Private: Gold higher at 1221.03 (+4.09). Silver 15.30 (+0.113). Dollar and euro steady. Stocks called higher. U.S. 10yr 1.89% (-1 bp).
Private: Investors are still betting big on gold. What do they know that you don’t?
“The stock market may be back on track, but nervous investors are still showering gold with tons of love. An impressive $13.4 billion was poured into gold assets over the past 11 weeks, according to Bank of America Merrill Lynch. That’s the largest sustained weekly inflow for gold since during the 2009 financial crisis.”
MK note: Nothing new there, though the $13.4 billion dollar is impressive, as CNN states. The truth of the matter is that investors have been showering gold with love for years, and for good reasons. What has changed, in my view, is that the hedge funds and big banks, judging from their public positions on the gold market, have joined the ranks, and that is what is moving the price in the paper markets. The hedge funds are active in the ETFs and the big banks are active in the paper gold markets in New York and London. This interest has been verified in the latest reports on volumes for both the COMEX and gold ETFs.
Keep in mind too that all the while China still has an offer out for all the loose physical gold that can be shipped to Shanghai, including apparently whatever Venezuela is selling (given the fact that its gold is being shipped to Switzerland for re-refining into China-friendly kilo bars). I would suspect that any other physical tranches that surface of size in the months to come will meet a similar fate. It will be interesting to see what happens when the physically-based Shanghai Fix comes on line, scheduled for April.
These standing buy orders not only put a floor under the price, they psychologically undercut the anti-gold narrative at every turn. In addition, Germany and other countries with gold on deposit in foreign vaults are working patiently to have it returned within their borders. In some cases, that entails open market purchases of gold that was previously leased out of the storage stockpiles, and as a result an additional source of new physical demand.
The composite effects of these pressures, once again in my view, is really what’s behind the price movement now temporarily stalled. To be sure, Main Street has always showered gold with tons [make that tonnes <smile>] of love while certain, opposing elements on Wall Street have always showered it with tons of derision.
Private: End-of-week top gold stories
Friday, 25-Mar-2016
Michael J. Kosares (USAGOLD) Over $1 trillion added to the national debt since last November Since November 1, 2015, when Congress lifted its moratorium on additions to the national debt, the federal government has added $1.035 trillion in new red ink. On March 17, it posted $37 billion in fresh borrowing putting the total figure at $19,188,228,962,810.34, according to the Treasury Department.
PG Note: Most rational thinker would agree that our ever-growing national debt burden is a problem. Hence it has been a consistent driver of a higher gold price.
Ira Iosebashvili & Katherine Dunn (WSJ) Gold Prices Rise After Brussels Attack Gold prices moved higher in London on Tuesday, spurred by safe haven demand following a series of explosions in Brussels.
…“It does prove that gold is acting as a safe haven,” said David Govett, head of precious metals at Marex Spectron in London.
PG Note: This weeks tragedy in Brussels spurred safe-haven interest in gold, although it was short-lived.
Cecilia Jamasmie (MINING.com) Germany to bring half its gold back by 2020 After decades of storing the majority of its gold reserves overseas, Germany has decided to speed up efforts to bring its bullion back home, announcing Monday it plans to repatriate at least half of the country’s gold by 2020.
PG Note: Knowing full well that there are for more claims on each ounce of physical gold than can possibly be reconciled, Germany is doing the prudent thing in repatriating their gold.
Stephanie Landsman (CNBC) JPMorgan Chase’s forecaster says buy gold, not stocks One of Wall Street’s most respected forecasters says the [stock] market’s rally is in trouble, and that investors are likely to do better by betting on gold.
MK Note: JPM’s Marko Kalonovik is widely followed and respected in the hedge fund industry and on Wall Street. He says the Fed’s dovish policy will put pressure on the dollar and push gold higher.
Michael Pento (CNBC) Why Goldman is wrong about gold Those who are still making short calls on gold — expecting that it will fall further — fail to understand that negative nominal rates coupled with rising inflation expectations are the rocket fuel for gold — especially since central banks are trapped in this vortex of persistently reducing the value of their currencies vis a vis their trading partners. Even our Federal Reserve found it necessary to renege on its plan to raise rates four times this year after the markets fell apart in January. But from this folly, there is no end.
MK Note: Pento’s argument with some strong elaborations is very similar to the one I made in the last issue of News & Views – “Gold in the zero-bound”
Brian Price (CNBC) Technician: Gold heading toward $1,450—here’s why Indicators are generally positive on the daily, weekly and monthly charts. However, current readings are slightly overbought on the weekly chart,” said [Zev]Spiro [Orips Research], who believes that prices are overextended from the major moving averages. “Therefore, a continued consolidation may occur before [we see] higher prices.”
MK Note: This is another way of saying “Buy the dips.”
Simon Kennedy (Bloomberg) Helicopter Money Takes Flight as Latest Drastic Monetary Idea After more than 600 interest-rate cuts and $12 trillion of asset purchases failed to move the inflation needle enough, central banks may need to head even deeper into uncharted territory.
PG Note: That first sentence is probably the most striking thing I read all week, even though I am well aware of that reality. As central bank credibility is increasingly challenged, and they become ever-more desperate, the case for storing some of one’s wealth in gold becomes ever-more prescient.
James Steel (HSBC) HSBC: Gold best alternative in negative interest rate environment A third pillar of support for gold is the global phenomenon of negative interest rates. As we highlighted in Gold rally: Gold glows in a negative rate world, 11 February 2016, gold is one of the few beneficiaries of negative interest rates and deteriorating risk sentiment. With an increasing number of central banks implementing a negative rates policy, and this reflecting continued economic weakness, we expect gold to be supported by this backdrop. Negative rates are a sign of distress, which may increase flight-to-quality demand for gold. They lower the opportunity cost of owning gold and therefore encourage purchases. If the negative rates are deep enough or persist long enough they may encourage the hoarding of cash and gold. Gold may be a better alternative to cash in some cases as gold does not carry the risk of central bank intervention by a monetary authority wishing to limit its currency’s appreciation.
PG Note: This is a really important point, but in the same report, Steel noted that gold also shines when Fed starts tightening.
Private: 7 Reasons Why You Should Own Physical Gold
25-Mar (HuffingtonPost) — Since the start of the year the price of gold has rallied 18% and is currently at around USD 1,267 per ounce. With the financial markets plagued with uncertainty stemming from a potential slow down in Chinese economic growth, central banks intervening in the currency market, weak global growth, geo-political turmoil in the middle east and uncertainty over the timing of the next U.S. interest rate hike, gold has once again become a popular asset class due to its safe haven status.
In this article we will discuss seven reasons why you should own physical gold as an investment:
• Uncorrelated to stocks and bonds
• It’s an anonymous store of wealth
• Gold is a ‘safe haven’ asset
• No ‘issuer risk’
• It’s a hedge against inflation
• Gold will always have value
• You can see and touch your asset
[source]
PG View: All good points!
Private: The Daily Market Report: Gold Consolidates in Thin Holiday Trading
25-Mar (USAGOLD) — Gold is trading in a narrow range near the four-week low that was established on Wednesday. U.S. markets are closed today in observance of Good Friday.
The yellow metal spent much of the week under pressure amid a concerted effort by the Fed to bolster the credibility of future rate hikes. While the dollar rose this week, Fed funds futures continue to reflect considerable skepticism.
Despite the holiday market closures, the Department of Commerce’s Bureau of Economic Analysis released the final Q4 GDP number. GDP was revised up to 1.4% in Q4, versus 1.0% in the second estimate and 2.0% in Q3. While the revision was better than expected, the bias into the end of 2015 is pretty clear.
As we noted yesterday, expectations for Q1-16 GDP have eroded in recent months as well. The CME’s GDPNow indicator for Q1 was revised lower on Thursday from 1.9% to 1.4% after a soft durable goods print.
The market was also very interested in corporate profits, which fell $159.6 bln in Q4. It was the second consecutive quarterly decline, and significantly larger than the $33.0 bln drop in Q3. Corporate profits were -5.1% for all of 2015, the biggest decline since 2008, versus -0.6% in 2014.
Bottom line, there are plenty of reasons for concern with regard to both growth and inflation risks. Not to mention magically buoyant stocks in the face of of falling corporate profits.
Private: Marc Faber: “The Most Desirable Currency Will Be Gold”
25-Mar (ProfitConfidential) — Perma-bear investor Marc Faber’s current stock investment advice to retail traders is to expand their exposure to precious metals and Asian economies, while staying away from the U.S. dollar.
“[The U.S. dollar] is not a desirable currency,” Faber, publisher of The Gloom, Boom & Doom Report newsletter, told CNBC on Tuesday. “I think the most desirable currency will be gold, silver, platinum and palladium. I still think the mining sector has embarked on a new bull market.”
The U.S. dollar has depreciated over the past four months, with the U.S. Dollar Index losing 4.4% since its 52-week high of 100.51 on December 2.
[source]
Private: U.S. Q4-15 GDP (final) 1.4%, above expectations of 1.0%, vs 1.0% previously and 2.0% in Q3-15.
Private: Gold lower at 1216.58 (-5.41). Silver 15.17 (+0.001). Dollar and euro little changed. U.S. equity and futures markets closed for Good Friday.
Private: The Daily Market Report: Gold Remains Defensive Within Range
24-Mar (USAGOLD) — Gold remains suppressed within the recent range, weighed by a firmer dollar and an apparent swing back toward expectations for a Fed rate hike in April or June. The central bank seems to be working diligently at bolstering the credibility of a rate hike within the next several months.
While recent hawkish FedSpeak has pushed the dollar higher, the Fed funds futures market remains skeptical. The CME’s FedWatch tool puts the odds of an April hike at 12% and June is at 41%. If the market doesn’t see a rate hike as a credible possibility, it makes it very difficult for the Fed to actually pull the trigger.
U.S. durable goods orders fell 2.8% in February, below expectations of -2.4%, versus a negative revised +4.2% in January. Ex-transportation came in at -1.0% m/m, and -0.5% y/y. It was the 13th consecutive month where annualized core durable goods printed negative. This type of data continues to suggest that the U.S. manufacturing sector is already in a recession.
"Core" Durable Goods Tumbles For 13th Month – Longest Non-Recessionary Stretch In 70 Years https://t.co/cc87wSRUZN
— zerohedge (@zerohedge) March 24, 2016
In the wake of the durable goods miss, the Atlanta Fed’s GDPNow indicator for Q1 was revised down from +1.9% to 1.4%. The final Q4-15 read for GDP comes out tomorrow and is expected to confirm the economy grew at 1.0% pace at the end of last year.
Bullard, Harker, Evans at al can talk all they want about strong fundamentals and the growing prospects for inflation, but the reality is that the economy remains weak. A fact that is not lost on the market as a whole.
While Fed hawkishness can lead to short-term market movements — like this week’s drop in the gold price — the underlying reality suggests that further dovishness is actually warranted. The dip in the price of gold should be viewed as a buying opportunity.
Private: Gold Dragged Down by Stronger Dollar, Fed Expectations
24-Mar (WSJ) — Gold prices fell Thursday, dragged down by a stronger dollar and expectations that the Federal Reserve will raise interest rates in coming months.
Gold for April delivery, the most actively traded contract, was recently down 0.3% at $1,222 a troy ounce on the Comex division of the New York Mercantile Exchange.
Although the Federal Reserve last week dialed back interest rate expectations to only two increases in 2016, investors increasingly believe that one of those moves may come in the next few months. Higher rates tend to weigh on gold, which pays its holders nothing and struggles to compete with yield-bearing investments when borrowing costs increase.
At the same time, anticipation of a Fed move in the first half of the year has firmed the dollar, providing another drag on gold, which is denominated in the U.S. currency and becomes more expensive to foreign buyers when the greenback appreciates.
Gold prices are off more than 4% from their highs of the year, and “the shift in investor focus…back to monetary policy and recent hawkish Fed official comments gives the market rationale to correct still lower,” said James Steel, a strategist at HSBC PLC, in a note to investors.
[source]
PG View: “Higher rates tend to weigh on gold” is a bunch of hooey. One need look back no further than December when the Fed hiked rates for the first time in nearly a decade and gold launched the current rally.
Private: HSBC: Gold best alternative in negative interest rate environment
“A third pillar of support for gold is the global phenomenon of negative interest rates. As we highlighted in Gold rally: Gold glows in a negative rate world, 11 February 2016, gold is one of the few beneficiaries of negative interest rates and deteriorating risk sentiment. With an increasing number of central banks implementing a negative rates policy, and this reflecting continued economic weakness, we expect gold to be supported by this backdrop. Negative rates are a sign of distress, which may increase flight-to-quality demand for gold. They lower the opportunity cost of owning gold and therefore encourage purchases. If the negative rates are deep enough or persist long enough they may encourage the hoarding of cash and gold. Gold may be a better alternative to cash in some cases as gold does not carry the risk of central bank intervention by a monetary authority wishing to limit its currency’s appreciation.” – James Steel, HSBC metals analyst
Private: U.S. Markit services PMI (flash) rose to 51.0 in Mar, below expectations of 51.4, vs 49.7 in Feb.
Private: Gold price retreats on hawkish Fed comments
24-Mar (TheWeekUK) — Concerns over the prospects of more US rate rises has seen the gold price soften after a brief “safe haven” bounce in the wake of the Brussels terror attack.
Gold has risen around 20 per cent this year amid a global economic malaise, but there was speculation it would begin to wilt as the worst of the storm clouds appear to have passed and investors return to speculating on when the Federal Reserve might vote again to raise interest rates.
See related
The US central bank sounded a dovish and cautious tone last week, lowering its expectations from four rates hikes this year to two. Rates on hold for longer would boost non-yielding gold relative to other, income-generating assets and would hit the dollar, against which it is a hedge.
Gold was also on the rise earlier this week, after the terrorist incident in Brussels, but this short-term bounce dissipated as expected over the subsequent sessions.
However, the outlook has changed following Tuesday’s comments from Patrick Harker, the Philadelphia Fed president, who said the US’s strong labour market would filter through to inflation and that rate-setters should consider renewed policy tightening as soon as next month.
[source]
PG View: The market still doesn’t really believe the Fed will hike in April, odds are at just 12%.
Private: Taiwan cuts discount rate to 1.50% from 1.625%; the third ease in the last six months.
Private: U.S. initial jobless claims +6k to 265k in the week ended 19-Mar, below expectations of 267k.
Private: U.S. durable goods orders – 2.8% in Feb, below expectations of -2.4%, vs negative revised +4.7% in Jan.
Private: Gold steady at 1222.00 (+0.01). Silver 15.27 (+0.005). Dollar firm. Euro lower. Stocks called lower. U.S. 10yr 1.86% (-2 bps).
Private: Everything the Federal Reserve has been trying to do could turn out to be wrong
23-Mar (BusinessInsider) — A major shift seems to be coming to the Federal Reserve.
Over the last few days a number of current and former Fed officials have spoken about their views on the economy, the future of interest rates, and possible ways to tweak their communication strategy.
In a report early Wednesday, CNBC’s Fed whisperer Steve Liesman characterized this as a “mini revolt” now facing Fed Chair Janet Yellen.
This report was followed by St. Louis Fed president James Bullard’s epic interview on Bloomberg Wednesday morning with Tom Keene and Michael McKee.
And what’s clear from Bullard’s comments is that the future of Fed policy seems more and more likely to be grounded in something new and radical than anything like the past.
…Of course many will be quick to note that with seven-plus years of interest rates at or near 0% — and rates in Japan in Europe actually dipping below this level now — central bank orthodoxies have already been upended.
…But the biggest thing said by Bullard on Wednesday was outlining the view that perhaps we’re already in a future of central banking where the obsession over when and where interest rates are heading can be done away with.
In recent speeches, Bullard has referenced the idea of a “permazero” present and future for central banks; Bullard referenced these comments on Bloomberg.
The “permazero” idea broadly says that the Fed’s nominal policy rate can be set at zero indefinitely because in a neo-Fisherian model of interest rates nominal rates are made up of two parts: real rates and inflation expectations.
[source]
PG View: With NIRP, permazero and helicopter money all being bandied about simultaneously, I fear the world’s policymakers have crossed the Rubicon . . .
Private: `Brexit’ Fretting at Bank of England May Be About to Grow
22-Mar (Bloomberg) — With Britain’s referendum on the European Union exactly three months away, Bank of England officials are agonizing over the dangers from a vote to leave.
On Wednesday, Mark Carney will chair the Financial Policy Committee’s first formal meeting of the year — and its last before Britain’s June 23 referendum. Just two weeks after the governor declared an exit vote as the biggest domestic risk to financial stability, officials can now ratify contingency planning for a threat that has rattled investors enough to force a plunge in the pound and a spike in sterling volatility.
Carney’s concerns — dragged out of him by lawmakers at a Parliament hearing — have since become a weapon in the highly charged political battle on EU membership, despite the governor’s attempt to remain above the fray. They suggest how the issue may dominate this week’s discussion, overshadowing topics such as bank capital, housing and a potential lack of liquidity.
“Without a doubt, Brexit is the top of everyone’s agenda until June, and possibly after if we do vote to leave,” said Alan Clarke, an economist at Scotiabank in London. “The FPC’s mandate is the financial system, so they’ll be looking at whether banks will be able to continue to do their business if there is a vote to leave. They may also talk about other risks to the financial sector, whether there would be an exodus of firms.”
[source]
Private: Helicopter Money Takes Flight as Latest Drastic Monetary Idea
22-Mar (Bloomberg) — After more than 600 interest-rate cuts and $12 trillion of asset purchases failed to move the inflation needle enough, central banks may need to head even deeper into uncharted territory.
The way to get the world out of its disinflationary rut could lie in them directly financing government stimulus — a strategy known as deploying “helicopter money” after a 1969 proposal from Nobel laureate Milton Friedman.
Economists at Citigroup Inc., HSBC Holdings Plc and Commerzbank AG all published reports to investors on the topic in the past two weeks, while hedge fund titan Ray Dalio sees potential in the idea. European Central Bank officials are already squabbling about what President Mario Draghi calls a “very interesting concept.”
“We don’t know for certain that ‘helicopter money’ will be the next attempted silver bullet, however the topic is receiving considerably more attention,” said Gabriel Stein, an economist at Oxford Economics Ltd. in London. “The likelihood is reasonably high of some form being implemented somewhere.”
[source]