Donald Trump – Bad For Dollar, Good For Gold?

Submitted by Mark O’Byrne  –  GoldCore

Donald Trump’s emergence as the Republican frontrunner and possible future U.S. President is causing some gold and investment analysts to suggest diversifying into gold according to the Wall Street Journal.

Donald_Trump
Donald Trump – Gage Skidmore via Commons.wikimedia.org

 

From the WSJ:

The other winner from Super Tuesday could be gold.

With Donald Trump solidifying his status as the front runner in the Republican field, some investors and analysts watching from overseas say that the ascendancy of the brash New York businessman could rattle global markets as the November presidential election inches closer. Nervous investors, they say, could pile in to gold and other safe-haven assets as an insurance policy.

The journal quotes David Govett of London-based commodities broker Marex Spectron:

“The mere thought would suggest a good opportunity to buy gold,” said Mr. Govett, who heads the firm’s precious-metals trading desk.

“Who knows what could happen should he be handed the keys to the White House,” said Mr. Govett.”

James Sutton, a London-based portfolio manager on the global natural resources equities team at J.P. Morgan Asset Management concurs:

“If there’s any uncertainty regarding the U.S. election and the potential for a slightly off-center candidate, whether that be Sanders or Trump winning the election, then I can see a scenario where that’s bad for the dollar.”

It is important to note that gold’s fundamentals are very sound and the possible “Trump gold factor,” if there is one, is only one of a myriad of fundamentals that are driving the gold market. Continue reading

ABN AMRO Predict Gold At $1,300 By Year End, Up From $900

Submitted by Mark O’Byrne  –  GoldCore

Gold is holding solidly above $1,200, brushing off news of the freshly released Fed minutes. Iranians cautiously welcome the Saudi-Russian oil production pact, while stating that they support cooperation to achieve higher oil prices, they also have domestic pressure to ramp up export of supply and cash in after years of being locked out of the market. This may possibly weigh down future oil price rises.

gold_year_usd

Gold in USD -1 Year

Interestingly, one of the biggest gold bears, ABN AMRO group have changed their long-held negative slant on gold and turned bullish — targeting $1,300 for 2016, stating that the global economy continues to weaken with lower oil prices affecting emerging markets, but the U.S. in particular. Analyst Georgette Boel wrote, “Having been long-standing bears we have now turned bullish on precious metal prices,” and “Our new scenario sees a longer period of weaker global growth.”

You can read the full article on Bloomberg here. Continue reading

ABN AMRO Predict Gold At $1,300 By Year End, Up From $900

Submitted by Mark O’Byrne  –  GoldCore

Gold is holding solidly above $1,200, brushing off news of the freshly released Fed minutes. Iranians cautiously welcome the Saudi-Russian oil production pact, while stating that they support cooperation to achieve higher oil prices, they also have domestic pressure to ramp up export of supply and cash in after years of being locked out of the market. This may possibly weigh down future oil price rises.

gold_year_usd

Gold in USD -1 Year

Interestingly, one of the biggest gold bears, ABN AMRO group have changed their long-held negative slant on gold and turned bullish — targeting $1,300 for 2016, stating that the global economy continues to weaken with lower oil prices affecting emerging markets, but the U.S. in particular. Analyst Georgette Boel wrote, “Having been long-standing bears we have now turned bullish on precious metal prices,” and “Our new scenario sees a longer period of weaker global growth.”

You can read the full article on Bloomberg here.

Gold Stabilises Above $1,200; Asia Markets Run Out Of Steam

Submitted by Mark O’Byrne  –  GoldCore

Global economic turmoil continues to rumble on as major economies seek to come to grips with a changing monetary environment, sagging growth, low inflation, pockets of deflation and uncertainty over the future of Europe post Brexit. Japanese shares sold off after their gains on Monday, falling 1.8% in today’s trading sessions. European shares rising 1.6% this morning on the back of an expectation that volatility in the markets may begin to stabilise, feels more like a dead cat bounce to be honest.

In a wonderful example of poor timing, China is ruffling global security circles by placing advanced ground-to-air missiles in the South China Sea in what many see as an antagonistic move. Russians and Saudis have decided to freeze production of oil, which smacks of desperation as oil output rates are at recent highs and economic demand is lagging so it is likely that such a move will actually suppress prices further.

One statistic we like to follow and we think is indicative of the global post debt binge slowdown is the Chinese Container Freight Export, which is showing a 28% drop since February 2015. For a large industrialised nation like China that is a akin to an economic cardiac arrest. The good news is that the index seems to be stabilising, albeit slowly.

CCFI at 2016_02_17 10_22

Euro Bond Crisis Returns As Germany Pushes Euro Sovereign Debt Bail-in Clause

Submitted by Mark O’Byrne  –  GoldCore

European Banks holding European sovereign debt may have to take haircuts and be part of bail in plans should that same debt default, according to a plan being pursued by German government advisers. In another attempt to shelter German tax payers from the largess and excess of fellow European neighbouring countries’ national banks, the move could trigger a run on billions of euro of sovereign debt of said banks. In an article penned by the Telegraph’s Ambrose-Evans Pritchard, one of the council’s dissenting members describes the plan as the “fastest way to break up the Eurozone”.

The plan, by The German Council Of Economic Experts, calls for banks to be bailed in should losses occur from a sovereign default before the European Stability Mechanism steps in to stabilise the situation.

Italian and Spanish banks hold vast amounts of their national government debt; in Italy’s case they are supporting the Italian treasury. Should that debt default, which is a very real possibility, then Italian banks would have to take significant losses first, only then would the ESM be allowed to step in.

Professor Bofinger, who sits on the council, has dissented. He believes that such a move could force Italy and Spain to actively depart from the euro in order to prevent their countries from facing bankruptcy. The mere prospect of such a move could ignite a bond run and cause the collapse of European sovereign debt, forcing up yields and crashing bond prices. This would mean that European nations would face far higher refinancing rates.

gold_month_usd

So will it happen?

So far the plan has attracted a number of high profile supporters, including the influential German Finance Minister Wolfgang Schauble and the German Bundesbank. When questioned about the plan, ECB president Mario Draghi stated, tellingly, on Monday that “…it is an issue that we do have to deal with. But we have to take a very considered and phased-in approach”. Portuguese 10-year bonds are already trading at yields not seen since 2014. Continue reading

Gold Price Pulls Back As “Bad Actor” Fed Signals Slower Rate Hike Cycle

Submitted by Mark O’Byrne  –  GoldCore

Volatility, loss of confidence and central bank impotence stalk the capital markets. Gold pulls back in an expected retrenchment. Equity markets are still digesting what the world looks like: absence of a strong Chinese domestic economy, developing economies losing their easy credit, oil prices adjusting to demand levels indicative of economic activity and, most tragically, the continuing proxy wars fought in the middle east as warmongers continue to slaughter innocent civilians.

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Gold in USD – 1 Week

Monetarily speaking the markets are just not playing to the script. It must be infuriating for the unelected officials at our all-powerful central banks to have to take steps to remind or tell, nay, instruct the markets what is correct and what is not. By enforcing interest rates on the market, the Fed, and by extension every other central bank, has denied the market its internal risk rebalancing mechanism. They have manhandled the markets into short term submission, created unintended bubbles which inconveniently burst and exposed the sheer madness and short-sightedness of the modern Keynesian-based monetary model.

When the markets do not buy the message, central banks summon their proxies to bid up or smack down the markets for debt, equities and commodities. They write the script, provide insiders sight of their plans and coordinate market manipulation to give the script meaning and the impression of their competence and foresight. Continue reading

Mutual Funds, ETFs at Risk of a Run Warns David Stockman

In one of his starkest warnings yet, Former White House Budget Director (Office of Management and Budget, OMB), David Stockman has warned that banks and the global financial system remain vulnerable and there is likely to be another global financial crisis which will be worse than the first involving “a run on mutual funds and ETFs.”

stockman

Stockman warns in a Bloomberg interview that Deutsche Bank

“has a $2 trillion balance sheet and they have a net tangible equity of $66 billion. So that is 3% – “they are leveraged 30 to 1 in terms of net tangible equity.”

“What is whirling around in that $2 trillion nobody knows but I do think that the banks have unloaded the worst of their stuff and today it is in mutual funds and ETFs, today it is in non bank financial institutions, like all these companies that have come up over night to make auto loans by selling junk bonds as a form of capital.”

This is reminiscent of the first financial crisis and the financial collapse wrought on the world with the subprime mortgage fraud as beautifully illustrated in the must see movie ‘The Big Short’.

Regarding how ‘mom and pop’ investors and pension owners are vulnerable, Stockman says

“The dangers of a run are far more serious now than it was with banks then. Back then, main street banks did not have to mark to market most of their assets and there never was a run on mainstreet banks, it was only on a few hedge funds  … 

This time you are going to have a run of $5 trillion or $6 trillion of mutual funds. This time you are going to have a run on the ETFs. There were only $1 trillion of ETFs in existence in 2008. There is over $3 trillion now and they are an accelerator mechanism.

When everyone sells their ETFs, the managers have to go out and liquidate assets by selling the underlyings. The underlying assets are not nearly as liquid as the offer that anytime you want to sell your ETF there is a bid. Anytime you want to sell your mutual fund share, there is a bid … and I will tell you what … that is where the collision is going to come in the market.”

In another must watch Bloomberg interview, the respected Stockman warned that Deutsche Bank is in difficulty and the CEO is likely lying:

“In my experience is that when the crunch comes, bank CEOs lie.”

Stockman reminded us of the deceit and denial that emanated from Morgan Stanley, Bear Stearns and Lehman Brothers before their collapse:

“I don’t trust Deutsche Bank. I don’t trust what they’re saying. And there’s reason why the banks are being sold all across the world… because people are realizing once again that we don’t know what’s there [on bank balance sheets].” Continue reading

“Gold’s Fundamentals and Technicals Look Better and Better”

Submitted by Mark O’Byrne  –  GoldCore

Gold surged another 1.5% higher yesterday, and had its best closing level since mid-June as strong physical demand and concerns about the global economy, the banking sector and the risks of a new global financial crisis saw further gains.

gold beach ball
Gold jumped $34.70, or 3%, to $1,192.40 an ounce and registered its best single-session point and percentage gain since December 2014.

“Gold was like a beach ball that had been pushed too low in the water and is now bouncing higher with a vengeance,” Mark O’Byrne, research director at GoldCore, told MarketWatch:

But prices have climbed by more than 12% higher in just 5 weeks so a “correction is quite possible and may take place when gold reaches $1,200 per ounce.”

He says a correction is likely on tap, but the “more important question is whether gold has bottomed and we are in a new bull market.”

“We believe we are and gold’s fundamentals and technicals look better and better,” said O’Byrne.

Global stock markets are facing sharp losses amid more signs that international growth is tapering, led by the world’s second-largest economy, China.

Market participants said this week’s start of the Lunar New Year—a holiday in China and many parts of Asia—was helping drive physical demand for gold.

“While the Chinese Lunar New Year is the high point for Chinese gold demand, it does not drop off significantly afterward as the steady current of growing middle classes continues to attract demand,” said Julian Phillips, a founder and contributor to GoldForecaster.com.

“This is not just a one-off purchase when they become middle class—it signals the start of a continuous purchasing pattern,” he said.

Other metals on Comex traded mostly higher. March Silver, outpaced the gains in gold to gain 55.7 cents, or 3.8%, to $15.34 an ounce.

Gold And Silver Best Performing Assets – Up 9% and 8% YTD

Submitted by Mark O’Byrne  –  GoldCore

Gold is 3.6% higher this week and is now over 9% higher year to date. The dollar saw sharp falls this week on growing doubts that the Federal Reserve will be able to raise interest rates. The gains this week were due to increasing concerns about the U.S. and global economy.

gold_performance_ytd_2016
GoldCore and Finviz.com

The increasingly uncertain U.S. and global economic outlook has led to an increase in demand for gold and silver bullion. Sharp falls in stock markets globally (S&P down 6% and DAX down over 12% ytd), the Chinese slowdown and the collapse in oil prices (-0.9%), has seen safe haven demand for the precious metals.

Gold rose 5.3% in January and has now seen a further 3.6% gain in the first week of February. This has led to the precious metals being the best performing assets year-to-date, with gains of over 9 percent and 8% for gold and silver respectively.

Silver is 4% higher this week and silver buyers continue to accumulate silver in the belief that it remains great value at less than $15 per ounce. We share this view given the fact that silver remains nearly 70% below the nominal high near $50 per ounce in 1980 and again in 2011.

Also, the gold-silver ratio at 77 ($1,160/$15 per ounce) shows that silver remains great value at less than $15 per ounce.

silver_chart_10year
Silver In USD – 10 Years (GoldCore)

Recent economic news has been poor with the U.S. Unemployment Claims disappointing after it climbed to 285,000. Manufacturing numbers were mixed, as Preliminary Unit Labor Costs posted a gain of 4.5%, well above the forecast. However, U.S. Factory Orders posted a decline of 2.9%, badly missing expectations.

In the heady days following the Fed’s rate hike, there was bullish talk of up to four rate hikes in 2016. We said this was highly unlikely and recent data and deteriorating economic conditions confirms this. We have been contending in recent months that the U.S. economy is much weaker than believed. Recent data has confirmed this weakness.

We continue to see a sharp recession as inevitable – both in the U.S. and globally. The question is more regarding the severity of the recession and the nature of the recession and whether it will be deflationary or stagflationary. Deflation remains the primary risk given the $200 trillion debt laden global economy. Continue reading

Gold Prices To 3 Month High As Investors Sell Risky Assets

Submitted by Mark O’Byrne  –  GoldCore

Gold prices have continued to eke out further gains today. The very poor ISM data yesterday saw the dollar fall against all major currencies and particularly gold.

Bullion is seeing safe haven flows and gains due to increased concerns about the economic outlook. The narrative that the US economy is in recovery is coming into doubt. The weaker than expected ISM data showed a sharp slowdown in the services sector in the U.S. in January.

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Gold in USD – 1 Month – GoldCore.com 

This means that the Fed will be more likely to put interest rates on hold. Indeed, as we have long contended we believe that the Fed may in time have to decrease interest rates and may follow other leading central banks and have to adopt negative interest rates in the coming months.

Concerns about the global economy slowing down had seen falls in Asian and European share indices and this was the initial impetus for gold to go higher yesterday.

Stocks have come under pressure again in recent days as corporate earnings have disappointed and earning forecasts are being revised lower.

There are also increasing concerns about banks and bank shares have taken a hammering in recent days. Credit Suisse reported worse than expected fourth-quarter results that sent the bank’s shares to a 24-year low and Deutsche Bank shares have fallen 20 per cent since they issued a profit warning on January 20.

Gold has broken above the 200 day moving average which is bullish from a technical perspective. Were it to close above this level this week, it would suggest we may see further gains in February.

Silver Price Fix – “Future Of The Fix Is Fraught”

Submitted by Mark O’Byrne  –  GoldCore

The silver price fix debacle from last week and the new London silver price fix has received a litany of severe criticism in recent days.

silver-price-fix

Perth Mint research director Bron Suchecki has done an excellent piece where he gathers together these “damming” criticisms and sums up the severe challenges facing the new silver price fix.

Since my article on the LBMA Silver Price on Friday, more market participants have come out criticising the process:

Afshin Nabavi, MKS: “People are going to lose all faith in the fix if this keeps going.”

Brad Yates, Elemetal: “When Thursday’s number came in, people initially thought CME would void it, it was so far out of line with the market. When they endorsed it and it became the official print, the benchmark immediately lost credibility. We had two clients shift business away from pricing on the fix to live pricing.”

Simon Grenfell, Natixis: “The new silver price setting mechanism appears broken. It is clearly an issue that the regulator should be looking at.”

Grzegorz Laskowski, KGHM: “The large discrepancy between the spot price and the fix is very alarming to us especially that it happened twice in a row. I think the LBMA needs to make every effort to explain why it happened and needs to help to develop a system that would help to avoid these kind of situations in the future.”

He concludes that the new silver fix is at risk of heading into a “death spiral” and that the future of the fix is fraught.

Bron Suchecki’s blog can be found on the Perth Mint blog here

Intraday Precious Metal Returns – Latest Research

Submitted by Mark O’Byrne  –  GoldCore

Some interesting research looking at intraday precious metal returns has just been published by Brian Lucey, Jonathan Batten, Maurice Peat, Frank McGroarty and Andrew Urquhart in a paper entitled “Stylized Facts Of Intraday Precious Metal Returns”.

 

intraday_precious metals

 

The authors note in the paper that has just been published on the Social Science Research Network (SSRN) website, that

“Precious metals are some of the most traded assets worldwide and they also play an important role for investor as well as comprising an important asset for central banks. Given the increased attention precious metals have received in the literature, the intraday dynamics are of great interest.”

They conclude that

“Initially, we show that the volume of trades of precious metals has increased substantially over the last 15 years’ while the bid-ask spread has decreased indicating the increase in efficiency and liquidity of precious metal markets. We also show strong evidence of intraday periodicity of precious metals volume of trades and volatility.

The intraday volume has increased over time, while the intraday bid-ask spread has decreased over time.

We also study interaction between volatility and returns of each precious metal and our correlation analysis shows that returns are negatively correlated with the contemporaneous volatility and the previous 5-minute volatility.

Furthermore, we find bi-directional Granger causality between volatility and returns suggesting that past volatility (returns) offers significant explanatory power in explaining current returns (volatility).”

The paper can be found here