Private: Banks warn of risks of ultra-loose policy
21-Mar (FT) — European bank chiefs have warned that a new wave of ultra-loose monetary policy could push some institutions into taking greater risks, as they seek to protect profit margins.
Speaking in the wake of the European Central Bank’s decision this month to push interest rates further into negative territory and to begin buying corporate bonds, the executives said that such moves might, as intended, push banks to lend more — but carried dangers of their own.
Gonzalo Gortázar, chief executive at Spain’s Caixabank, expressed concerns about a build-up of risk in the banking system as a whole.
“In a world of low or negative interest rates, that is a possible consequence; you could see banks taking more risk,” he said.
[source]
PG View: These policies have been pushing individual investors to take greater risks for years. The banks maintained a decent spread, up to the point were central banks started going negative . . .
Private: The Daily Market Report: Gold Retreats as Fed Attempts To Revive Belief in More Rate Hikes
21-Mar (USAGOLD) — Gold slipped back into the range on Monday as several Fed members were out fostering confusion about policy moving forward. The dollar firmed modestly as today’s FedSpeak seemed geared toward convincing the market that the central bank may still raise rates further this year.
San Francisco Fed dove John Williams echoed Janet Yellen in saying that April and June are “live” meetings, meaning the Fed could indeed hike again at either.
Richmond Fed hawk hawk Jeffrey Lacker said he expects inflation to rise “significantly” once oil bottoms. He went on to warn that the central bank should not get caught behind the curve. Lacker is not a voter presently, but he dissented both in September and October last year, in favor of a rate hike.
Atlanta Fed centrist Dennis Lockhart gave a speech today, where he too suggested that a rate hike in April was possible.
This is all quite interesting given the overall context of last week’s FOMC statement, where they lowered both their growth and inflation forecasts, and then halved the number of expected rate hikes from four to two. The FedSpeak today seems geared toward keeping markets on their heels; from skewing too heavily toward Fed dovishness.
Nonetheless, the CME’s FedWatch tool shows the probability of an April hike at 7% and June has eroded further to 38%. Unless the Fed can inspire the market to believe a hike next month is a credible threat, I think we can safely assume April is off the table.
Today’s data undermines talk of an April hike as well: The Chicago Fed’s National Activity Index tumbled to -0.29 in February, below expectations of +0.25, versus a positive revised 0.41 in January. February existing home sales plunged 7.1% to 5.08 million, well below expectations of 5.355 million, versus 5.47 million in January.
If the Fed keeps trying to maintain the credibility of an impending rate hike, the dips caused in gold will provide buying opportunities. This mentality may in fact prevent them from moving toward easier policy even if such a move becomes warranted.
Private: U.S. existing home sales -7.1% in Feb to 5.08M, well below expectations of 5.355M, vs 5.47M in Jan.
Private: Chicago Fed national activity index fell to -0.29 in Feb, below expectations of +0.25, vs positive revised 0.41 in Jan.
Private: Gold Weaker On More Profit Taking, Chart Consolidation
21-Mar (Kitco News, via Forbes) – Gold on Monday is seeing more profit-taking pressure and backing and filling on the daily chart, following recent gains that pushed prices to an eight-month high less than two weeks ago. Improved investor risk appetite in the world marketplace recently is also a negative for safe-haven gold. April Comex gold was last down $7.90 at $1,246.50 an ounce. May Comex silver was last up $0.049 at $15.86 an ounce.
World stock markets were steady to mixed to start an Easter-holiday-shortened trading week. Many world markets are closed on Friday. U.S. stock indexes are pointing toward slightly higher openings and are at 2.5-month highs.
Crude oil prices are weaker on a corrective pullback after hitting a three-month high Friday. Major world oil producers from OPEC and Russia will meet on April 17 to discuss production limits. However, Iran has said it will not participate in the talks. Nymex April futures are trading just above $39.00 a barrel.
The other key “outside market” finds the U.S. dollar index trading near steady Monday. The dollar index on Friday hit a five-month low and the bears are in near-term technical control.
U.S. economic data due for release Monday includes the Chicago Fed national activity index and existing home sales.
[source]
Private: `Helicopter Money’ Hurts Banks, ECB’s Weidmann Tells Newspaper
19-Mar (Bloomberg) — European Central Bank Governing Council member Jens Weidmann warned against starting a discussion about handing out cash to stimulate growth, Funke Mediengruppe reported, citing an interview.
“Helicopter money isn’t manna falling from heaven, but would rip huge holes in central bank balance sheets,” Weidmann, who heads Germany’s Bundesbank, said, according to the newspaper. “The euro area states and taxpayers would pay the bill in the end.”
ECB President Mario Draghi expanded the central bank’s bond purchases and offer of cheap loans to banks this month to help stoke inflation. While monetary conservatives, including those at the Bundesbank, have warned against such steps, other ECB policy makers suggest they could go further.
“Instead of suggesting ever more reckless monetary policy experiments, it would make sense to pause,” Weidmann was cited as saying in German. “Monetary policy is not a panacea, doesn’t replace the necessary reforms in individual countries and won’t solve all of Europe’s growth problems.”
[source]
Private: Gold drops as dollar gains; loose central bank policy supports
21-Mar (Reuters) — Spot gold fell more than 1 percent on Monday, as the dollar regained some ground in holiday thinned trade, but traders said the metal was well supported given a dovish stance from U.S. and European central banks.
Central banks, however, are leaving themselves with fewer policy tools, which means there’s a diminishing window for fresh upside for gold based on further easing steps, said chief
investment officer Jonathan Barratt of Ayers Alliance in Sydney.
[source]
PG View: The dollar gains have been modest at best and have mostly been reversed out.
Arguably there is always room for further easing, but if policymakers see themselves as having fewer tools, it sets the stage for some really bad outcomes. That too would be good for gold.
Private: Meanwhile back in Europe
Thinking the unthinkable – HELICOPTER MONEY
Central banks are already doing the unthinkable – you just don’t know it/The Telegraph/Mehreen Khan/3-19-2016
“From June, eurozone banks will be paid as much as 0.4pc to borrow from the ECB for four years – a scheme dubbed ‘Targeted Long-Term Refinancing Operations’ (TLTRO’s). Lenders who do the most to pass on cheap loans to customers will be rewarded with the most favourable rates.”
MK note: In other words, free money – helicopter money. At the very least – nearly free money. When the Telegraph says “central banks are already doing the unthinkable,” it is referring to Japan. There is only one problem with putting Japan on a pedestal as the global model for monetary indiscretion: Nothing they have ever done has ever worked. It has been the laboratory for every monetary experiment known to homo economicus, and each and everyone of them has followed the return orbit back to deflation. You cannot get people to borrow money if they do not want to borrow it. Europe and the ECB though seem undeterred.
Let’s take this line of thinking to its logical conclusion: Even if one were to borrow money and get paid to do it, ultimately that money still needs to be paid back. It’s that part about paying the money back that gives consumers pause.
Now, if the ECB were to tell people that they would not have to pay back their helicopter drop. . . . .Well, then it is a different story. I would have to admit, though, that financiers of every weight and fighting class would see some value in helicopter money. The opportunity for arbitrage profit (or losses) is nearly endless, and with it a unique push into new realms of moral hazard and systemic risks.
Is it any wonder that the demand for gold and silver is skyrocketing at current prices?
Private: Gold lower at 1242.94 (-11.88). Silver 15.74 (-0.039). Dollar and euro little changed. Stocks called easier. U.S. 10yr 1.89% (+1 bp).
Private: 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.
The flood of Treasuries, both from the federal government and emerging countries liquidating reserve holdings to support domestic currencies, is beginning to muck-up the plumbing of the global financial system, according to a report issued this morning by Bloomberg. Nomura Securities analyst George Concalves says that if there is another round of sell-offs “the market will need real money to keep things orderly.” Such pleas raise the specter of another round of quantitative easing. According to the Bloomberg report, primary dealers in U.S. Treasuries “held $111 billion as of March 9, almost double the average for the last five years.”
Private: Secret 2016 ‘Shanghai Accord’ among G20 to devalue U.S. dollar
No foreign-exchange pact was announced at the February meeting of central bankers and policy makers from the 20 largest economies. That hasn’t stopped speculation that a plan of action was whipped up behind closed doors, as its supposed effects are beginning to emerge now: The greenback DXY has shaved off more than 3% since the gathering, sparking a rally in stocks, emerging markets assets and commodities.”
MK note: A G20 organized and implemented de facto dollar devaluation would explain the “mysterious” dovishness at the most recent Fed meeting. It would also explain gold’s surprise rise – up 18% since the turn of the year. (See overlay chart immediately below) Much of that rise, driven by bank trading desks, could well have been the result of leaks of the agreement. If an accord has been reached, it bodes well for gold and silver as we move deeper into 2016. Worth Wray, chief economist and global macro strategist at STA Management and an expert on emerging markets, says such an accord would be a “game changer.”
Major international accords are rarely reversed in the short term given that they are usually inspired by deep-seated concerns among the members. Adding credence to the rumor, we should not overlook the fact that the Fed did feature concern about emerging markets in its public statement following last week’s meeting. It all comes together rather nicely. . . . . . .Too, since the rumors were first reported just this weekend, the market reaction is far from fully realized.
Private: Week in Review (Video) – March 18, 2016
In this video we talked about a Jim Rickards video. If interested click here to view the video.
Enjoy!
Private: End-of-week top gold stories
Friday, 18-Mar-2016
Ichiro Suzuke & Masumi Suga (Bloomberg) Japan’s biggest gold retailer says negative rates boost demand International prices have rallied 18 percent this year as investors seek a haven from financial market turmoil. For individual investors, the Bank of Japan’s surprise move in January is adding to gold’s allure, according to Takahiro Ito, chief manager at Tanaka Kikinzoku Kogyo K.K.’s store in Tokyo’s Ginza shopping district. That’s helped lift retail prices to their highest since July.
MK Note: We can vouch for a jump in U.S. demand after Janet Yellen advised “we wouldn’t take those [negative rates] off the table.”
Huileng Tan (CNBC) Strong demand from emerging markets, limited supply keeping gold prices up Consumers are lapping up gold at a time supply is declining, helping underpin a rally in the precious metal, a market participant said Monday.
Demand from emerging markets in particular is strong as currencies such as the Indonesian rupiah, the Malaysian ringgit and the Vietnamese dong has fallen sharply in the last 12 to 18 months against the U.S. dollar, prompting consumers in these markets to buy physical gold, which is seen as a haven in times of tumult.
PG Note: Emerging market buyers are out in force, as are central banks . . . and as Mike indicated in the previous post, U.S. buyers are active as well.
(HedgeyeTV) Rickards: Why Gold Is Going To $10,000 Bestselling author Jim Rickards sits down with Hedgeye CEO Keith McCullough to discuss his new book, “The New Case for Gold,” and why a cocktail of factors makes it more critical than ever for investors to protect their portfolios with gold.
PG Note: Disregard the attention grabbing headline and focus instead on the content of this really interesting and far reaching interview. Rickards and McCullough lay out a pretty compelling case for physical gold ownership that goes well beyond any bullish price projection. I encourage you to watch this interview in its entirety and then give us a call.
(Reuters) Munich RE stashes gold and cash to counter negative rates German reinsurer Munich RE is boosting its gold and cash reserves in the face of the punishing negative interest rates from the European Central Bank, it said on Wednesday. The world’s largest reinsurer is far from alone in seeking alternative investment strategies to counter the near-zero or negative interest rates that reduce the income insurers require to pay out on policies.
MK Note: This is the first announcement I have seen that a major financial institution is actually buying physical gold to counter central bank interest rate policies. Chief Executive Nikolaus von Bomhard told a news conference, “We are just trying it out, but you can see how serious the situation is.”
Eric Rosenbaum (CNBC) The Fed under Yellen and the gold trade Bestselling author Gold, which has been on a remarkable run so far in 2016, pulled back this week before the Fed statement, and then did an about-face.
…On Wednesday afternoon in trading immediately after the Fed statement — in which it left rates unchanged and said it expected only two rate hikes this year, not four — gold and the stock market moved higher, while the dollar declined.
PG Note: Gold surged more than $30 on Wednesday after the FOMC statement was much more dovish than the market was apparently expecting.
Marcy Nicholson and Jan Harvey (Reuters) Gold climbs as Fed cuts outlook for interest rate rises Gold climbed on Thursday, extending a 2.5 percent rally made in the previous session after the Federal Reserve cut the number of interest rate rises it forecasts for this year, sending the dollar sharply lower.
…”The Fed projections may only be conforming to what many in the market already assumed. This could limit further gold gains. That said, the dovish tilt in the Fed’s policy statement should be enough to reaffirm and galvanise the gold rally.”
PG Note: New highs for the year would reaffirm the rally and generate additional buying interest.
Michael J. Kosares (USAGOLD) U.S. Mint gold and silver bullion coin sales Sales of U.S. Mint gold and silver bullion coin sales serve as a bellwether for market sales internationally. Thus far this year gold bullion coin sales are running double 2015 to mid-March. Silver bullion coin sales are running about 30% higher over the same period. Volumes in both areas are very strong over previous periods historically.
PG Note: Sales of physical gold and silver tend to be associated with safe-haven interest, longer-term wealth preservation, portfolio diversification and hedging. It is very rare to have a client is merely speculating on an anticipated rise in the price of gold. Savvy wealth preservation minded buyers are clearly active as ominous storm clouds build. Don’t try and weather the storm without a golden shelter.
Marcy Nicholson and Jan Harvey (Reuters) Gold climbs as Fed cuts outlook for interest rate rises Gold climbed on Thursday, extending a 2.5 percent rally made in the previous session after the Federal Reserve cut the number of interest rate rises it forecasts for this year, sending the dollar sharply lower.
…”The Fed projections may only be conforming to what many in the market already assumed. This could limit further gold gains. That said, the dovish tilt in the Fed’s policy statement should be enough to reaffirm and galvanise the gold rally.”
PG Note: New highs for the year would reaffirm the rally and generate additional buying interest.
Private: Bank of Japan Plan Runs Into a Wall
18-Mar (WSJ) — The Bank of Japan’s achievements from three years of monetary easing are unwinding, highlighting the limits central bankers face in trying to jolt an economy out of the doldrums.
Exhibit A is the Japanese currency, a key cog in the BOJ’s plans. The yen rose Thursday to its strongest level since the day BOJ Gov. Haruhiko Kuroda unleashed a second monetary “bazooka” in October 2014. Its gains are undoing what that additional monetary easing was meant to accomplish.
The Japanese economy, meanwhile, is in trouble. Corporate profits, no longer inflated by a weak yen, are faltering. Tokyo’s benchmark stock index remains 20% below its June 2015 peak. Inflation including energy is stuck near zero, and some measures of inflation expectations are at their lowest since Mr. Kuroda took over in early 2013.
It all adds up to growing skepticism at home and overseas about the BOJ’s radical efforts to “reflate” Japan’s economy with monetary policy. And it bodes ill for others, such as the European Central Bank, that are struggling with the sort of stagnation that has afflicted Japan for two decades.
In Tokyo Wednesday, Nobel Prize-winning economist Joseph Stiglitz delivered a tough message to Japanese policy makers about their continuing efforts to reverse the tide with monetary easing—most recently negative interest rates.
“Monetary policy has largely run its course,” Mr. Stiglitz said at the meeting, attended by Prime Minister Shinzo Abe and Mr. Kuroda. Negative rates are unlikely to stimulate growth, he said, while quantitative easing—the BOJ’s mammoth asset-buying program—has increased inequality and failed to spur any significant increase in investment.
[source]
Private: The Daily Market Report: Outlook for Gold Appears Favorable, No Matter What the Fed Does
18-Mar (USAGOLD) — Gold has retreated into the range once again, weighed by a modest rebound in the dollar. However, the yellow metal appears poised to notch a slight gain for the week.
Downticks earlier in the week — prior to Wednesday’s FOMC statement — proved to be good buying opportunities. I suspect that is going to remain the case moving forward as mounting growth and price risks keep the world’s major central banks biased toward easing.
However, even if the Fed does tighten in June, HSBC has noted that gold tends to rise during tightening cycles. Say what now?! Doesn’t the mainstream financial press constantly remind us that higher rates raise the opportunity cost of holding non-interest-bearing gold?
One need look back no further than December and observe what gold has done since the Fed raised rates for the first time in nearly a decade. Gold is up more than 18% since the December 16 FOMC statement.
The HSBC report, as laid out by Business Insider, looks back at the past four Fed tightening cycle. Low and behold, gold performed great.
My favorite example is the 422 bps tightening cycle between June 2004 and August 2006. During that period, the effective Fed funds rate rose from 1.03% to 5.25% and gold rose from 391.78 to 631.56, a gain in excess of 60%!
However, gold also shines during low rate environments and rates don’t get much lower than what we’re experiencing these days. Negative rates are absolutely unprecedented, arguably a dangerous experiment. Perhaps the only thing preventing gold from really accelerating to the upside is that deflationary price pressures leave ‘real’ rates modestly positive at the long end of the curve.
If real rates turn negative and if banks start passing the expense of negative rates along to depositors, we could see the long-term uptrend in gold really start re-exerting itself. Within the broad 1920.84 — 1046.00 range, gold is still trading near the lowest quintile. Given the mounting risks, gold is arguably still quite undervalued.
Don’t think for a second that you’ve missed the opportunity to start accumulating gold, or adding to your existing gold holdings. The time to be a buyer is during periods of relative calm. If you wait until the ‘stuff’ hits the fan, prices and premiums go up as supply tightens.
If you haven’t taken the time to watch Jim’s interview on HedgeyeTV, I encourage you to do so over the weekend. It is extremely enlightening and builds a very compelling case for gold ownership.
Private: University of Michigan sentiment (prelim) fell to 90.0 in Mar, below expectations of 92.2, vs 91.7 in Feb.
Private: HSBC: 2016’s gold rally is here to stay
Business Insider/Will Martin/3-18-2016
HSBC –
“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.”
“Given that this week’s FOMC meeting was more dovish than expectations means it could spur on the broader theme of USD weakness that HSBC’s FX strategists have highlighted was already getting traction. This is bullish for gold.”
MK note: HSBC and a widening field of bullish bank trading desks, as posted here recently, stand polar opposite gold bear Goldman Sachs. Hedge funds have joined the party by buying heavily into gold ETFs. Bullion gold coins, purchased mainly by private individual investors, are running double the volume same period last year. In other words, gold’s appeal is wide and deep and as HSBC states “here to stay.”
Private: R.I.P. Dollar Rally as Dovish Fed Spurs Worst Slump Since 2011
18-Mar (Bloomberg) — The dollar headed for its steepest three-week slide in more than four years as an increasingly cautious Federal Reserve spurred analysts and investors to reassess forecasts for the greenback.
A Bloomberg index tracking the U.S. currency against 10 major peers climbed from an eight-month low reached Friday, two days after Fed officials unexpectedly cut projections for interest-rate increases to two this year from the four they estimated in December. Macquarie Bank Ltd. and Morgan Stanley, two of the world’s top 10 currency forecasters, are highlighting the risk of more dollar weakness.
“The fact that they didn’t raise rates and wound back expectations for future increases in 2016 has obviously hurt the U.S. dollar,” said Derek Mumford, a director at Rochford Capital Pty in Sydney. “That can continue in the very near term.”
…“The Fed has become much more dovish — the market realizing maybe the Fed being a little bit more behind the curve,” Dominic Schnider, the head of commodities and Asia-Pacific foreign exchange at UBS Group AG’s wealth-management unit in Hong Kong, said Friday in a Bloomberg Television interview. “That’s simply not good for the dollar, and so we have this generic dollar weakness right now which will not disappear in the very short term.”
[source]
PG View: As we’ve been saying for some time now, the relative strength of the dollar is killing U.S. exporters and weighing on the economy as a whole. With other central banks aggressively easing, there was really no reason for the Fed to continue down the “normalization” path. Policy was simply becoming too divergent. In holding steady, the Fed is being plenty hawkish . . .
Private: Silver showing good resilience this morning
18-Mar (USAGOLD) — Silver is showing good resilience this morning in the face of the pullback in gold. The gold/silver ratio has declined by more than 6% since peaking at 83.82 two-weeks ago. The ratio is presently 78.25.
While perhaps to early to suggest that the trend has changed, watch this one closely. It would be nice to see silver play some catch-up to gold. If silver takes the lead, the metals market could be off to the races.
Private: Gold edges down, still heading for weekly gain on Fed rate outlook
18-Mar (Reuters) — Gold edged down on Friday, as the dollar steadied from a five-month low, but it remained on track to end the week on a firmer note after the Federal Reserve scaled down rate hike expectations.
Spot gold was down 0.3 percent at $1,254.53 an ounce by 1130 GMT, while U.S. gold fell 0.8 percent to $1,255.30 an ounce. Spot gold was up around 0.4 percent on the week.
“There has been a bit of selling into the rally in the past couple of days but on whole gold has managed to hang on to its gains,” Mitsubishi Corp analyst Jonathan Butler said.
“With the dovish overall macro outlook – the Fed’s more dovish stance and ECB and Bank of Japan also pursuing very aggressive stimulus policies – affecting the strength of the dollar and U.S. Treasury yields, gold should benefit.”
…The U.S. central bank held interest rates steady on Wednesday and indicated it would tighten policy this year, but fresh projections showed policymakers expect two quarter-point increases by year-end, half the number forecast in December.
Expectations the Fed would raise rates steadily this year had faded since the bank’s initial hike in December, as concerns over global growth roiled financial markets.
[source]