Monthly Archives: September 2015
U.S. initial jobless claims +3k to 267k in the week of 19-Sep, below expectations of 271k, vs 264k in the previous week.
Gold higher at 1137.63 (+5.62). Silver 14.81 (-0.01). Dollar lower. Euro higher. Stocks called lower. US 10yr 2.11% (-4 bps).
Interview – Anonymous senior manager with top Swiss precious metals refiner
Audio/Physical Gold Fund/9-23-2015
MK note: If you want to hear it straight from the horse’s mouth, this is the interview you’ve been waiting for. It brings home the reality of the global physical supply problem and what its repercussions might be from the vantage point of an operating manager for one of the world’s top gold refineries. It is interesting to note that the gentleman interviewed, who sits at the center of the massive movement of physical metal from West to East, states that he “still cannot understand” how the price can be where it is today in the face of the massive demand he is witnessing first hand. Don’t miss this one. . . . . .
Brazil, Mexico forced to act to stop FX rout
23-Sep (FT) — Another day of steep losses for the real has finally forced Brazil’s central bank to step in to stop the rot.
The BCB said on Wednesday that it will auction $2bn worth of new currency swaps today and tomorrow – in effect restarting a programme that was scrapped earlier this year – after the real plunged more than 2.3 per cent to a new low of R$4.1441 per dollar.
…But the ferocity of the recent sell-off, triggered in part by Standard & Poor’s move this month to downgrade the country to junk and exacerbated by a fast growing domestic political crisis, has spooked even the most battle-harden Brazil watcher.
Despite the size of the swaps programme, analysts are not convinced it will be enough to stablise the real, which has fallen more than 35 per cent against the greenback this year. The bulk of this loss has come over the past 8 weeks.
…Mexico’s central bank also stepped up its defense of the peso after the currency tumbled 1.6 per cent to 17.1493 per dollar.
That’s its fifth day of losses and puts it back towards the record low of 17.3056 it reached at the end of August.
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The Daily Market Report: Gold Firms On Latest Growth and Disinflation Worries
23-Sep (USAGOLD) — Gold rebounded on Wednesday, recouping much of the last couple days of losses. The yellow metal is being underpinned by ongoing concerns about global growth and negative price risks.
The manufacturing sector of the world’s second largest economy contracted for a seventh consecutive month in September. China’s Markit manufacturing PMI fell to a 6½-year low of 47.0, which is an ill-wind for the global economy as a whole.
IMF chief Christine Lagarde noted yesterday that growth risks are on the rise. “The downside risks are greater than they were,” Lagarde said, citing low commodity prices, monetary policy realignment and China as primary areas of concern. There really hasn’t been any monetary policy realignment yet, and the IMF has been adamant that the Fed should hold-off on raising rates.
ECB President Mario Draghi warned today that he sees renewed downside risks to inflation. I don’t know about “renewed,” it seems like those risk have been persistently evident for some time now. Draghi said that the central bank “would not hesitate to act” if “more monetary impulse become necessary.” In other words, Draghi was echoing the threats of further QE made by his cohorts at the ECB in recent weeks.
Clearly, the age of über-accommodative monetary policy is far from over. As long as that is the case, there is cause to shift a portion of one’s wealth out of fiat currency and into a hard-asset like gold.
CPM Group Christian Looks For Gold Prices To Accelerate Upward
23-Sep (Metal.com) — Jeffrey Christian, managing director of CPM Group, looks for gold to rise modestly over the next two years but then start to accelerate to the upside more sharply.
He told the Denver Gold Forum Tuesday that he expects mine production to continue rising into 2017. But then output is likely to start falling, while investors and central bankers will be competing to buy the smaller amount of newly refined mine supply.
…The speaker said he favors owning gold “not because the world is going to collapse” but because there are “other problems out there.” However, he also cautioned against “falling prey” to excessive pessimism that sometimes has no basis. He also commented that gold has not lost its safe-haven status, although the metal does not necessarily rise every time bad news occurs in the world.
…“In 2018, mine supply starts falling,” Christian said. “It’s a foregone conclusion.”
This will happen even if gold prices start rising again, since there is a long lag between when prices and producers can ramp up output.
“We think the world will get more nasty…,” Christian said. “And when they get to the market, they’ll see central banks buying. And the central banks and private investors will compete for increasingly scarce ounces of newly refined gold.”
He commented that private investors hold an estimated 1.3 billion ounces of gold, while central banks hold another billion. Still, “people who hold gold tend not to sell it,” meaning those who want to add gold to their holdings will have to rely upon newly refined gold.
“That’s why the fundamentals matter in the gold market,” Christian said.
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A numbers-based echo of my dad’s post below…
Via Gold Eagle, written by GE Christenson titled “Gold: The End And The Beginning”
Snippets…
‘Yes, the past four years have been a repeat of the age of stocks, debt, and leverage, but only the financial and political elite experienced good times. Debt is massively higher and gold is still bumping around a bottom.’
‘Gold dropped from about $405 in January 1996 to $253 in July 1999: 38% in 42 months.’
‘Gold dropped from about $1900 in August 2011 to $1070 in July 2015: 44% in 47 months. The drop is similar to the 1996-1999 collapse.’
‘Gold prices in 2015 are clearly low compared to long term national debt, as they were in 2001. Expect gold prices to rise substantially to compensate for the past four years of declining prices.’
And his conclusion….
‘Gold prices could (I doubt it) fall further in the short term, since High Frequency Trading dominates trading action, and central banks need to hide the fact that their policies and currencies are failing, which usually means they suppress gold prices. Gold was formerly the “canary in the coal mine” indicating the failure of monetary and fiscal policies. But active suppression of gold prices has replaced the “canary” with a plastic look-alike that disguises the warning signal which tells us that something is very wrong with our monetary policies.’
‘However, it is only a matter of time, whether it is days or months, before the consequences of massive debt and uncontrolled “printing” of unbacked debt based fiat currencies sink more of the world into “Venezuela conditions.”’
‘Paper currencies, central banks and delusional paper promises will fail. We need something better. Gold and silver come to mind…’
JK
ECB’s Draghi opens door for more QE
23-Sep (MarketWatch) — European Central Bank President Mario Draghi said on Wednesday the Governing Council is ready expand its quantitative easing program to fend off the threat of low inflation. Giving his introductory remarks before the Committee on Economic and Monetary Affairs of the European Parliament in Brussels, the ECB boss warned that renewed downside risks to inflation have emerged. These risks include slowing growth in emerging-market economies, a stronger euro and a fall in oil and commodity prices. “Should some of the downwards risks weaken the inflation outlook over the medium term more fundamentally than we project at present, we would not hesitate to act,” he said. “The asset purchase program has sufficient in-built flexibility. We will adjust its size, composition and duration as appropriate, if more monetary policy impulse should become necessary,” he added. The ECB’s 1.1 trillion euro ($1.23 trillion) quantitative easing program announced in January is currently planned to run until September 2016.
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Janus’ Bill Gross tells Fed to `Get off zero now!’ as economies run on empty
Mainstream America is being cooked slowly alive. . . .
Bloomberg/Mary Childs/9-23-2015
“If zero interest rates become the long-term norm, economic participants will soon run on empty because their investments aren’t producing the gains or cash flow needed to finance past promises in an aging society, he wrote in an investment outlook on Wednesday for Denver-based Janus Capital Group Inc. That’s already beginning to happen in the developed world, where Detroit, Puerto Rico, and, he predicts, soon Chicago, struggle to meet their liabilities.”
MK note: This is the other side of the interest rate coin. If the Fed raises rates, all hell will break loose. . . . .And, if the Fed stays in the zero bound, all hell will break loose. Heads I win; tails you lose. Maybe we should recognize that France, Japan, Detroit, Puerto Rico and Chicago (to name a few) are likely to encounter difficulties no matter what the Fed does simply because from a business point of view governments far and wide have been poorly managed. As for the private investor, Gross is right when he points to the lack of return as a major problem among ordinary investors. We are made aware of it every day by prospective investors concerned about where the stock and bond markets might be headed, knowing full well there isn’t much in the way of yield available anywhere.
Gold firms near $1,125; platinum slides to 6-1/2-year low
23-Sep (Reuters) — Gold rose after two days of losses on Wednesday as equities took a hit from weak Chinese factory data, while platinum slid to a fresh 6-1/2-year low as investors feared a drop in demand from the auto industry.
Platinum fell to $925.30 an ounce, its lowest since January 2009, before recouping losses to trade up 0.3 percent at $936.55 by 0722 GMT.
The metal has been hurt by news of Volkswagen AG’s falsification of U.S. vehicle emission tests as investors believed it could affect demand for diesel cars. Platinum is used in diesel catalysts.
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PG View: Gold is now trading above 1130.00. Platinum has rebounded somewhat, but the trend remains bearish.
Deeper China downturn, weak Europe dents global growth outlook
23-Sep (Reuters) — The outlook for the global economy became bleaker on Wednesday as signs of a deeper downturn in China emerged, despite massive policy stimulus, coupled with weak growth at best in Europe.
China’s vast factory sector shrank at its fastest rate in 6-1/2-years in September, a private survey showed, sending investors worried about sagging global growth scurrying out of risky assets.
Reacting to the data, Asian stocks posted their biggest single-day fall in a month on Wednesday.
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Goodbye Yogi. . .
I quoted him frequently in my writings, as did a lot of other people simply because somehow everyone knew what he meant and you really couldn’t argue with his logic. Some of the best from one of America’s preeminent philosophers, Yankee great, Yogi Berra (1925-2015):
On his approach to at-bats: “You can’t think and hit at the same time.”
On selecting a restaurant: “Nobody goes there anymore. It’s too crowded.”
On economics: “A nickel ain’t worth a dime anymore.”
On the 1973 Mets: “We were overwhelming underdogs.”
On how events sometimes seem to repeat themselves “It’s deja vu all over again!”
On baseball attendance: “If people don’t come to the ballpark, how are you gonna stop them?”
On a slipping batting average: “Slump? I ain’t in no slump. … I just ain’t hitting.”
On travel directions: “When you come to a fork in the road take it.”
On pregame rest: “I usually take a two-hour nap from 1 to 4.”
On battling the shadows in left field at Yankee Stadium: “It gets late early out there.”
On fan mail: “Never answer an anonymous letter.”
On being told he looked cool: “You don’t look so hot yourself.”
On being asked what time it was: “You mean now?”
On being given a day in his honor: “Thank you for making this day necessary.”
On a spring training drill: “Pair off in threes.”
On his approach to playing baseball: “Baseball is 90 percent mental. The other half is physical.”
On death: “Always go to other people’s funerals. Otherwise they won’t go to yours.”
On learning: “You can observe a lot by watching.”
On his team’s diminishing pennant chances: “It ain’t over `till it’s over.”
On the fractured syntax attributed to him: “I really didn’t say everything I said.”
From Fox News/9-23-2015
Gold higher at 1129.42 (+5.00). Silver 14.83 (+0.055). Dollar firm. Euro better. Stocks called higher. US 10yr 2.15% (+2 bps).
Moody’s downgrades France debt rating, S&P downgrades Japan
Something to keep an eye on. . . .With everything else going on in and around financial markets, sovereign debt problems have been on the back burner. Other countries likely to weigh-in similarly with repercussions sooner or later in stock and bond markets. Asian markets down again overnight – Nikkei down 362 (-1.96%); Shanghai down 69 (-2.16%); Hong Kong down 494 (-2.26%). Note gloomy mood among rating agencies.
FRANCE
Investopedia/Shiv Mehta/9-21-2015
Moody’s says persistent slow growth to continue for the next five years posing a significant threat to the government’s ability to reduce its debts.
JAPAN
Investopedia/Shiv Mehta/9-17-2015
S&P says Japan will find it difficult to improve financial health, fiscal stimulus has failed to produce results. Future debt rating downgrades possible if government debt burden rises significantly more than projected.
Note: Earlier in September, S&P cut Brazil’s rating to junk.
Fed Cred Dead
by James Howard Kunstler
21-Sep (24hrGold) — Last week was the watershed for central banking and for the illusion that the current disposition of things has a future. The Federal Reserve blinked on its long-touted Fed funds interest rate hike and chairperson Janet Yellen was left standing naked in the hot glare of her own carbonizing credibility, a pitiful larval creature, still maundering about “the data,” and “the median growth projection,” and other previously-owned figments spun out of the great PhD wonk machine in the Eccles Building.
The Federal Reserve itself is the victim du jour of its own grandiose fatuous fecklessness, in particular the idea that it could play a national economy like a three-button flugelhorn. What seemed like a good idea at the time when Alan Greenspan and then Ben Bernanke stepped into the pilot house now just looks like the fraud of frauds: enabling corporations to borrow ever more money from the future to pretend that their balance sheets are sound. That scam is has nowhere left to go, except into the black hole that has been waiting for it. All the Fed really has left is to destroy the value of the dollar (to save it! Just like Vietnam!).
This ought to be an interesting week in the financial markets as the players have had a long, anxious weekend to absorb the death of Fed cred. And October, too. Expect dramatic re-pricing. Sometime a few months down the line, financial markets will present a “relief rally.” Don’t get suckered on that one.
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The Daily Market Report: Gold Slips as Dollar Firms
22-Sep (USAGOLD) — Gold is trading modestly lower again today, weighed by a firmer dollar. The dollar is higher today largely because there is the renewed threat of a Fed rate hike, while simultaneously the ECB is threatening further easing.
The divergent monetary policy on either side of the pond is serving to weaken the euro and gives the impression of renewed dollar strength. The ECB’s Peter Praet is just the latest European policymaker to rattle the monetary saber. With oil and other commodity prices under pressure once again, Praet said that the ECB would “forcefully react” if their inflation objective was threatened further.
That means that the ECB would likely extend their QE program — and print more euros — if disinflationary pressure persist. There certainly doesn’t appear to be any indication that inflation will turn around anytime soon.
Here in the U.S., the Richmond Fed index is the latest data painting a less than optimistic picture of the U.S. economy. The index fell to -5 in Sep, below expectations of +2, vs 0 in Aug. New orders plunge to -12 and workweek tumbled to a 6-year low.
The dollar index is setting new 4-week highs and if the greenback resumes its uptrend, U.S. manufacturing is going to suffer further. That bodes ill for the economy as a whole and certainly the nation’s balance of payments.
The Fed would have to do something to staunch that uptrend, or risk the economy falling into recession. Rather than incessantly talking rate hike — that is almost assuredly not going to happen anytime soon — the Fed should be hinting at easing. I’d suggest that QE4 is probably as likely, if not more likely, as a rate hike.
Eurozone consumer confidence fell to -7.1 in Sep, below expectations of -7.0, vs -6.9 in Aug.
Richmond Fed index fell to -5 in Sep, below expectations of +2, vs 0 in Aug; new orders plunge to -12. Workweek hits 6-year low.
U.S. FHFA home price index +0.6% in Jul to 224.5, above expectations of +0.4%, vs negative revised 223.2 in Jun.
Gold prices ease as stocks, commodities slide
22-Sep (Reuters) – Gold prices eased on Tuesday as weakness in stocks and other commodities pulled the market lower, though its losses were limited by some interest in the metal as a haven from risk.
Expectations that the Federal Reserve will press ahead this year with its first interest rate increase in nearly a decade also weighed on the metal, dealers said.
Spot gold was down 0.4 percent at $1,128.73 an ounce at 1147 GMT, while U.S. gold futures for December delivery were down $4.60 an ounce at $1,128.20.
Gold outperformed the more industrial precious metals, however, with platinum down 1.7 percent at $950 an ounce, palladium down 2.1 percent at $598.22 an ounce, and silver down 1.4 percent at $14.94 an ounce.
“Gold still has these safe-haven characteristics on a day like today, when everything that has a risk tag on it is just going down – equities are going down, cyclical commodities are going down,” Julius Baer analyst Carsten Menke said. “That’s when gold starts to shine, at least a little bit.”
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