monthly purchases will be reduced from the present €80 bln per month to €60 bln per month. So, is that a taper or not?
I think not. Largely because the ECB continues to warn about risks to growth and forecast below target inflation, while saying “uncertainty prevails everywhere.” I suspect this is more about the availability of assets to buy. Of course the ECB made it clear that it could re-expand purchases and/or extend the program again as needed. As for the ongoing expansion of qualified assets they could buy, Koos Jansen reminds us this morning that gold remains an option and he thinks they will go there eventually.
Remember, it’s within the ECB's mandate is to buy gold. And it will eventually. pic.twitter.com/jlO0MFYKvh
— Koos Jansen (@KoosJansen) December 8, 2016
08-Dec (Kitco News) – Gold prices are just slightly lower in early U.S. trading Wednesday. The bulls are in desperate need of some fresh fundamental news that would be supportive for the safe-haven metal. Such news has been virtually non-existent the past few weeks, as world stock markets have rallied, including U.S. stock indexes pushing to record highs. February Comex gold was last down $1.20 an ounce at $1,176.40. March Comex silver was last down $0.12 at $17.155 an ounce.
The big data point of the day Thursday saw the regular meeting of the European Central Bank keep its interest rates unchanged and extend the ECB’s bond-buying program by nine months, to the end of 2017. However, the ECB in April will reduce its monthly bond purchases to 60 billion Euros, from 80 billion currently. The marketplace was not completely surprised by the “tapering” of the bond purchases. Still, the move was deemed just a bit hawkish.
08-Dec (FT) — The European Central Bank has decided to scale back its landmark quantitative easing programme from €80bn to €60bn a month, in a move that responds to hawks’ concerns about ultra-loose monetary policy but which could unsettle markets.
The bank confirmed that it would buy €80bn a month of bonds under the current leg of the programme until March, but added that it would reduce the purchase size to €60bn for the nine remaining months of 2017.
ECB holds steady on rates. Extends QE, but will reduce monthly asset purchases by €20 bln to €60 bln after March. Draghi presser underway.
Gold easier at 1172.31 (-2.74). Silver $17.10 (-0.088). Dollar higher. Euro lower. Stocks called higher. U.S. 10-year 2.40% (+6 bps).
07-Dec (Global Research) — While paper gold traders can’t seem to dump the precious metal fast enough, physical gold demand is soaring around the world. India retail premiums are spiking (amid demonetization), local China premiums soar to a 3-year-high (as capital controls loom), and coin sales from the US Mint have risen for the 4th straight month, accelerating post-election to the highest since July 2015 since Trump’s victory at the election.
…But it’s not just Asia.
In the US, physical gold demand has soared post-election in The United States as the paper prices was pummeled…
PG View: We’ve seen this time and time again: When paper sellers drive the price of gold lower, the physical buyers take advantage.
07-Dec (USAGOLD) — Gold jumped to a new high for the week, buoyed by a softer dollar and perhaps a little bit of exhaustion on the part of the shorts in the paper market. That seems even more evident in silver, which surged to three-week highs above $17. Silver is up more than 2.5% so far today.
The Bank of Canada held steady on rates today, as was widely expected. While the BoC says the global economy has strengthened, they noted that there was still slack in the Canadian economy owing to persistent uncertainty, that is “undermining business confidence and dampening investment in Canada’s major trading partners.”
When the Fed meets next week, they are expected to nudge rates higher, despite those uncertainties. It would be the second rate hike in more than a decade. Prior to last December’s tightening, the last rate hike occurred in June 2006!
When the Fed hiked last December, it pretty much marked the low for gold. Perhaps the shorts are bailing today for fear that next week’s anticipated hike will correspond closely with another low.
“The fifth consecutive monthly fall points to growing difficulty for policymakers. Since a sharp renminbi depreciation in August 2015, Beijing has sought to combat more severe softening against the dollar by selling the US currency from the central bank’s forex reserves.”
MK note: Falling Chinese reserves represent pressure on the yuan which in turn imposes two frontline effects important to gold owners: (1) increased gold demand within China among its citizenry and institutions, and (2) increased pressure on U.S. interest rates as bond principle erodes, on the 10-year Treasury for example, due to the selling. (“Selling US currency” translates to selling US Treasuries) Koos Jansen, the China gold specialist, reports strong on-going gold demand in China even with import restrictions, though not at the record levels of the last few years. A big behind the scenes problem, as the FT article points out, is that rising U.S. interest rates means emerging countries, including China, will be paying significantly more on their dollar-denominated debt than previously. China, in fact, is attempting to keep the yuan from cratering by selling U.S. Treasuries, but the net effect is to push dollar rates and the dollar even higher, which in turn puts more pressure on the yuan. Eventually, this self-perpetuating tailspin could translate to significant systemic risks as the risk of default spreads from emerging to developed countries and their banks. Odd markets. Odd times getting odder by the day.
07-Dec (Reuters) — Gold firmed on Wednesday, rising further from this week’s 10-month low on the view that a surge in the dollar, higher risk appetite and expectations for a U.S. interest rate rise next week are already reflected in prices.
The metal extended losses earlier this week after its biggest monthly fall in more than three years in November as a host of negative factors in the broader markets met with waning physical demand in major consumers China and India.
Gold has found good support, however, at the $1,172 level, a chart retracement of its December to July rally.
PG View: Not so much “edging” anymore . . . The yellow metal is gaining momentum in early U.S. trading.
Gold has caught a bit of a bid, pressuring the high for the week that occurred on Monday, right after the Italian referendum defeat. Silver jumps to 3-week highs, reclaiming 17 handle.
07-Dec (Reuters) — The euro zone bailout fund has not received any request and has not discussed with Italy a possible programme of financial support for its ailing banking sector, a spokesman for the fund said on Wednesday.
“There is no request and there are no discussions with the Italian authorities on an ESM loan,” a spokesman for the European Stability Mechanism told Reuters in an emailed statement.
07-Dec (USAGOLD) — Gold is modestly higher within the recent range, buoyed by ongoing concerns over the Italian banking system. Both Italy and the ESM have denied rumors that there has been, or will be, a request for a €15 bln loan to support the teetering banking sector. There have been more concrete rumors yesterday that a state bailout of Monte Paschi could take place this coming weekend.
Light economic calendar in the U.S. with JOLTS job data, EIA oil inventories and consumer credit out later this morning. The RBC also announces policy at 10:00ET. Steady as she goes is expected.