Monthly Archives: September 2019
Gold drops below the key $1,500 mark to post lowest finish in 2 months
“Yellow metal loses 3.7% for the month, pares quarterly gain to 3.4% . . .’Naturally, a strong U.S. dollar is a headwind for gold priced in U.S. dollars,’ said Michael Armbruster, managing partner at Altavest. ‘However, technical considerations may be more influential on today’s action in the gold market,’ he said.”
USAGOLD note: This MarketWatch report echoes this morning’s DMR. The downside was more significant than most anticipated. We should keep in mind, though, the strong long position amassed at COMEX and the related overall gold market volatility (as chronicled here last week).
“Precious metals enjoyed their second biggest inflows ever in the week to Wednesday, Bank of America Merrill Lynch said on Friday, as festering trade tensions and global growth woes triggered a rush for safe haven assets.”
USAGOLD note: A short, two-paragraph report that says a great deal about current institutional money manager thinking. . . . . . .Follow the money! (Chart below shows repository, mutual funds and ETF stockpiles for gold, silver, platinum and palladium.)
Chart courtesy of GoldChartsRUs/Nick Laird
“Sam Zell, the founder of Equity Group Investments, says he bought gold for the first time in his life because ‘it’s a good hedge.'”
USAGOLD note: Billionaire Sam Zell is not the first property mogul to become a gold owner, nor will he be the last. He adds his name to a long list of renowned money men who have made their interest in gold public over the past several months.
Repost from 1-19-2019
“There are now several geo-economic games of chicken playing out. In each case, failure to compromise would lead to a collision, most likely followed by a global recession and financial crisis.”
USAGOLD note: Roubini has never been an advocate of gold ownership. At the same time, the scenarios he outlines cry out for it.
Repost from 9-25-2019
“European Central Bank President Mario Draghi said the Governing Council should be open to ideas such as Modern Monetary Theory, while noting they’re closer to fiscal policy and should be directed by governments.”
USAGOLD note: A wake-up call for the more than 500 million citizens of the European Union who save, invest and conduct commerce in the euro.
Repost from 9-25-2019
“Put otherwise, the Fed is back where it was roughly a decade ago, effectively buying U.S. Treasuries from banks on an indefinite basis. But the difference this time? There’s no financial crisis in sight, just the uncomfortable fact that private capital markets once again need public support.”
USAGOLD note: This Fortune article concludes that the Fed has already launched the “equivalent” of a new round of quantitative easing.
Repost from 9-25-2019
(USAGOLD – 9/30/2019) – Traders pushed gold well below the psychologically important $1500 mark overnight – weakness that carried over to the COMEX open. The reversal is a continuation of the trend that began at the $1530 level early last week. The metal is now trading at $1483 – down $14 on the day. Silver is down 32¢ at $17.21. At this juncture, we are content to blame the downside more on profit-taking and a technical correction than any deep-seated change in the geopolitical and economic concerns hanging over financial markets these days. Quite a few technical analysts have predicted support coming into the market at the $1484-1485 level. We will soon see if that support is going to materialize.
Quote of the Day
“Bloomberg terminals, the financial software system used by countless analysts and traders around the world, has a problem: its system cannot price callable bonds using negative interest rates. Programmers never considered such a scenario, and thus failed to code the system accordingly. So users get an error message when they attempt to force negative bond yields into their machines. . .“Under what scenario would anyone lend $1,000 to receive $900 in return at some point in the future?” ” – Jeff Diest, Mises Institute (Negative Interest Rates are the Price We Pay for De-Civilization)
Chart of the Day
Chart courtesy of Visual Capitalist
Chart note: “Historically,” says CNBC’s Maggie Fitzgerald in a recent article, “people give the government their money, instead of spending it, with the promise of being paid back over time, with interest. Now, governments are essentially getting paid to borrow money, as people become increasingly desperate for a safe haven for their wealth.” About 25%, or $15 trillion, of the global debt draws a negative rate of interest.
“To this point, it’s been the Teflon President affixed to Teflon markets. But between ‘repo’ market instability, Washington chaos, the risk of serious trade war escalation – in a world of heightened financial, economic and geopolitically instability – there is a scenario where the unraveling begins. Markets have to this point demonstrated astounding faith that the President will ultimately act in their best interest. As always, markets are a contest of greed and fear. One of the bad scenarios would be the markets fearing an administration resorting to a ‘scorched earth’ gambit.”
USAGOLD note: Noland offers his take on the repo market meltdown – a walk through the numbers that leaves one with thoughts about a blackhole of financial debt from which there is no escape.
Repost from 9-29-2019
“China’s net monthly gold imports via Hong Kong in August surged nearly 61%, after falling to their lowest in more than eight years in July, the Hong Kong Census and Statistics Department data showed on Thursday.”
USAGOLD note: From West to East the yellow metal flows. . . .The uptick, according to Reuters, follows a loosening of import restrictions launched that “stopped an estimated 300-500 tonnes” from crossing China’s borders since May.
“The White House is weighing a plan to stop Chinese companies listing on US exchanges in a move that would take its trade war with China to Wall Street.
Note: Commitment of Traders reports are published Friday with data from the previous Tuesday.
Gold Non-Commercial Speculator Positions:
Large precious metals speculators lifted 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 312,444 contracts in the data reported through Tuesday September 24th. This was a weekly advance of 29,845 net contracts from the previous week which had a total of 282,599 net contracts.
The week’s net position was the result of the gross bullish position (longs) rising by 28,882 contracts (to a weekly total of 370,393 contracts) while the gross bearish position (shorts) fell by -963 contracts for the week (to a total of 57,949 contracts).
Gold speculators sharply raised their bets this week for a 2nd straight week and by the most in the past seven weeks. The boost in bullish bets brings the current standing to the highest level since July 5th of 2016, a span of one hundred and sixty-eight weeks.
The gain in speculative bullish bets this week has now pushed positions higher for sixteen out of the past twenty-two weeks.
Gold Commercial Positions:
The commercial traders position, hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -345,145 contracts on the week. This was a weekly decline of -26,746 contracts from the total net of -318,399 contracts reported the previous week.
Over the same weekly reporting time-frame, from Tuesday to Tuesday, the Gold Futures (Front Month) closed at approximately $1540.20 which was an uptick of $26.80 from the previous close of $1513.40, according to unofficial market data.
Silver speculators lowered their bullish bets for 3rd straight week
Silver Non-Commercial Speculator Positions:
Large precious metals speculators decreased their bullish net positions in the Silver futures markets again 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 50,729 contracts in the data reported through Tuesday September 24th. This was a weekly fall of -5,249 net contracts from the previous week which had a total of 55,978 net contracts.
The week’s net position was the result of the gross bullish position (longs) decreasing by -623 contracts (to a weekly total of 94,002 contracts) while the gross bearish position (shorts) rose by 4,626 contracts for the week (to a total of 43,273 contracts).
Silver speculators continued to pare their bullish bets for a third straight week after previously rising for three straight weeks. These recent declines have been modest and follow up a streak of bullish gains in ten out of the previous fourteen weeks. The current standing remains above the +50,000 net contracts level for a fifth consecutive week – the first time that has happened since January-February of 2019.
Silver Commercial Positions:
The commercial traders position, hedgers or traders engaged in buying and selling for business purposes, totaled a net position of -75,779 contracts on the week. This was a weekly increase of 1,768 contracts from the total net of -77,547 contracts reported the previous week.
Over the same weekly reporting time-frame, from Tuesday to Tuesday, the Silver Futures (Front Month) closed at approximately $1862.80 which was a boost of $48.80 from the previous close of $1814.00, according to unofficial market data.
US Dollar Index speculators raised their bullish bets for 5th week
US Dollar Index Speculator Positions
Large currency speculators slightly increased 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 41,939 contracts in the data reported through Tuesday September 24th. This was a weekly uptick of 165 contracts from the previous week which had a total of 41,774 net contracts.
This week’s net position was the result of the gross bullish position (longs) gaining by 687 contracts (to a weekly total of 50,313 contracts) which just eclipsed the gross bearish position (shorts) which rose by 522 contracts on the week (to a total of 8,374 contracts).
US Dollar Index speculators advanced their bullish bets for a fifth straight week and for the eleventh time out of the past thirteen weeks. The gain this week brings the current bullish standing to the most bullish level since April 25th of 2017, a span of one hundred and twenty-six weeks.
“John Williams, president of the New York Fed, on Friday questioned the hesitance of the banks in an interview with the FT. ‘The thing we need to be focused on today is not so much the level of reserves [held at the Fed],’ he said. ‘It’s how does the market function.'”
USAGOLD note: We find ourselves in the very odd position of dealing with a repo market that no one completely understands. Williams’ quandary over how the market functions offers some hard evidence of the “uncharted waters” theme we have featured on this page over the past few weeks. That uncertainty, of course, is the result of the low to below-zero interest rate environment. The repo market may not be the only sector of the money markets where danger lurks.
Repost from 9-22-2019
“The Fed’s return to system liquidity injections after a decade hiatus received abundant media coverage. For the most part, analysts were pointing to a confluence of unusual factors: $35 billion money market outflows to fund September 15th quarterly corporate tax payments; settlements for outsized Treasury auctions; and the approaching end to the quarter (where money center banks generally reduce balance sheet leverage for financial reporting and regulatory purposes). Missing from the discussion was that this week’s money market tumult followed on the heels of instability in other markets.”
USAGOLD note: Doug Noland digs into the repo market breakdown last week with his usual attention to detail. The above should serve as introduction to the thorough discussion at the link above. “Autumn,” he concludes, “is set up for some serious instability.”
Repost from 9-21-2019
“When Volcker looks around now, he sees ‘a hell of a mess in every direction,’ including a lack of basic respect for government institutions, a current Fed that seems to be following a completely arbitrary benchmark and a ‘swamp’ in Washington run by plutocrats.”
USAGOLD note: Volcker has always been known for speaking his mind plainly and usually with deep insight. In that single sentence, though, he seems to have outdone himself. . . .and pretty much summed things up.
Image by European People’s Party (EPP Congress Bonn) [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons [Edited]
Repost from 10-24-2018
“For investors taking a breather from the chaos in August, buckle up as the market is about to go crazy again, Goldman Sachs warned.”
USAGOLD note: Historically, October is the month when markets have been known to go bump in the night.
Repost from 9-21-2019
A Gold Classics Library Selection
A Layman’s Guide to Golden Guidelines
for Wise Money Management
Gresham’s Law, Say’s Law, Rule of 72, Marginal Utility, Diminishing Returns, Regression to the Mean, Unintended Consequences, Murphy’s Law, Occam’s Razor, Law of Attraction, Law of Polarity, and more
by R.E. McMaster, former editor of The Reaper newsletter
There is an old saying that not all that glitters is gold — as in the gold coins many of you have held in your hands. There is another kind of gold that inhabits the practical wisdom of the ages. In today’s “go-get-’em,” “read-it-and-forget-it” world of everyday web browsing, it can be a challenge to separate the run of the mill from the meaningful. It is with that thought in mind we offer this compendium of the rules and laws of finance and investment by long-time market analyst R.E. McMaster. Formerly the writer/editor of the widely-circulated The Reaper newsletter, McMaster is known for his occasional forays into the realm of economic philosophy and history. I think you will agree with me that these skillfully condensed descriptions are indeed meaningful — a wellspring of knowledge worth reading, re-reading and passing along to friends and family, especially the kids and grandkids.
(Illustrations by Ed Stein)
(USAGOLD – 9/27/2019) – Gold dropped through the psychologically important $1500 mark in early European trading after Iran’s President Hassan Rouhani announced that the United States offered to remove “all sanctions on Iran in exchange for negotiations,” according to a CNBC report. Oil tumbled on the news and gold along with it. Thus far, there has not been verification of Rouhani’s claim from the American side. The yellow metal is down $17 at $1490. Silver is down 52¢ at $17.39. The news from the Middle East overshadowed lingering concern about the Fed’s continuing bail out of the repo market. In a report released yesterday, TD Securities addresses those concerns and how they might impact the gold market.
“This short-term repo market turmoil,” reads the report, “prompted the US central bank to inject just over $140 billion worth of liquidity into the market with a promise of more. The associated volatility before the intervention and the resulting speculation of systemic issues that may make it necessary to permanently expand the Fed’s balance sheet, should also help to keep gold bid. Indeed, The New York Fed announced that they would increase their daily repo transactions from the previously announced $75 billion to $100 billion through October 10th, and also offer two-week repo trades as well, which they increased from $30 billion to $60 billion, which should all help gold move into $1,600/oz territory.”
Quote of the Day
“One of the most important warnings offered by firefighters is simple: get out early. In the face of wildfires, some homeowners get the idea of staying in their homes and riding it out. As one firefighter warned ‘The point is to go.’ But if you don’t, it’s better to stay than to panic and run in the midst of a firestorm of smoke and embers. It’s not the fire that gets you. It’s the heat. Even before the flames reach the house, it can be fatal to stand outside trying to protect what you have (h/t John Galvin). Similarly, our ‘Exit Rule for Bubbles’ is straightforward: You only get out if you panic before everyone else does. You have to decide whether to look like an idiot before the crash, or look like an idiot after it.” – John Hussman, Hussman Funds
Chart of the Day
Chart note: We will let the chart speak for itself. Where do you believe we are in the stock market cycle? And where would you place gold?
“In the days, weeks, months and probably years ahead, the Federal Reserve will be conducting operations that look and sound a lot like what it did to pull the economy out of the financial crisis. However, the process this time around will be different in the details.”
USAGOLD note: Printing money by any other name is still printing money. . . . .The chart below of U.S. Treasury securities held by the Federal Reserve shows an abrupt reversal of the quantitative tightening program begun in early 2018.
Chart courtesy of the St. Louis Federal Reserve [FRED]
Source: Board of Governors Federal Reserve System [US]