Monthly Archives: November 2016
U.S. ADP employment survey +147k in Oct, below expectations of +165k, vs positive revised +202k in Sep.
Gold higher at 1299.41 (+11.38). Silver 18.64 (+0.274). Dollar lower. Euro higher. Stocks called lower. U.S. 10-year 1.79% (-4 bps).
Stocks Fall as Gold Climbs With Swiss Franc on Election Anxiety
01-Nov (Bloomberg) — Stocks fell to the lowest since July, while gold rose with the Swiss franc amid heightened anxiety a week before the U.S. presidential vote.
Equities joined a selloff in riskier assets after an election poll showed Republican candidate Donald Trump ahead of Democrat Hillary Clinton in the race. Mexico’s peso, which is seen as a proxy for market perception on the vote, led losses among the world’s major currencies. Meanwhile, the Swiss franc and Japanese yen rallied as traders looked for haven. Gold climbed to a one-month high. Treasuries were little changed.
Traders dumped riskier assets following an ABC News/Washington Post tracking poll that showed Trump with 46 percent support to Clinton’s 45 percent. Stress in financial markets has been increasing as the U.S. presidential campaign enters its closing phase. A Bank of America Corp. gauge tracking volatility expectations in global equities, bonds, currencies and commodities has climbed for five straight days, the longest streak since before the British vote to leave the European Union.
…Gold gained for a fourth day as the dollar extended its retreat from a seven-month high.
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The Daily Market Report: Gold Jumps to 4-Week Highs
01-Nov (USAGOLD) — Gold surged to new four-week highs, buoyed by a weaker dollar and rising uncertainty about the likely results of next week’s U.S. election. The yellow metal is trading more that $10 higher, even as the Fed kicks-off its two-day FOMC meeting.
The Fed is widely expected to hold steady on rates when they announce policy tomorrow, but the market is forever hopeful about gleaning some additional cues as to the likelihood of a December rate hike. The market remains pretty convinced that 25 bps tightening before year-end is baked into the cake.
While the RBA and the BoJ held steady on policy today, both expressed concern about tepid inflation. The BoJ now thinks it will be fiscal year 2018 before their 2% inflation objective is achieved. As discussed in yesterday’s DMR, the Fed too has an inflation problem, the could conceivably derail the potential December rate hike.
The polls for next week’s presidential election have narrowed once again, throwing into considerable doubt who will end up being our president elect. I’m inclined to agree with the analysis of HSBC’s James Steel, who says investors should buy gold, regardless of who wins. Steele sees at least an 8% appreciation in the price of gold.
“Gold is seen as a hedge against political uncertainty,” says James Butterfill of ETF Securities. Political uncertainty seems rampant this election cycle and today’s gains may be reflective of that reality. If you agree, I wouldn’t wait until election day to get your order in.
Marc Chandler of Brown Brothers Harriman has taken notice of both the political uncertainty and the fact that base metals have recently taken off. Chandler believes “that a medium-term bottom is in place and suspect [gold] prices can rally as much as $50 over the next month of so. Initially a move above $1292.5 would target $1300-$1310.” Beyond that, if “risks materialize,” Chandler sees potential toward $1325-$1350.
Gold Is Going To Play A Role In A New Monetary System
29-Oct (Het Financieel Dagblad, via BullionStar) — “The whole world is now in the same boat. Everywhere there are low interest rates and on all continents money is printed. Only the United States has paused printing for the moment.
There are many flaws in fiat money. You can print it without limitations, which is politically too tempting. Fiat money printing was used to save the financial system in 2008, but since then nothing has changed. Banks are not split. In a next crisis it’s going to end badly with paper money. There will be significant inflation.
Gold is a hard currency. It can’t be printed – like fiat money. It is divisible and it does not perish. It retains its purchasing power in the long term. If it’s in the center of the monetary system, it will also be more stable in terms of purchasing power in the short and medium term. That has to do with economic principles; it is a commodity.koos-jansen-fd-2016-smaller In that respect I feel safe by keeping a portion of my savings in physical gold. I am protected from economic shocks. If the euro falls gold rises, and so my purchasing power is maintained.
Something has to happen in the international monetary system. It cannot stay centred around the dollar. Since 1971 – when the dollar was detached from gold – the United States has an exorbitant privilege. Most trade in the world is settled in dollars. Therefore, there is a huge demand for dollars in the world, and the US can simply print these dollars.
In the new system gold is going play a role. Look at the developments in Europe. The Netherlands and Germany get their gold back from America. Austria and Belgium are also repatriating. Russia and China buy a lot of gold. The Chinese have too many dollars in foreign exchange reserves and are therefore at the mercy of the whims of US policy. The transition to a new system will be gradual. No one wants a new shock.
[source]
Buy Gold No Matter Who Wins the Election, HSBC Says
01-Nov (Bloomberg) — There’s one certain winner of next week’s presidential election, according to HSBC Holdings Plc: investors in gold.
Although they deem a Donald Trump victory more supportive for the price of the metal than a win by Hillary Clinton, the bank’s Chief Precious Metals Analyst James Steel says it’ll enjoy at least a 8 percent jump whoever wins the race.
Both candidates have espoused trade policies that could stimulate demand, with gold offering a potential “protection against protectionism,” he says. Even the relatively more internationalist Democratic candidate has argued for the renegotiation of longstanding free-trade agreements. That’s positive for gold — even if “not on the scale of Mr Trump’s agenda.”
If the real-estate magnate triumphs, gold could rise to $1,500 an ounce, according to HSBC, up from around $1,289 at 10:55 a.m. in New York.
[source]
BOJ Kuroda’s Magical Thinking on 2% Inflation Target Gets Real
01-Nov (Bloomberg) — You could say Peter Pan is growing up.
Japan’s most determined central bank governor in the modern era, Haruhiko Kuroda, once described the task of fostering inflation as somewhat like Peter Pan’s efforts to fly — the moment you doubt yourself, you can no longer do it.
On Tuesday, the Bank of Japan’s inflation outlook came hurtling back toward Earth.
Kuroda and his fellow board members, who in 2013 forecast reaching their 2 percent target for consumer-price gains within a couple years, are now projecting this happening as late as spring of 2019.
This puts the goal beyond Kuroda’s term as governor, which ends in April 2018. It also means fulfilling the pledge to overshoot that target looks even more distant.
[source]
What to Watch at This Week’s Fed Meeting
01-Nov (WSJ) — Federal Reserve officials are likely to leave short-term interest rates unchanged when they meet Tuesday and Wednesday, just a week before the U.S. presidential election, and indicate they remain on track to raise them in December. But how strongly will they signal their intentions? Fed Chairwoman Janet Yellen isn’t scheduled to hold a press conference after the meeting, and officials aren’t releasing new economic projections. That leaves only the policy statement to parse, after its release at 2 p.m. EDT Wednesday. Here are five things to watch:
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U.S. manufacturing ISM rose to 51.9 in Oct, above expectations of 51.7, vs 51.5 in Sep; prices rose to 54.5, from 53.0 in Sep.
U.S. construction spending -0.4% in Sep, well below expectations of +0.5%, vs positive revised -0.5% in Aug (was -0.7%).
U.S. Market manufacturing PMI (final) 53.4 in Oct, vs 53.2 flash and 51.5 final in Sep.
Gold prices bounce back after October loss as Fed conclusion awaits
01-Nov (MarketWatch) — Gold futures on Tuesday snapped back from a tough October, while the dollar dipped, as the Federal Reserve was set to settle in for a two-day meeting.
That meeting, while not expected to produce an interest-rate hike, could shed light on the chances for such a move by the end of the year, a potentially gold-negative development.
…Gold and silver gained as the U.S. dollar lost ground versus major rivals. That left the ICE dollar index, a measure of the U.S. unit against a basket of six major rivals, down 0.1% at 98.23. A stronger dollar can weigh on commodities priced in the currency, including precious metals, by making them more expensive to users of other currencies. A weaker dollar, then, tends to give gold and silver a boost.
U.S. stocks were poised to rebound Tuesday after strong Chinese manufacturing data instilled more confidence in global growth and sent global stock markets higher, dulling demand for haven gold.
Gold trading could churn between now and Wednesday’s Fed conclusion.
“The Fed has tried to convey that November is a live meeting, but it’s dead on arrival. Markets see almost no chance of a rate hike, and we put the odds at 5%,” said Ryan Sweet, economist at Moody’s Economy.com, in a commentary. “The meeting is the week before the election; raising rates then would break from past practice. Since the Fed began announcing changes to the target fed funds rate in 1994, only once, in 2004, has it raised rates at the meeting before a presidential election.”
“We expect the Federal Open Market Committee to strengthen the forward guidance in its November post-meeting statement to signal that a rate hike is likely in December,” Sweet added.
[source]
PG View: I would say that a December rate hike is more likely ‘a potentially gold-positive development’ based on the yellow metal’s reaction to last December’s rate hike.
Morning Snapshot: Gold jumps $10 as FOMC meeting commences
01-Nov (USAGOLD) — Gold jumped to a new 4-week high as the FOMC kicks off its 2-day meeting. The yellow metal is trading more than $10 higher, underpinned by a weaker dollar.
Both the RBA and the BoJ held steady on monetary policy today, and while not a surprise, both central banks cited concern about the persistent lack of inflation. As I noted in yesterday’s DMR, the Fed faces the same problem, which may temper December rate hike expectations.
RBA holds steady on rates, offers upbeat statement. However, concerns remain about subdued industrial production, trade and inflation.
Gold higher at 1285.99 (+9.58). Silver 18.20 (+0.339). Dollar lower. Euro higher. Stocks called better. U.S. 10-year 1.84% (+2 bps).
The Great Silver Rush of 2016
Silver demand is running at record levels and the price is up over 30% on the year. Volume for the physical metal among USAGOLD’s clientele, mostly in the form of one-ounce silver bullion coins and 100 troy ounce bars, is running at levels apace the strong global trend. This series of charts provides an overview of the Great Silver Rush of 2016.
Global investors snapped up a record 89.6 million one ounce silver coins in 2015, according to USAGOLD’s annual survey of global bullion coin sales, and the strong demand has continued at a comparable pace in 2016. The U.S. Mint reports sales of just over 30 million one-ounce silver American Eagles thus far this year with another big demand pick-up in October. American Eagle sales are just one component of our four coin annual grouping and a bellwether for the rest of the global market. We suspect that once we compile the statistics from the four top mints for 2016, the chart will show volumes approaching the record performance of last year.
As you can see from the chart, demand for silver bullion coins grew significantly after the 2008 financial crisis and never returned to pre-crisis levels. The persistent demand over the period indicates lingering concerns among investors about the economy and continuing worry about the potential for a similar crisis at some future date.
Coin demand is only one segment of the burgeoning market for silver. Demand through silver ETFs is also running at record levels with a total of 938 million ounces now in aggregate holdings. ETFs are a favorite among major investment funds and institutions.
Chart courtesy of goldchartsrus.com/Nick Laird
As you can see by the chart immediately below, China has put its foot on the accelerator with respect to its silver purchases – a development widely neglected by the financial media. Take a look at the ramp-up of physical demand in China over the past two years (bottom bar chart). China’s quiet, nascent interest gives credence to silver’s graduation from commodity status to a monetary metal utilized by many investors as an asset of last resort, i.e., the other metal, besides gold, that separates itself from the pack as an asset that is not someone else’s liability. China, the largest single source of silver demand in Asia, is buying silver as a means to augmenting its attention-grabbing gold acquisition program.
Chart courtesy of goldchartsrus.com/Nick Laird
Past supply disruptions for silver Eagle coins signal more of same for future
The U.S. Mint reports sales for the silver Eagle would have been much higher in 2015 if it could have secured more coin planchets. Planchet manufacturers have consistently been unable to supply enough blanks to meet the extraordinary demand over the past several years. The mint suspended silver Eagle sales this past July when a sharp price decline generated huge demand among investors. It did not begin delivering wholesaler orders again until mid-August.
The U.S. Mint has suspended wholesale allocations for one or both metals in 2009, 2011, 2013, 2014 and 2015. Since the 2008 crisis, there have been numerous stoppages at other national mints in the face of strong, unprecedented investor demand for both gold and silver bullion coins that depleted stocks. As a result, worries about potential supply disruptions consistently haunt the bullion coin market.
Bill Bonner, the long-time market analyst who founded the Agora publishing empire, recently warned investors about the potential for further disruptions. Bonner focuses on gold but his warning could just as easily apply to silver:
“[T]here will be one important difference between the new super spike and what happened in 1980. Back then, you could buy gold at $100, $200, or $500 per ounce and enjoy the ride. In the new super spike, you may not be able to get any gold at all. You’ll be watching the price go up on TV but unable to buy any for yourself. Gold will be in such short supply that only the central banks, giant hedge funds, and billionaires will be able to get their hands on any. The mint and your local dealer will be sold out. That physical scarcity will make the price super spike even more extreme than in 1980. The time to buy gold is now, before the price spikes and before supplies dry up.”
If you are planning to buy silver – particularly if you are buying for a longer-term retirement plan – it might make sense to secure the metal now, while it can still be purchased at favorable prices and the market is functioning normally. If we do encounter another shortage, in all likelihood buyers will faced with three problems – rising prices, increased premiums and lack of availability.
There is an old truism about the precious metals market that applies to the current environment:
The time to buy gold and silver is when the markets are quiet. Apparently, as seen in these charts, a good many silver investors around the world (including some major hedge funds and financial institutions) have already taken that advice to heart.
This final chart shows the performance of silver relative to other investments thus far this year. It ranks fourth as of this posting and it has been as high as second. As you can see, silver has quietly gone about its business of providing a strong return while its more widely-publicized competitors, like stocks and bonds, have languished. (Note also gold’s strong performance.)
