The Daily Market Report: Gold Eases After Testing $1300 Again


03-May (USAGOLD) — Gold probed briefly back above the $1,300 level, but these gains could not be sustained. The yellow metal sold off into the London PM fix and is now trading modestly lower on the day.

The recent sell-off in stocks may be prompting some broader-based deleveraging. Frequently when stocks take a hit, investors also sell their ETFs and commodity funds to cover margin requirements. Selling of gold in the paper market, albeit slight thus far, often provides opportunity for physical gold buyers.

Risk aversion is on the rise after the European Commission cut both its 2016 growth and inflation forecasts for the eurozone. The EC cut the inflation outlook to a mere 0.2%, from 0.5% previously. The GDP outlook was nudged lower to 1.6%, from 1.7% previously.

So, despite massive QE and negative rates by the ECB — that were supposed to stimulate growth and inflation — both seem to be headed in the absolute wrong direction.


source: tradingeconomics.com

With eurozone inflation currently at -0.2% (April), down from 0% in March, it’s quite a long haul to just get back to positive territory.


source: tradingeconomics.com

Similarly, the euozone would have to see rather robust performance the remainder of the year to get GDP from the current read of +0.6% (March) anywhere close to the EC’s +1.6% forecast. Quite honestly, there is nothing in the data to suggest such a resurgence in the economy is in the offing.

As this plays out, it severely undermines the credibility of ECB policy and that of the central bank itself. About all policymakers can do is to continue pushing on that string with evermore accommodations. We already know how that is playing out in Japan . . .

On top of dimming growth and inflation prospects, the EC also warned “high levels of public and private debt, vulnerabilities in the financial sector or declining competitiveness” remain the biggest problems. In recommending that the largest EU economies reduce debt, they are essentially recommending austerity, which will put further weight on the European economy as a whole.

Expectations of stronger growth in the U.S. was dealt a blow last week as advance Q1 GDP missed expectations, coming in at a moribund 0.5%. FedSpeak continues to suggest that our central bank could still hike rates in June, but Fed Funds futures put the odds at just 13%, down substantially from last week. In other words, it is really unlikely. You still need to look out to December to see better than 50/50 odds.

With only 25 bps of clearance above the zero-bound, people should start wondering what the Fed might do if the wheels come off. Janet Yellen has already said that negative rates are on the table. Interestingly, Christopher J. Waller, Executive Vice President and Director of Research at the St. Louis Fed just posted a piece excoriating NIRP.

At the end of the day, negative interest rates are taxes in sheep’s clothing. Few economists would ever claim that raising taxes on households will stimulate spending. So why would they think negative interest rates will? — Christopher J. Waller

That’s a good point and there’s a growing body of evidence from countries that have already deployed negative rates to back him up. Sadly, I doubt Waller’s view will dissuade the Fed from taking the plunge . . .

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

Today’s Shanghai and London Benchmarks

London PM benchmark: $1,294.00

Shanghai PM benchmark: $1,292.96 (8,368.70 yuan/oz; 269.06 yuan/gram)

China yuan exchange rate at time of Shanghai fix = 6.4725/$1

We will be posting the London and Shanghai benchmarks daily here at our Live Daily Newsletter page.

Comment: Gold sank into the London fix, resulting in a fix just slightly above the Shanghai benchmark. The yellow metal has continued to decline post-fix and there appears to be some broader deleveraging occuring.

starFor an introduction on the possible effects of the new Shanghai Fix on the overall gold market, please see “Will the Shanghai Fix “fix” the gold market?”. Also, if you are looking to gain an in-depth understanding on how China might influence the gold market now and in the future, please see “The China Syndrome”.

American Eagle gold and silver bullion coinsReader note: Worried about the negligible return on your savings? The speculative risks in the stock and bond markets? The possibility of negative rates? Perhaps a hedge in gold and silver makes sense in your long-term investment plan. We invite your call to discuss the right portfolio mix for you. We have helped thousands hedge the on-going financial crisis. We can help you.

ORDER DESK
1-800-869-5115
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Posted in Gold News |

Gold won’t stop at $US1300 an ounce

03-May (Sydney Morning Herald) — Gold leapt above $US1300 an ounce on Monday night, for the first time since January 2015, as traders speculated that central banks in Europe and the United States would keep interest rates low for the time being.

The precious metal hit a high of $US1302.13, up 0.7 per cent from the previous close. On Tuesday afternoon, it had fallen back to $US1294. Over the year so far, gold has gained 22 per cent.

“It’s hard to see why it wouldn’t keep heading up,” said Ryan Armstrong, a mining and resources analyst at Taylor Collison. “The fundamentals are there with the current interest rate war and investors are looking for some value.”

…”It’s a perfect storm really, what with low interest rates now and the low dollar,” Mr Armstrong said. “And it hardly seems likely the US will raise rates, growth is just way too slow. Gold is really going to keep pushing higher.”

While gold has traditionally appeared an attractive protection against inflation, the current global deflationary environment has made it remain the flavour of the day.

“There appears to be increasing demand from both central banks and financial institutions to hedge their equity exposure with gold, instead of the traditional hedge which was owning bonds,” Ben Cleary, portfolio manager at Tribeca Investment Partners, said.

“With negative real rates, investors are effectively having to pay to own government bonds and so gold is looking far more attractive as there is no holding cost.”

[source]

Posted in Gold News, Gold Views |

Gold’s surge is making it feel a lot like late 2007


02-May (CNBC) — Gold is enjoying an incredible year, surging 22 percent as the S&P 500 is barely positive. What’s rare is for the yellow metal to outperform the market so dramatically in a year when stocks are up.

In fact, going back to 1980, there has been only year in which gold has outperformed the S&P by 20 percent or more while the latter was positive on the year: 2007.

Both gold and the fear-measuring CBOE Volatility Index surged in the second half of that year, even as stocks maintained their footing. The crash, of course, came in 2008.

Of course, the performance of the equity market cannot be predicted based on a single data point (or an infinite number of them, most likely). And there is still a lot of year left in 2016. Still, the potential propensity for gold to sniff out bad news earlier has some investors feeling less sure about holding stocks.

“Fear about a lot of really negative news flow is probably driving people into gold, even though it’s not driving people out of the equity market for now,” Manhattan Venture Partners’ chief economist, Max Wolff, said Friday on CNBC’s “Power Lunch.”

“That makes us nervous and makes us look at gold” as a potential investment, Wolff said.

[source]

PG View: Evidence from our client base suggests that investors are indeed rotating out of stocks and into gold.

And then there are these headlines from today:

“This Has Been The Longest Selling Streak In History” – ‘Smart Money’ Sells For Record 14 Consecutive Weeks

BANK OF AMERICA: We’ve never seen investors rush to sell stocks like this before

The super rich were the first to bail during the financial crisis. Looks like they’re on their way to the exits again.

Posted in Gold News, Gold Views |

RBA surprises with a 25 bps cut to the cash rate to record low 1.75%, citing “unexpectedly low” inflation.

Posted in Central Banks, Monetary Policy |

European Commission cuts 2016 eurozone inflation forecast to +0.2% from +0.5%; GDP outlook tapered to +1.6%.

Posted in Economic Data, Economy |

Gold higher at 1298.10 (+7.39). Silver 17.56 (-0.005). Dollar lower. Euro higher. Stocks called lower. U.S. 10yr 1.81% (-6 bps).

Posted in Markets |

The super rich were the first to bail during the financial crisis

dominoes,jpgBloomberg/Joseph Cioli/5-2-2016

“When the going gets rough, the 1 percent start selling. That’s the finding of a new paper that says people with the highest income bailed from stocks disproportionately on the worst days of the financial crisis. The share of selling by the biggest earners rose ‘sharply’ in days following spikes in volatility, according to data on millions of sales reported to the government in 2008 and 2009.”

MK note:  This article goes on to point out that in the process the S&P lost 57% of its value. Volatility, when fully understood, is the well-spring of diversification.  When not, it leads to significant losses.  Apparently, the super rich did [do] not heed the typical appeals by stock brokers and financial advisors in such situations to ride it out – something to remember the next time the financial press headlines the loyalty/patience card.  The better part of valor, as the bard tells us, is discretion.

Posted in all posts, Author, MK |

Puerto Rico defaults on $422 million

02-May (CNNMoney) — The island was unable to make a $422 million debt payment due Monday. It’s another alarm bell of how bad the situation is getting on the island.

Governor Alejandro Garcia Padilla calls it a “humanitarian crisis,” which a step above an economic emergency. He claims he is prioritizing paying Puerto Rico’s police and teachers over Wall Street.

“I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first,” the governor said in a speech Sunday.

This is the third time the island has defaulted on bond payments. The island paid the interest due Monday, but not the principal amount, resulting in a default of about $370 million, Puerto Rico’s largest yet.

Puerto Rico is deep in debt. It owes over $70 billion to creditors. For months, Garcia Padilla has warned that Puerto Rico doesn’t have enough money to pay its creditors.

[source]

PG View: In the years following the financial crisis, the federal government, states, municipalities, individuals — and oh yes, territories — have continued to rack up debt. Judgement day seems to be at hand for Puerto Rico and others are likely to follow . . . I’m looking at you Chicago and Illinois.

Posted in Debt |

Austrian Mint sees record sales of gold, silver bullion coins in 2015

CoinWeek/5-2-2016

“Sales of gold bars and bullion coins at the Austrian Mint in 2015 were up 45% over the previous year’s total, with 1.32 million ounces sold. In 2014, the Austrian Mint sold 910,000 ounces. In an interview with Bloomberg, Mint spokesperson Andrea Lang states that the jump in sales of gold is due in large part to the insecurity Europeans have about the economy – with the European Union’s negative interest rates being a particular spur to investment in precious metals like gold. . . .”

Silver also continues to perform well for the Mint, with 7.3 million ounces sold in 2015. Compared to the United States Mint’s 47 million ounces sold in 2015 (the third consecutive record-breaking year for sales of the American Silver Eagle bullion coin).”

USAGOLD comment:  We can vouch for 2015’s record pace, but sales for the first quarter of 2016 are even stronger.

Posted in all posts |

The Daily Market Report: Gold Trades Briefly Above $1,300


02-May (USAGOLD) — Gold extended to the upside in overseas to trade above $1300 for the first time since January of 2015. The yellow metal continues to be driven by a weaker dollar and expectations of easier monetary policy.

The dollar index slightly exceeded important support defined by the low from last summer at 92.62, establishing new 15-month lows. It is suggestive of additional downside risk in the dollar, which will tend to be generally supportive of gold.

Some more weak U.S. data keeps the bias on dollar pressure as prospects for another Fed rate hike dwindle. Construction spending in March missed expectations, as did U.S. manufacturing ISM. The market is already looking forward to Friday’s jobs report, where expectations are running around +208k nonfarm payrolls. The unemployment rate is expected to hold steady at 5%.

After holding policy steady last week, BoJ Governor Kuroda is already rattling the policy sword again. Kuroda is understandably worried that the “current yen rises may have adverse impact on Japan’s economy.” He went on to warn that he “won’t hesitate in taking policy action, if needed, to hit the 2% inflation target.”


source: tradingeconomics.com

Good luck with that. Despite years of quantitative easing and the more recent move to negative interest rates, Japan is moving back into deflation. Kuroda says he’s waiting for the QE, plus NIRP to sink in and that’s why they held steady last week. It already appears that was a big mistake . . . at least from their perspective.

While the BoJ’s massive accommodations have failed to achieve their goals, it is quite likely that they will continue to push down that path, with even more accommodations. And that may well lead to helicopter money in Japan. Should that come to pass, a savvy Japanese investor might consider converting those helicopter yen to gold in a hurry.

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

The US just dropped the hammer on currency manipulation

CNBC/Jeff Cox/5-2-2016

“A Treasury report targets five countries in particular: China, Japan, Korea, Taiwan and Germany. Each meets at least two of the three criteria that ‘determine whether an economy may be pursuing foreign exchange policies that could give it an unfair competitive advantage against the United States.'”

MK note:  When I read through the penalties, which included asking the IMF to step-in (To do what?  Issue a warning?) and reconsidering trade agreements (Not going to happen.) I wondered where’s the hammer? The one useful take-away is that the U.S. government clearly wants a cheaper dollar vis-a-vis the currency issues of the countries listed.  Over the medium to long term, that’s good for gold and silver. As we have mentioned here on several occasions over the past month or so, there may have been a secret accord on the dollar made at the Shanghai G-20 conference back in February. More and more, the evidence points to that being more than just a rumor.  A G-20 agreement to drop the value of the dollar would be significant because it presumes that all salient parties, including the five identified above, were included.

Posted in all posts, Author, MK |

U.S. manufacturing ISM fell to 50.8 in Apr, below expectations of 51.3, vs 51.8 in Mar. Prices jump to 59.0, vs 51.5 in Mar.

Posted in Economic Data |

U.S. construction spending +0.3% in Mar, below expectations of +0.5%, vs positive revised +1.0% in Feb.

Posted in Economic Data |

U.S. Markit manufacturing PMI (final) 50.8 in Apr, in line with expectations, vs 50.8 flash and 51.5 in Mar.

Posted in Economic Data |

Today’s Shanghai and London Benchmarks

London closed today

Shanghai closed today

We will be posting the London and Shanghai benchmarks daily here at our Live Daily Newsletter page.

Comment: The SGE and the LBMA were both closed today in observance of the May Day holiday.

starFor an introduction on the possible effects of the new Shanghai Fix on the overall gold market, please see “Will the Shanghai Fix “fix” the gold market?”. Also, if you are looking to gain an in-depth understanding on how China might influence the gold market now and in the future, please see “The China Syndrome”.

American Eagle gold and silver bullion coinsReader note: Worried about the negligible return on your savings? The speculative risks in the stock and bond markets? The possibility of negative rates? Perhaps a hedge in gold and silver makes sense in your long-term investment plan. We invite your call to discuss the right portfolio mix for you. We have helped thousands hedge the on-going financial crisis. We can help you.

ORDER DESK
1-800-869-5115
Ext#100

 

Posted in Gold News, Gold Views |

Gold Keeps Shining as Funds Miss Out on Best Rally in Two Months

01-May (Bloomberg) — Nothing seems to be slowing down the gold market, even when speculators take a step back.

Bullion has been on a tear, with futures last week posting the biggest advance in two months. Hedge funds missed the party, reducing their wagers on a rally by the most since they turned bullish in January. The money managers were more fortunate when it came to silver, taking their holdings to the highest on record just before the metal had its best monthly advance since 2013.

The Bloomberg Precious Metals Subindex jumped 23 percent in 2016 amid renewed demand for stores of value. That’s the biggest gain to start a year in a decade. Slowing U.S. growth has underscored why Federal Reserve officials have been cautious about raising interest rates again. The Bank of Japan last week held off on expanding monetary stimulus, a move that surprised economists and added further pressure to the already weakening dollar, boosting the appeal of gold and silver as alternatives.

“Whether it’s the Fed being slightly more dovish and being on hold for some time, or the fact that the BOJ perplexed and surprised markets by doing absolutely nothing when their economy was bumping along at the bottom, those are huge issues that support gold,” said John Stephenson, the Toronto-based chief executive officer of Stephenson & Co. Capital Management, which oversees about C$55 million ($44 million). “The dollar will remain weaker relative to its major trading partners, and all of that favors gold.”

[source]

PG View: I wouldn’t be surprised to find that the hedge funds are looking for an opportunity to re-enter the market.

Posted in Gold News, Gold Views |

Gold pushes through $1,300 as dollar suffers anew


02-May (MarketWatch) — Gold gained for a sixth straight session on Monday, pushing through the psychologically significant $1,300-an-ounce line, as the dollar remained depressed against chief rivals.

Precious metals on Friday posted their highest settlements since January 2015, as a slump in the greenback to its lowest level in about 11 months coaxed investors toward dollar-denominated commodities, including gold and silver. The Bank of Japan sent shock waves through financial markets late last week with monetary policy inaction that sent the yen lunging to an 18-month high against its U.S. counterpart. Some economists had thought the BOJ might further ease conditions in an effort to boost inflation.

Gold bulls have largely pinned the metals rally on negative real interest rates in much of the world. Michael Armbruster, principal with Altavest, said gold at $1,400 an ounce in the next month would not surprise him.

[source]

Posted in Gold News, Gold Views |

Gold higher at 1299.47 (+6.80). Silver 17.92 (+0.091). Dollar lower. Euro higher. Stocks called higher. U.S. 10yr 1.82% (-1 bp).

Posted in Markets |

Buffett: I might consider taking money out of banks if they charge for deposits

CNBC/Michael Belvedere/5-2-2016

“If currency in a bank is worth less than currency in your hands … that could produce something in the way of behavior,” [Buffett] said. “It’s a different world. If you have a lot of money in euros, as we do … you’re better off putting it under your mattress than in a bank.”

USAGOLD comment:  Once again Warren Buffett shares his renowned practicality.  Cash is good. Gold and silver are better in that they at least provide savers with some upside potential.  Not to be discounted, they also offer a hedge against the same economic uncertainties implied by the very-low-to-negative interest rate environment – one of the reasons why demand for both the metals at the moment is running at very high levels around the world.  Gold and silver take Buffett’s practicality to the next level.  Gold, by the way, briefly went over the $1300 level early morning and silver touched $17.94.

Posted in all posts |

Puerto Rico will default on Government Development Bank debt today

CNBC/Dawn Giel/5-2-2016

“We would have preferred to have had a legal framework to restructure our debts in an orderly manner,” Gov. Garcia Padilla said via a televised address in Spanish. “But faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice … I decided that essential services for the 3.5 million American citizens in Puerto Rico came first,” he said.

USAGOLD comment:  Not sure how this will affect the markets today, but Puerto Rico’s problems play into Beltway politics.  Congress will need to pass legislation to essentially allow the U.S. territory to declare bankruptcy and reorganize its finances.  This particular default ($389 million) is small when compared Puerto Rico’s overall $70 billion debt burden – all of which is in jeopardy. To make a long story short, the U.S. has an emerging debt problem in one of its territories. No one knows how that will play out with respect to the mandates and responsibilities of the Federal Reserve and the U.S. federal government. . . . . .Note the direct reminder from Padilla that Puerto Ricans are American citizens.

Posted in all posts |

Week in Review (Video) – April 29, 2016

Posted in all posts, USAGOLD TV |

End-of-week top gold stories

Friday, 29-Apr-2016

Stephanie Landsman (CNBC) Gold, already on its way up, may head even higher Consolidation in the precious metal has become the driving force for positive near-term momentum in the space, said Zev Spiro, CEO and chief market technician at Orips Research. It comes as both gold and silver trade around their highs for the year.

“As long as prices hold above support in the $1,190-$1,205 area, then the composure remains positive,” Spiro told CNBC’s “Futures Now” in a recent interview. “Upward momentum is expected with a breakout above the $1,275-$1,280 area. So, that’s where I expect the new wave of buying would come in and could carry prices higher.”

PG Note: Nice call early in the week Mr. Spiro!

Luke Rodney (Newser) Gold, already on its way up, may head even higher One historical nugget of note: During WWII, the vaults served as bomb shelters. By that time, though, the gold they held had been secretly shipped to Canada, in case the Nazis overran London. ‘It’s all very James Bond,’ says the Sun of the relatively old-school security still in effect—access involves 3-foot-long keys. ‘You can’t visit the gold, of course,’ observes a post at Atlas Obscura.

MK Note: The Canada shipments seem to be much rigmarole over a barbarous relic, one would think. Here’s a photo of Queen Elizabeth amidst all that gold in December, 2012 – a relic no more, but a very present and important component of reserves in nearly all the primary developed economies. Britain once owned one of the largest gold hoards on Earth, but most of the gold in this room belongs to other countries who deposited it with the Bank of England.

(Bloomberg) China’s Gold Imports Jump on Investment Demand as Price Falters China, the world’s biggest gold consumer, increased bullion imports from Hong Kong in March as a global price rally stalled and local investment demand showed signs of recovery.

…China’s gold consumption has been expanding as rising incomes and economic growth boost purchases of jewelry, bars and coins. The central bank has also been adding to its bullion holdings every month in a move to diversify its foreign-exchange reserves. While gold has been one of the best-performing assets this year on haven demand, prices fell 0.5 percent in March, trimming their advance in the first quarter to 16 percent.

PG Note: I’m betting we find there was similarly strong Chinese demand in April, despite the rising prices.

Will Martin (BusinessInsider) HSBC: Gold could explode if Britain votes for Brexit Like the [Swiss franc], gold would also likely benefit from a sizable “safehaven” bid in the event of a Brexit vote. The currency team believes the CHF is unlikely to weaken should the UK choose to remain in the EU and we believe the same rationale applies to gold.

PG Note: On top of safe haven implication, Dallas Fed President Kaplan has already said that the UK’s Brexit vote will factor in to the Fed’s policy decision in June. Given that the Fed is presently unlikely to raise rates in June, does that imply that any market instability associated with Brexit may prompt the U.S central bank to ease? That could really light a fire under gold. And the Fed might enjoy being able to offload the blame overseas . . .

(Newsmax) These 5 Trends in China Will Change the Gold Market Forever The gold market will soon be very different than from what we see today—largely due to the current developments in China.

China’s influence will impact not just gold investors but everyone who has a vested interest in the global economy, stock markets, and the US dollar. After all, China will be a dominant force in all, as most analysts project.

PG Note: Top of the list is Chinese participation in the London fix and the launch last week of the yuan-based Shanghai fix. How’s that playing out so far? Our own Mike Kosares wrote an excellent piece on that topic entitled Did Shanghai just blow a hole in the old gold market?

Myra P. Saefong (MarketWatch) Gold, silver gain as BOJ, Fed inaction sinks dollar Neither the Federal Reserve nor the Bank of Japan altered their current monetary policies. The BOJ inaction was particularly shocking to global markets as many had expected Japanese policy-setting members to enact a fresh round of stimulus to weaken the yen and combat low inflation.

The central bank decisions sent the dollar spiraling lower and took spot gold above the closely watched $1,250 per troy ounce

PG Note: This is also a story about yen strength, which must be causing all sorts of concern in the Land of the Rising Sun. Be assured that the BoJ is not done easing.

Jan Harvey (Reuters) Gold to leave three-year rout behind as Fed rate expectations fade After three straight years of losses, analysts are finally prepared to say gold prices have found a bottom, with rising prices seen this year and next as concerns over the pace of U.S. monetary policy tightening fade.

Gold analysts polled by Reuters have hiked their forecasts for the precious metal by nearly $100 an ounce since the start of the year after it posted its biggest quarterly rise in nearly 30 years in the three months to March.

PG Note: The solid upside follow-through seen in April lends considerable credence to the scenario that suggests that gold bottomed at $1,046.00 in December and a new uptrend is underway.

Posted in Gold News, Gold Views |

Gold poised for best week since Feb as dollar weakens

29-Apr (FastFT) — Gold is poised for its best week in 11, as weakness in the US dollar and demand for safe haven assets helped lift the precious metal.

Gold prices have advanced 4.9 per cent so far this week to $1,293.82 an ounce — its biggest weekly gain since the week ending February 12, when the yellow metal climbed 5.5 per cent.

And on Friday, gold reached an intraday high of $1,296.85 an ounce approaching a key psychological level — $1,300 an ounce — not seen since January 2015.

The dollar weakened sharply after the Bank of Japan opted not to further ease monetary policy. Weakness in the greenback is bullish for gold, which is denominated in the currency, as it makes it cheaper for foreign buyers.

Moreover, following this week’s monetary policy decision from the Federal Reserve, investors remained sceptical on whether the central bank would raise interest rates at its June meeting. Gold, which offers no yield, performs better in a low interest rate environment.

[source]

Posted in Gold News, Gold Views |

The Daily Market Report: Gold and Silver Surge to 15-Month Highs


29-Apr (USAGOLD) — Gold has surged to new 15-month highs, buoyed by a weaker dollar. The yellow metal has pressured $1300, while silver has flirted with $18.

Gold appears poised to end the month up nearly 5%, putting it up more than 21% year-to-date. These gains go a long way toward confirming the 1046.00 bottom from back in December and the current bull market. Meanwhile, silver is up about 15% in April and 28% YTD.

Dollar losses are being driven largely by strength in the yen, which set 18-month highs today, driven by the BoJ’s decision yesterday to not offer additional accommodations at this point. The dollar index has fallen to 8-month lows and has moved within striking distance of key support marked by the low from last August at 92.62. Below this level, there is little in the way of support until the 90 area.

Gains in the yen have got to distress BoJ Governor Kuroda and Prime Minister Abe to no-end, as it puts further weight on their already moribund economy. And yet, Kuroda can’t be surprised about these moves in the FX market in light of the decision to hold. Sort of makes me think there is a shoe yet to drop . . .

The Economist ponders whether the BoJ will be the first central bank to deploy helicopter money. Well, they were the first to go into the rabbit-hole of über-accommodative monetary policy more than 20-years ago and have consistently been the first-mover in pushes deeper down that hole.

However, Kuroda-san said yesterday that helicopter money is not permissible under the current legal system. I’m speculating here, but I imagine the BoJ decision to hold has much to do about the declining efficacy of current policy, as well as the buying of time so that Abe-san can build support in the Diet for a change in the current legal system to allow for air-drops of yen.

You may recall that in the months leading up to the ECB’s launch of QE there was much debate about the legality of such a program. Where there’s a will, there’s a way . . .

I would not be surprised in the least if helicopter money is seen in Japan. I then would be surprised if Japan where the only country to deploy such a program.

This would accelerate the debasement of fiat currency like nothing we have seen thus far. Gimme shelter. Gimme gold.

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

Did Shanghai just blow a hole in the old gold market?

Seven days in April send a message – loud and clear

by Michael J. Kosares

goldbullI did not want the day to pass without posting a few words on gold’s significant push to the upside, now trading just shy of the $1300 mark. To be sure, the dual positions with respect to rates on the part of the Bank of Japan (to stand pat) and the Federal Reserve (to remain ultra-dovish) played a role in the dollar’s recent weakness and gold’s strength. Those determinants though, in my view, are only part of the story, and the few percentage point drop in the dollar against the yen over the past week is really not enough to justify a nearly $60 rise in the price of gold over the past five trading sessions.  The bigger determinant has been China’s underpinning of the gold price on two different occasions over the past week after it had taken a major turn to the downside in New York trading.

Taking place in benchmark sessions of the newly inaugurated Shanghai fix, the two reversals of New York pricing – occurring over the course of the past week – sent a message loud and clear to traders around the world: China was going to be a presence in the gold market and a formidable one. Its main mission remains the import of physical gold into China from whatever sources it can find. Most importantly, what it revealed by its activity on those two occasions is that it is willing to bid up the price in order to secure physical metal. Up until those events, many analysts and traders believed China would be content to follow along with London and New York’s lead despite the introduction of its own yuan-based pricing mechanism, i.e. that it would continue on with the business of acquiring gold as it had in the past. That gold paradigm had a hole blown in it this past week. Welcome to the new gold paradigm.

I would be hard-pressed, at this juncture, to label China’s buying as an intervention, but in terms of how the market interpreted China’s price fixes on April 25 and April 27, it had the same impact as if it were, both psychologically and materially.  The follow-on trading in London and New York yesterday and today had the look of short-covering – a direct reaction to a significant change in gold market sentiment. At the epicenter of that change sits the new Shanghai gold fix.

Shangha-Comextradingwk425If China is going be an aggressive buyer of gold through its fix, paper traders will need to take notice or face the prospect of being called upon to make physical delivery at either the COMEX or the London benchmark sessions.  Shanghai’s guardian at the gate posture might be enough to put a damper on players taking the short side of the market.  Too, other market participants (hedge funds, investment funds, etc.) are likely to take a long look at the new architecture in the gold market, and when they do, they might decide to line-up on the side of China and the strategic instrumentality of its new benchmark.

To put a strong foundation under that line of thinking, reconsider this quote from Peoples Bank of China governor, Zhou Xiaochuan:

“At present, up to 12 trillion yuan stays in domestic residents’ saving accounts. The launch of individual gold investment, therefore, will allow residents to change currency assets into gold assets. At the macro level, it will expand channels for changing savings into investment, thus adjusting the money supply; in the micro aspect, allowing citizens to trade and keep gold can improve social welfare, benefiting both the country and the population. Moreover, with the dual attributes of common commodity and currency commodity, gold is a desirable instrument for hedging. Therefore, developing gold trade for individuals is practical.”

With those thoughts in mind, let’s go back for a minute to the notion of on-going dollar weakness and the decisions by Bank of Japan to stay pat on rates and the Federal Reserve to remain ultra-dovish.  Do you remember reports a few weeks back, reported here, about a secret G20 accord to organize a de facto dollar devaluation?  More and more, it is beginning to look like such an accord may have been agreed.  If so, it would explain the Fed’s mysterious dovishness of the past several weeks. It also serves as an additional impetus to gold demand among investors of all descriptions – private, public and institutional. (Don’t forget the United States is the third largest buyer of gold after China and India.) Worth Wray, chief economist and global macro strategist at STA Management and an expert on emerging markets, says such an accord would be a “game changer.”

At the time the rumored accord was revealed, we suggested that “major international accords are rarely reversed in the short term given that they are usually inspired by deep-seated concerns among the members. Adding credence to the rumor, we should not overlook the fact that the Fed did feature concern about emerging markets in its public statement following last week’s meeting.  It all comes together rather nicely. . . . . . .Too, since the rumors were first reported just this weekend, the market reaction is far from fully realized.”

Even now, we continue to believe that the full impact is yet to be realized.  Coupled with Shanghai’s aggressive acquisition strategy, we do think that we may have entered a new era for the gold and silver markets.  In the past, strong physical demand often failed to translate to prices.  We may have come to a place where that gap between cause and effect may have been breached.

Final Note: Though it is too early to characterize the two instances of reversing the price trend in the New York market as systematic support for higher prices, both stand out as examples of how China can go about achieving its goal to become a major player in gold’s pricing dynamics. Too, there will likely be price levels along the way, where traders in both the East and West believe prices are too high and due for a correction. Asian physical buyers, under those circumstances, likely will go to the sidelines and Western traders might once again exploit the weaker demand. In short, the trading in Asia, like the trading in the West, is unlikely to become a one-way street.

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newsviews1999ADVReader note:  This article and much more are featured in the upcoming edition of our monthly newsletter, News & Views – Forecasts, Commentary & Analysis on the Economy and Precious Metals.  To receive the full edition free of charge by e-mail, we invite you register here. You will also receive immediate access to our April issue. For over 25 years, News & Views has offered in-depth, cutting-edge coverage of the gold and silver markets – guiding light not only for our clientele, but readers all over the world.  Over 20,000 subscribers.

 

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More new 15-month highs in gold, now 1297.00. Silver flirting with $18.

Posted in Gold News, Silver News |

Yen surges to 18-month high

29-Apr (FT) — The yen is on track for its biggest weekly gain since the depths of the 2008 financial crisis after the Bank of Japan’s reluctance to fire another easing “bazooka” emboldened traders and raised doubts over the central bank’s ability to reverse the currency’s searing rally this year.

A 4 per cent surge in the currency drove the yen to Y106.92 per dollar, its loftiest level since October 2014, when Haruhiko Kuroda, the governor of the BoJ, shocked financial markets by aggressively expanding a quantitative easing programme designed to lift inflation and quicken economic growth.

Foreign-exchange markets had begun the week primed for further action from a Japanese central bank still grappling with deflation. Analysts at UBS forecast “big easing”, so the decision of Mr Kuroda and his colleagues not to do anything amplified the reaction in the yen.

The lack of action from a central bank which, since the election of Shinzo Abe as Japanese prime minister in late 2012 has built a reputation for bold moves, triggered a 3 per cent leap in the yen on Thursday — its seventh-biggest one-day gain of the past decade.

[source]

PG View: Hard to believe Kuroda couldn’t foresee the upside extension in the yen as a likely result of the BoJ’s decision to hold steady.

Posted in Currency Wars |

Today’s Shanghai and London Benchmark

London PM benchmark: $1,285.65

Shanghai PM benchmark: $1,275.57 (8,259.22 yuan/oz; 259.90 yuan/gram)

China yuan exchange rate at time of Shanghai fix = 6.4749/$1

We will be posting the London and Shanghai benchmarks daily here at our Live Daily Newsletter page.

Comment: Solid performance in gold today, establishing new 15-month highs into the London fix, leading to a $10 positive differential with Shanghai.

starFor an introduction on the possible effects of the new Shanghai Fix on the overall gold market, please see “Will the Shanghai Fix “fix” the gold market?”. Also, if you are looking to gain an in-depth understanding on how China might influence the gold market now and in the future, please see “The China Syndrome”.

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Posted in all posts, Gold News, Gold Views |

University of Michigan sentiment (final) revised down to 89.0 in Apr, vs 89.7 preliminary and 91.0 in Mar; lowest in 7-months.

Posted in Economic Data |