GOLD MARKET UPDATE
(USAGOLD – 8-1-2019) – Gold is staging a remarkable turnaround today from the $28 drop following the Fed chairman’s press conference yesterday. As of this update, it has regained all of that loss and more after turning around convincingly at the $1400 level. It is now up $25 on the day at $1438. Silver is following suit but muted thus far – now up 4¢ at $16.28. The sudden turnaround came with an abrupt change in the interpretation of the Fed chairman’s comments yesterday. The new, prevailing view on Wall Street is that there might be at least one future rate cut after all. Along with gold rising, stocks are also up and the bond market is pricing in lower rates in the future. “The bond market,” writes CNBC’s Patti Domm, “is taking on the Fed, betting the Fed is mistaken in its view that it does not need to cut rates very much.”
President Trump tweeted earlier that the United States will impose a new “small” 10% tariff on Chinese imports. Stocks reversed. Gold shot higher. The breakdown in talks between the U.S. and China a couple of days ago got lost in the Fed shuffle yesterday.
Aside: Has a ‘buy-the-dip’ mentality returned to the gold market?
(USAGOLD – 8/1/2019) – Gold tumbled further this morning in the aftermath of yesterday’s Fed meeting and news conference. It is down $6 on the day at $1406 and down $24 since the meeting’s conclusion. Silver is down 24¢ this morning at $16.02 and down 48¢ since the end of the meeting. Both are backing against psychologically important target zones – $1400 for gold and $16 for silver – with silver appearing the most threatened. CNBC is running a headline article this morning that sums up the reaction to yesterday’s events: Economists who predicted the rate cut are now utterly confused about what the Fed does next. Meanwhile, European central bankers simultaneously are edging towards a new round of quantitative easing and the Bank of Japan has vowed to turn up the monetary faucet at the first sign of trouble.
In the interest of keeping a more inclusive picture in focus, we pass along an observation from Stephane Monier, chief investment officer at Swiss-based bank Lombard Dodier. “T]he global economy’s greater dependence on unconventional monetary policy,” he says in an Expert Investor article, “and inflated central bank balance sheets threatens confidence in the financial system itself. If the next stage in monetary policy fails to improve economies sustainably, investors may turn away from cash and towards gold. We expect the combination of low government bond yields, uncertainty around US-China trade relations and a weakening US dollar to stay with us in the months to come. This is an environment supportive for both gold prices and gold’s effectiveness as a hedge.”
Quote of the Day
“Gold has always been seen as an important diversifier in an investor’s portfolio, both as a hedge against inflation and equity fluctuations. However, investors should start thinking of gold as an Alpha generator in their portfolios. Gold’s technical picture has changed this year, and I strongly believe it is set to embark on a multi-year uptrend.” – Greenwood Investments, Seeking Alpha
Chart of the Day
Chart note: “Central bank net purchases reached 651.5t in 2018, 74% higher year over year,” says the World Gold Council in its year-end gold demand report. “This is the highest level of annual net purchases since the suspension of dollar convertibility into gold in 1971, and the second-highest annual total on record. These institutions now hold nearly 34,000 tonnes of gold. Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets.” Early reports on how things are shaping in 2019 with respect to central bank gold demand indicate that it could be another good year.
“‘The market can easily pull back in the wake of a cut without the overall gold rally being altered, and that’s quite likely,’ said James Steel, chief precious metals analyst at HSBC Securities (USA) Inc. ‘Trade issues are probably still going to be supportive. The general geopolitical background is supportive, and we could see some financial market volatility, which would likely be helpful for gold’ on safe-haven buying.”
USAGOLD note: The Fed’s position on stimulus – mercurial as it has been over the past several months – is just one among many issues affecting the markets including gold. Interestingly, though, this article was posted before the Fed meeting results and press conference.
“Stocks cratered, the dollar hit a more than two-year high and bond yields ripped higher after Fed Chairman Jerome Powell suggested that policymakers were not embarking on a new cycle of rate cutting, after it trimmed the fed funds rate by a quarter point Wednesday.”
USAGOLD note: Gold did not take too kindly to the “midcycle adjustment” comment either. As mentioned yesterday, perhaps now would be a good time for the Fed to issue a clarification although we would be surprised if one were forthcoming.
“However, this latest news about the non-renewal of the CBGA is important because it is the best evidence yet that there most likely is an unpublished agreement among the participating European central banks not to buy any gold, but that this private agreement not to buy gold is now being torn up. Which would mean that open season for central bank gold buying is about to begin.
USAGOLD note: It should go without saying that Manley’s assumption is speculation, but it is interesting speculation when put into the context of the developing trade war between the United States and Europe, Brexit and Europe’s attempts to initiate an international payments system that de-emphasizes the U.S. dollar. Since the time of DeGaulle, Europe has seen itself as a contradistinction to the Anglo-Saxon realm. Boosting gold reserves, in that respect, would be an effective way to insulate against the ill-effects of further separation. Gold already plays a role in ECB reserves as a balance sheet asset to offset its exposure to national currencies that can be abruptly devalued (as the Trump administration is now considering with the dollar).
Repost from 7-27-2019
“The critical question, however, is this: Is the Libra really good – or sound – money? Unfortunately, this question cannot be answered in the affirmative. The reason is this: The quality of the Libra depends on the quality of the underlying fiat currencies –and fiat currencies do not make for good money, as should be well known by now.”
USAGOLD note: A crypto-currency is only as good as the foundation upon which it is built . . . . Degussa recommends a 100%-gold-backed Libra (assuming of course it even gets off the ground).
“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.
Gold Trading Hours
Whenever the gold market gets active, we have a large increase in visitors at our Gold Trading Hours page. Investors want to see which markets – Asian, European or American – are the focal point for price movement. They also want to know when a particular market is going to open or close in areas where gold might experience an influx of buyer or seller interest. That is why we designed this popular page with market hours and a live clock showing the local time in that particular market and all the other major gold markets. Gold Trading Hours is one of the quiet pages at USAGOLD that garners significant global interest particularly when the market is moving or breaking news warrants more than average interest. We also invite you to return here regularly – to this Live Daily Newsletter page – for up-to-the-minute gold market news, opinion and analysis as it happens.
Gold Trading Hours
London – New York – Sydney – Hong Kong – Shanghai – Tokyo – Zurich
“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