Monthly Archives: July 2019
“Central bankers voted, with two officials dissenting, to lower the target range for the benchmark rate by a quarter-percentage point to 2%-2.25%. The shift was predicted by most investors and economists, yet will disappoint President Donald Trump, who tweeted on Tuesday he wanted a ‘large cut.’’’
USAGOLD note 1: Pretty much as expected. . . .Gold yoyo-ed down to $1417, then back up to $1429 initially. Please check back. We will update with an Afternoon Report later if warranted.
Late Afternoon Update: There is quite a bit of confusion with respect to what the Fed chairman said and meant during his after-meeting press conference. At first he said that the cut was a “mid-cycle adjustment.” He then clarified nearly in the same breath, according to this Bloomberg article, that “the Fed wasn’t one-and-done in terms of further cuts.” It is there that the confusion sets in. The markets were sent reeling – reacting to the first half of the statement. President Trump, needless to say, was not pleased with the Fed chair’s portrayal of policy saying “as usual Powell let us down.” For its part, gold bolted lower, then higher and then lower again. Tomorrow is another day. . . .And if there was ever a time for a day-after clarification from the Fed this might be it.
“When you’ve got Fed banks publicly praising negative interest rates, get ready… because it means they’re considering bringing negative rates to the US. And that’s incredibly bullish for gold. We’re not the only ones who think so…”
USAGOLD note: How quickly things can change. . .As if things aren’t bad enough for savers around the globe.
Repost from 2-14-2019
(USAGOLD – 7/31/2019) – All is quiet. The gold market is on hold. This afternoon we will hear from the Fed and that will mark where the next chapter begins. As it is, gold is trading level on the day at $1431. Silver is down 10¢ at $16.45. A CNBC article under the headline “Gold is set to surge no matter what the Fed does” offers perspective from a couple of regular contributors to its FuturesNow program – Alan Grisanti and Scott Nations.
– “Hedge funds have added about 60,000 contracts over the last five weeks in gold, so they’re getting long at a terrific pace right now in gold,” says Grisanti who thinks the Fed will hold off on a cut. “Say the Fed doesn’t do anything tomorrow, as I expect, and you have a big sell-off in equities, which I expect — then I think people … are going to look at gold and say, ‘Hey, maybe we need to own this for protection.’”
– Nations, a perennial gold bear who is now long gold, says “I think the Fed is going to cut. But, also, … more importantly, interest rates in Europe are incredibly low . . . What does that do? It means that the opportunity cost from owning gold, or the penalty for storing and insuring it, disappears.”
We will know more in a few hours time.
Quote of the Day
“Markets may have rallied on Donald Trump’s potential trade ‘deal’ with China, but the corporate world isn’t buying it. That’s one of the key points I took away from several days spent last week at a summit for global chief executives. They were busy preparing for a new world order that many believe will involve a stand-off not between two countries (the US and China) but between three systems — liberal democracy and free markets, state-run capitalism and cyber-libertarianism.” – Rana Foroohar, Financial Times
Chart of the Day
The biggest foreign holders of U.S. debt
Chart note: “The total amount of treasury securities issued to foreign countries is $6.433 trillion,” says HowMuch.net. “China currently holds the most U.S. debt due to a variety of factors, including China’s desire to keep the yuan weak compared to the dollar. Most of the treasury securities held by other countries are in the form of treasury notes and bonds, rather than treasury bills. The top five countries in the visualization (China, Japan, Brazil, United Kingdom, and Ireland) account for almost half of the treasury securities held by foreign countries.”
Bloomberg/Jess Shankleman and Alex Morales/7-30-2019
“Prime Minister Boris Johnson refused to back down over his threat to take the U.K. out of the European Union without a deal, despite a growing backlash over the impact his strategy is having on the pound. Johnson’s office hinted on Tuesday that another round of Brexit talks might not happen at all . . .”
USAGOLD note: The flip side of the cratering pound is the rising price of gold in that currency:
Chart courtesy of TradingView.com
“Donald Trump lashed out at China and the US Federal Reserve on Tuesday, unsettling investors worried about mounting risks to the global outlook. Typically aggressive outbursts by the US president hit equity markets in both the Europe and the US on a pivotal day for the international economy.”
USAGOLD note: The Fed is unlikely to go more than a quarter point and China is unlikely to roll over anytime soon. . . The markets seem to be holding up fairly well. We will know more by the end of the day.
“This is how the bond market dies. Can you even call that sort of thing a bond? It offers no fixed-income payments and guarantees a loss if held to maturity. My hunch is that if this continues unabated, central banks will be one of the few (if not only) consistent buyers of those securities, as they already are in certain corners of the world.”
USAGOLD note: The developing bond market story is a strong argument in behalf of the developing gold market argument. Chiapatta references the thinking of Bridgewater’s Ray Dalio who advocates gold ownership for what he calls the coming paradigm shift.
Image courtesy of Visual Capitalist
“Although we have not had a Fed rate cut exactly yet, we have expectations that rates are going to go lower particularly real interest rates (the nominal interest rate minus inflation) and so that typically means gold’s price is on the rise and I think this move is here to stay.” – Will Rhind, Graniteshares
USAGOLD note: Rhind goes to say “right now it’s all about interest rates” not fear of an economic breakdown.
Repost from 6-27-2019
“No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counter-party. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.” – Alan Greenspan, former chairman of the Federal Reserve
Image courtesy of the British Museum Collection/Lydia, croesid, ca 550 BC
Repost from 10/15/2018
“And while gold’s price increase in June was particularly sharp – driven by falling rates, higher risk and momentum – investors have generally been more bullish this year. This is evidenced by the positive inflows in gold-backed ETFs, capturing US$5.0 billion or 108 tonnes (t) y-t-d led by European funds,2 – as well as higher net longs in COMEX futures which averaged 369t during the first half. In addition, central banks reported net purchases of approx. 247t, equivalent to US$10 billion, through May3 – continuing their expansion of gold holdings as part of foreign reserves.”
USAGOLD note: A solid overview of the forces at work in the gold market from the World Gold Council. . . . Especially helpful for those looking to catch-up on the gold market fundamentals.
Repost from 7-23-2019
Strategic Wealth Preservation/Jeff Thomas/7-23-2019
“But something else has changed in the ensuing five years. Americans, even those with a minimal grasp of economics, are beginning to feel in their gut that something’s rather badly amiss. The US is becoming divided between those who would like to back off from the fiscal precipice and those who are leading a charge toward it. We’re now witnessing a host of players on the scene, who claim that the only problem with debt is that not enough has been created; that it should be increased dramatically and that the government should use it to provide free healthcare, free college for all, and a guaranteed minimum income for all, even those who don’t wish to work.”
USAGOLD note: It is hard to digest the fact that the United States might be headed at some juncture over the hyperinflationary cliff, but this article by Jeff Thomas tells how it might happen – believe it or not. Let’s face it, who would have thunk a year ago that a large portion of the Democratic Party would embrace Modern Monetary Theory – a scheme that holds to unlimited government deficits and printing money to cover them.
Repost from 7-24-2019
(USAGOLD – 7/30/2019) – Gold is bumping along at higher levels this morning as financial markets await the outcome of the FOMC meeting scheduled to begin this morning and run through tomorrow afternoon. It is up $5 at $1429.50. Silver is up 7¢ at $16.51. Typically, gold does not react well to Fed meetings. As a result, some might read today’s minor upside as an encouraging sign. Simultaneously, the trade talks in Shanghai have opened on a sour note with a ‘tweetstorm’ from the President Trump criticizing China’s negotiating tactics and throwing cold water on a positive outcome before the 2020 election.
In a recent SafeHaven article citing Russia as the world’s largest gold buyer, Alex Kimani says there are two operative trends in the gold market investors should keep in mind. “Obviously,” he says, “central banks amping up their gold buying activity is bullish for gold. Central banks on average buy 15-20 percent of total mine output in a typical year and this might increase significantly in the coming years if the current trend continues. There’s a bigger reason though why higher gold prices are likely to be supported in the near and mid-term – dovish central banks.”
Quote of the Day
“You don’t need to wait until things get so bad to have a dramatic series of rate cuts. We need to make a decision based on where we think the economy may be heading and, importantly, where the risks to the economy are lined up.’” – Richard Clarida, Fed vice-chairman
Chart of the Day
Chart note: This chart shows the connection between inverted rates and recessions. Some say that the rate inversions predict recessions, other say inversions create recessions. Either way, central banks tend to stimulate economies when recessions surface or even prior to their surfacing. The next Federal Reserve Open Market Committee meeting occurs Tuesday and Wednesday and we should know more about its rate stance by Wednesday afternoon. The Committee is widely expected to lower rates for the first time in a decade.
“The U.S. Treasury Department said it plans to borrow more than twice as much as previously anticipated in the third quarter, assuming lawmakers free up spending by lifting the debt ceiling.The department expects to issue $433 billion in net marketable debt from July through September, $274 billion more than it estimated in April, according to a statement released Monday in Washington.”
USAGOLD note: And if a recession hits, these numbers are just a beginning. . . By the way, if the borrowing were to run at this pace over a twelve month period, the addition to the national debt would be over $1.7 trillion.
“And there’s an obvious reason for China to buy gold. It wants to break up the global hegemony of the U.S. dollar — the hegemony that former French President Charles de Gaulle called America’s ‘exorbitant privilege.’ It wants to make its own currency, the renminbi, a world player. And Odey argues that buying gold bullion is a natural move. Gold reserves should add to world confidence in the Chinese currency.”
USAGOLD note: One sure way to build public confidence in a currency is to put gold on the central bank’s balance sheet as a reserve asset. As the World Gold Council points out “European policymakers continued to believe that gold strengthened the balance sheet of a central bank and enhanced public confidence.” Crispin Odey’s comments about how all this relates to private gold ownership are worth noting.
“Silver is looking precious again and has shaken off its industrial malaise. ETF holdings have reached a new high, but speculative futures positioning is well below its highest level, leaving room for further upside.”
USAGOLD note: The German refiner weighs in on the precious metals . . . .
“On the one hand, investors are looking for safe havens in times of crisis, and gold is the classical safe-haven asset. On the other hand, many investors will anticipate monetary and fiscal stimuli, and buy gold for inflation protection. We wanted to analyse the development of gold and stock prices throughout recessions with more granularity.”
USAGOLD note: Stoeferle goes on to offer a detailed look at gold’s performance in past recessions and what might be likely if we enter a new one in the near future.
“A gold standard would make deficit spending much more expensive. It would limit the central bank’s ability to take the kind of extraordinary measures that it did during the financial crisis to stop the economy from going into freefall. And it would link the Fed’s interest rate decisions to gold market fluctuations rather than to its current goals of fighting inflation and maximizing employment.”
USAGOLD note: In other words, it would end running government deficits and printing money to cover them. Reading this Politico article, which delves into the Beltway reaction to Judy Shelton’s advocacy of the gold standard, confirms something we have said repeatedly here: We will not be returning to the gold standard anytime soon. Instead, we are more likely to head in precisely the opposite direction necessitating a a firm commitment on the part of investors to hedging further currency detrioration – not just in the United States but around the world.
“A lot of market commentary sees tariffs and the trade war as temporary events. A U.S.-China trade deal, the thinking goes, will sound the ‘all clear’ signal for markets and the economy. But there are indications that we may be in for a longer, more protracted set of trade battles: a Forever Trade War that could last the balance of the Trump administration.”
USAGOLD note: Leisman is not alone in making this assessment. Financial Times raised a similar concern in this morning’s edition saying that “Washington would target Europe after reaching a possible trade deal with China.”
Related: US threat of $11bn EU tariffs increases tension/Financial Times/James Politi and Jim Brundsen/4-10-2019
Repost from 4-10-2019
[New note: Even the U.S.-China dispute shows signs of dragging on for the interim particularly in light of the President’s recent comments on the subject.]
“Index funds would stampede out of stocks. Passive investors would look for active investors to ‘step up’ and buy. The problem is there wouldn’t be any active investors left, or at least not enough to make a difference. There would be no active investors left to risk capital by trying to catch a falling knife. Stocks will go straight down with no bid. The market crash will be like a runaway train with no brakes.
USAGOLD note: James Ricards does an excellent job of explaining the systemic issues and dangers robot trading imposes on the ordinary investor.
Repost from 7-24-2019
JP Morgan study ranks gold second best
investment over past twenty years
J.P. Morgan Asset Management released a report recently ranking investments over the past twenty years. It shows gold as the second best performer over the period at a 7.7% average gain annually. REITs (Real Estate Investment Trusts) were number one at a 9.9% gain. Stocks ranked fourth at 5.6%.
“Consumers in leading Asian hubs continued to sell off physical gold this week, with some switching their holdings to silver, after a jump in prices that also attracted interest from investors betting further gains. Global benchmark spot gold surpassed $1,450 an ounce for the first time in more than six years on Friday. ‘Demand has been muted, with most people selling off gold to take profit,’ said Brian Lan, managing director at Singapore dealer GoldSilver Central. However, with many people looking to rebalance their portfolio ‘gold is the asset to be in this year’, he added.”
USAGOLD note: Slowly, the investing public is returning to gold. This report is out of India. Here at USAGOLD, we are beginning to hear again from long-time clientele who have decided it is time to shore-up their portfolios against possible economic or financial market disruptions (as the quote above indicates is the case in India) and, even more so, because the metals seem undervalued at current prices.
Repost from 7-24-2019
(USAGOLD – 7/29/2019) – Gold inched higher to begin what many see as an even week. It is trading at $1420 – up $1.50 on the day. Silver is up 2¢ at $1639. This week, gold will be looking for direction to the results of the Fed meeting on Wednesday, but there is much else on financial markets’ table. Trade talks will resume between the U.S. and China on Monday and a jobs report is due on Friday. If the Fed cuts rates by a quarter-point – the consensus opinion – it will be the first reduction in a decade. “Get ready for the biggest week of 2019,” suggests Bloomberg this morning.
“Gold is definitely in a new, higher trading range,” says Joe Foster, portfolio manager at Van Eck Securities, in a Seeking Alpha article, “and it may have begun a new bull market. If you look at manufacturing around the world, it’s been weak. Manufacturing numbers in the U.S. have been deteriorating. I believe we are in a manufacturing recession. If that becomes a broader economic recession, then that brings out risks in the economy that could drive gold much higher.”
We do not expect the expiration of the long-standing Central Bank Gold Agreement to have a material effect on the market. That agreement regulated sales and leases of gold through Europe’s central banks. Those practices have wound down considerably on their own since the 2008 financial crisis. Instead, some countries – most notably Germany, Netherlands and Austria – have repatriated gold from overseas storage facilities indicative of a trend to demobilize reserves. Others – like Russia, China, Hungary and Poland – have become buyers instead. The ECB announced on Friday that none of the original signatories intends to sell “significant amounts of gold.” Leasing was not mentioned in the release.
Quote of the Day
“More importantly, a new multi-year bull market has now emerged. Turning points from bear to bull markets (and vice versa) are not always recognized in real time because investors and analysts are too wedded to the old story to see that the new story has already started. But, looking back it’s clear that the bear market ended in December 2015 at the $1,050 per ounce level and a new bull market, now in its fourth year, is solidly intact. The recent break-out to the $1,440 per ounce level is a strong 37% gain for the new bull market. This price break-out has far to run. (The 1971 – 1980 bull market gained over 2,100%, and the 1999 – 2011 bull market gained over 650%).” – James Ricards, Daily Reckoning
Chart of the Day
Chart note: It has been a good year thus far for gold and silver. Gold is up 10.38% since the beginning of 2019 and silver 7.1%. Of late, silver has been in catch-up mode as you can in the sharper acceleration of its trend line over the past 30 days.
“The issue is not some ‘disease of low inflation.’ There’s plenty of inflation, it’s just neither uniform nor necessarily in all the avenues central bankers prefer. There has been strong inflation in securities prices, with the term ‘hyperinflation’ fitting for some global bond markets (i.e. Italy, Greece, Portugal, Spain, Slovenia, etc.). Global stock prices are locked in a powerful late-cycle (speculative) inflation dynamic. Global real estate markets remain in a strong inflationary environment, along with asset prices more generally. The price dynamic for high-end collectables is hyperinflationary.”
USAGOLD note: Noland reminds us that the inflation – even hyperinflation – is not in goods and services, but in asset values. All’s well, until it isn’t. . . . .
Repost from 7-28-2019
“Later on Friday, Mr Trump appeared to contradict Mr Kudlow by suggesting that he had not made a final decision on whether to take action to attempt to weaken the dollar. ‘I didn’t say I’m not going to do something,’ Mr Trump told reporters in the Oval Office.”
USAGOLD note: Kudlow sweeps intervention under the rug. The president sweeps it back out. This article delves into the intervention possibilities in some detail. Worth the visit as this possibility is still on the table.
“U.S. President Donald Trump on Friday offered a pessimistic view on reaching a trade deal with China, saying Beijing may not sign one before the November 2020 election in hopes a Democrat who will be easier to deal with, will win.”
USAGOLD note: Few would quarrel with the President’s observation. . . But what does it mean for the economy and markets?
Note: Commitment of Traders reports are published Friday with data from the previous Tuesday.
Gold specs raise bullish bets for 7th time in 8 weeks
Gold Non-Commercial Speculator Positions:
Large precious metals speculators continued to increase their bullish net positions in the Gold futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
The non-commercial futures contracts of Gold futures, traded by large speculators and hedge funds, totaled a net position of 251,250 contracts in the data reported through Tuesday July 23rd. This was a weekly advance of 5,749 net contracts from the previous week which had a total of 245,501 net contracts.
The week’s net position was the result of the gross bullish position (longs) gaining by 2,346 contracts (to a weekly total of 311,881 contracts) and the gross bearish position (shorts) falling by -3,403 contracts for the week (to a total of 60,631 contracts).
The current standing of net positions is above the +200,000 net contract level for a sixth consecutive week after having spent the previous seventy-one weeks below this level.
Gold Commercial Positions:
The commercial traders position, hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -287,839 contracts on the week. This was a weekly fall of -10,431 contracts from the total net of -277,408 contracts reported the previous week.
Over the same weekly reporting time-frame, from Tuesday to Tuesday, the Gold Futures (Front Month) closed at approximately $1421.70 which was a gain of $10.50 from the previous close of $1411.20, according to unofficial market data.
Silver specs push bullish bets to 21-week high
Silver Non-Commercial Speculator Positions:
Large precious metals speculators sharply raised their bullish net positions in the Silver futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
The non-commercial futures contracts of Silver futures, traded by large speculators and hedge funds, totaled a net position of 54,761 contracts in the data reported through Tuesday July 23rd. This was a weekly jump of 17,336 net contracts from the previous week which had a total of 37,425 net contracts.
The week’s net position was the result of the gross bullish position (longs) gaining by 9,680 contracts (to a weekly total of 110,129 contracts) and the gross bearish position (shorts) lowering by -7,656 contracts for the week (to a total of 55,368 contracts).
The large speculators added to their existing bullish positions for a second straight week and by a total of +29,610 contracts over that period. Bullish bets have now risen by at least +10,000 contracts in six out of the past eight weeks and that positive sentiment has taken the net position from -8,443 contracts on June 4th to a total of +54,761 contracts this week.
The current bullish position is at the best level since February 26th when the total was +58,313 contracts.
Silver Commercial Positions:
The commercial traders position, hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -76,138 contracts on the week. This was a weekly drop of -16,781 contracts from the total net of -59,357 contracts reported the previous week.
Over the same weekly reporting time-frame, from Tuesday to Tuesday, the Silver Futures (Front Month) closed at approximately $1647.60 which was a boost of $79.80 from the previous close of $1567.80, according to unofficial market data.
Speculators add to US Dollar Index bullish bets
US Dollar Index Speculator Positions
Large currency speculators raised their bullish net positions in the US Dollar Index futures markets this week, according to the latest Commitment of Traders (COT) data released by the Commodity Futures Trading Commission (CFTC) on Friday.
The non-commercial futures contracts of US Dollar Index futures, traded by large speculators and hedge funds, totaled a net position of 29,128 contracts in the data reported through Tuesday July 23rd. This was a weekly gain of 1,796 contracts from the previous week which had a total of 27,332 net contracts.
This week’s net position was the result of the gross bullish position rising by 5,766 contracts (to a weekly total of 42,218 contracts) compared to the gross bearish position which saw a boost by just 3,970 contracts for the week (to a weekly total of 13,090 contracts).
Speculators have now pushed their bullish bets higher for a fourth straight week and for the seventh time out of the past ten weeks. The current standing for Dollar Index positions has risen to the most bullish level since April 9th, a span of fifteen weeks.
“Switching gears a little, our call of the day from Commerzbank says a “long-neglected” commodity has waked from a ‘deep slumber’ and is ready to roar. Silver hit a 13-month high last week and marked its eighth gain in nine sessions on Wednesday, reaching $16.626 an ounce. The commodity is ‘still relatively good value as compared with gold, which is why we expect the upswing to continue,’ Commerzbank analyst Carsten Fritsch, who bumped his year-end forecast to $18 an ounce, told clients in a note Thursday. Silver is up 6% year-to-date versus gold’s gain of 11%.”
USAGOLD note: A short treatise on why silver might make some sense for portfolio diversification at this point in time. . . . . .
India gold imports increase 46 percent in June quarter
The Asian Age/Sangeetha G/7-26-2019
“Gold imports for domestic consumption in June quarter rose 46 per cent to 185.2 tonnes from 126.5 tonnes in the same quarter last year. Meanwhile gold demand at the retail end rose 14 per cent to 212 tonnes.”
China’s June net gold imports via Hong Kong slump to 9-month low
Reuters/Harshith Aranya and Arpan Varghese/7-25-2019
“Net imports via Hong Kong to China, the world’s top consumer of the metal, decreased to 14.043 tonnes in June from 21.733 tonnes in May, according to the data. The June imports touched the lowest since September 2018, when they stood at about 11.059 tonnes.”
USAGOLD note: Please note that the numbers on China are monthly and India is quarterly. India’s growth in imports pretty much offsets China’s decline.
Trump dismissed plan to devalue U.S. dollar
“White House trade adviser Peter Navarro presented President Donald Trump on Tuesday with ideas on how to devalue the United States dollar to gain an upper hand in the trade fight with China, two people familiar with the presentation said. But the president, who has regularly accused other countries of unfairly devaluing their own currencies, quickly shut him down and dismissed the proposals, the people added.”
Kudlow: ‘I wouldn’t expect any grand deal’ on China
“’I wouldn’t expect any grand deal,’ Kudlow told CNBC’s ‘Squawk on the Street’ on Friday. ‘Talking to our negotiators, I think they’re going to reset the stage and hopefully go back to where the talks left off last May.’”
USAGOLD note: Gold gave up most of today’s gains after Politico published the report referenced above, then quickly began to rise again as markets digested the rest of today’s news on China. According to the Politico report, the president shut down talk of devaluing the dollar immediately and in no uncertain terms.
“Just because society experiences turmoil doesn’t mean your personal life has to. And a depression doesn’t have to be depressing. Most of the real wealth in the world will still exist – it will just change ownership.”
USAGOLD note: Doug Casey says the next one will be big one. . . .
Repost from 7-22-2019