Gold soars post-Fed. Dollar falls back

 Gold Today –New York closed at $1,220.00 on the 15th March after closing at $1,198.70 on the 14th March. London opened at $1,224.15 today. 

Overall the dollar was weaker against all global currencies early today. Before London’s opening:

         The $: € was weaker at $1.0709: €1 from $1.0623: €1 yesterday.

         The Dollar index was weaker at 100.72 from 101.58 yesterday. 

         The Yen was stronger at 113.44:$1 from yesterday’s 114.65 against the dollar. 

         The Yuan was stronger at 6.8967: $1, from 6.9124: $1, yesterday. 

         The Pound Sterling was stronger at $1.2266: £1 from yesterday’s $1.2195: £1.

Yuan Gold Fix
Trade Date Contract Benchmark Price AM 1 gm Benchmark Price PM 1 gm
      2017    3    16

     2017    3    15       2017    3    14

SHAU

SHAU

SHAU

/

270.98

272.05

/

271.58

271.47

$ equivalent 1oz @  $1: 6.8967

      $1: 6.9124

$1: 6.9137

  /

$1,219.32

$1,223.90

/

$1,222.02

$1,221.29

Please note that the Shanghai Fixes are for 1 gm of gold. From the Middle East eastward metric measurements are used against 0.9999 quality gold. [Please note that the 0.5% difference in price can be accounted for by the higher quality of Shanghai’s gold on which their gold price is based over London’s ‘good delivery’ standard of 0.995.]

 At the close in Shanghai today, the gold price was trading at 275.50 Yuan, which directly translates into $1,242.48. But allowing for the difference of gold being traded this equates to a price of $1,237.48. This more than $17.48 higher than the New York close and $13.33 higher than London.

With arbitrage opportunities wide open between Shanghai and New York/London we see Shanghai pulling gold out of them. Dealers in London and New York ignored the decent tonnages being bought into the U.S. based gold ETFs recently and held prices down. We expect this to change in the days to come.

LBMA price setting:  The LBMA gold price was set today at $1,225.60 down from yesterday’s $1,202.25.  

The gold price in the euro was set at €1,142.64 after Friday’s €1,131.85.

Ahead of the opening of New York the gold price was trading at $1,227.15 and in the euro at €1,144.14 At the same time, the silver price was trading at $17.49. 

Silver Today –Silver closed at $17.31 at New York’s close yesterday against $16.88 on the 14th March.

 Price Drivers

As we said yesterday, “One of the dangers of getting carried away by the early days of a new President is that markets can run too far and ahead of the realities facing that President. This may well prove to be the case with the sell-off in gold of late…..” The Fed has not joined in that exuberance, instead of just raising interest rates by 0.25% but making dovish statements that while a total of 3 rate hikes can be expected this year, the Fed will maintain its accommodative stance. This disappointed many markets sending equity markets higher [because the fear of much higher rates in the future has dissipated] and the dollar lower against all currencies. Gold benefitted and traded higher, but the digestion of the Fed’s speech leaves more gold price rises to come.

At the same time, President Trump announced major spending cuts but a major expansion of defense spending. We still await his announcements on infrastructure spending which will bring growth but at the expense of inflation and deficit spending. At the moment inflation is reported by government agencies at being close to 2%. This leaves rates negative.

What is expected around the autumn is a signal by the Fed that it will slow its re-investment policies in Treasuries as a start to improving the Fed’s Balance Sheet. This could take 10-year Treasuries to 3.10%. If they don’t it is expected 10-year Treasuries will end the year around 2.6%. We expect that by that time inflation will be higher than Treasury 10-year yields, which is positive for U.S. gold buying.

Over in Europe, the fear of a popularism victory in Holland has gone, as the previous government looks as though it will keep ruling there. The voter turnout was huge leading many to believe that both in France and Germany similar election results will be achieved. We would be cautious about that conclusion. We don’t expect France to be that liberal. But we don’t see markets discounting a Le Pen victory or a Merkel defeat. Nevertheless, those ‘winds of change’ continue to blow!

Gold ETFs – Yesterday saw purchases of 4.442 tonnes into the SPDR gold ETF but no change in the holdings of the Gold Trust.  Their respective holdings are now at 839.431 tonnes and 197.22 tonnes. 

Julian D.W. Phillips – GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance 

UPDATE: Same old, same old. Yellen speaks, gold falls

Here’s a lightly edited version of my latest article posted on the Sharps Pxley website yesterday – trying to make sense of gold’s latest price movements as President Trump’s inauguration approaches.  Yet again today gold is testing the $1,200 level on the downside and this time around the level may not be held, particularly if the Donald’s inauguration address seems to be conciliatry, as it probably will be – but with Trump who knows?

Gold investors are obviously holding back until they see which way the wind blows.  The world’s biggest gold ETF, GLD, has seen no purchases or sales since last Friday when 2.96 tonnes were added.  GLD sales or purchases do seem to provide something of a guide to the gold price direction – in the US dollar at least, which looks to be strengthening a little today – indeed today’s gold price weakness may well be down to a small recovery in the dollar index.

The EDITED VERSION OF THE Sharps Pixley article follows:

Gold has had a decent run, after a sharp fall immediately following last month’s US Fed interest rate rise.  If one looks back to last year, the gold price was volatile, particularly before and after the various Fed Open Market Committee (FOMC) meetings and it looks that this year the same may happen all over again, but this time around gold price movement up or down may be tempered by the perceptions of how the USA’s 45th President’s proposed policies may affect the economy.  While the Fed may be set on at least three interest rate rises this year – Yellen’s San Francisco statement yesterday did nothing to suggest this wouldn’t happen – we still think they may play wait-and-see before pulling the interest rate trigger, although others, like the well-respected, but nowadays slightly alarmist commentator, Jim Rickards, think the Fed will move quickly and implement another 25 basis point increase as early as March.

This year’s FOMC meetings, at which interest rate decisions are usually made, are due to be held right at the end of this month (Jan 31-Feb 1), which is almost certainly too close to the President Trump inauguration (tomorrow) for any such decision to be made.  The following meeting will be on March 14-15 – Rickards’ suggested date for the next rate rise – then May 2-3 and June 13-14 bring up the balance of FOMC meetings in H1 2017. We think the Fed may err on the side of caution and wait for one of these latter two meetings to raise rates for the first time in 2017 – if at all – in order to see which way the economic wind is blowing after the first few months of office of perhaps the most divisive U.S. President ever.  However an early rate rise could be seen as a Fed attempt to regain credibility given its failure to match its own economic predictions in previous years.

For the record, the H2 FOMC meetings will be on July 25-26, September 19-20, October 31-November 1 and December 12-13.  Expect gold price volatility around all these dates, as we saw in 2016.  If the Fed does raise rates early and the U.S. economy looks stable, unemployment doesn’t rise and equity markets don’t collapse then there could be a further two, or even three, rises in H2, but the uncertainty around the Trump Presidency makes this far from a sure thing.

Yellen’s statement yesterday did reiterate that in her, and presumably her colleagues’, viewpoint the U.S. economy remains on course to be able to support three small interest rate hikes this year, and more next, with a potential target of ‘normality’ of around 3% by the end of 2019.  But the Fed has been notoriously poor in its predictions for the strength or otherwise of the U.S. economy over the past five years or so.  Has its forecasting suddenly improved.  The Trump Presidency could well throw the Fed’s projections into disarray yetr again – but this could go either way if the new President’s policies are perceived to be generally stimulative for the U.S. economy.

Yet Rickards, despite his prediction that the Fed will raise interest rates at the March FOMC meeting disagrees: “They (The Fed) will raise (rates) in March and then something will hit the wall, either the economy or the stock market or both. Then the Fed will backpedal from there, starting with a forward guidance then perhaps a rate cut later in the year,” he says on his blog, and recommends holding gold and U.S. 10-year Treasurys.

If Rickards is correct in his predictions, the gold price could fly in the final three quarters of the year as the Fed misses its interest raising opportunities again.  But others do see the U.S. economy, inflation and unemployment levels ticking all the boxes for the Fed’s interest rate raising plans going forward.

But so much will depend on President Trump and whether Congress will allow him to proceed with his plans to cut taxes, spend heavily on infrastructure to boost the economy and implement other fiscal stimuli and cut legislative blockages given the country’s huge debt position.  The Trump proposals, if implemented, can only increase debt!  If the Trump boost to the economy is thwarted – there may be a Republican majority in both houses, but there are a number of anti-Trump GOP members in Congress and coupled with probably blanket opposition from the Democrats still sore over the Trump Presidential Election victory – the Donald’s legislative path may thus not be an easy one.

The last day of April will see the Trump Administration’s first 100 days in office – a time when the media tends to make its first judgments of likely success or otherwise of the new President’s proposed programmes – and we believe the Fed should not take any interest rate raising decisions before then at least, although what we believe is a sensible course will hardly influence the FOMC in its deliberations!

What will the first 100 days see?  We think some of the proposed policies will have to be rolled back altogether and a number of compromises will have to be made to satisfy Congress, while the Senate may block one or more of the Presidents’ proposed cabinet members from taking office which coluld make for an adverse perception of President Trump’s promises and his ability to deliver on them..

Gold is testing the $1,200 level on the downside today, but the enormous opposition to Trump as President, which will likely be highlighted by huge demonstrations in the nation’s capital, may sober the equity markets and boost gold again temporarily – but thereafter volatile markets are likely until a much clearer idea of where Trump policies are taking the nation become apparent.

Perhaps precious metals investors should take heart though from my colleague Ross Norman’s price predictions for the current year – See:  Sharps Pixley Forecasts Gold To Average $1310 With A High Of $1390 In 2017

Deliberations on the U.S. Fed rate rise and gold

Two articles published by me on sharpspixley.com in the aftermath of this week’s FOMC meeting announcing a 25 basis point U.S. interest rate rise and looking ahead to three more in 2017.  Despite virtually every analyst and commentator predicting the increase which should have suggested that the rise had already been discounted in the recently weaker gold price the news precipitated a further $20 plus fall despite this.  This totally disregarded the Fed predicting three rate rises in 2016 the last time it increased rates by 25 basis points, exactly a year ago, and then failing to raise rates at all until now.  How short memories are – particularly in the financial world.  And how poor the Fed’s record has been in predicting the path of the U.S. economy.  Perhaps it will be all-change in 2017 under the somewhat unpredictable President-elect Trump, but we see some hopes being damped.  Whether gold will benefit, or continue to weaken, will probably depend on the big money which is likely to continue setting paper gold prices which still dominate, although Shanghai is doing its best to bolster prices – so far to little avail.

The first of the two Sharps Pixley articles written a couple of hours after the rate increase decision was announced, and the accompanying Fed forecast can be read by clicking on this link: Gold hammered on U.S. Fed rate decision.

The second was written the following morning (UK time) as the gold price continued to weaken and the dollar index to strengthen.  Indeed much of gold’s fall could be put down to dollar strength rather than gold weakness, although offloading of gold from the big gold ETFs did continue which will not have helped sentiment.  To read this article click here: Gold and silver dip further as dollar continues on upwards path.

Today the rise in the U.S. dollar index appears to have halted and precious metals prices appear to have stabilised.  Whether that will continue into next week we do not know given the gold bears appear to be in the ascendant, but there is an impression gold has been oversold, the dollar overcooked and maybe, just maybe, something of a precious metals recovery is already under way.

Gold and silver jump in dollars, not Euros, post Fed

Gold TodayNew York closed at $1,334.00 after the previous close of $1,314.60 yesterday.  London opened at $1,332.70.

    • The $: € was weaker at $1.1232: €1 from $1.1147: €1 yesterday.
    • The Dollar index was weaker at 95.26 from 95.96 yesterday.
    • The Yen was stronger at 100.64: $1 up from 101.50: $1 yesterday against the dollar.
    • The Yuan was stronger at 6.6696: $1 from 6.6726: $1 yesterday.

 

  • The Pound Sterling was stronger at $1.3057: £1 from yesterday’s $1.2998: £1.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  22

     2016  09  21

SHAU

SHAU

286.48

283.14

286.63

284.17

Dollar equivalent @ $1: 6.6696

$1: 6.6726

$1,336.00

$1,319.82

$1,336.69

$1,324.62

New York, Shanghai and London were roughly in line, adjusting them for changing exchange rates as all financial markets reacted to the Fed statement.

All financial markets now need time to digest the announcement and feed this information into prices. Overall, we see the dollar gold price continuing to benefit from the words of Mrs. Yellen.

LBMA price setting:  The LBMA gold price setting was at $1,332.45 against yesterday’s $1,319.60.

The gold price in the euro was set at €1,186.35 against yesterday’s €1,183.55.

Ahead of the opening of New York the gold price was trading at $1,333.10 and in the euro at €1,187.54.  At the same time, the silver price was trading again at $19.88.

Silver Today –The silver price rose to $19.83 at New York’s close yesterday up from $19.23, Friday.  

Price Drivers

Please note that the gold price in the euro is barely changed, but in the dollar higher because of the dollar’s weakness.

As the dealings in the gold ETFs have driven gold prices lately, the big purchase of over 5 tonnes into the SPDR gold ETF was certainly one of the drivers, but not nearly so much as the weakness of the dollar against gold did.

Despite global demand for gold rising well in the gold season, the gold price does not reflect this. It solely reflects U.S. demand via the gold ETFs and COMEX.

Gold as a monetary metal is functioning well in this regard as they reflect the value of currencies, not demand and supply of gold.

On the Technical front mixed signals are being sent out favoring both directions. Will we see a pennant formation developing to give us consolidation mode, or will overhead resistance be challenged, while the current target on this front is below $1,300.

We have a different take on the Fed’s announcement than the one that’s being reported inside the U.S. We see Janet Yellen and her team, although divided, paying great attention to the impact on the dollar, as we have said many times before. Most U.S. institutions look at the U.S. as being the driver of the rest of the world, leading the way forward. But the reality is that the U.S. is not an island, as shown by the dollar’s price in other currencies.

The rest of the world can hurt the U.S. by weakening exchange rates against the dollar [maybe Treasury whispered quietly in the BoJ.’s ear before their meeting]. The angst, we see now from U.S. institutions, is understandable if one disregards the global economy. Inside the U.S. interest rates are seen in the light of the U.S. economy, but looked at through currency eyes interest rate moves have to be seen in terms of other currencies’ values. We repeat the U.S. cannot afford a strong dollar anymore. This is gold positive.

Looking through the eyes of the currency markets we see the Fed removing the ongoing obsession of global markets of the ‘will there be or won’t there be a rate hike’ by stating that by the end of the year there will be a rate hike. Not two but one. The focus from now on will shift to the Presidential elections until the end of the year. We hope the ‘big’ picture will now impact the gold price more directly.

Immediately after the Fed announcement the dollar weakened, across the board.  The gold price leapt to overhead resistance at $1,340 before pulling back in London. Longer term, Yellen’s actions are gold and silver price positive as there are no shocks in the future and rate hikes as we have pointed out before have led to higher gold prices.

The Fed statement pointed far ahead, to prevent volatility over the subject hitting most markets now and in the future. Further, by attempting to put dots in place as to when to expect future hikes, the markets have plenty of time to discount these moves in relatively calm markets.

We will now keep our eyes on inflation rates to give us a clearer view of exactly when rate hikes will occur, as it is real interest rates in the context of global interest rates that count, when we look at potential moves in gold and silver prices.

Gold ETFs – There were purchases of 5.638 tonnes into the SPDR gold ETF (GLD) but no change in the holdings of the Gold Trust (IAU) yesterday, leaving their respective holdings at 944.391 tonnes and 223.51 tonnes.

Silver – Silver prices ignored the price action in gold yesterday climbing a little higher. Once again we say, ‘these are not the influences of fundamentals but U.S. silver investors expecting news that will send both gold and silver prices higher.’

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Shanghai Takes the Gold Pricing Lead

Gold Today –New York closed at $1,314.60 after the previous close of $1,313.60 yesterday.  London opened at $1,319 again.

  • The $: € was weaker at $1.1147: €1 from $1.1187: €1 yesterday.
  • The Dollar index was slightly stronger at 95.96 from 95.82 yesterday.
  • The Yen was slightly stronger at 101.50: $1 up from 101.76: $1 yesterday against the dollar.
  • The Yuan was slightly weaker at 6.6726: $1 from 6.6700: $1 yesterday.
  • The Pound Sterling was slightly stronger at $1.2998: £1 from yesterday’s $1.2989: £1.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
     2016  09  21

     2016  09  20

SHAU

SHAU

283.14

283.31

284.17

283.29

Dollar equivalent @ $1: 6.6726

$1: 6.6700

$1,319.82

$1,321.13

$1,324.62

$1,321.04

Shanghai ignored New York’s close and took the gold price higher by $10, no doubt reflecting the demand local investors demonstrated for physical gold.

Most importantly this is the first time of late, that substantial sales from the gold ETFs have not pulled gold prices down, but have been ignored to the extent that gold prices have risen.

LBMA price setting:  The LBMA gold price setting was at $1,319.60 against yesterday’s $1,315.40.

The gold price in the euro was set at €1,183.55 against yesterday’s €1,175.83.

Ahead of the opening of New York the gold price was trading at $1,324.60 and in the euro at €1,188.41.  At the same time, the silver price was trading again at $19.60.

Silver Today –The silver price rose to $19.23 at New York’s close yesterday up from $19.16, Friday.  

Price Drivers

There were substantial sales from the SPDR gold ETF yesterday, but Shanghai ignored it then London tried to pull prices back, to sit in the middle between New York and Shanghai.

This is only the second time Shanghai has walked its own road very clearly. Before, exchange rate changes could have explained the moves, but not this time. If this pattern is continued pricing power will be shifting to China from New York.

Why did this move occur now? The announcement from the Bank of Japan’s Kuroda basically did nothing for the Japanese economy. The policy moves we saw tell us that the Bank of Japan looks as though it has run out of ‘effective options’ to stimulate the economy there. With rates being held at current levels, we see the Bank of Japan unwilling to be seen furthering the ‘currency war’ by trying to lower its exchange rate. The moves by the BoJ were therefore at best hormone-free. This switches the attention back to the Fed’s FOMC meeting going on now.

In the light of all factors and Japan’s unwillingness to do anything solid, we cannot see the Fed surprising us by raising rates. Or can we? If they do, we do expect to see the dollar go stronger, albeit temporarily.

We are fully aware that the impact on the dollar exchange rates is a focal point for the FOMC. The U.S. cannot afford a strong dollar now. If the FOMC believe a rate hike of 0.25% will not affect the dollar’s exchange rate we may well see it happen. Otherwise, December will be the time when the Fed is more likely to make such a move.

Gold ETFs – There were sales of 3.858 tonnes from the SPDR gold ETF (GLD) but no sales from the Gold Trust yesterday, leaving their respective holdings at 938.753 tonnes and 223.51 tonnes.

Silver – Silver prices ignored the price action in gold yesterday climbing a little higher. Once again we say, ‘these are not the influences of fundamentals but U.S. silver investors expecting news that will send both gold and silver prices higher.’

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

September Fed rate rise spectre knocks gold and stocks – again

You put the Jack back in the box and it then jumps out at you again.  As the September FOMC meeting approaches the fear that the U.S. Fed will make a move towards raising interest rates at that meeting has surfaced yet again and is playing havoc with the markets.  Gold slid back to the high $1,320s, silver was testing $19 on the downside, the Dow plunged almost 400 points, the S&P 500 fell over 50 points and the NASDAQ over 130 points.  Crude oil fell around 3.7%, while the US Dollar Index climbed back to the mid 95s from a 94.99 close a day earlier.

Now maybe that should all be a warning to the FOMC.  Apparently the downturn in the markets was because it was announced that the normally dovish Fed Governor, Lael Brainard, is due to speak at an event on Monday.  The fear is that she may say something that is less dovish than her usual stance and that could trigger further falls as analysts and traders try to read that as foreseeing a Fed rate rise announcement at the meeting, despite this likelihood having been previously discounted because of a lower than anticipated nonfarm payroll increase a week ago followed by a fall in Services PMI.  Manufacturing PMI had already been looking weak as well.

From gold and silver’s point of view maybe the sooner the Fed does implement its second rate increase in a year (as opposed to the four rises it had been targeting at the end of last year) the better.  If there is to be another rate rise this year it’s likely to be another tiny 25 basis point increase which will still leave rates in effective negative territory taking real inflation into account, but if the rumour that such an increase might happen (and analysts apparently only give it a 24% chance that it will) can knock the markets back so much in a single day, what would the fact do?

Many well respected commentators and analysts have been predicting a stock market crash now for some time – and one that would rival, or even exceed, that of 2008 and if they are correct in their judgement it might only take a trigger like the next Fed rate increase to bring the whole house of cards crashing down.  Can the Fed afford to take that risk?  It certainly could talk itself into so doing having for so long preached interest rate normalization without doing anything apart from various board member statements being seized upon.  We have commented before as to whether FOMC committee members should be allowed to make statements between meetings as every nuance of what they say is picked up by the markets and tends to move them sharply one way or the other.  It is too easy to manipulate markets so – but then this could be deliberate Fed policy as yet another means of keeping people guessing, although the potential for thus influencing the markets, and the dollar, by individuals cannot be ruled out.  There’s an awful lot of money at stake here!  See: Fed member statements move gold price up or down. Should this be allowed?

Gold Jumps on Latest U.S. Data

Gold continues to be strongly driven by speculation as to if and when the U.S. Fed will decide to increase interest rates.  But this mood is very much data driven and while some positive figures last week, coupled with what were taken as some potentially hawkish statements by the Fed Chair and Vice Chair, had led to some sharpish falls in the gold price on the expectation that this had put the possibility of an interest rate increase announcement following the FOMC meeting to be held on September 20th and 21stback on the cards.  But data this week in the form of a poor ISM manufacturing figure, and now a considered-weak nonfarm payrolls increase, have reversed the gold price movement as now a September rate hike announcement is seen as unlikely again.

The latest employment figure suggesting the U.S. had added 151,000 jobs during August, as against expectations of 175,000 to 185,000, with a jobless rate of 4.8% saw gold spike by nearly $20 at one time to above $1330, on the publication of the announcement, before starting to slip back a little again.  Traders and analysts now appear to see no Fed rate increase announcement until the December FOMC meeting – to be held on the 13th and 14th of that month – if then.  That will be yet another blow to the Fed’s economic forecasting credibility given that it has consistently over-estimated U.S. growth and had suggested at the end of last year there would be three or four rate increases this as it moved to ‘normalize’ rates, while so far there have been none.

It is actually a moot point as to whether the U.S. economy is actually in recession or not.  The stock market certainly suggests otherwise but this is buoyed up by low interest rates and Fed monetary policy, whereas some other key indicators make more negative reading.  Apart from the slower than anticipated job growth and the Chicago PMI downturn to below 50, it is apparent that the stronger dollar is impacting manufacturers who export adversely, while the latest domestic news from the auto industry in that sales turned down 4.2% in August.  Reuters reports that some carmakers say the industry has peaked and that a long-expected decline due to softer consumer demand had begun.  All is not well in the world’s largest economy!

Gold – the Real and Honest Currency

Mike Gleason* of Money Metals Exchange interviews Michael Pento of Pento Portfolio Strategies who has some extremely interesting views on the U.S. economy, the data which supports it, and on gold.

Mike Gleason: It is my privilege now to be joined by Michael Pento, president and founder of Pento Portfolio Strategies and author of the book The Coming Bond Market Collapse: How to Survive the Demise of the US Debt Market. Michael is a money manager who ascribes to the Austrian school of economics and has been a regular guest on CNBC, Bloomberg, and Fox Business News, among others.

Michael, it’s good to talk to you again. Thanks very much for joining us today and welcome back.

Michael Pento: Thanks for having me back on.

Mike Gleason: Well to start off here, Michael, I want to get your thoughts on some of the economic data we’re seeing out there and maybe you can explain some of the market action to us because there seems to be a lot of confusion. Now as you pointed out in an article you wrote earlier this week, we have a big disconnect between what the payroll reports and the employment numbers are showing compared to the tax receipts the Treasury Department is collecting. Talk about that if you would and also let us know what conclusions you’re drawing from these numbers.

Michael Pento: Well unfortunately, the conclusions I’m drawing is that the payroll numbers aren’t telling the truth. If you listen to the Labor Department, the number of net new jobs created year-over-year this fiscal year so far – it’s going to end at the end of September, so we have almost all the data in – there has been 1.66 million net new jobs created. One would assume if you have all these people in a net basis in the workforce that tax receipts would be increasing, and yet, you see corporate receipts are down 12.8% year-to-date and individual tax receipts are down 0.4% year-to-date. Furthermore, there’s something called the FUTA tax, and that’s basically a tax on, employment insurance tax on, the first $6,000 of anyone employed. So unless these people that are employed, supposedly full time and gainful employment, are earning less than $6,000 a year, these people should be paying into this pool. And those receipts are actually down year over year.

So I believe that the Bureau of Labor statistics is inflating this data and I believe the quality of the data, in other words, the number of jobs created and the quality of those jobs are mostly part time in nature and very low paying service sector jobs, which by the way, would also explain the absolute lack of productivity. Don’t forget, in case you don’t know, in case your audience isn’t aware, productivity has dropped for three quarters in a row, and a productivity of part time bar maids is not very high. That would explain the discrepancy between the two numbers that I just described between the Bureau of Labor statistics and the tax receipt data, and it also explains why I think this economy is most likely in a recession right now.

Mike Gleason: There’s something else here that doesn’t seem to add up. We continue to see records in the stock market, but earnings are not keeping up with the rise in share prices. It’s hard to know who’s actually buying shares. Zero Hedge has reported that retail investors don’t seem to be buyers. So is it possible that the fed might be actively playing in this market? We do know the Swiss Central Bank has been buying U.S. stocks and certainly Bank of Japan is a huge buyer.

Michael Pento: Sure. Really, is it that much of a stress to believe that the Federal Reserve is doing exactly what other central bankers are doing? I think we’re all headed towards helicopter money. This is where this is all going to head up. So if you look at earnings on the S&P 500, it is down 5 quarters in a row and most likely it will be 6 quarters after this earning season is wrapped up. So if you have 6 quarters in a row of falling earnings, what is supporting the stock market, which is, by the way, trading at record highs? If you look at median PE ratios, if you look at price to sales ratios, if you look at total market cap to GDP ratios, this is the most expensive market in aggregate that we have ever had in history. It’s even more expensive when you think of the fact that you have earnings that are most likely falling, that means negative, 6 quarters in a row.

So who is inflating the stock bubble? It has to be the Bank of Japan, the Swiss National Bank, the European Central Bank, and the Fed, even if they’re not directly buying ETS as they are over there in the maniacal inflation seeking retirement colony in Japan. You at least have to admit that keeping interest rates near zero for 90 months and inflating the Fed’s balance sheet by $3.7 trillion has bent down the yield curve to almost a flat level where it sits now at a 10-Year around 1.5%. That has forced everybody in a wild search for yield and where are they going? They are going every place from municipal bonds to collateralized loan obligations to REITs to every type of fixed income proxy there is, even to high performance sports cars and art. So every asset is in a bubble thanks to the fact that risk-free, so called risk-free, rate of return has been pushed down to near zero for 90 months on a worldwide basis.

Mike Gleason: You’ve written a book about the coming bond market collapse and I want to get your comments on that market here. We continue to see bond prices holding strong and even rallying. Central banks have been huge buyers, but it appears even the private sector can’t get enough of them. Investors are taking bonds with negative yield in many cases and I’ve seen reports that offerings have even been over-subscribed. Has the ongoing strength in bonds surprised you and have you revised any of your thinking on the dire predictions about the bond market? Because there is an argument out there, Michael, that the central banks can continue to buy bonds with newly created electronic money until the moment the electricity goes out.

Michael Pento: Well they certainly can. I wrote the book in 2013. I never expected that yields would go into negative territory. So I was prescient, I was definitely ahead of the curve, calling this a bond bubble when nobody else was calling this a bond bubble, but what has occurred basically, quite simply, is that the bond bubble is more elastic than I thought and has gotten much, much bigger. Look at the amount of global debt. Global debt right now is $230 trillion, up $60 trillion since 2007. That is 300% of global GDP.

The U.S. debt is 350% of GDP. The average ratio of U.S. debt to GDP is 150% and that existed for decade after decade after decade prior to going off the gold standard in 1971. So we went from 150%, which is sort of the average, the normal, to 350% debt to GDP. And there’s a massive accumulation of this debt. But by the way, this is not debt that’s been taken on by you put your savings in the bank and you have robust GDP growth, you save a little money, and that money is loaned out to the private sector for what? Capital good creation and for engendering productivity enhancements. This massive accumulation of debt isn’t at all that genre, it’s unproductive debt that is only made serviceable by unprecedented increases in base money supply. This is the perfect recipe for stagflation.

So if you add a massive increase of unproductive debt, and I gave you the numbers, $230 trillion – totally unproductive debt going to share buybacks and hole digging and pyramid building – this debt is not going to be accompanied by any type of GDP growth. It’s unserviceable unless central banks continue their torrid and unprecedented pace of quantitative easing. Just put a figure on that. There is now occurring $200 billion of quantitative easing every month, every month. So worldwide, central bankers are engaged in QE to the tune of $200 billion a month of central bank credit creation. So if you have stagflation, no growth, and a massive and unprecedented and intractable increase in the base money supply, of course you’re going to get inflation. You have to get a rapid rise inflation. And when that occurs, you’re going to have a collapse in the bond market, the likes of which we have never seen before.

Let me just quickly take you to Japan, an example I love to use. 250% debt to GDP, that’s just federal debt, that’s not gross debt, it’s just federal debt. You have an inflation target of 2% and you have a perpetual recession, never ending. It’s been going on and off since 1989. What happens when the BOJ, the Bank of Japan, successfully achieves a 2% inflation target … And don’t be misled for a second, no central bank can peg an inflation target, it will go to 2% and then keep on going. Here you are holding a Japanese JGB, ten year note, going out ten years, yielding negative ten bases points, inflation is rising, going north of 2%, and you’re dealing with an insolvent nation. The debt you hold is that of an insolvent, broke nation that is going to default.

What are you going to do? You’ll panic out of that note. You will sell that to anybody because you know that the central bank of Japan, the BOJ, will be getting out of the monetary monetization business. That’s what I predict will happen. It’s going to happen in Europe, it’s going to happen in Japan, it’s going to happen in the United States. And when that happens, when yields spike, it will reveal the insolvency of that global $230 trillion debt condition.

Mike Gleason: Let’s pivot and talk about the metals, specifically, certainly, we’ve seen some very strong action this year, which began back in January and February when we spoke to you last. Gold is up about 25% for the year, silver’s up about 40%, but both metals have come under pressure here over the last couple of weeks. The mining stocks, which have been on absolute tear, have pulled back as well. Do you expect this to be a prolonged correction in the metals with prices maybe heading lower into September or October? What are your thoughts there on the metals?

Michael Pento: Well let’s give you the reason. First of all, I am not a Pollyanna about any asset class. If I thought that the Federal Reserve was going to be able to engage in a protracted, steady increase in the Fed funds rate in the matter they did between 2004 and 2006, if I thought that they were going to be able to do this in the context of steadily increasing GDP growth, then I would tell you, “You better get the hell out of gold and gold mining shares as quickly as possible”. I can tell you right now, I don’t believe that’s the case.

So the pullback I see right now is healthy in nature, it’s way overdue, and it was engendered by, it was caused by, a plethora of talking heads from the FOMC, Federal Open Market Committee, coming out and it was perfectly timed up until this Jackson Hole meeting, which is occur on Friday, to tell Wall Street that they are way too quiescent in their view that the Fed is not going to raise interest rates in 2016. They haven’t done so yet. They did once, as you know, in December of 2015. The market fell apart. And they threatened four rate hikes this year and we are now coming up to September and have no rate increases so far.

I believe they may raise once in December after the election. That all depends if the economic data turns around. If you look at what’s happened with GDP, if you look at Q4 GDP 2015, Q1 and Q2 (of this year), we are now displaying zero handles on Gross Domestic Product. And if you look at the latest data on housing, existing home sales – which is by far the much bigger portion of home sales, vis a vis, new home sales – and if you look at mortgage applications, mortgage applications are now down year-over-year and existing home sales are down year-over-year.

That says that the all-important housing market is rolling over, people cannot afford home prices, and I think after that brief blip up in data that you see in July, Q3 will also be very anemic and the data between now and the end of the year will most likely not allow the Fed to raise interest rates between now and the end of the year, but even if they go once in December, the most salient point I can make to your investors is that the central bank will be very clear that this is not part of a protracted, elongated rate hiking campaign.

In other words, they’re going to go very, very, very slowly, as they’ve evidenced so far, and the terminal point, which they call the neutral Fed Funds Rate, will be much slower than at any other time in the past. You think about in history neutral Fed Funds rates are usually 5% to 6% on the overnight lending rate. They’re at 3%, that’s their target right now, and I believe, after these next few meetings in September and December, Janet Yellen will come out and tell you that the terminal rate, the neutral target rate, is something in the neighborhood of 2%, so they’ll be lower for longer and have a much lower terminal rate. By the way, I don’t think they ever get there. As I said before, I think the economic data turns profoundly negative between one or two more rate hikes. We enter into an inverted yield curve, we enter into a fully manifested recession, and that means the Fed joins the ECB and BOJ back into quantitative easing.

Mike Gleason: Well as we begin to close here, Michael, I would certainly think that a negative real interest rate type environment is likely to continue. Sounds like maybe that’s what you’re predicting. What do you think that’s going to mean for the metals? And also, just give us your thoughts on the whole election as we move towards the election season here in November.

Michael Pento: Well first of all, I’d like to tell you that I believe that nominal rates are going to stay very low and I believe stagflation is going to be coming more and more into the fore. You’re looking at real yields, which will be moving further into negative territory. Anybody who knows anything about gold will tell you that this real and honest currency is absolutely essential during times when nominal rates are negative and real interest rates are even further negative, and that’s exactly the condition that we are headed into. If you look at nominal GDP, it’s just 2.4% year-over-year. If inflation is higher than 2.4% then we are now in a recession.

I also want to give you one more data point. I know it’s very data heavy, but that’s how I am and that’s how your audience is going to be able to grasp why it’s so essential to maintain their position in gold and in the miners. Core inflation is up 2.3% year-over-year. Real GDP is up just 1.2%. So inflation is twice as high as real GDP. That’s stagflation, that condition is going to get worse, that is going to make real interest rates even lower, and that is going to force people more and more into the protection of gold.

And I want to also touch before we end, you asked me about the election. Donald Trump is on record saying that he’s the king of debt and that he loves debt. He is also on record saying that if the U.S. ever enters into another 2008 type scenario, that we can default upon that debt. Now if you ever wanted to have another reason to own gold instead of treasuries that yield almost nothing is the fact that the nominal yield you’re getting, which is practically zero, if even that nominal yield has been threatened to be defaulted upon. So while Trump is a deficit lover, so is Clinton, who I believe will, by the way, unfortunately, win the election. So I believe both of these candidates are lovers of debt. Both of these candidates will be vastly increasing to the amount of debt deficits that we run up, which by the way, will be and must be monetized, and according to Mr. Trump, will be defaulted upon. At least he’s being honest.

Mike Gleason: Well we’ll leave it there. Excellent stuff Michael. We always appreciate your insights and thanks for being so generous with your time. As always, we really enjoy your commentaries, and on that note, if people want to both read and hear more of those from you and want to follow your work or learn more about your firm, tell them how they can do that.

Michael Pento: The website is www.PentoPort.com. My email address is mpento@pentoport.com. And the office number here is 732-772-9500. Love to have you subscribe to my podcast. You can read my commentaries online all over the place. I’d love to be also be able to help you manage your money through this tumultuous time that we’re going through, which will get much worse.

Mike Gleason: Again, great stuff Michael. Hope you enjoy the rest of your summer. I look forward to catching up with you again soon. Hope you have a good weekend and thanks for the time today.

Michael Pento: Thank you Mr. Gleason.

Mike Gleason: Well that will wrap it up for this week. Thanks again to Michael Pento of Pento Portfolio Strategies. For more info, visit PentoPort.com. You can sign up for his email list, listen to his midweek podcast, and get his fantastic market commentaries on a regular basis. Again, it’s PentoPort.com.

And don’t forget to check back here next Friday for our next Weekly Market Wrap Podcast. Until then, this has been Mike Gleason with Money Metals Exchange. Thanks for listening and have a great weekend everybody.

 

New FOMC framework gold positive – the Holmes Gold SWOT

By Frank Holmes – CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was palladium, up 3.57 percent.  Speculators have been piling into platinum and palladium futures, largely based on improved car sales in China, but position sizes are approaching all-time highs for both metals.
  • Gold investment in the first half of the year broke previous levels, as seen in the chart below, with both coin and bar demand, as well as ETF product demand, soaring to record levels. Gold demand will get another boost in India as wedding season starts to heat up, particularly with the metal currently trading at a $40-$50 discount in the country, reports Bloomberg. Bullion traders noted persistent buying by jewelers at domestic markets to meet festive season demand.

aug23SWOT

  • Gold got a boost on Thursday on dollar weakness following the release of the Fed minutes, which showed that U.S. interest rates should stay low. According to futures prices compiled by Bloomberg, the odds of an increase in borrowing costs in December fell to 49 percent from 51 percent a day earlier. “From looking at the data, and looking at the minutes, I don’t think we’re any closer to a rate increase,” Chris Gaffney, president of EverBank World Markets said.

Weaknesses

  • The worst performing precious metal for the week was silver with a 2.05 percent fall, of which most of the losses came on Friday when we had renewed strengthening of the dollar.
  • There have been a number of mixed signals from Federal Reserve policymakers this week, sending gold lower on Friday. The jawboning from these officials include a comment from New York Fed President William Dudley, for example, who reinforced his confidence in a possible rate hike for the second time in a week, reports CNBC.  Bullion for immediate delivery fell 0.5 percent an ounce in London, reports Bloomberg, as other officials say the U.S. is strong enough to warrant an increase in interest rates sooner than markets expected.
  • Gold consumption in China fell during the first half of the year, primarily due to a surge in price by 24.6 percent, reports Bloomberg. The Asian nation did keep its top spot as the world’s leading gold producer, however, for the ninth-straight year. Similarly, as the foreign currency crisis deepens in Venezuela, the country’s international gold reserves slumped 25 percent in the first half of the year as they swapped gold for dollars.

Opportunities

  • According to a piece from SmarterAnalyst.com, the FOMC members see the futility in their tools and announced this week that the Fed is rethinking its monetary stance. President of the St. Louis Fed James Bullard explains that the old model was a long-run equilibrium which averaged past economic variables. The new model, however, includes a set of possible regimes that the economy may visit and are not forecastable. The Fed’s new framework would be positive for gold, the article continues, as it would lower market expectations of interest rate hikes and support the price of the shiny metal. It makes the Fed even more agnostic and less inclined to provide clear guidance.
  • CNBC reports that gold’s relationship with stocks reached an all-time low in the 60 sessions through Wednesday’s close. The correlation between gold futures and the S&P 500 was -0.63, the lowest ever between gold and stocks based on CNBC analysis of Factset data going back to 1984. This could be a reason for many investors to buy gold, as the “two unrelated assets will together have a smaller amount of volatility than two identical assets, all else being equal.”
  • Global central banks dumped a record $335 billion in U.S. debt over the past year, according to an article from Zero Hedge. While the author points out his expectation that Saudi Arabia would be one of the biggest sellers (or other “petrodollar-reliant nations”), China, Japan and Hong Kong were the largest sellers of Treasuries in June.  The largest buyer in June was the Cayman Islands with purchases of $28.3 billion – another name for “hedge funds,” the author states.

Threats

  • As Islamist militants pose a growing threat at mines in Burkina Faso, the government announced plans to deploy more than 3,600 soldiers and police to secure its mines, reports Bloomberg. According to Francois Etienne Ouedraogo, the head of the National Office for Securing Mining, the police and soldiers will be “deployed gradually” at the 18 mine sites in Africa’s fourth-largest gold producer. In a report from the IMF last June, the group said that fragile security is one of the main threats to the nation’s economic outlook.
  • Gold equities have re-rated to historical peaks or above, reports Morgan Stanley, with an average 24 percent upside to spot gold already priced in. Similarly, analysts at UBS believe that mining stocks have priced in the gold bull run, and that the underlying metal provides more upside than the stocks. Despite gold being one of the top performing assets year-to-date, the metal’s 26 percent gain pales in comparison to the 110+ percent average lift across the senior producers, UBS continues.

A piece from All Africa Global Media this week points out that the lethal toll of informal gold mining is on the rise. Although deaths at formal mines have come down (fatalities numbered 77 in 2015, making it the least deadly year on record), “zama-zama” or informal fatalities have gone up. By 2015, the official number of informal mining fatalities reached 124 (a 150 percent increase in reported informal mining deaths from three years prior).

Fed member statements move gold price up or down. Should this be allowed?

First one US Fed leader says one thing regarding the possibility of a second interest rate hike this year and then another comes up with a different take on the U.S.’s overall economic position and gold and the dollar move up or down depending on what position is being taken.  We have commented before that why the gold price moves to the extent it does on the potential timing of what is likely to be a minimal interest rate increase of perhaps 25 basis points is somewhat of a mystery.  (See: Why does gold react so sharply to poss. Fed interest rate rise schedule?)  Real inflation is growing at a higher rate than official figures suggest and even if there is a small rate increase, the U.S. will effectively remain in negative rate territory, which is generally positive for gold, but this seems to be being totally disregarded.

Regarding a possible Fed rate increase, possible dates, if the Fed will raise them this year, are September, November and December.  We can probably rule out November as the Fed meeting is scheduled only a week ahead of the US Presidential election and the Fed wouldn’t want to be seen as doing anything which might be seen as impacting the result for whatever reason.  That leaves next month – probably too early, given the tone of the last FOMC minutes – and a more likely date of December, a full year after the last rate increase assuming economic indicators don’t turn down, which they well could.  But from a Fed credibility point of view one suspects that there will be added pressure to go for at least a December rate rise and we would rate that as the most likely date even though a number of top rated analysts do not believe the Fed will return to making small rate rises at all until next year – if then.

So what if the Fed does raise rates by perhaps another 25 basis points in December.  The biggest worry for the FOMC is perhaps that this will adversely impact general stock market growth.    There are many out there predicting a stock market crash as stocks are seen as overvalued and the worry is that it may only take a tiny adverse change in interest rates to trigger the start of a major downturn.

One doubts that the possible effects on gold will even be considered but it is worth remembering that after a very small adverse reaction given the rate rise was well forecast last December, within 3 weeks gold started on its upwards surge.  So much for adverse effects of a Fed rate increase on the gold price.

Personally one feels it would make sense to forbid Fed members from making statements suggesting whether or not rates will be raised sooner or later between FOMC meetings.  There’s always a knee jerk reaction in the U.S. markets following such statements with stocks, and gold in particular, moving up or down, sometimes quite sharply, on such statements which makes them potentially prone to abuse.  The Fed members who make these statements must be aware of exactly what their prognostications will do with respect to market movements.  Now maybe it’s Fed policy to promote such uncertainties, but if so it is a dangerous game to play, and an unfair one for the investment community

GFMS blows hot and cold on gold

The latest GFMS Gold Survey Update taking Q2 figures into account doesn’t make for particularly positive reading for the gold investor in terms of fundamentals, but nevertheless the consultancy has upped its average gold price forecast for the year from what looks to have been a rather low estimate of $1,184/ounce to what might seem a still relatively conservative $1,279/ounce.  It should be recognised, however, that this is an average price forecast for the full year, and despite the headline spot price currently heading for the $1,350 level after a downbeat US GDP assessment, the actual average for H1 is still some way below this at around $1,219 based on LBMA figures, so this still suggests a second half average of close to $1,340/ounce to achieve this kind of level for the whole of the year.  Perhaps not quite so conservative after all!

So why do we say that the fundamentals do not look quite so positive as the relatively upbeat survey title might suggest?  That is because of a remarkable estimated downturn in gold’s principal demand sector – jewellery manufacture, particularly in gold’s two largest markets, China and India.  GFMS does come in for some criticism on its Chinese consumption statistics in particular, largely because of its definition of what actually comprises demand.  This actually comes in way below known Chinese gold imports and even further below withdrawals from the Shanghai Gold Exchange (SGE) which the Chinese Central Bank defines as Chinese demand in its Gold Yearbook.  The discrepancy is in part because GFMS consumption statistics ignore some very substantial gold flows into the banking and institutional sector, purportedly for use in financial transactions, but we have surmised they may also provide a back-door, and unreported, addition to China’s gold reserves given the country’s commercial banks are all state-controlled.  Certainly gold flows into China in total are way in excess of GFMS-estimated Chinese demand figures.

For China so far this year, GFMS reckons Chinese jewellery demand is seen as down by 31% year on year – the worst Q2 performance since 2009.  Investment demand is also seen as falling by 12% quarter on quarter for Q2.  Overall GFMS describes Chinese demand, as it calculates it, as being in freefall, although it is anticipating a pick-up in Q3.

While SGE gold withdrawal figures will also be substantially higher than the GFMS definition of Chinese gold consumption – they too are down sharply year to date as well by around 17% – which certainly confirms the trend noted by GFMS, if not the size of the downturn. Up until the end of June some 973.1 tonnes of gold had been withdrawn from the SGE.  Analytical consultancies like GFMS believe SGE figures include a significant degree of double counting, although some other analysts who follow these figures disagree saying SGE rules prevent this.

Chinese demand may also indeed be beginning to pick up, despite media headlines which look to suggest the opposite.  Hong Kong remains the conduit for perhaps around 60% of gold imports into the Chinese mainland and the May figure was the best for five months at 101 tonnes.  June did see a fall back to 68.7 tonnes but theBloomberg report headlined China’s Gold Imports Slide in June as Rising Prices Deter Buyers, where the headline suggested a major downturn in Chinese imports, rather glossed over the fact that even so the June figure was still more than three times higher than the figure for June 2015 – and 2015 was a very strong year for Chinese gold imports and demand!  The SGE withdrawals figure for the year was a huge new record at just shy of 2,600 tonnes – equivalent to over 80% of global new mined gold output.

GFMS also saw Indian jewellery demand as being even worse with jewellery consumption down 56% – and even globally it sees overall jewellery consumption down 27.3%.  It also puts global industrial demand as down by 7%, net official sector purchases down 48.5% (due primarily to reduced purchases by Russia and China in H1 coupled with sales by Venezuela) and global retail investment demand off by 2.6% overall.  To make things worse, despite seeing a 2% fall in new mine supply, overall supply is estimated as growing by around 6% due to an increase in scrap sales brought on by higher prices, and an increase in gold hedging activity.

The one bright spark in the supply/demand fundamentals balance has been the huge inflow into gold ETFs, totalling an estimated 568 tonnes in the first half of the year, so while GFMS sees gold in a supply surplus over the period, it has not been nearly such a severe one as the other supply/demand statistics might suggest.  But what if the ETF inflows start to reverse as they have been over the past week or two?  The likelihood could be a summer slump in the gold price, unless some global black swan event intervenes to regenerate more safe haven demand.  Or can sentiment alone hold the gold price at around current levels?  The FOMC meeting this week saw no indication of any timetable for increasing US interest rates, which gave the gold price a strong boost.  The latest US GDP growth  figures have also come in way below expectations, which may dim further expectations of a September US interest rate increase – and the feeling is the Fed won’t want to rock the boat ahead of the US Presidential election, which will likely see any interest rate rise decision to be postponed until December at the earliest.

What positives for gold does GFMS see?  It is now reckoning that new mined gold supply is definitely on the downward path.  There are relatively few new projects and expansions expected to begin producing this year to replace old mines closing down or those seeing lower grades, and those new operations in the near-term pipeline are generally fairly modest in scale, hence an opinion that global mine supply is now set to begin a multi-year downtrend this year.  But even if mine supply were to fall by 10% next year, which is probably a hugely excessive guess (the more likely figure would be 2-3%), this would only take 300 tonnes or so out of the global picture and unless Asian demand picks up again we could be heading for quite a major surplus.

But, even so, GFMS has raised its price projections as noted above, which means perhaps its analytical team is a little more positive than its figures might suggest.  It puts this down to political uncertainties ahead including the ongoing impact of the Brexit vote in the UK, reduced expectations of a rate rise from the Fed, a wobbly Italian banking sector and the U.S. Presidential race.

The full GFMS Q2 Gold Survey update is available for download to corporate email addresses athttps://forms.thomsonreuters.com/gfms

The above article is a lightly edited and updated version of one published earlier this week on info.sharpspixley.com 

Another significant sale from GLD – but gold price little moved.

Gold TodayGold closed in New York at $1,319.80 on Tuesday after Monday’s close at $1,314.10.  

    • The $: € was down at $1.0991 up from $1.007.
    • The dollar index rose to 97.29 from 97.03 Tuesday.
    • The Yen was weaker at 105.64 from Tuesday’s 104.13 against the dollar.
    • The Yuan was stronger at 6.6709 from 6.6754 Tuesday.

 

  • The Pound Sterling was weaker at $1.3120 down from Tuesday’s $1.3081.

 

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  07  27

2016  07  26

SHAU

SHAU

283.34

283.84

283.17

283.71

Dollar equivalent @ $1: 6.6709

$1: 6.6786

$1,321.09

$1,322.53

$1,320.30

$1,321.92

Shanghai prices were in line with New York’s close and London held it at the same level adjusting for a slight exchange rate change.

With China the world’s largest gold producer [450 tonnes] and the Shanghai Gold Exchange the largest global gold market, we expect to see its influence over the gold price rise substantially, unless it is in the interests of the P.B. of C. to hold prices around the levels seen in London and New York. The P.B. of C. as the main counterparty is able to do that.

On the supply side we must factor into the long term picture the fall off in exploration and development in the gold mining industry.  This will impact production over the long term. If the gold price goes higher, gold miners increase their reserves as the break-even point falls. This usually leads to a fall-off in production as lower grade ore moves through the mills.

LBMA price setting:  $1,320.80 after Tuesday 26th July’s $1,321.25.

The gold price in the euro was set at €1,201.60 up €0.46 from Monday’s €1,201.14.

Ahead of the opening in New York the gold price stood at $1,319.80 and in the euro at €1,200.80.  

Silver Today –The silver price closed in New York at $19.64 on Tuesday up from $19.51 on Friday.  Ahead of New York’s opening the price was trading at $19.60.

Price Drivers

Not only is the FOMC meeting under way but the markets are expecting an announcement from the Bank of Japan shortly, telling us that they will add more stimuli to their economy. We have no doubt that the BoJ is hoping this will weaken the Yen as well as make another attempt to contain structural deflation in the country. We expect both central banks announcements to be good for gold and silver.

However, we may have to wait until the Fed announcement before we see them react.

Gold ETFs – In New York on Wednesday there were sales of 4.453 tonnes of gold from the SPDR gold ETF (GLD), but no purchases or sales into or from the Gold Trust(IAU), leaving their holdings at 954.235 tonnes and 217.99 tonnes, respectively.

This sale, the second in two days at a similar level should have been enough to hurt the gold price as the first one did, but it didn’t. This is a positive sign, particularly because it is the SPDR gold ETF which is the main driver of the gold price at the moment.

Clearly, as we enter August the proximity of the ‘gold season’, the rising demand potential from India and the ongoing macro-economic problems, worldwide are causing the gold price to hold above $1,300. Add this week’s central bank statements and we expect more potential for a gold price rise than a fall. Once a rise begins, we expect gold ETF demand to resume.

Since January 4th this year, the holdings of these two gold ETFs have risen by 374.61 tonnes.

Silver –Silver prices could have a quiet time today, until gold leads the way again.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Gold sitting on support – so far.

A shortened, updated and edited version of Julian Phillips’ commentary for Tuesday which was delayed from reaching us for technical reasons.

Shanghai prices have been higher than in New York, after gold was sold from the SPDR gold ETF [see below], and London followed Shanghai’s prices, so at this stage we conclude that New York prices were considered to have been marked down too far.

A weakening dollar is at the heart of any strength there is in gold and silver prices. Once again, in the face of analyst’s opinions, we see the dollar weakening across the board, this time alongside the FOMC meeting.

While the risk to the euro is to fall to $1.07 against the dollar, the U.S. does not want to see the dollar any stronger than at present despite the state of the E.U. We reiterate that we believe the dollar’s ‘bull’ run is over.

Russia and China are now continuing to buy gold for their reserves. China, Kazakhstan and Russia simply issue local currency to their miner’s and take some or all the local gold production into their reserves. It does not leave their countries and does not pass through any international gold market.  The total amount involved could be around 25% of total global gold production.

Price Drivers

The FOMC meeting is scheduled to begin today with a statement issued on Thursday. There are few who expect a rate hike. We expect more reasons to be given as to why no rate hike is on the cards. The concept put forward by the Fed Chair Mrs. Yellen that we could see a rate hike in the ‘summer months’ is now off the table after Britain voted to leave the E.U., probably precipitating a recession in the U.K. and more than likely one in several member states of the E.U. if not the E.U. itself.

Physical demand in the U.S. remains the principal driver of the gold price, a fact that was aptly demonstrated Monday when over 4 tonnes of gold was sold from the SPDR gold ETF. This pulled the gold price to $1,314, but Shanghai took it back up with London agreeing China’s price. This is the first recent, noticeable, difference in the three global markets prices.

Gold ETFs – As noted, in New York on Monday there were sales of 4.466 tonnes of gold from the SPDR gold ETF (GLD), but purchases of 0.45 of a tonne into the Gold Trust (IAU), leaving their holdings at 958.688 tonnes and 217.99 tonnes, respectively.

Since January 4th this year, the holdings of these two gold ETFs have risen by 379.063 tonnes.

Silver –Silver prices could have a quiet time this week, until gold leads the way again.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance [Gold Storage geared to avoid its confiscation]

Silver: The Rip Van Winkle metal – Chris Martenson

Mike Gleason* of Moneymetals.com interviews Chris Martenson

Chris comments on geo-politics, geo-economics and on whether one should invest in gold and silver.

Chris Martenson

Mike Gleason: It is my privilege now to be joined by Dr. Chris Martenson of PeakProsperity.com and author of the book, Prosper: How to Prepare for the Future and Create a World Worth Inheriting.

Chris is a commentator on a range of important topics such as global economics, financial markets, governmental policy, precious metals, and the importance of preparedness, among other things. It’s great, as always, to have him with us. Chris, welcome back, and thanks for joining us again.

Chris Martenson: Mike, it’s a real pleasure to be here with you and your listeners.

Mike Gleason: Well it’s been a number of months since we’ve had you on last, far too long by the way, and there has been a ton of things going on in the financial world of late. I’ll get right to it here. For starters, what did you make of the Brexit decision last month? Is this potentially the beginning of some meaningful opposition to the ongoing drive for a world government? Or was this just a one-off event?

Chris Martenson: No, this was not a one-off event, this was a continuation of a pattern that we’ve been talking about at Peak Prosperity for a while. We thought that there were three scenarios for the future. One of them we called fragmentation. I think this is the beginning of it, and fragmentation has its roots in a growing wealth gap. It happens when you have a stagnant to shrinking economic pie that is increasingly seized by the elites who are tone deaf.

And when they do that, people get cranky, and this is the first form of crankiness we’ve seen break out. Austria is next, we are going to see the sweep across Europe, I believe. People have seen that austerity is just a punishment by the bankers upon the average people for the sins of the banker. It feels unfair because it is.

I think Brexit as a political statement is just the beginning, and of course the powers that be are going to do everything they can to paint this as a mistake and punish the wrong people again.

Mike Gleason: What about the banking system, despite some recovery in the past week or two, the European bank stocks have been getting hit hard. We’re seeing that Italian banks need to bailout, and the share price of Deutsche Bank is signaling that the firm is in real trouble. The IMF just named them the riskiest financial institution in the world.

There is a rally here in share prices, Brexit appears largely forgotten, and Wall Street certainly isn’t acting too worried. Is the concern over European banks overdone? Or might we see a firm like Deutsche Bank actually collapse. And what do you see as the ramifications here in the U.S.?

Chris Martenson: The European banks are absolutely in trouble. I think they are insolvent, that is the step that precedes bankruptcy which is a legal action. Insolvency is just when your assets and your liabilities have a big mismatch. We know that’s the case for the European banking shares. It also explains, Mike, why we are seeing this rally, we call it on Wall Street, but it’s global.

We saw two things. First, we saw a big decline, a scary decline in January, and then this miracle, nipple bottom vault back up to the highs that came out of nowhere. To me, that was a liquification event. Somebody put a lot of liquidity into the system. We know that the central banks are coordinating on this because they are scared of the Franken-markets they’ve created. They cannot even tolerate a few percent decline without freaking out. That should freak ordinary people out, because if they are scared, you should be too.

So they re-liquefied like crazy, and then we had just another post Brexit re-liquification. My evidence, stocks at all-time highs, bonds at all-time highs. Listen, you cannot have that unless there is a lot of liquidity coming from somewhere. People cannot be panicking both into negative interest yielding bonds and stocks at the same time for this to make sense through any other lens than the central banks are absolutely pouring money into these markets.

Mike Gleason: Yeah, it’s certainly been a head scratcher to watch these equities markets, the DOW and the S&P making these all-time highs in the wake of what we’ve seen here recently. That’s a good explanation and I don’t see any other potential for why that’s happened. That’s not sustainable forever, they cannot get away with that forever before without the bubble finally bursting, is that fair to say?

Chris Martenson: That is fair to say. And just for your listeners, I just got back from a major wealth conference. These are people, families, institutions that are managing enormous money… they’re all scratching their heads. I watched these poor fund managers and CIOs, that’s investment officers, attempt to explain all of this. They contorted themselves into pretzels. I got up there and just said, “Look, somebody is dumping money in this market.” A lot of heads started nodding. First wealth conference I’ve been to, Mike, in many years where I was no longer the contrarian in the crowd. That makes me nervous.

Mike Gleason: Switching gears here a little bit, what do you make of all of the recent social unrest here in the U.S., Chris? We’ve seen police shootings followed by protests and revenge killings of police officers in a number of cities around the country. Then we’ve got probably the two most polarizing figures ever running for president. The months between now and the November election are sure to be interesting. But there is at least the potential that they could also be very dangerous. What does the recent unrest signal here Chris?

Chris Martenson: I think this is connected to the same factors that I talked about with Brexit. Look, Mike, what’s happening here is that people are getting squeezed. If you believe the inflation numbers go get your head checked or study up on it, because we know we are getting inflation. It’s at least twice as high, maybe three times as high as officially announced. And that’s really hurting people, savers just getting crushed.

We are watching banks get bailed out, we are watching Hillary skate on what are obvious transgressions of the law as it’s written and it’s not a complicated law to understand about mishandling of classified information. She got a pass on that amongst other things. So listen, we’re primates. Fairness and justice are hard wired into us, that’s a thing. People are feeling and seeing the unfairness of this all.

What it comes down to, really, for me, Mike at this stage, is they ran these really interesting experiments back in the 40’s and 50’s. Where they would take a rat and put it in the cage, make it so there is nothing in the cage so it cannot escape, and they shock the floor. The rat hates it but ultimately they figure out how to tolerate it. They curl up in a ball, they’re miserable.

If you put two rats in the cage, what happens is that all of a sudden they are both getting shocked, they are both hated, it’s painful, but now they have somebody to look at and go, “Oh, it’s you.” And they fight. And if they leave them in there long enough, they fight to the death.

What that experiment shows us is that when people – and rats and people are the same this way – if you don’t know where the shocks are coming from, you go to the blame game. That’s what we are starting to see. I believe that police and the people they are policing are actually on the same side of the story, but they don’t know it, so they are looking at each other, they are blaming the wrong parties in the state. The pie is no longer expanding. In fact, the piece of the pie that used to belong to even the upper middle class on down is being rapidly vacuumed out.

All that oxygen is being sucked out of the room by a financial system, not just bankers but a complete financial system that just doesn’t know how to say enough. And it’s vacuuming more and more for itself at ever increasing rates. That’s leaving less and less for everybody else. Guess what? Along comes polarizing figures. One who is representing the status quo, and allows people to default into the denial of saying, “Well, if we just get back to pretending that everything is okay and we shoot for the middle zone and don’t see anything too troubling, things will be okay.” Spoiler alert, they won’t.

And then another guy that’s saying, “Hey, I got an answer for this, and this is troubling and we need to start getting angry about this.” So he’s tapped into the anger side, and I think both of them are missing the mark on this, which is that we have to have a more fundamental substantive discussion about what’s really happening in this country, which is that we have some systems that are run amok and they are going to take us into a really dark territory if we don’t stop them now.

Mike Gleason: For the people who live in these urban areas where there is maybe a little bit more danger in being in an environment where there is a lot of animosity towards police officers. I know you’ve organized your affairs, so you are no longer living in a major metropolitan area, do you have advice for people to maybe consider that type of move given the fact that there could be some real instability in some of these major city centers with all of this violence?

Chris Martenson: Short answer, move. Longer answer, be prepared to move. I do work with people who live in urban areas that they are there for a variety of reasons, they’re not ready to make the move, but they are increasingly having plans for how they would get out of there. Listen, the difficulty of this Mike is this idea of shifting baselines, where if you are a person and you took a person today from my town and you dropped them into Oakland, California they would leave so quickly because it would be like dropping a frog in boiling water. They would jump right out of that.

But for people living there, it’s a little bit violent, but it’s four blocks away, and somebody got shot six blocks away. A month later, it’s two blocks away, but that’s okay, the police responded quickly. Over time, people lose their sense of perspective over what’s happening. So my invitation to people is to really look around and actually see what’s happening, ask yourself if the trend is getting better or worse.

And regardless of whether it’s getting better or worse, is that really where you want to live? A lot of people say the answer is no, but they don’t know what to do next. My invitation is, well, start figuring out what that plan is because there really is no time like the present to begin figuring these things out. It takes time, it just takes time.

Mike Gleason: Changing gears again here. I want to get your thoughts on the Fed. The FOMC meets again next week, they have been punching on interest rate increases. We’ve had mixed economic data, growth below expectations and central bankers everywhere are ramping up stimulus. Janet Yellen and company are finding it exceedingly difficult to tighten. Throw into that that this is an election year. What do you see the FOMC doing between now and the election? Could we see some kind of surprise to the dovish side to help boost the markets and keep the status quo going this November? What are your thoughts there?

Chris Martenson: Yeah, that’s the 85% probability. I’m on record as saying that I thought it was more likely that they were going to lower rates instead of raise rates on their next move, whenever that comes. I said that back in December after that first tiny little wiggle hike. And the reason I said that is because look, you can’t have the United States raising rates while the rest of the world’s rates are going down. That just doesn’t make sense from a variety of logical standpoints. But let’s be clear, the Fed follows, it doesn’t lead.

This is not an aggressive, assertive organization ever since Paul Volcker left. These are not people who have the moxie to run against what the markets want. They’re totally captive to the markets, the markets are clearly saying rates are going down. I don’t think this fed has it in them to do anything other than follow the markets. So since the markets are going down, the best the Fed can do is hold pat. But at some point, honestly, I would put a little bit more money on the wager that said the next surprise would be to the downside not the upside. Especially in an election year.

Mike Gleason: Speaking of following and not leading, I don’t know if you have been following Alan Greenspan and his comments, but now all of a sudden late in life after leaving his Fed chairman post, he is now advocating for a gold standard. It’s quite amazing to hear that come out of that man’s mouth after all these years. Maybe it just goes to the fact that when you are in that position, you’re just following and you’re not making any real leading decisions. What have you made of what Alan Greenspan has had to say in these recent days?

Chris Martenson: Yet another extremely disappointing CYA retirement circuit lap. We’ve seen this a lot, Senators who finally on their retirement day say, “Oh, by the way, Washington is really broken, here is all the ways they are.” Eisenhower on the way out, “Hey, watch out for this military industrial complex.” Yeah thank you, would love to have had those insights while you still could have made some decisions that would have shown that you had the personal fortitude and internal authenticity to have stood up and done what was right.

So for Alan to come out afterwards, I agree with a lot of what he is saying, it’s too little, it’s too late. It doesn’t do anything to resurrect or buff his reputation in my eyes. I think he was the architect that will ultimately end so badly, that his name will be mud if you follow the historical reference, for a long time coming.

Mike Gleason: What is your best guess for what to expect in the markets between now and the election… particularly for the metals? We’ve had an excellent first half of the year in gold and silver, although they have struggled a bit here in the last week or two. So do you see this as maybe a short term pause before the next leg higher? Basically can the metals match the performance in the second half of the year that they had in the first half?

Chris Martenson: Well I still think metals of course, particularly gold given the monetary shenanigans, that’s something that has to be in everybody’s portfolio. It’s your insurance policy, get it there. I really thought that Grant Williams about a year ago had made just to me the quintessential, best gold exposition where his summary was, “nobody cares”.

And his thought was that the west is perfectly happy to sell gold, we’re perfectly happy to sell our paper gold on the COMEX. We’re perfectly happy to see about 1,000 to 1,500 tons a year leave western vaults just for Shanghai alone. So we were okay with that because nobody cared. The Treasury didn’t care. He was talking with fed officials, like, “Yeah, if we lose gold, it’s fine.”

The west is starting to care. This hearkens back again to this wealth conference I was at, big money people, of course I’m always testing the gold waters with them. And more and more people are saying, “Yeah, I’m thinking about gold now.” So we’re starting to see this really show up on the western radars. I think that if I was going to mend Grant’s title, it moves from “nobody cares”, to “some are starting to care.” And that’s a very constructive environment for gold, just from that standpoint.

And the other part, of course, has to be how can gold not be constructive in a negative interest rate environment? People used to always say, “Chris, gold doesn’t yield anything.” And now I get to say, “Well at least it doesn’t yield negative something.” So this is a really positive environment for gold. It’s clear somebody has an interest in not allowing gold to go up. We saw that on Friday late night post Brexit. Somebody put 50,000 new open interest contracts to contain gold at the $1,360 mark. And we don’t know who that was, but we can all guess.

Mike Gleason: At some point you have to think that more and more people will recognize it as a safe haven. You talk about the wealth conference you just went to, about how maybe more and more people are starting to wake up to the idea of owning precious metals as a way to hedge against what may come. Obviously, and I’m talking about physical bullion now, there is not a tremendous amount of it. There’s been so much of it going to the east, and the west does not have a whole lot of precious metal left at this point.

If we did see an increase from say 1% of the general public and going to 3% or 5% of the general public, I have to think there is going to be a difficulty getting your hands on the metal if you wait too long. Is that fair to say?

Chris Martenson: That is fair to say, particularly at the retail level. I think the people who have the big, big money, they have access to vaults that you and I don’t normally have access to. There’s a very different structure for the big 400 ounce and 1,000 ounce bars for gold and silver respectively. But for people who want to buy coins, we saw this in ’08, we saw it in 2011 again when there were big price moves, particularly to the down side in silver where people started to want to get into that market.

And those were almost exclusively people who had already bought silver. This wasn’t new people coming into the market, just people looking for better deals. That alone swamped the retail supply chain, the refineries were maxed out, the mints were maxed out, supplies were tight, and the wait times ballooned out to six and eight weeks in some cases.

So that’s our learning which is that when the metals really do begin to move, your chance as a retail investor to get into that are going to be very, very limited if you wait or the percentages move from whatever it happens to be, 1% or 2%, to 3% or 5%. I think that that will swamp the retail availability for quite a while.

And then, you know what, people are going to be stuck with, and they’re going to say, “Oh there’s a six week wait.” When six weeks comes by, they discover that the price has moved a lot at that point in time. So either you put a lot of money on the line in the hopes of being in line somewhere, or you wait and discover that both the prices and availability have scurried away from you in the meantime. It’ll be hard I think psychologically if not practically for people to acquire what they want. So my motto always is I’d rather be a year early than a day late.

Mike Gleason: Very good advice. In terms of gold versus silver, obviously gold is really just monetary demand that drives that market, but silver is both pushed and pulled from both the industrial demand and the monetary demand. Generally speaking, when we see the metals rising, we’ll see silver outperform, but if we have an economic slowdown, perhaps that could hold silver back a little bit as it gets maybe lumped in with copper and oil and other industrial types of commodities. What are your thoughts there on the potential for silver versus gold going forward?

Chris Martenson: They’re very different words to me. A lot of people say, “Gold and silver” like it’s one word. They are two words to me. Gold is my monetary metal, love it, I have it because I think a monetary crisis is happening. If you have a short term horizon, I like gold better because I think we are having a monetary crisis first before we have a big industrial resurgence.

Silver, primarily Mike I love it as the industrial metal, as something who’s known ore grades are vanishing and deposits are depleting, and we know that it’s being used increasingly for more and more industrial applications. Silver is my Rip Van Winkle metal. I love it. If somebody said, “I need to pick one of these two, 20 years I want to be happy when I wake up.” Silver’s it. It’s a volatile metal that goes up and down, I think it could have a run down if we hit a capital “R” recession or depression across the world… if China blows up or something like that. But barring that, I love silver because of its actual supply and demand characteristics going forward. I think it’s heavily underpriced here.

Mike Gleason: Well as we begin to close here, Chris, what would you say are maybe the top three or four actions that people could be taking right now to become more self-reliant and generally more insulated from the chaos that’s on the horizon?

Chris Martenson: Well if I could just plug my own book here for a minute that I wrote with Adam Taggart called Prosper. What we do there is we specifically talk about steps people can take so that they will be more resilient given certain futures that might arrive. But every one of these steps we advise will make your life better today. So there’s really no way to lose in this story.

What we do is we have eight forms of capital that we like people to focus on. Financial capital, which commonly everybody focuses on only. But what we’ve found, and there’s a great quote, it says, “None are so poor as those who only have money.” If you only have financial capital you are not resilient. So there’s seven other forms of capital we talk about. I’ll just go through a couple.

One is social capital. Not just how many people you know, but how well you know them. Have you had experiences with them? Have you seen them operate under a variety of scenarios so you know really who they are at core? Building that social capital is going to be one of the most important things you can do to build you resilience. And guess what? You’ll know more people and connections are proven to make us happier, more fulfilled people.

Emotional capital, also in the mix. This is very important. It doesn’t do any good to be rich in all sorts of other areas if when a crisis comes you basically fold up your mental shop and shut down. Not good. We already see people doing this with increased rates of suicide, drinking, video game playing, other forms of numbing out because the reality is just not appealing. We think there’s lots of ways to rotate your thinking so that you can be positioned to not just be on the wave of change that’s coming, but the surf it.

There’s great opportunities coming here, but not for people who are going to be feeling the loss of the changes instead of the opportunities in the change. So those are just a couple of examples. Living capital is an example, knowledge capital, time (capital). Things like that. And so this book is our collection of stories and personal experiences with each of these forms of capital, from having worked with thousands of people in our seminars, at our website, Peak Prosperity. For people who are consciously and prudently as adults saying, “Hmm, different future coming, how can I be prepared? More importantly, how can I be resilient so I can increase my quality of life today and be more prepared for tomorrow?”

Mike Gleason: Yeah, it’s truly fantastic stuff. Obviously it was years in the making. You and Adam did a fantastic job, so many practical things in there. Now as we begin to close here Chris, why don’t you talk a little bit about the Peak Prosperity site and then also let people know how they can get their hands on that book if they haven’t already done that.

Chris Martenson: Thanks Mike. Yeah, the site is PeakProsperity.com. And we have a lot of free content there, we have a subscription newsletter for people who like to go a little deeper and maybe have more information. Our site is dedicated to two big things. One is educating, we want people to understand the context of what’s happening so they are not one of those rats getting shocked without an understanding of what the shocks are.

Once you know what the shocks are, then you have information that’s really important, that can help you move when other people are paralyzed or confused. So that’s half the site, the other half is about how we can become more prepared, more resilient… (there’s a) wonderful community of people there. They are very thoughtful. If I could identify us with one word, I would say we are all curious.

This is a life to be lived, it isn’t a dress rehearsal, we are not here hunkering down saying, “Woe is us, bad times coming.” We’re saying, “Big changes coming, now what do we do about it?” So it’s very positive while realistic, if I can put those two words together. And Prosper, the book, available on Amazon. You can come to the website and get that. It’s available pretty much everywhere.

Mike Gleason: Well again, excellent stuff. Thanks so much Chris, and I hope you have a great weekend, enjoy the rest of your summer, and we’ll catch up again soon.

Chris Martenson: Thank Mike. You too, and to all your listeners, have a great weekend and summer.

Mike Gleason: Well that will do it for this week, thanks again to Dr. Chris Martenson ofPeakProsperity.com and author of the book, Prosper: How to Prepare for the Future and Create a World Worth Inheriting. For more information, just go to PeakProsperity.com, check out the extensive site there and the great online community. Or check out the book, which is also available on Amazon. You definitely will not be disappointed.

To listen to the full podcast download the MP3 file here:  DOWNLOAD MP3

 

 

Gold and Silver waiting for Yellen!  

Gold TodayGold closed in New York at $1,219.70 on Thursday, down from Wednesday’s $1,224.20, a fall of $4.50. On Friday morning in Asia it rose to $1,223 while the U.S. dollar was almost unchanged against the euro.

LBMA price setting:  $1,221.25 down from Thursday’s $1,226.65.

Yuan Gold Fix

Trade Date Contract Benchmark Price AM Benchmark Price PM
2016  05  27

2016  05  26

SHAU

SHAU

257.00

260.35

258.36

259.60

Dollar equivalent @ $1: 6.5669

$1: 6.5610

$1,217.26

$1,234.23

$1,223.70

$1,230.68

China saw more volatility yesterday as the Yuan weakened again. London then took it down to be set lower by the LBMA. We have no doubt that a great deal of weight will be added to Janet Yellen’s comments today as the market are now pricing in a rate rise, next month. Should this happen, we have no doubt that the Yuan will be allowed to weaken much further than we see at present. This will lead to higher Yuan prices for gold, but we doubt whether we will see much lower dollar or euro gold prices.

The gold price in the euro was set at €1,092.84 down from Thursday’s €1,098.36.

Ahead of New York’s opening, the gold price was trading at $1,219.35 and in the euro at €1,090.95.  

Silver Today –The silver price closed in New York on Thursday at $16.32, up from Wednesday’s $16.30. The silver price rose yesterday while gold fell slightly, but we could see it fall more if gold turns down again, which it still could do. At the moment it is consolidating at lower levels.

Ahead of New York’s opening the silver price stood at $16.30.

Price Drivers

Today sees Janet Yellen feature as she speaks in public on the Fed’s view on the economy and interest rates. The data coming out of the U.S. is now positive on the economy and jobs front, so the likelihood of a rate rise at the next, June, FOMC meeting looks like seeing the Fed rates rise a 0.25%. We expect her comments today may well indicate that a rate rise is close, placing speculative pressure on gold and silver.

As we said yesterday, before that meeting we expect all markets to factor is the expected rise.

This may well place downward pressure on the gold price again. However, we will be listening to see if she mentions the dollar or the global economy.

G-7 inconclusion – The G-7 is rarely the place where one gets a statement that is put into action, but it is alarming to see such diverse opinions amongst the nations. This adds to our belief that the world will move away from ‘globalization’ adding to the potential for severe, global financial crises, particularly among the emerging nations. The focal point of these crises will be seen in exchange rates in currency markets.

Mr Abe of Japan has come out openly and warned of a potential “Lehman” moment in the global economy, if nations do not do something to stimulate growth. Other nations did not subscribe to this thinking.  Overall, it is clear that there was no unity on where to go, except to state the vague intention of doing more to stimulate growth. What does come out of this inconclusive meeting is a far greater degree of disunity than we have seen from this group before. This will prove to be gold and silver positive, longer term!

 

Gold ETFs – Thursday saw no buying or selling into the SPDR gold ETF of the Gold Trust yesterday. This leaves their holdings at 868.662 and 198.89 tonnes in the SPDR & Gold Trust, respectively.  

Silver –The silver price is fighting further falls and rose slightly while gold fell slightly yesterday. But we do see it falling if gold falls heavily today.

Julian D.W. Phillips

GoldForecaster.com | SilverForecaster.com | StockBridge Management Alliance

Gold Taking a Breather … Is this the time to buy?

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

It makes a great deal of sense to own gold. Billionaire hedge fund manager, Paul Singer

First it was Stan Druckenmiller, now it’s George Soros. Following billionaire former hedge fund manager Druckenmiller’s announcement that gold was his family office fund’s largest currency allocation, we learned last week that his old boss, billionaire investor George Soros, purchased a $264 million stake in Barrick Gold, the world’s largest gold producer, after liquidating $3.5 billion in U.S.-listed stocks. Additionally, he disclosed owning call options on a gold ETF.

Soros’ investment can be held up as further proof that sentiment toward gold has decidedly shifted positive, following the challenging last three years.

London-based precious metals consultancy Metals Focus just released its Gold Focus 2016 report in which the group calls an end to the gold bear market that began in late 2011, after the metal hit its all-time high of $1,900 per ounce. “We are optimistic about gold over the rest of this year and our projections see it peaking at $1,350 in the fourth quarter,” the group writes. Global negative interest rate policy fears have reawakened investors’ confidence in gold as a reliable currency and store of value.

The group adds: “In the near term, there may well be some liquidations of tactical positions.” This is to be expected, especially around the start of summer, based on historical precedent

Will Gold Follow Its Short or Long-Term Trading Pattern?

We’ve noticed that mining companies which have deleveraged their balance sheets this year have been some of the biggest gainers. Barrick, now Soros’s largest U.S.-listed allocation, started 18 months ago.

Glencore, Teck Resources and higher-risk junior producers such as Gran Colombia bounced off the canvas after being knocked down.

Gold equities always have a higher beta than bullion. Usually a ±1 percent move translates into 2 to 3 percent in gold stocks.

Regardless of it being a bull or bear market, there are still fairly predictable intra-year trends in the price of gold. Below is an updated composite chart of the metal’s historical yearly patterns over the last five, 15 and 30 years, courtesy of Moore Research.

lucara diamond at a nine-year high

click to enlarge

In all periods, gold contracted in May to early summer, then rallied in anticipation of Ramadan—this year beginning June 4—and India’s festival of lights and wedding season. India has one of the largest Muslim populations in the world, and for at least 5,000 years they’ve adhered to the tradition of giving gold as gifts during religious and other celebrations. .

Predictably so, the yellow metal has retreated somewhat this month, following its best start to a year in 30 years and its best-ever first quarter for demand. As I told Daniela Cambone during last week’s Gold Game Film, this pullback provides an attractive buying opportunity

The five-year period decoupled from the other two starting in mid-autumn, but the annual losses in 2013 (when the yellow metal fell 28 percent), 2014 and 2015 skewed the data. Metals Focus sees gold following its more typical trading pattern this year, possibly climbing to as high as $1,350 an ounce

lucara diamond at a nine-year high

click to enlarge

In the near-term, gold is threatened by a rate hike, possibly as early as next month’s Federal Open Market Committee meeting. The metal fell to a three-week low this week on hawkish Fed minutes. If the Fed ends up delaying a hike, it could give gold the chance to take off.

Analysts See a Possible 25 Percent Depreciation in China’s Currency

One of the concerns the Fed has right now is the depreciation of the Chinese renminbi. In a special report, CLSA estimates it could fall as much as 25 percent before rebounding somewhat. Because the trade volume with China is so massive, the fear is that it could affect the U.S. economy

lucara diamond at a nine-year high

click to enlarge

This would have many obvious negative consequences. For one, because China’s oil contracts with the Middle East are denominated in renminbi, not dollars, Middle East suppliers would be hurt.

CLSA points to several winners, however, including investors. The devaluation could very well “represent the best opportunity to buy Chinese assets that investors have had since the financial crisis,” the investment banking firm writes. China’s materials sector, local exporting producers and mainland gold producers should also benefit. The renminbi will “inevitably” fall, CLSA says, “irrespective of economic fundamentals, as a free market works out what it is worth.”

It’s little wonder then that, in the meantime, the country’s consumption of gold has skyrocketed in recent years as it vies to become one of the world’s key gold price makers. (Remember, China just introduced a new renminbi-denominated gold fix price.)

lucara diamond at a nine-year high

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In addition, it was reported last week that Chinese bank ICBC Standard just purchased one of Europe’s largest gold vaults from Barclays, located in London, for $90 billion. This will help give the country greater control over gold transactions around the world, about $5 trillion of which are cleared in London every year

Should They Stay or Should They Go?

Likely to help gold this summer are geopolitical events, specifically the potential “Brexit” next month when U.K. voters decide on whether to remain members of or leave the European Union.

former libertarian vice presedential nominee wayne allyn root whose latest book is the power of relenetless

Various analysts have warned that such an event could trigger a crisis with both the euro and pound, which might spread to other economies. A recentBank of America Merrill Lynch survey found, in fact, that the idea of a Brexit has risen to the top of global investors’ worries. What’s more, no consensus was reached during a meeting among G7 nations this past weekend on how to deal with fiscal policy, other than to take a “go your own way” approach.

In the past, gold has been used as a hedge against the risk of not only negative interest rates but also inflation.

High inflation might also be coming to the U.S. thanks to the Labor Department’s new regulation on overtime pay, which doubles the eligibility threshold from $23,660 a year to $47,476 a year, on condition that the worker puts in more than 40 hours a week. It’s estimated that the ruling will affect 2.2 million retail and restaurant workers, among others.

President Barack Obama’s heart is certainly in the right place by wanting to boost workers’ wages. But it’s important to be aware of the unintended consequences that have often accompanied such sweeping edicts throughout history. We could end up with rampant inflation as companies will have little choice but to raise prices to offset the increased expense. Again, having part of your portfolio invested in gold and gold stocks, as much as 10 percent, could help counterbalance inflationary pressures on your wealth.