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“They look at the weathervane for the direction of the wind.” – Sumerian text, ca 1600 BCCurrent Spot Prices:
12:38 pm Thu. October 19, 2017
(Time = USMT)
U.S. ISM services rose to 59.8 in Sep, above expectations of 55.5, vs 55.3 in Aug; prices surged to 66.3.
Gold rose on Wednesday after marking a seven-week low the previous session, as the dollar dipped on talk that a dovish Federal Reserve chair would be appointed next year.
The greenback eased against a currency basket after a Politico report said Fed Governor Jerome Powell was favoured by U.S. Treasury Secretary Steven Mnuchin over former governor Kevin Warsh. Janet Yellen’s term as chair expires in February.
Powell is seen as more dovish than Warsh, who has criticised the Fed’s bond-buying programme in the past.
PG View: And thanks to Jeff Gundlach, über-dove Neel Kashkari has been forced into the mix as well.
Bond King” Jeffrey Gundlach has an unusual pick for who President Donald Trump will choose to be the next Federal Reserve chief.
“I actually have a very non-consensus point of view. I think it’s going to be Neel Kashkari,” the the CEO of DoubleLine Capital told the Vanity Fair New Establishment Summit on Tuesday in Los Angeles. “He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win.”
PG View: Kashkari has been a dissenter on the recent rate hikes and seems to favor more dovish policy until inflation really does pick up.
Gold firmed in overseas trading after the dollar backed off its recent highs. While some of the yellow metal’s gains have already been retraced, the dollar is up against a formidable resistance level and is quite overbought.
The U.S. ADP jobs survey came in below expectations, weighed by weather affects. This sets up some downside risk for the already weak September nonfarm payrolls expectations.
Reuters is reporting that Catalonia will declare independence from Spain on Monday. Does Mariano Rajoy and the government of Spain allow that to happen? Given the violence already used in an effort to squelch the referendum, will they go so far as to shut down the Catalonian Parliament?
Jeff Gundlach is predicting that Neel Kashkari will be the next Fed chair. “He happens to be the most easy money guy that’s in the Federal Reserve system today and that’s why he may win,” said Gundlach. That’s the exact reason that I thought he might seek to reappoint Yellen and why Kevin Warsh was an unlikely candidate. Easy policy and a weak dollar would certainly make execution of President Trump’s economic agenda more likely to be successful.
Why it’s important to the typical gold investor
by Michael J. Kosares
Author: The ABCs of Gold Investing
“Even those of us who have been tracking gold’s progress for decades frequently give in to the ease of quoting gold’s value in terms of fiat currency – most commonly in US dollars. And yet, we have it the wrong way round. Gold is in fact the centre of the economic universe, and all the fiat currencies (including cryptocurrencies) revolve around gold.” – Jeff Thomas, InternationalMan.com
Most gold investors are aware that major national currencies have been in an uptrend against the dollar since the beginning of the year. What might be surprising is the degree they are up against the dollar. Here is the scorecard:
Euro –– +10.3%
Japanese yen –– + 4.2%
Chinese yuan –– + 4.5%
Swiss franc –– + 5.1%
British pound –– + 8.9%
Australian dollar –– + 9.0%
Canadian dollar –– + 7.2%
(As of 9/27/2017)
Even more surprising is the degree to which gold has strengthened against those same currencies. Here is that scorecard:
Euro –– + 1.1%
Japanese yen –– + 8.0%
Chinese yuan –– + 6.5%
Swiss franc –– + 6.1%
British pound –– + 3.4%
Australian dollar –– + 2.1%
Canadian dollar –– + 3.2%
U.S. dollar –– + 11.5%
(As of 9/27/2017. See charts below.)
Gold and the dollar are often referred to as safe havens in the same breath, but what these numbers tell us is that – at least for now – gold increasingly has become the safe haven of choice. It is too early to know whether or not the across-the-board uptrend in gold will continue, but it is worth noting and monitoring. Clearly, significant capital is finding its way to the gold market globally and we suspect that institutional investors and funds have played the dominant role.
Why is gold’s appreciation against domestic national currencies important to the individual American gold investor?
It identifies an important trend in gold ownership taking hold in the top economies around the world – a developing investor mindset and response to host country monetary policies that could be of immense importance going forward. It is revealing that the same phenomenon has taken root concurrently in all eight of the countries represented by the currencies listed above.
The pattern reflects concern about central banks’ ability to lift local economies out of a persistent disinflationary malaise. It also suggests that for many investors gold, not the U.S. dollar, looks to be the safer and more productive alternative should things take a turn for the worse.
As long as the low interest rate environment and concerns about overvaluation in the stock and bond markets persist, asset managers and investors are likely to continue shifting resources to underpriced gold (and silver). Given forward guidance provided by the central banks, it appears those policies and concerns will be with us for years to come.
Thus far, gold’s performance against major currencies has flown under the radar in financial circles and outside the notice of the mainstream media. That is not likely to remain the case for long.
In the October issue of News & Views, we pick up where this article leaves off with a very important companion piece: How Professional Investors Radically Altered the Gold Market. We also explore what has brought the Old Guard back into the precious metals market. Last, we include a CLIENT SPECIAL ADVISORY in conjunction with the 20th anniversary of The ABCs of Gold Investing.
We invite you to sign-up for our free monthly newsletter with appreciation to our current and prospective clientele. Immediate access to this month’s edition.
Charts courtesy of Gold Charts$Us/Nick Laird. With thanks.
Catalonia will move on Monday to declare independence from Spain, a regional government source said, as the European Union nation nears a rupture that threatens the foundations of its young democracy and has unnerved financial markets.
PG View: In light of the aggressive measures employed by Spain to suppress the referendum, what steps might they take to halt further steps toward independence?
U.S. ADP employment survey +135k in Sep, below expectations of +145k, vs negative revised +228k in Aug.
Gold higher at 1277.88 (+5.07). Silver 16.72 (+0.081). Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 2.31% (-1 bp).
Gold tracked sideways all day today with little to mention in the way of news or unusual trading activity. Silver followed suit. In Asia, however, both metals have registered a pulse. Gold is up $2.60 at $1275.35 as this is posted. Silver is up 7¢ at $16.72.
Quote of the Day
“Time is the soul of money, the long-view — its immortality. Hard assets are forever, even when destroyed by the cataclysms of history. It is the outlook that perpetuated the most competent and powerful aristocracies in continental Europe, well up through World War I and, in certain prominent cases, beyond; it is the mindset that has sustained the most fiscally serious democratic republic in the Western world, that of Switzerland. . .” – Marcia Christoff-Kurapovna, the Mises Institute
• King Felipe says Spain living through “very grave” moments for country because of Catalan crisis.
• King Felipe says Catalan government seeking to illegally proclaim independence.
• King Felipe says Catalan society today is fractured and divided, says economic stability of Spain at risk
• King Felipe says Catalan authorities “totally outside law and democracy. They have meant to fracture Spain”.
• King Felipe says Spanish state must ensure constitutional order in Catalonia.
• King Felipe says “very complex moments” but “we will come through” and “our democratic principles are solid”.
• King Felipe says Spanish crown firmly committed to constitutional order.
Gold firmed slightly intraday after eking out a 7-week low in overseas trade. The yellow metal continues to be pressured by heightened risk appetite associated with the President’s tax cut proposal and a firmer dollar.
The greenback has garnered support both from the proposed tax cut and rising expectations that the Fed will lift rates one more time this year, despite persistently weak inflation. The dollar index also set a 7-week high today, shy of good resistance at 94.14.
The overall trend remains unmistakably negative since peaking 103.82 early in the year. That means the dollar index is still down about 10% year-to-date, even after the last 3-weeks of gains.
As noted in this morning’s snapshot, the next big event will be the release of September jobs data on Friday. Expectations are running at just +87k for nonfarm payrolls, factoring in a significant weather related hit. Even if NFP misses expectations, the market may quickly discount the news as temporary hurricane fallout, but will the Fed discount a bad number as well?
North Korea threatened to “bring nuclear clouds to the Japanese archipelago,” while mocking PM Abe as a “headless chicken.” Japan is definitely within missile range and Pyongyang says they will be “the first victim of nuclear disaster in the world.”
Japan called the latest threats outrageous and provocative. I imagine they, along with South Korea, wish President Trump would quit poking the hornet’s nest via Twitter.
Until the U.S. evacuates not essential military personnel and family members from the region, it seems unlikely that the U.S. will initiate any action against the DPKR. However, the constant goading from each side makes the situation inherently unstable and provides an underpinning to the gold market.
Gold is trading near steady levels on the day, in late-morning action Tuesday. The early price weakness that saw the gold market hit a seven-week low overnight prompted traders to step in and buy the dip on some bargain hunting and on short covering from the futures traders. Gold bulls are still in trouble as prices are in a steep three-week-old downtrend on the daily bar chart. December gold was last down $0.10 at $1,275.80.
Gold fell to its lowest in seven weeks on Tuesday after strong U.S. economic data reinforced expectations of another interest rate rise in the United States this year and pushed the dollar and U.S. bond yields higher.
The CME’s Fedwatch indicator showed markets were pricing in a 77 percent likelihood of a December rate rise after Monday’s data showed a surge in U.S. manufacturing activity.
The White House is showing “softness” on ending a $1.3 trillion federal tax deduction filers get for their state and local taxes, Senator Bob Corker said Monday, warning that it raises questions about the GOP’s “intestinal fortitude” and could imperil a tax overhaul.
The framework that President Donald Trump and Republican leaders released Wednesday calls for deep rate cuts and would abolish existing tax breaks to help pay for them. Without such “pay-fors,” Congress might have to settle for only temporary tax cuts.
Gold is trading in a narrow range, having edged to a new 6-week low overseas. Heightened risk appetite and December rate hike expectations have sparked a rebound in the dollar over the past three-plus weeks, which has weighed on the yellow metal.
Today’s economic calendar is very light with just September auto sales. Traders may already be looking ahead to Friday’s jobs data. Median expectations for nonfarm payrolls is just +87k. The unemployment rate is expected to hold steady at 4.4%.
Additionally, Chinese markets are closed this week for the Golden Week holiday, which is likely sapping Asian demand. This year they are calling it a “Super” Golden Week because the Mid-Autumn Festival coincides with the National Day holiday. China’s tourism administration says they expect about half of the 1.3 billion population to be on the move this week.
RBA hold cash rate steady at 1.5%: Upbeat on employment. Optimistic on growth. Remains concerned about low inflation and slow wage growth.
Gold steady at 1270.81 (-0.56). Silver 16.60 (+0.013). Dollar firm. Euro higher. Stocks call higher. U.S. 10-year 2.35% (+1 bp).
Gold finished the day down $8.94 at $1270.70. Silver was down 8¢ at $16.55. The final numbers on the week and the month ending 9/29 are not as bad as some would have us believe:
Week: Down $30.83 at $1279.70 [- 2.4%]
Month: Down $ $41.51 at $1279.70 [- 3.1%]
Week: Down 52¢ at $16.63 [- 3.0%]
Month: Down 92¢ at $16.63 [- 5.2%]
Blame for the downside has been cast wide and far, but in the end, the corrections in both metals had more to do with profit-taking and a little piling-on here and there from the short side of the market than much else. In keeping with that analysis, the CFTC reports in its Commitment of Traders report that large speculators cut their positions by a little over 10% last week. Over the past two weeks, large specs have cut their positions by about 20% following eight successive weeks of gains.
We should keep in mind that gold and silver registered their highs for the year at the beginning of the month before turning south. The metals are trading sideways in Asia as this is posted.
Quote of the day
“Central banks must feel like they have stepped through a mirror, and who can blame them? They used to struggle to bring inflation down or keep it under control; now they toil to push it up. They used to fear wage increases; now they urge them on . They used to dread fiscal expansion; now they sometimes invoke it. Fighting inflation defined a generation of postwar central bankers; encouraging it could define the current one.
What is going on in this topsy-turvy world? Could it be that inflation is like a compass with a broken needle? That would be a dreadful prospect – central bankers’ worst nightmare. And what would be the broader implications for central banking?” – Claudio Borio, chief economist, the Bank for International Settlements
In the October issue of News & Views, we explore how professional investors radically altered the gold market, why gold is up in every major currency and what has brought the Old Guard back into the precious metals market.
We invite you to sign-up for our free monthly newsletter with appreciation to our current and prospective clientele. Immediate access to this month’s edition.
The Federal Reserve’s own actions, not transitory factors, are responsible for weak inflation, a Fed policymaker argued on Monday, and the U.S. central bank should wait to raise rates again until inflation hits its 2-percent goal.
“The FOMC’s policy to remove monetary accommodation over the past few years is likely an important factor driving inflation expectations lower,” Minneapolis Fed President Neel Kashkari wrote in an essay on the bank’s website, referring to the central bank’s Federal Open Market Committee, which sets U.S. interest rates. “My preference would be not to raise rates again until we actually hit 2 percent core PCE inflation on a 12-month basis, unless we have seen a large drop in the headline unemployment rate signaling that we have used up remaining labor market slack, or a surprise increase in inflation expectations.”
PG View: Tighter policy is not the path to higher inflation. But easier policy has failed to boost inflation for years as well. So, what’s a central bank to do?
Gold retreated further to begin the week, setting a new 6-week low at 1271.15 amid heightened risk appetite and a firmer dollar. There has also been no significant heightening of geopolitical tensions of late, which may be also weighing on the yellow metal.
December rate hike expectations have eased somewhat in the wake of last week’s soft inflation data, but investors still seem to be thinking the Fed is more likely to tighten than not. Mixed data today didn’t offer any clarity on that point.
Minneapolis Fed dove Kashkari thinks the central bank should be cautious until inflation gets back to 2%. However, later today Dallas Fed hawk Kaplan will likely offer the contrary opinion.
Further stoking risk appetite is the GOP tax plan, which includes a significant cut to corporate taxes. While stocks are perhaps understandably optimistic about the likely impact on profits, there is also a reasonable concern that the lower tax revenue is going to lead to bigger deficits and a bigger national debt.
Amid the initial euphoria of lower taxes for some, little attention is being paid to the downstream implications for deficits, the debt, Treasuries, the dollar and by extension monetary policy. Can the Fed really pursue tighter policy if the tax plan is going to blow a hole in the budget?
U.S. construction spending +0.5% in Aug, above expectations of +0.4%, vs negative revised -1.2% in Jul (was -0.6%).
U.S. manufacturing ISM rose to 60.8 in Sep, above expectations of 58.0, vs 58.8 in Aug; prices jump to 71.5.
Spain is facing a political and constitutional crisis after Catalans voted in favor of independence in a contested referendum that descended into chaos when police launched a widespread and violent crackdown.
The Catalan government said it had earned the right to split from Spain after results showed 90% of those who voted were in favor of a split.
But amid an unexpectedly harsh response from Spanish police, turnout was only around 42%.The Catalan health ministry said 893 people were injured in the clashes Sunday as riot police raided polling stations, dragged away voters and fired rubber bullets.
Gold fell to its lowest since mid August on Monday as rising U.S. Treasury yields pushed the dollar higher, while concerns over violence during Catalonia’s independence vote at the weekend weighed on the euro.
Expectations that the Federal Reserve will push ahead with a third U.S. interest rate hike this year, upbeat U.S. data and talk of a possibly more hawkish successor to Fed Chair Janet Yellen all lifted Treasury yields.
…”The recent selloff is mostly related to a stirring of the reflation trade following the announcement by the Trump administration of the long-awaited tax reform proposal,” Mitsubishi analyst Jonathan Butler said.
Gold remains on the defensive after Friday’s soft close. The yellow metal is being weighed by a rebound in the dollar to challenge last week’s highs and revived risk appetite amid investor hopes for U.S. tax cuts.
Dollar gains are primarily associated with euro weakness in the wake of the Catalonia referendum that has thrown Spain — and the broader EU — into crisis.
Today’s calendar includes Markit manufacturing PMI and U.S. manufacturing ISM for September, as well as construction spending for August. We’ll also hear FedSpeak from Dallas Fed hawk Kaplan.
While the geopolitical rhetoric between the U.S. and North Korea is still flying, the recent absence of new DPKR missile and nuclear tests has pushed the still percolating conflict off the front page. South Korea is anticipating that fresh North Korean provocations are in the offing for this month.
Gold lower at 1274.80 (-5.94). Silver 16.64 (+0.006). Dollar higher. Euro lower. Stocks called higher. U.S. 10-hyear 2.34% (unch).
Gold and the S&P 500 are currently in a tight race.
For Bloomberg Intelligence analyst Mike McGlone, this translates into good news for the yellow metal.
“Running neck and neck with the S&P 500 in a tightening cycle should favor gold in most scenarios,” the commodities strategist wrote in a report released Friday.
… “With the record-setting stock market barely beating gold, the metal may be worthy of greater attention,” he said.
“Despite all of the attention on stocks, gold may be looking ahead to a more favorable endgame at a steep discount to historical highs with inflation brewing, a potential dollar peak and the lowest CBOE Volatility Index ever.